Table of Contents

As filed with the Securities and Exchange Commission on January 24, 2012

Registration No. 333-        

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

DEL FRISCO’S RESTAURANT GROUP, LLC

(Exact name of registrant as specified in its charter)

 

Delaware   5812   20-8453116

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification Number)

930 S. Kimball Ave., Suite 100

Southlake, TX 76092

(817) 601-3421

(Address, including zip code, and telephone number,

including area code, of registrant’s principal executive offices)

Mark S. Mednansky

Chief Executive Officer

Del Frisco’s Restaurant Group, LLC

930 S. Kimball Ave., Suite 100

Southlake, TX 76092

(817) 601-3421

(Name, address, including zip code, and telephone number, including area code, of agent for service)

Copies to:

 

Jeffrey A. Chapman

Peter W. Wardle

Gibson, Dunn & Crutcher LLP

2100 McKinney Ave., Suite 1100

Dallas, TX 75201

tel: (214) 698-3100

fax: (214) 571-2900

 

Colin J. Diamond

White & Case LLP

1155 Avenue of the Americas

New York, NY 10036

tel: (212) 819-8200

fax: (212) 354-8113

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement.

If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box:     ¨

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering:     ¨

If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.     ¨

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering:     ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer   ¨   Accelerated filer   ¨   Non-accelerated filer   x   Smaller reporting company   ¨

(Do not check if a smaller reporting company)

CALCULATION OF REGISTRATION FEE

 

 

Title of Each Class

of Securities to be Registered

 

Proposed Maximum

Aggregate Offering

Price(1)(2)

 

Amount of

Registration Fee

Common Stock, no par value per share

  $100,000,000   $11,460

 

 

 

(1) Estimated solely for the purpose of calculating the registration fee under Rule 457(o) of the Securities Act of 1933, as amended.
(2) Includes offering price of additional shares that the underwriters have the option to purchase. See “Underwriting.”

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.


Table of Contents

EXPLANATORY NOTE

Del Frisco’s Restaurant Group, LLC, the registrant whose name appears on the cover of this registration statement, is a Delaware limited liability company. Before the completion of the offering of the shares of common stock subject to this registration statement, Del Frisco’s Restaurant Group, LLC will be converted into a Delaware corporation and renamed Del Frisco’s Restaurant Group, Inc. Shares of the common stock of Del Frisco’s Restaurant Group, Inc. are being offered by the prospectus.


Table of Contents

The information in this preliminary prospectus is not complete and may be changed. We and the selling stockholder may not sell these securities until the registration statement filed with the Securities and Exchange Commission is declared effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

 

Subject To Completion, Dated January 24, 2012

LOGO

Del Frisco’s Restaurant Group, LLC

            Shares

Common Stock

This is the initial public offering of Del Frisco’s Restaurant Group, LLC. We are offering             shares of our common stock and the selling stockholder identified in this prospectus is offering             shares of our common stock. We will not receive any proceeds from the sale of shares by the selling stockholder. We anticipate that the initial public offering price will be between $              and $              per share. We intend to apply to list our common stock on either the New York Stock Exchange or the Nasdaq Global Select Market under the symbol “         .”

Investing in our common stock involves risk. See “ Risk Factors ” beginning on page 13.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

 

     Per Share      Total  

Public offering price

   $                    $                

Underwriting discounts and commissions

   $                    $                

Proceeds, before expenses, to Del Frisco’s Restaurant Group, LLC

   $                    $                

Proceeds, before expenses, to the selling stockholder

   $                    $                

                    has granted the underwriters the right to purchase up to      additional shares of common stock to cover over-allotments.

The underwriters expect to deliver the shares of common stock to purchasers on                     , 2012.

 

Deutsche Bank Securities    Piper Jaffray

The date of this prospectus is                 , 2012.


Table of Contents

Market and Industry Data and Forecasts

Industry, market and demographic data appearing throughout this prospectus, including information relating to our relative position in the restaurant industry, the projected growth of sales in the U.S. restaurant industry, projected changes in food expenditures and projected changes in the U.S. population, are derived principally from publicly available information, industry publications, U.S. government data, data made available by market research firms, our own data and similar sources, which we believe to be reasonable. None of the independent industry publications used in this prospectus was prepared on our or our affiliates’ behalf. Information in this prospectus concerning the average check at our restaurants is calculated on a per entrée basis and excludes tax and tip.


Table of Contents

PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus. This summary does not contain all of the information that may be important to you. You should carefully read this prospectus in its entirety before making an investment decision. In particular, you should read the section entitled “Risk Factors” and the consolidated and combined financial statements and notes related to those statements included elsewhere in this prospectus.

As used in this prospectus, unless the context otherwise indicates, the references to “DFRG,” “Del Frisco’s Restaurant Group,” “our company,” “the Company,” “us,” “we” and “our” refer to Del Frisco’s Restaurant Group, LLC together with its subsidiaries prior to the reorganization date and Del Frisco’s Restaurant Group, Inc. and its consolidated subsidiaries on and after the reorganization date. Unless otherwise indicated or the context otherwise requires, financial and operating data in this prospectus reflects the consolidated business and operations of Del Frisco’s Restaurant Group, LLC and its wholly-owned subsidiaries prior to the reorganization date and Del Frisco’s Restaurant Group, Inc. and its wholly-owned subsidiaries on and after the reorganization date.

Our Company

We develop, own and operate three contemporary, high end, complementary restaurant concepts: Del Frisco’s Double Eagle Steak House, or Del Frisco’s, Sullivan’s Steakhouse, or Sullivan’s, and Del Frisco’s Grille, or the Grille. We are a leader in the full-service steakhouse industry based on average unit volume, or AUV, EBITDA margin and comparable restaurant sales growth. We currently operate 31 high-volume, full-service restaurants in 18 states. Each of our three concepts offers steaks as well as other menu selections, such as chops and fresh seafood. These menu selections are complemented by an extensive, award-winning wine selection. Our restaurants use a distinctive, highly attentive serving process and offer sophisticated interior décors which we believe differentiate us from our peers by creating an upscale, high-energy environment. While positioned within the fine dining segment, Del Frisco’s, Sullivan’s and the Grille have each developed distinctive appeal for both business and local dining customers, whom we refer to as our guests. Our Del Frisco’s restaurants are sited in urban locations that allow guests seeking a “destination dining” experience to access them easily. The broad appeal of our Sullivan’s and Grille restaurants allows them to be located either in urban locations or in close proximity to affluent residential areas. We believe our success reflects consistent execution across all aspects of the dining experience, from the formulation of proprietary recipes to the procurement and presentation of high quality menu items and delivery of excellent guest service.

We recorded revenues of $186.4 million for the four quarters ended September 6, 2011, representing 16.1% total revenue growth and 11.0% comparable restaurant sales growth over the same period in the prior year. These revenues resulted in adjusted EBITDA of $33.3 million and net income of $9.9 million for the same four quarters ended September 6, 2011, representing 13.0% adjusted EBITDA growth and 130.8% net income growth over the same period in the prior year. Our adjusted EBITDA margin during this period was 17.9%. For a reconciliation of adjusted EBITDA and adjusted EBITDA margin, see “—Summary Historical Consolidated Financial and Operating Data.”

 

 

1


Table of Contents

Del Frisco’s Double Eagle Steak House

We believe Del Frisco’s is one of the premier steakhouse concepts in the United States. The Del Frisco’s brand is defined by its distinctive service and exceptional menu, including USDA Prime grade, wet-aged steaks hand-cut at the time of order, and a range of other premium offerings. Additional offerings include prime lamb, fresh seafood, and signature side dishes and desserts, all served in a sophisticated and energetic setting. Each restaurant has a sommelier to guide diners through an extensive, award-winning wine list and our bartenders specialize in hand-shaken martinis and crafted cocktails. Del Frisco’s restaurants target guests seeking a premium full-service, fine-dining experience. We believe the décor and ambiance, with both contemporary and classic designs, enhance the experience and differentiate Del Frisco’s from other upscale steakhouse concepts. We currently operate nine Del Frisco’s steakhouses in seven states. These restaurants range in size from 11,000 to 24,000 square feet with seating capacity for at least 300 people. Annual AUVs per comparable Del Frisco’s restaurant were $12.1 million for the four quarters ended September 6, 2011. During the same period, the average check at Del Frisco’s was $98.

Sullivan’s Steakhouse

Sullivan’s, designed as a complementary concept to Del Frisco’s in the mid-1990’s, is a vibrant neighborhood steakhouse featuring an open kitchen and art deco décor that offers fine hand-selected aged steaks, fresh seafood and a broad list of custom cocktails. We believe the ambiance of Sullivan’s has created a brand that resonates with a broad demographic and is defined by comfortable fine dining with great service in a high energy atmosphere with live music. Each Sullivan’s also features an extensive selection of quality, award-winning wines and a lively bar with signature cocktails. We currently operate 20 Sullivan’s steakhouses in 15 states. These restaurants range in size from 7,000 to 11,000 square feet with seating capacity for at least 250 people. Annual AUVs per comparable Sullivan’s restaurant were $4.2 million for the four quarters ended September 6, 2011. During the same period, the average check at Sullivan’s was $58.

Del Frisco’s Grille

We developed the Grille, our newest concept, to take advantage of the premier positioning of the Del Frisco’s brand and to provide greater potential for expansion due to its smaller size, lower build out cost and more diverse menu. The Grille’s menu is designed to have broad appeal and features Del Frisco’s prime aged steaks and top selling signature menu items. The Grille also offers an assortment of upscale, price-approachable entrees, including flatbread pizzas, sandwiches and salads alongside a broad selection of the same quality wines offered at Del Frisco’s. We believe the ambiance of the concept appeals to a wide range of guests seeking a less formal atmosphere for dining occasions. Our first Grille opened in August 2011 at Rockefeller Center in New York City, and we opened a second location in November 2011 in Dallas, Texas. Additional Grille openings are planned over the next year and we anticipate they will range in size from 6,500 to 8,500 square feet with seating capacity for at least 200 people. We are targeting annual AUVs per comparable Grille restaurant between $4.0 million and $6.0 million with an average check of between $45 and $55.

 

 

2


Table of Contents

Our Business Strengths

We believe the key strengths of our business are the following:

Multiple Top Performing Concepts with an Expanding National Platform.     We are one of the nation’s leading upscale restaurant operators. We currently have 31 restaurants in 25 cities in 18 states, and our operating model has proven successful across a wide variety of geographic and demographic markets since our establishment more than 30 years ago. Of our locations that were operating throughout the four quarters ended September 6, 2011, we had AUVs of $6.5 million per location across all concepts, $12.1 million at our Del Frisco’s locations ($8.7 million excluding our New York location) and $4.2 million at our Sullivan’s locations. We believe our New York Del Frisco’s location is the highest grossing restaurant in the steakhouse industry. We appeal to landlords with prime locations by offering high-volume, complementary concepts adaptable to a variety of areas and venues. In 2011, we expanded our national platform by opening a Del Frisco’s in Boston, Massachusetts and our first two Grille restaurants in New York City and Dallas, Texas.

Operating Model Driving Higher Margins.     Our high-volume concepts, combined with our efficient operations and cost controls, enable us to generate a high average check per person and drive industry-leading operating margins. Our success is driven by our consistent execution across all aspects of the dining experience, from the formulation of proprietary recipes to the procurement and presentation of high quality menu items and delivery of outstanding guest service. Our entrepreneurial culture and bonus incentives empower and motivate the general manager at each restaurant to act as the owner of his or her restaurant. These general managers meet weekly as a group with senior management to share best practices. Chefs and kitchen staff at each restaurant are responsible for maintaining and ordering their own food inventory, thereby increasing efficiency and reducing waste and the need for additional headcount at the corporate level. We believe we achieve significant cost, quality and availability advantages through centralized sourcing from our primary suppliers of beef, wine and other products. In fiscal 2010 our revenues were comprised of 65% food and 35% alcohol and we had restaurant-level EBITDA margins of 23.6%.

Premium and Distinct Concepts with Complementary Market Positions.     Del Frisco’s, Sullivan’s and the Grille are premium dining concepts that are distinct from their competitors. We believe our guests seek the differentiated design, premium quality food and unique dining experience that characterize each of our concepts. While our concepts share certain corporate support functions to maximize efficiencies, each concept maintains its own identity and price point with average checks at Del Frisco’s and Sullivan’s of $98 and $58, respectively, for the four quarters ended September 6, 2011, and a targeted average check at the Grille of between $45 and $55. Currently, we operate multiple concepts in close proximity to each other in six of our markets. We believe our complementary positioning will continue to allow us to develop our concepts in a single metropolitan area without competing for guests. We have secured attractive locations for our restaurants, including a number of marquee locations such as waterfront properties, popular shopping districts and active business centers. We believe the locations of our restaurants add to the strength of our premium brands and help drive our industry-leading AUVs. Furthermore, many landlords and developers seek out our concepts to be restaurant anchors for their developments as our concepts are highly complementary to upscale national retailers and attract a desirable guest base.

Focus on Innovation.     We are an innovator in developing, creating and evolving energetic, high-volume concepts in the full-service steakhouse industry. We established the Del Frisco’s brand as a contemporary, energetic alternative to the traditional steakhouse concept. As we

 

 

3


Table of Contents

have grown the brand, we have evolved the concept to incorporate several innovative features. These features include a bold, flavorful menu offering, an extensive wine list, an attractive and lively bar scene and a team work-focused guest service approach, which we refer to as our “swarming service.” We also developed Sullivan’s in the mid-1990’s, incorporating music in a modern and comfortable décor to attract a broader clientele. The Grille, opened in 2011, leverages and broadens Del Frisco’s appeal in a less formal and smaller format. We remain committed to evolving our existing concepts to remain relevant to a broad range of guests.

High Quality Menu Offerings with an Unmatched Social Experience and Guest Service.     We believe we provide our guests with the highest quality steakhouse experience by combining exceptional food, atmosphere and service. We differentiate ourselves from our competitors by offering high quality cuisine across all menu items, with an emphasis on aged beef, fresh seafood and locally sourced ingredients. We also use bolder, more flavorful seasonings throughout our selection of offerings that reflect our heritage in the Southern United States. These offerings are complemented by an extensive, award-winning wine list and a broad cocktail selection. The dining experience is enhanced by a unique social atmosphere and upscale décor that includes sophisticated artwork, private dining rooms and welcoming bar areas. To further enhance our guests’ dining experience we have a staff of highly-trained, courteous and professional employees who provide our “swarming service,” which creates unique and frequent interactions with our guests while ensuring quick and efficient service.

Proven, Experienced Executive and Restaurant Management Teams.     Our executive team has extensive restaurant experience, including significant tenure with our company as well as other high-end restaurant concepts. Our restaurant-level managers and hourly personnel are also highly experienced, and bring a professional attitude to the dining experience we deliver. On average, our general managers at Del Frisco’s and Sullivan’s have been with us for nine and four years, respectively. Our management team, which includes senior management, regional managers and general managers, meets on a weekly basis to review financial and operating results as well as receive feedback from both senior management and their peers to collaborate on best practices. We believe our culture and commitment to operational excellence are key drivers of our distinctive guest experience and strong financial performance.

Our Growth Strategy

We believe there are significant opportunities to grow our business, strengthen our competitive position and enhance our concepts through the continued implementation of the following strategies:

Pursue Disciplined New Unit Expansion.     We believe our concepts have significant room to grow. We have an established growth pipeline and a disciplined strategy for opening new restaurants. We believe our concepts’ complementary market positioning and ability to coexist in the same markets coupled with our flexible unit models will allow us to expand each of our three concepts into a greater number of locations. We have a proven track record of successfully opening new restaurants in a number of diverse markets and we have continued to grow in 2011, opening three new restaurants in Boston, New York City and Dallas. We target a cash-on-cash return beginning in the third operating year of at least 25% for new restaurants across all of our concepts. We believe there are opportunities to open three to five restaurants annually, generally composed of one Del Frisco’s and two to four Sullivan’s and/or Grilles, with new openings of our Grille concept likely serving as the primary driver of new unit growth in the near term. In 2012, we expect to open four new restaurants, including Grilles in Phoenix,

 

 

4


Table of Contents

Arizona and Washington D.C. Beyond domestic new unit growth, we believe our concepts have the potential for expansion in select international markets. We believe the Grille is particularly attractive to upscale hotels outside the United States—both large and boutique—seeking an anchor restaurant tenant.

Grow Our Existing Restaurant Sales.     Our concepts achieve strong sales and guest count growth. We attract affluent consumers at our restaurants and have capitalized on increased business travel and corporate spending. Our comparable restaurant sales increased 12.1%, 12.3% and 11.8% for the first three quarters of fiscal 2011 as compared to the respective prior year periods. This marked our sixth consecutive quarter of comparable restaurant sales increases. We believe there are significant opportunities to continue to increase our sales and average check through maintaining our focus on tableside up-selling and salesmanship by our servers and by strategically adjusting menu prices, increasing our guest count and enhancing our concepts’ brand awareness through increased marketing efforts. In addition, we are adding seating to select locations, which we believe will increase sales at these restaurants.

Further Grow Our Private Dining Business.     We believe we are well-positioned to grow our private dining business due to our distinctive dining experience, prime locations and guest loyalty. All of our restaurants can serve large and small groups for private dining events, including corporate events, sales meetings, presentations, charity events and private parties. We are focused on growing our private dining business as it typically has a higher average check per guest and higher overall margins than regular dining room business. Private dining represented approximately 14.5% of our total sales in the four quarters ended September 6, 2011. We intend to drive growth by enhancing our private dining capacity and increasing awareness of our private dining services. To help drive this growth, we are creating additional private dining space at select locations by expanding or reconfiguring existing space. In addition, each location currently dedicates a staff member to increasing its private dining business. At the beginning of 2011, we hired a corporate-wide private dining executive who meets weekly with each restaurant’s private dining coordinator regarding upcoming events and sales initiatives.

Our Equity Sponsor

Lone Star Fund V (U.S.), L.P., which we refer to in this prospectus, along with its affiliates and associates (excluding us and other companies that it or they own as a result of their investment activities), as Lone Star Fund, is a leading U.S. private equity firm. Since 1995, the principals of Lone Star Fund have organized private equity funds totaling approximately $33.4 billion to invest globally in corporate secured and unsecured debt instruments, real estate-related assets and select corporate acquisitions. Lone Star Fund has affiliate offices in Dallas, New York, London, Tokyo, Dublin, Brussels, Luxembourg, Frankfurt, France, Montreal and Bermuda. Immediately prior to this offering, Lone Star Fund owned all of our outstanding equity interests, and it will own approximately     % of our common stock immediately following the consummation of this offering, assuming no exercise of the underwriters’ over-allotment option.

Corporate Information

Our corporate headquarters is located at 930 S. Kimball Avenue, Suite 100, Southlake, TX 76092, and our telephone number is (817) 601-3421. Our website address is www.dfrg.com, and we also host www.delfriscos.com, www.sullivansteakhouse.com and www.delfriscosgrille.com.

 

 

5


Table of Contents

Information contained on our websites or connected thereto does not constitute a part of this prospectus or the registration statement of which it forms a part. DEL FRISCO’S ® , SULLIVAN’S ® , DEL FRISCO’S GRILLE™ and DEL FRISCO’S RESTAURANT GROUP™, and other trademarks or service marks of ours appearing in this prospectus are the property of Del Frisco’s Restaurant Group, LLC. Other trademarks and service marks appearing in this prospectus are the property of their respective holders.

Summary Risk Factors

An investment in our common stock involves various risks. You should consider carefully the risks discussed below and under “Risk Factors” before purchasing our common stock. If any of these risks actually occur, our business, financial condition or results of operations may be materially adversely affected. In such case, the trading price of our shares of common stock would likely decline and you may lose all or part of your investment. The following is a summary of some of the principal risks we face:

 

   

Changes in general economic conditions, including the recent economic downturn and its continuing effects, have adversely impacted our business and results of operations and may continue to do so.

 

   

If our restaurants are not able to compete successfully with other restaurants, our business and results of operations may be adversely affected.

 

   

Our future growth depends on our ability to open new restaurants and operate them profitably, and if we are unable to successfully execute this strategy, our results of operations could be adversely affected.

 

   

If we are unable to increase our sales or improve our margins at existing restaurants, our profitability and overall results of operations may be adversely affected.

 

   

The failure to successfully develop our new Grille concept may have a material adverse effect on our financial condition and results of operations.

 

   

Our growth, including the development of the Grille, may strain our infrastructure and resources, which could delay the opening of new restaurants and adversely affect our ability to manage our existing restaurants.

 

   

Our New York Del Frisco’s location represents a significant portion of our revenues, and any significant downturn in its business or disruption in the operation of this location could harm our business, financial condition and results of operations.

 

   

Negative guest experiences or negative publicity surrounding our restaurants or other restaurants could adversely affect sales in one or more of our restaurants and make our brands less valuable.

 

   

Negative publicity relating to the consumption of beef, including in connection with food-borne illness, could result in reduced consumer demand for our menu offerings, which could reduce sales.

 

 

6


Table of Contents

The Offering

 

Common stock offered by us

            shares (or             shares if the underwriters exercise in full their over-allotment option)

 

Common stock offered by the selling stockholder

            shares (or             shares if the underwriters exercise in full their over-allotment option)

 

Common stock to be outstanding immediately after this offering

            shares (or             shares if the underwriters exercise in full their over-allotment option)

 

Use of proceeds

We estimate our net proceeds from this offering will be approximately $             million (or approximately $             million if the underwriters exercise in full their over-allotment option), based on the midpoint of the estimated initial public offering price range set forth on the cover page of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

 

  We intend to use the net proceeds from this offering as follows:

 

   

$             million to repay outstanding borrowings under our credit facility, including accrued interest;

 

   

$3.0 million to make a one-time payment to Lone Star Fund, an affiliate of our controlling stockholder, in consideration for the termination of our asset advisory agreement upon consummation of this offering as described under “Certain Relationships and Related Party Transactions—Termination of Asset Advisory Agreement;” and

 

   

the remainder of the net proceeds for working capital and other general corporate purposes.

 

  We will not receive any of the proceeds from the sale of shares of common stock by the selling stockholder. See “Use of Proceeds,” “Principal and Selling Stockholders” and “Underwriting.”

 

Proposed NYSE/NASDAQ symbol

“             ”

 

Risk factors

Investment in our common stock involves substantial risks. You should read this prospectus carefully, including the section entitled “Risk Factors” and the consolidated

 

 

7


Table of Contents
 

financial statements and the related notes to those statements included elsewhere in this prospectus before investing in our common stock.

The number of shares of our common stock to be outstanding immediately after this offering as set forth above is based on the number of shares outstanding as of                     , 2012 and excludes             shares reserved for issuance under our equity incentive plan (of which no options to purchase shares had been granted as of such date) of which we intend to grant options to purchase             shares to our executive officers and certain director nominees under our equity incentive plan at the time of the pricing this offering with an exercise price equal to the initial public offering price.

Unless otherwise indicated, this prospectus:

 

   

assumes the completion of the reorganization, as a result of which all membership interests of Del Frisco’s Restaurant Group, LLC, will be converted into shares of common stock of Del Frisco’s Restaurant Group, Inc.;

 

   

assumes an initial public offering price of $            per share, the midpoint of the estimated initial public offering price range, set forth on the cover page of this prospectus; and

 

   

assumes no exercise of the underwriters’ option to purchase up to an additional              shares of our common stock.

 

 

8


Table of Contents

Summary Historical Consolidated Financial and Operating Data

The following table sets forth, for the periods and dates indicated, our summary historical consolidated financial and operating data. We have derived the summary income statement data for the fiscal years ended December 30, 2008, December 29, 2009 and December 28, 2010 from our audited consolidated financial statements appearing elsewhere in this prospectus. We have derived the summary income statement data for each of the 36 weeks ended September 7, 2010 and September 6, 2011 and the summary balance sheet data as of September 6, 2011 from our unaudited interim consolidated financial statements appearing elsewhere in this prospectus. In the opinion of management, these unaudited interim consolidated condensed financial statements include all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of our financial position and operating results for these periods. Results from interim periods are not necessarily indicative of results that may be expected for the entire year and historical results are not indicative of the results to be expected in the future. The summary financial data presented below represent portions of our financial statements and are not complete. You should read this information in conjunction with “Use of Proceeds,” “Capitalization,” “Selected Consolidated and Combined Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes to those statements included elsewhere in this prospectus.

 

    Fiscal Year Ended(1)     36 Weeks Ended  
    December 30,
2008
    December 29,
2009
    December 28,
2010
    September 7,
2010
    September 6,
2011
 
                      (Unaudited)  
    (in thousands, except per share data)  

Income Statement Data:

         

Revenues

  $ 178,386      $ 160,177      $ 165,575      $ 107,968      $ 128,758   

Costs and expenses:

         

Costs of sales

    58,587        47,593        50,339        32,659        39,413   

Restaurant operating expenses

    73,718        69,209        73,404        50,112        58,087   

Marketing and advertising costs

    3,473        3,523        2,825        1,640        2,705   

Pre-opening costs

    2,469        493        798        729        2,177   

General and administrative

    6,354        8,236        7,512        5,030        7,511   

Abandoned registration costs

    2,379                               

Management and accounting fees paid to related party

    2,104        2,878        3,345        2,091        2,366   

Non-cash impairment charges

                                1,400   

Depreciation and amortization

    4,555        6,422        6,624        4,572        4,790   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

    24,747        21,823        20,728        11,135        10,309   

Other income (expense), net:

         

Interest expense—affiliates

    (2,295     (2,281     (1,775     (1,335       

Interest expense—other

    (10,147     (5,942     (9,906     (7,162     (7,447

Other, net

    (182     36        (249     (59     (274
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations before income taxes

    12,123        13,636        8,798        2,579        2,588   

Provision for (benefit from) income taxes

    4,924        3,616        (44     2,022        943   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations

    7,199        10,020        8,842        557        1,645   

Discontinued operations:

         

Loss from operations of discontinued restaurant

    (68                            

Income tax benefit

    24                               
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss on discontinued operations

    (44                            
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

  $ 7,155      $ 10,020      $ 8,842      $ 557      $ 1,645   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Pro forma net income per common share(2):

         

Basic and diluted

  $        $        $        $        $     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Shares used in computing pro forma net income per share(2):

         

Basic and diluted

         
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

 

9


Table of Contents
     September 6, 2011  
                 Actual                   Pro Forma,
As Adjusted(3)
 
    

(Unaudited)

(in thousands)

 

Balance Sheet Data (at end of period):

     

Cash and cash equivalents

   $ 4,079       $     

Working capital (deficit)(4)

     (2,089   

Total assets

     220,624      

Total debt

     71,100      

Total member’s equity

     90,029      

 

     Fiscal Year Ended(1)     36 Weeks Ended  
     December 30,
2008
    December 29,
2009
    December 28,
2010
    September 7,
2010
    September 6,
2011
 
                       (Unaudited)  
     (in thousands, except restaurant and percentage amounts)  

Other Financial Data:

          

Net cash provided by operating activities

   $ 16,003      $ 18,916      $ 12,278      $ 8,782      $ 10,832   

Net cash provided by (used in) investing activities

     (16,947     (28,538     (1,489     972        (695

Net cash provided by (used in) financing activities

     75        15,587        (19,889     (18,521     (10,215

Capital expenditures

     21,422        7,755        5,550        3,035        13,850   

Adjusted EBITDA(5)

     34,281        30,373        30,220        17,716        20,773   

Adjusted EBITDA margin(6)

     19.2     18.9     18.3     16.4     16.1

Restaurant-level EBITDA(5)

     42,256        39,852        39,007        23,557        28,553   

Restaurant-level EBITDA margin(7)

     23.7     24.9     23.6     21.8     22.2

Operating Data:

          

Total restaurants (at end of period)

     26        27        28        28        30   

Total comparable restaurants (at end of period)(8)

     21        23        27        27        27   

Average sales per comparable restaurant

   $ 7,539      $ 6,049      $ 6,107      $ 3,995      $ 4,478   

Percentage change in comparable restaurant sales(8)

     (2.3 )%      (18.7 )%      4.3     2.0     12.1

 

(1) We utilize a 52- or 53-week accounting period which ends on the last Tuesday of December. The fiscal year ended December 30, 2008 had 53 weeks. The fiscal years ended December 29, 2009 and December 28, 2010 each had 52 weeks.
(2) Unaudited pro forma basic and diluted income per share will be computed by dividing net income for each period by the shares of common stock to be issued following our conversion from a limited liability company to a corporation concurrent with the closing of this offering. Such shares will be assumed to be outstanding for all periods presented. There will be no potentially dilutive securities. There is no other impact to the financial statements as a result of converting from a limited liability company to a corporation, because our historical financial statements have included a provision for income taxes and related deferred income taxes.
(3) Pro forma as adjusted to reflect (i) the receipt of $             in net proceeds from the issuance of              shares of common stock by us in this offering and (ii) the application of the net proceeds from this offering as set forth under “Use of Proceeds,” including to make a one-time payment to Lone Star Fund, an affiliate of our controlling shareholder, in the aggregate amount of $3.0 million, in consideration for the termination of our asset advisory agreement upon consummation of this offering as described under “Certain Relationships and Related Party Transactions—Termination of Asset Advisory Agreement.”
(4) Defined as total current assets minus total current liabilities.
(5) Adjusted EBITDA and restaurant-level EBITDA are metrics used by management to measure operating performance. Adjusted EBITDA represents net income before interest, taxes, and depreciation and amortization, plus the sum of certain non-operating expenses, including pre-opening costs, abandoned registration costs and management fees and expenses. Restaurant-level EBITDA represents net income before interest, taxes and depreciation and amortization, plus the sum of certain non-operating expenses, including pre-opening costs, abandoned registration costs, management fees and expenses and general and administrative expenses.

 

 

10


Table of Contents

The following table presents a reconciliation of adjusted EBITDA and restaurant-level EBITDA to net income:

 

     Fiscal Year Ended     36 Weeks Ended  
     December 30,
2008
    December 29,
2009
    December 28,
2010
    September 7,
2010
    September 6,
2011
 
                       (Unaudited)  
     (in thousands)  

Income from continuing operations

   $ 7,199      $ 10,020      $ 8,842      $ 557      $ 1,645   

Provision (benefit) for income taxes

     4,924        3,616        (44     2,022        943   

Interest income

     (170     (36     (75     (5     (6

Interest expense—other

     10,147        5,942        9,906        7,162        7,447   

Interest expense—affiliate

     2,295        2,281        1,775        1,335          

Non-cash impairment charges

                                 1,400   

Depreciation and amortization

     4,555        6,422        6,624        4,572        4,790   

Lease guarantee payments

                   324        64        280   

Pre-opening costs

     2,469        493        798        729        2,177   

Abandoned registration costs

     2,379                               

Management fees and expenses(a)

     483        1,635        2,070        1,280        2,097   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ 34,281      $ 30,373      $ 30,220      $ 17,716      $ 20,773   

General and administrative

     6,354        8,236        7,512        5,030        7,511   

Related party shared services fee

     1,621        1,243        1,275        811        269   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Restaurant-level EBITDA

   $ 42,256      $ 39,852      $ 39,007      $ 23,557      $ 28,553   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

  (a) Includes asset management fees and expenses paid to an affiliate of Lone Star Fund pursuant to our asset advisory agreement, but excludes amounts paid to another affiliate of Lone Star Fund for accounting, administrative and management services under our shared services agreement, which is referred to as the related party shared services fee. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Financial Definitions—Management and Accounting Fees Paid to Related Party” and “Certain Relationships and Related Party Transactions—Relationships with Lone Star Fund and its Affiliates—Termination of Asset Advisory Agreement.”

We present adjusted EBITDA and restaurant-level EBITDA as supplemental performance measures because we believe they facilitate a comparative assessment of our operating performance relative to our performance based on our results under generally accepted accounting principles in the United States, or GAAP, while isolating the effects of some items that vary from period to period without any correlation to core operating performance. Specifically, adjusted EBITDA allows for an assessment of our operating performance without the effect of non-cash depreciation and amortization expenses or our ability to service or incur indebtedness. Restaurant-level EBITDA allows for further assessment of our operating performance by eliminating the effect of general and administrative expenses incurred at the corporate level. These measures also function as a benchmark to evaluate our operating performance or compare our performance to that of our competitors because companies within our industry exhibit significant variations with respect to capital structures and cost of capital (which affect interest expense and tax rates) and differences in book depreciation of facilities and equipment (which affect relative depreciation expense), including significant differences in the depreciable lives of similar assets among various companies.

This prospectus also includes information concerning adjusted EBITDA margin, which is defined as the ratio of adjusted EBITDA to revenues, and restaurant-level EBITDA margin, which is defined as the ratio of restaurant-level EBITDA to revenues. We present adjusted EBITDA margin and restaurant-level EBITDA margin because they are used by management as a performance measurement to judge the level of adjusted EBITDA and restaurant-level EBITDA, respectively, generated from revenues. We believe their inclusion is appropriate to provide additional information to investors and other external users of our financial statements.

Adjusted EBITDA, restaurant-level EBITDA, adjusted EBITDA margin and restaurant-level EBITDA margin are not measurements of our financial performance under GAAP and should not be considered in isolation or as an alternative to net income, net cash provided by operating, investing or financing activities or any other financial statement data presented as indicators of financial performance or liquidity, each as presented in accordance with GAAP. We understand that although adjusted EBITDA is frequently used by securities analysts, lenders and others in their evaluation of companies, it and restaurant-level EBITDA have limitations as analytical tools, and you should not consider them in isolation, or as substitutes for analysis of our results as reported under GAAP, as adjusted EBITDA and restaurant-level EBITDA do not reflect:

 

   

discretionary cash available to us to invest in the growth of our business;

 

 

11


Table of Contents
   

changes in, or cash requirements for, our working capital needs;

 

   

our capital expenditures or future requirements for capital expenditures;

 

   

the interest expense, or the cash requirements necessary to service interest or principal payments, associated with our indebtedness; or

 

   

depreciation and amortization, which are non-cash charges, although the assets being depreciated and amortized will likely have to be replaced in the future, and adjusted EBITDA does not reflect any cash requirements for such replacements.

 

(6) Adjusted EBITDA margin is the ratio of adjusted EBITDA to revenues.
(7) Restaurant-level EBITDA margin is the ratio of restaurant-level EBITDA to revenues.
(8) We consider a restaurant to be comparable in the first full period following the eighteenth month of operations. Changes in comparable restaurant sales reflect changes in sales for the comparable group of restaurants over a specified period of time.

 

 

12


Table of Contents

RISK FACTORS

Investing in our common stock involves a high degree of risk. You should carefully consider the following risk factors and all other information contained in this prospectus before purchasing our common stock. The risks and uncertainties described below are not the only ones facing us. Additional risks and uncertainties that we are unaware of, or that we currently deem immaterial, also may become important factors that affect us.

If any of the following risks occur, our business, financial condition or results of operations could be materially and adversely affected. In that case, the trading price of our common stock could decline and you may lose some or all of your investment.

Risks Related to Our Business

Changes in general economic conditions, including the recent economic downturn and its continuing effects, have adversely impacted our business and results of operations and may continue to do so.

Purchases at our restaurants are discretionary for consumers and we are therefore susceptible to economic slowdowns. We believe that consumers generally are more willing to make discretionary purchases, including high-end restaurant meals, during favorable economic conditions. The recent economic downturn, continuing disruptions in the overall economy, including the ongoing impacts of the housing crisis, high unemployment, and financial market volatility and unpredictability, and the related reduction in consumer confidence negatively affected guest traffic and sales throughout our industry, including our segment. For example, our revenues decreased 10.2% in fiscal 2009 as compared to fiscal 2008. If the economy experiences a further downturn, our guests, including our business clientele, may further reduce their level of discretionary spending, impacting the frequency with which they choose to dine out or the amount they spend on meals while dining out. We believe the majority of our weekday revenues are derived from business guests using expense accounts and our business therefore may be affected by reduced expense account or other business-related dining by our business clientele. If business clientele were to dine less frequently at our restaurants, our business and results of operations would be adversely affected as a result of a reduction in guest traffic or average revenues per guest.

There is also a risk that if the current negative economic conditions persist for an extended period of time or worsen, consumers might make long-lasting changes to their discretionary spending behavior, including dining out less frequently. The ability of the U.S. economy to recover from this downturn is likely to be affected by many national and international factors that are beyond our control, including current economic trends in Europe. These factors, including national, regional and local politics and economic conditions, disposable consumer income and consumer confidence, also affect discretionary consumer spending. Continued weakness in or a further worsening of the economy, generally or in a number of our markets, and our guests’ reactions to these trends could adversely affect our business and cause us to, among other things, reduce the number and frequency of new restaurant openings, close restaurants and delay our re-modeling of existing locations.

If our restaurants are not able to compete successfully with other restaurants, our business and results of operations may be adversely affected.

Our industry is intensely competitive with respect to price, quality of service, restaurant location, ambiance of facilities and type and quality of food. A substantial number of national and regional restaurant chains and independently owned restaurants compete with us for

 

13


Table of Contents

guests, restaurant locations and qualified management and other restaurant staff. The principal competitors for our concepts are other upscale steakhouse chains such as Fleming’s Prime Steakhouse and Wine Bar, The Capital Grille, Smith & Wollensky, The Palm, Ruth’s Chris Steak House and Morton’s The Steakhouse. Our concepts also compete with additional restaurants in the broader upscale dining segment. Some of our competitors have greater financial and other resources, have been in business longer, have greater name recognition and are better established in the markets where our restaurants are located or where we may expand. Our inability to compete successfully with other restaurants may harm our ability to maintain acceptable levels of revenue growth, limit or otherwise inhibit our ability to grow one or more of our concepts, or force us to close one or more of our restaurants. We may also need to evolve our concepts in order to compete with popular new restaurant formats or concepts that emerge from time to time, and we cannot provide any assurance that we will be successful in doing so or that any changes we make to any of our concepts in response will be successful or not adversely affect our profitability. In addition, with improving product offerings at fast casual restaurants and quick-service restaurants combined with the effects of negative economic conditions and other factors, consumers may choose less expensive alternatives, which could also negatively affect guest traffic at our restaurants. Any unanticipated slowdown in demand at any of our restaurants due to industry competition may adversely affect our business and results of operations.

Our future growth depends in part on our ability to open new restaurants and operate them profitably, and if we are unable to successfully execute this strategy, our results of operations could be adversely affected.

Our financial success depends in part on management’s ability to execute our growth strategy. One key element of our growth strategy is opening new restaurants. We believe there are opportunities to open three to five new restaurants annually, generally composed of one Del Frisco’s and two to four Sullivan’s and/or Grilles, with new openings of our Grille concept likely serving as the primary driver of new unit growth in the near term. Our ability to open new restaurants and operate them profitably is dependent upon a number of factors, many of which are beyond our control, including:

 

   

finding quality site locations, competing effectively to obtain quality site locations and reaching acceptable agreements to lease or purchase sites;

 

   

complying with applicable zoning, land use and environmental regulations and obtaining, for an acceptable cost, required permits and approvals;

 

   

having adequate capital for construction and opening costs and efficiently managing the time and resources committed to building and opening each new restaurant;

 

   

timely hiring and training and retaining the skilled management and other employees necessary to meet staffing needs;

 

   

successfully promoting our new locations and competing in their markets;

 

   

acquiring food and other supplies for new restaurants from local suppliers; and

 

   

addressing unanticipated problems or risks that may arise during the development or opening of a new restaurant or entering a new market.

A new restaurant typically experiences a “ramp-up” period of approximately 18 months before it achieves our targeted level of performance. This is due to the costs associated with opening a new restaurant, as well as higher operating costs caused by start-up and other temporary inefficiencies associated with opening new restaurants. For example, there are a number of factors which may impact the amount of time and money we commit to the

 

14


Table of Contents

construction and development of new restaurants, including landlord delays, shortages of skilled labor, labor disputes, shortages of materials, delays in obtaining necessary permits, local government regulations and weather interference. Once the restaurant is open, how quickly it achieves a desired level of profitability is impacted by many factors, including the level of market familiarity and acceptance when we enter new markets, as well as the availability of experienced staff and the time required to negotiate reasonable prices for food and other supplies from local suppliers. Our business and profitability may be adversely affected if the “ramp-up” period for a new restaurant lasts longer than we expect.

If we are unable to increase our sales or improve our margins at existing restaurants, our profitability and overall results of operations may be adversely affected.

Another key aspect of our growth strategy is increasing comparable restaurant sales and improving restaurant-level margins. Improving comparable restaurant sales and restaurant-level margins depends in part on whether we achieve revenue growth through increases in the average check and further expand our private dining business at each restaurant. We believe there are opportunities to increase the average check at our restaurants through, for example, selective introduction of higher priced items and increases in menu pricing. We also believe that expanding and enhancing our private dining capacity will also increase our restaurant sales, as our private dining business typically has a higher average check and higher overall margins than regular dining room business. However, these strategies may prove unsuccessful, especially in times of economic hardship, as guests may not order or enjoy higher priced items and discretionary spending on private dining events may decrease. Select price increases have not historically adversely impacted guest traffic; however, we expect that there is a price level at which point guest traffic would be adversely affected. It is also possible that these changes could cause our sales volume to decrease. If we are not able to increase our sales at existing restaurants for any reason, our profitability and results of operations could be adversely affected.

The failure to successfully develop our new Grille concept could have a material adverse effect on our financial condition and results of operations.

We launched our new concept, the Grille, in the third quarter of 2011 with the opening of our New York location. We also opened a second location in Dallas in the fourth quarter of 2011. We believe that new openings of the Grille are likely to serve as the primary driver of new unit growth in the near term. Our ability to succeed with this new concept will require significant capital expenditures and management attention and is subject to certain risks in addition to those of opening a new restaurant under one of our existing concepts, including guest acceptance of and competition to that concept. If the “ramp-up” period for our Grille restaurants and for our development of concepts in general does not meet our expectations, our operating results may be adversely affected. In addition, we are targeting restaurant-level EBITDA margins of between 20% and 25% for the Grille. However, because we face new challenges at the Grille, such as predicting demand for new menu selections that are not offered at our other concepts, we cannot provide any assurance that our operating margins will achieve these levels. As a result, we may need to adjust our pricing and menu offering strategies. We may not be successful enough to recoup our investments in the concept. There can be no assurance that we will be able to successfully develop and grow the Grille or any other new concept to a point where it will become profitable or generate positive cash flow or that it will prove to be a platform for future expansion. We may not be able to attract enough guests to meet targeted levels of performance at new restaurants because potential guests may be unfamiliar with our concepts or the atmosphere or menu might not appeal to them. The Grille may even operate at a loss, which could have a material adverse effect on our overall operating results. In addition,

 

15


Table of Contents

opening a new restaurant concept such as a Grille in an existing market could reduce the revenue of our existing restaurants in that market. If we cannot successfully execute our growth strategies for the Grille, or if guest traffic generated by the Grille results in a decline in guest traffic at one of our other restaurants in the same market, our business and results of operations may be adversely affected.

Our growth, including the development of the Grille, may strain our infrastructure and resources, which could delay the opening of new restaurants and adversely affect our ability to manage our existing restaurants.

Following this offering, we plan to continue our current pace of new restaurant growth, including the development and promotion of the Grille. We also intend to further grow our private dining business in our Del Frisco’s and Sullivan’s restaurants. This growth will increase our operating complexity and place increased demands on our management as well as our human resources, purchasing and site management teams. While we have committed significant resources to expanding our current restaurant management systems, financial and management controls and information systems in connection with our recent growth, if this infrastructure is insufficient to support this expansion, our ability to open new restaurants, including the development and promotion of the Grille, and to manage our existing restaurants, including the expansion of our private dining business, would be adversely affected. If we fail to continue to improve our infrastructure or if our improved infrastructure fails, we may be unable to implement our growth strategy or maintain current levels of operating performance in our existing restaurants.

Our New York Del Frisco’s location represents a significant portion of our revenues, and any significant downturn in its business or disruption in the operation of this location could harm our business, financial condition and results of operations.

Our New York Del Frisco’s location represented approximately 19%, 20% and 18% of our revenues in 2009, 2010 and the 36 weeks ended September 6, 2011, respectively. Accordingly, we are susceptible to any fluctuations in the business at our New York Del Frisco’s location, whether as a result of adverse economic conditions, negative publicity, changes in guest preferences or for other reasons. In addition, any natural disaster, prolonged inclement weather, act of terrorism or national emergency, accident, system failure or other unforeseen event in or around New York City could result in a temporary or permanent closing of this location, could influence potential guests to avoid this geographic region or this location in particular or otherwise lead to a decrease in revenues. Any significant interruption in the operation of this location or other reduction in sales could adversely affect our business and results of operations.

Negative guest experiences or negative publicity surrounding our restaurants or other restaurants could adversely affect sales in one or more of our restaurants and make our brands less valuable.

The quality of our food and our restaurant facilities are two of our competitive strengths. Therefore, adverse publicity, whether or not accurate, relating to food quality, public health concerns, illness, safety, injury or government or industry findings concerning our restaurants, restaurants operated by other foodservice providers or others across the food industry supply chain could affect us more than it would other restaurants that compete primarily on price or other factors. A restaurant in Louisville, Kentucky has the right to use, and uses, the Del Frisco’s name and we license the use of the Del Frisco’s name to one restaurant in Orlando, Florida. We do not own or control either of these restaurants and any adverse publicity relating to those operations could negatively affect us. If guests perceive or experience a reduction in our food

 

16


Table of Contents

quality, service or ambiance or in any way believe we have failed to deliver a consistently positive experience, the value and popularity of one or more of our concepts could suffer. Any shifts in consumer preferences away from the kinds of food we offer, particularly beef, whether because of dietary or other health concerns or otherwise, would make our restaurants less appealing and could reduce guest traffic and/or impose practical limits on pricing.

Negative publicity relating to the consumption of beef, including in connection with food-borne illness, could result in reduced consumer demand for our menu offerings, which could reduce sales.

Instances of food-borne illness, including Bovine Spongiform Encephalopathy, which is also known as BSE or mad cow disease, aphthous fever, which is also known as hoof and mouth disease, as well as hepatitis A, lysteria, salmonella and e-coli, whether or not found the United States or traced directly to one of our suppliers or our restaurants, could reduce demand for our menu offerings. Any negative publicity relating to these and other health-related matters may affect consumers’ perceptions of our restaurants and the food that we offer, reduce guest visits to our restaurants and negatively impact demand for our menu offerings. Adverse publicity relating to any of these matters, beef in general or other similar concerns could adversely affect our business and results of operations.

Increases in the prices of, and/or reductions in the availability of commodities, primarily beef, could adversely affect our business and results of operations.

Our profitability depends in part on our ability to anticipate and react to changes in commodity costs, which have a substantial effect on our total costs. For example, we purchase large quantities of beef, particularly USDA prime beef and premium choice beef. Our beef costs represented approximately 30%, 32% and 32% of our food and beverage costs during 2009, 2010 and the 36 weeks ended September 6, 2011, respectively. The market for USDA prime beef and premium choice beef is particularly volatile and is subject to extreme price fluctuations due to seasonal shifts, climate conditions, the price of feed, industry demand, energy demand and other factors. According to the U.S. Department of Agriculture, prices for USDA prime beef and premium choice beef increased 19.7% and 20.9%, respectively, in 2011. Prices may continue to increase through 2012 and beyond. Although we currently do not engage in futures contracts or other financial risk management strategies with respect to potential price fluctuations, from time to time, we may opportunistically enter into fixed price beef supply contracts or contracts for other food products or consider other risk management strategies with regard to our meat and other food costs to minimize the impact of potential price fluctuations. This practice could help stabilize our food costs during times of fluctuating prices, although there can be no assurances that this will occur. However, because our restaurants feature USDA prime beef and premium choice beef, we generally expect to purchase these types of beef even if we have not entered into any such arrangements and the price increased significantly. The prices of other commodities can affect our costs as well, including corn and other grains, which are ingredients we use regularly and are also used as cattle feed and therefore affect the price of beef. Energy prices can also affect our bottom line, as increased energy prices may cause increased transportation costs for beef and other supplies, as well as increased costs for the utilities required to run each restaurant. Historically we have passed increased commodity and other costs on to our guests by increasing the prices of our menu items. While we believe these price increases did not historically affect our guest traffic, there can be no assurance additional price increases would not affect future guest traffic. If prices increase in the future and we are unable to anticipate or mitigate these increases, or if there are shortages for USDA Prime beef and premium choice beef, our business and results of operations would be adversely affected.

 

17


Table of Contents

We depend upon frequent deliveries of food and other supplies, in most cases from a limited number of suppliers, which subjects us to the possible risks of shortages, interruptions and price fluctuations.

Our ability to maintain consistent quality throughout our restaurants depends in part upon our ability to acquire fresh products, including USDA prime beef and premium choice beef, fresh seafood, quality produce and related items from reliable sources in accordance with our specifications. In addition, we rely on one or a limited number of suppliers for certain ingredients. For example, U.S. Foodservice supplies all of the beef for our restaurants and has done so since June of 2009. This contract expires on June 14, 2012 and can be terminated by either party for any reason upon 90 days advanced notice. This dependence on one or a limited number of suppliers, as well as the limited number of alternative suppliers of USDA prime beef and premium choice beef and quality seafood, subjects us to the possible risks of shortages, interruptions and price fluctuations in beef and seafood. If any of our suppliers is unable to obtain financing necessary to operate its business or is otherwise adversely affected by the economic downturn, does not perform adequately or otherwise fails to distribute products or supplies to our restaurants, or terminates or refuses to renew any contract with us, particularly with respect to one of the suppliers on which we rely heavily for specific ingredients, we may be unable to find an alternative supplier in a short period of time or if we can, it may not be on acceptable terms. Our inability to replace our suppliers in a short period of time on acceptable terms could increase our costs or cause shortages at our restaurants that may cause us to remove certain items from a menu, increase the price of certain offerings or temporarily close a restaurant, which could adversely affect our business and results of operations.

We depend on the services of key executives, and our business and growth strategy could be materially harmed if we were to lose these and executives and were unable to replace them with executives of equal experience and capabilities.

Some of our senior executives, such as Mark S. Mednansky, our Chief Executive Officer, are particularly important to our success because they have been instrumental in setting our strategic direction, operating our business, identifying, recruiting and training key personnel, identifying expansion opportunities and arranging necessary financing. We have employment agreements with all members of senior management; however, we cannot prevent our executives from terminating their employment with us. Losing the services of any of these individuals could adversely affect our business until a suitable replacement could be found. We also believe that they could not quickly be replaced with executives of equal experience and capabilities and their successors may not be as effective. We do not maintain key person life insurance policies on any of our executives. See “Management.”

Changes in consumer preferences and discretionary spending patterns could adversely impact our business and results of operations.

The restaurant industry is characterized by the continual introduction of new concepts and is subject to rapidly changing consumer preferences, tastes and eating and purchasing habits. Our success depends in part on our ability to anticipate and respond quickly to changing consumer preferences, as well as other factors affecting the restaurant industry, including new market entrants and demographic changes. Shifts in consumer preferences away from upscale steakhouses or beef, which is a significant component of our concepts’ menus and appeal, whether as a result of economic, competitive or other factors, could adversely affect our business and results of operations.

 

18


Table of Contents

Restaurant companies, including ours, have been the target of class action lawsuits and other proceedings alleging, among other things, violations of federal and state workplace and employment laws. Proceedings of this nature, if successful, could result in our payment of substantial damages.

In recent years, we and other restaurant companies have been subject to lawsuits, including class action lawsuits, alleging violations of federal and state laws regarding workplace and employment matters, discrimination and similar matters. A number of these lawsuits have resulted in the payment of substantial damages by the defendants. Similar lawsuits have been instituted from time to time alleging violations of various federal and state wage and hour laws regarding, among other things, employee meal deductions, the sharing of tips amongst certain employees, overtime eligibility of assistant managers and failure to pay for all hours worked. Although we maintain what we believe to be adequate levels of insurance, insurance may not be available at all or in sufficient amounts to cover any liabilities with respect to these matters. Accordingly, if we are required to pay substantial damages and expenses as a result of these types or other lawsuits our business and results of operations would be adversely affected.

Occasionally, our guests file complaints or lawsuits against us alleging that we are responsible for some illness or injury they suffered at or after a visit to one of our restaurants, including actions seeking damages resulting from food borne illness and relating to notices with respect to chemicals contained in food products required under state law. We are also subject to a variety of other claims from third parties arising in the ordinary course of our business, including personal injury claims, contract claims and claims alleging violations of federal and state laws. In addition, our restaurants are subject to state “dram shop” or similar laws which generally allow a person to sue us if that person was injured by a legally intoxicated person who was wrongfully served alcoholic beverages at one of our restaurants. The restaurant industry has also been subject to a growing number of claims that the menus and actions of restaurant chains have led to the obesity of certain of their guests. In addition, we may also be subject to lawsuits from our employees or others alleging violations of federal and state laws regarding workplace and employment matters, discrimination and similar matters. A number of these lawsuits have resulted in the payment of substantial damages by the defendants.

Regardless of whether any claims against us are valid or whether we are liable, claims may be expensive to defend and may divert time and money away from our operations. In addition, they may generate negative publicity, which could reduce guest traffic and sales. Although we maintain what we believe to be adequate levels of insurance, insurance may not be available at all or in sufficient amounts to cover any liabilities with respect to these or other matters. A judgment or other liability in excess of our insurance coverage for any claims or any adverse publicity resulting from claims could adversely affect our business and results of operations.

Our business is subject to substantial government regulation.

Our business is subject to extensive federal, state and local government regulation, including regulations related to the preparation and sale of food, the sale of alcoholic beverages, the sale and use of tobacco, zoning and building codes, land use and employee, health, sanitation and safety matters. For example, the preparation, storing and serving of food and the use of certain ingredients is subject to heavy regulation. Alcoholic beverage control regulations govern various aspects of our restaurants’ daily operations, including the minimum age of patrons and employees, hours of operation, advertising, wholesale purchasing and inventory control, handling and storage. Typically our restaurants’ licenses to sell alcoholic beverages must be renewed annually and may be suspended or revoked at any time for cause. In addition, because we operate in a number of different states, we are also required to comply

 

19


Table of Contents

with a number of different laws covering the same topics. The failure of any of our restaurants to timely obtain and maintain necessary governmental approvals, including liquor or other licenses, permits or approvals required to serve alcoholic beverages or food could delay or prevent the opening of a new restaurant or prevent regular day-to-day operations, including the sale of alcoholic beverages, at a restaurant that is already operating, any of which would adversely affect our business and results of operations.

In addition, the costs of operating our restaurants may increase if there are changes in laws governing minimum hourly wages, working conditions, overtime and tip credits, health care, workers’ compensation insurance rates, unemployment tax rates, sales taxes or other laws and regulations such as those governing access for the disabled, including the Americans with Disabilities Act. For example, the Federal Patient Protection and Affordable Care Act, or PPACA, which was enacted on March 23, 2010, among other things, includes guaranteed coverage requirements and imposes new taxes on health insurers and health care benefits that could increase the costs of providing health benefits to employees. In addition, because we have a significant number of restaurants located in certain states, regulatory changes in these states could have a disproportionate impact on our business. If any of the foregoing increased costs and we were unable to offset the change by increasing our menu prices or by other means, our business and results of operations could be adversely affected.

Government regulation can also affect guest traffic at our restaurants. A number of states, counties and cities have enacted menu labeling laws requiring multi-unit restaurant operators to disclose certain nutritional information. For example, the PPACA establishes a uniform, federal requirement for restaurant chains with 20 or more locations operating under the same trade name and offering substantially the same menus to post nutritional information on their menus, including the total number of calories. The law also requires such restaurants to provide to consumers, upon request, a written summary of detailed nutritional information, including total calories and calories from fat, total fat, saturated fat, cholesterol, sodium, total carbohydrates, complex carbohydrates, sugars, dietary fiber, and total protein in each serving size or other unit of measure, for each standard menu item. The FDA is also permitted to require additional nutrient disclosures, such as trans fat content. We are not currently subject to requirements to post nutritional information on our menus or in our restaurants, but because we currently operate 20 Sullivan’s locations, we would be subject to the rules established by the FDA under the PPACA were they effective today. The final rules are expected to be published by June 30, 2012. Our compliance with the PPACA or other similar laws to which we may become subject could reduce demand for our menu offerings, reduce guest traffic and/or reduce average revenue per guest, which would have an adverse effect on our revenue. Also, further government regulation restricting smoking in restaurants and bars, may reduce guest traffic. Any reduction in guest traffic related to these or other government regulations could affect revenues and adversely affect our business and results of operations.

To the extent that governmental regulations impose new or additional obligations on our suppliers, including, without limitation, regulations relating to the inspection or preparation of meat, food and other products used in our business, product availability could be limited and the prices that our suppliers charge us could increase. We may not be able to offset these costs through increased menu prices, which could have a material adverse effect on our business. If any of our restaurants were unable to serve particular food products, even for a short period of time, or if we are unable to offset increased costs, our business and results of operations could be adversely affected.

 

20


Table of Contents

Changes to minimum wage laws could increase our labor costs substantially.

Under the minimum wage laws in most jurisdictions, we are permitted to pay certain hourly employees a wage that is less than the base minimum wage for general employees because these employees receive tips as a substantial part of their income. As of September 6, 2011, approximately 46% of our employees earn this lower minimum wage in their respective locations since tips constitute a substantial part of their income. If cities, states or the federal government change their laws to require all employees to be paid the general employee minimum base wage regardless of supplemental tip income, our labor costs would increase substantially. In addition, any increase in the minimum wage, such as the increase in the minimum wage on July 24, 2009 to $7.25 per hour under the Federal Minimum Wage Act of 2007, would increase our costs. Certain states in which we operate restaurants have adopted or are considering adopting minimum wage statutes that exceed the federal minimum wage as well. We may be unable or unwilling to increase our prices in order to pass these increased labor costs on to our guests, in which case, our business and results of operations could be adversely affected.

We occupy most of our restaurants under long-term non-cancelable leases for which we may remain obligated to perform under even after a restaurant closes, and we may be unable to renew leases at the end of their terms. We also guarantee five leases with third parties for affiliates of Lone Star Fund.

All but two of our restaurants are located in leased premises. Many of our current leases are non-cancelable and typically have terms ranging from five to 15 years with renewal options for terms ranging from five to 10 years. We believe that leases that we enter into in the future will be on substantially similar terms. If we were to close or fail to open a restaurant at a location we lease, we would generally remain committed to perform our obligations under the applicable lease, which could include, among other things, payment of the base rent for the balance of the lease term. Our obligation to continue making rental payments and fulfilling other lease obligations in respect of leases for closed or unopened restaurants could have a material adverse effect on our business and results of operations. Alternatively, at the end of the lease term and any renewal period for a restaurant, we may be unable to renew the lease without substantial additional cost, if at all. If we cannot renew such a lease we may be forced to close or relocate a restaurant, which could subject us to construction and other costs and risks. We also guarantee five leases entered into by various operating subsidiaries of Lone Star Steakhouse & Saloon that were entered into by certain of the Casual Dining Companies prior to the acquisition of Lone Star Steakhouse and Saloon by Lone Star Fund. At December 27, 2011, the maximum potential amount of future lease payments we could be required to make as a result of the guarantees was $2.7 million. The entities that are party to these leases are not controlled or managed by us. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Off-Balance Sheet Arrangements.” If we are required to make payments under one of our leases after a restaurant closes or one of the leases that we guarantee, or if we are unable to renew our restaurant leases, our business and results of operations could be adversely affected.

The impact of negative economic factors, including the availability of credit, on our landlords and other retail center tenants could negatively affect our financial results.

Negative effects on our existing and potential landlords due to the inaccessibility of credit and other unfavorable economic factors may, in turn, adversely affect our business and results of operations. If our landlords are unable to obtain financing or remain in good standing under their existing financing arrangements, they may be unable to provide construction contributions

 

21


Table of Contents

or satisfy other lease covenants to us. If any landlord files for bankruptcy protection, the landlord may be able to reject our lease in the bankruptcy proceedings. While we would have the option to retain our rights under the lease, we could not compel the landlord to perform any of its obligations and would be left with damages as our sole recourse. In addition, if our landlords are unable to obtain sufficient credit to continue to properly manage their retail sites, we may experience a drop in the level of quality of such retail centers. Our development of new restaurants may also be adversely affected by the negative financial situations of developers and potential landlords. Many landlords have delayed or cancelled recent development projects (as well as renovations of existing projects) due to the instability in the credit markets and recent declines in consumer spending, which has reduced the number of high-quality locations available that we would consider for our new restaurants. In addition, several other tenants at retail centers in which we are located or where we have executed leases have ceased operations or, in some cases, have deferred openings or failed to open after committing to do so. These failures may lead to reduced guest traffic and a general deterioration in the surrounding retail centers in which our restaurants are located and may contribute to lower guest traffic at our restaurants. If any of the foregoing affect any of our landlords or their other retail tenants our business and results of operations may be adversely affected.

Fixed rental payments account for a significant portion of our operating expenses, which increases our vulnerability to general adverse economic and industry conditions and could limit our operating and financing flexibility.

Payments under our operating leases account for a significant portion of our operating expenses and we expect the new restaurants we open in the future will similarly be leased by us. Specifically, payments under our operating leases accounted for 11.1%, 11.1% and 12.8% of our restaurant operating expenses in 2009, 2010 and the 36 weeks ended September 6, 2011, respectively. Our substantial operating lease obligations could have significant negative consequences, including:

 

   

increasing our vulnerability to general adverse economic and industry conditions;

 

   

limiting our ability to obtain additional financing;

 

   

requiring a substantial portion of our available cash flow to be applied to our rental obligations, thus reducing cash available for other purposes;

 

   

limiting our flexibility in planning for or reacting to changes in our business or the industry in which we compete; and

 

   

placing us at a disadvantage with respect to some of our competitors.

We depend on cash flow from operations to pay our lease obligations and to fulfill our other cash needs. If our business does not generate sufficient cash flow from operating activities and sufficient funds are not otherwise available to us from borrowings under our credit facility or other sources, we may not be able to meet our operating lease obligations, grow our business, respond to competitive challenges or fund our other liquidity and capital needs, which could adversely affect our business and results of operations.

Our level of indebtedness and any future indebtedness we may incur may limit our operational and financing flexibility and negatively impact our business.

We currently have a credit facility that provides for a term loan of $70.0 million and a revolving loan of up to $10.0 million. On an as adjusted basis giving effect to this offering and the application of the proceeds, as of September 6, 2011, we would have had approximately

 

22


Table of Contents

$            million of total indebtedness. In particular, we expect to have approximately $            million and $            million of outstanding indebtedness under our term loan facility and revolving credit facility, respectively, after giving effect to this offering and the application of the proceeds. See “Use of Proceeds.” For the year ended December 28, 2010 and the 36 weeks ended September 6, 2011, our net principal repayments on indebtedness were $26.4 million and $78.9 million, respectively, and cash interest expenses for such periods were $10.0 million and $4.4 million, respectively. In addition, we may incur substantial additional indebtedness in the future. Our credit facility, and other debt instruments we may enter into in the future, may have important consequences to you, including the following:

 

   

our ability to obtain additional financing for working capital, capital expenditures, acquisitions or general corporate purposes may be impaired;

 

   

we are required to use a significant portion of our cash flows from operations to pay interest on our indebtedness, which will reduce the funds available to us for operations and other purposes;

 

   

our level of indebtedness could place us at a competitive disadvantage compared to our competitors that may have proportionately less debt;

 

   

our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate may be limited; and

 

   

our level of indebtedness may make us more vulnerable to economic downturns and adverse developments in our business.

Following this offering we expect that we will depend primarily on cash generated by our operations for funds to pay our expenses and any amounts due under our credit facility and any other indebtedness we may incur. Our ability to make these payments depends on our future performance, which will be affected by financial, business, economic and other factors, many of which we cannot control. Our business may not generate sufficient cash flows from operations in the future and our currently anticipated growth in revenues and cash flows may not be realized, either or both of which could result in our being unable to repay indebtedness or to fund other liquidity needs. If we do not have enough money, we may be required to refinance all or part of our then existing debt, sell assets or borrow more money, in each case on terms that are not acceptable to us, or at all. In addition, the terms of existing or future debt agreements, including our existing credit facility, may restrict us from adopting any of these alternatives. Our ability to recapitalize and incur additional debt in the future could also delay or prevent a change in control of our company, make some transactions more difficult and impose additional financial or other covenants on us. Our current indebtedness and any inability to pay our debt obligations as they come do or inability to incur additional debt could adversely affect our business and results of operations.

The terms of our credit facility impose operating and financial restrictions on us.

Our credit facility contains a number of significant restrictions and covenants that generally limit our ability to, among other things:

 

   

pay dividends or purchase stock or make other restricted payments to our equityholders;

 

   

incur additional indebtedness;

 

   

issue guarantees;

 

   

make investments;

 

   

use assets as security in other transactions;

 

23


Table of Contents
   

sell assets or merge with or into other companies;

 

   

make capital expenditures;

 

   

enter into transactions with affiliates;

 

   

sell equity or other ownership interests in our subsidiaries; and

 

   

create or permit restrictions on our subsidiaries’ ability to make payments to us.

Our credit facility limits our ability to engage in these types of transactions even if we believed that a specific transaction would contribute to our future growth or improve our operating results. Our credit facility also requires us to achieve specified financial and operating results and maintain compliance with specified financial ratios. Our ability to comply with these provisions may be affected by events beyond our control. A breach of any of these provisions or our inability to comply with required financial ratios in our credit facility could result in a default under the credit facility in which case the lenders will have the right to declare all borrowings to be immediately due and payable. In addition, the lenders will have the right to declare all borrowings to be immediately due and payable upon the occurrence of certain change of control events relating to us. If we are unable to repay all borrowings when due, whether at maturity or if declared due and payable following a default or change of control event, the lenders would have the right to proceed against the collateral granted to secure the indebtedness. If we breach these covenants or fail to comply with the terms of the credit facility, or a change of control event occurs, and the lenders accelerate the amounts outstanding under the credit facility our business and results of operations would be adversely affected.

Our credit facility carries floating interest rates, thereby exposing us to market risk related to changes in interest rates. Accordingly, our business and results of operations may be adversely affected by changes in interest rates. Assuming a 100 basis point increase on our base interest rate on our credit facility and a full drawdown on the term loan and revolving credit facility, our interest expense would increase by approximately $0.8 million over the course of 12 months. As of September 6, 2011, we have fully drawn the $70.0 million term loan, and we have $1.1 million of borrowings outstanding under the $10.0 million revolving credit facility.

We could face labor shortages that could slow our growth and adversely impact our ability to operate our restaurants.

Our success depends in part upon our ability to attract, motivate and retain a sufficient number of qualified employees, including restaurant managers, kitchen staff and servers, necessary to keep pace with our anticipated expansion schedule and meet the needs of our existing restaurants. A sufficient number of qualified individuals of the requisite caliber to fill these positions may be in short supply in some communities. Competition in these communities for qualified staff could require us to pay higher wages and provide greater benefits. Any inability to recruit and retain qualified individuals may also delay the planned openings of new restaurants and could adversely impact our existing restaurants. Any such inability to retain or recruit qualified employees, increased costs of attracting qualified employees or delays in restaurant openings could adversely affect our business and results of operations.

The failure to enforce and maintain our intellectual property rights could enable others to use names confusingly similar to the names and marks used by our restaurants, which could adversely affect the value of our brands.

We have registered, or have applications pending to register, the names Del Frisco’s, Double Eagle Steak House, Sullivan’s, Del Frisco’s Grille and certain other names and logos

 

24


Table of Contents

used by our restaurants as trade names, trademarks or service marks with the United States Patent and Trademark Office and in certain foreign countries. We have the exclusive right to use these trademarks throughout the United States, other than with respect to one location in Louisville, Kentucky, including the 50 mile surrounding area, where an unrelated third party has the right to use the Del Frisco’s name. The success of our business depends in part on our continued ability to utilize our existing trade names, trademarks and service marks as currently used in order to increase our brand awareness. In that regard, we believe that our trade names, trademarks and service marks are valuable assets that are critical to our success. The unauthorized use or other misappropriation of our trade names, trademarks or service marks could diminish the value of our brands and restaurant concepts and may cause a decline in our revenues and force us to incur costs related to enforcing our rights. In addition, the use of trade names, trademarks or service marks similar to ours in some markets may keep us from entering those markets. While we may take protective actions with respect to our intellectual property, these actions may not be sufficient to prevent, and we may not be aware of all incidents of, unauthorized usage or imitation by others. Any such unauthorized usage or imitation of our intellectual property, including the costs related to enforcing our rights, could adversely affect our business and results of operations.

Information technology system failures or breaches of our network security, including with respect to confidential information, could interrupt our operations and adversely affect our business.

We rely on our computer systems and network infrastructure across our operations, including point-of-sale processing at our restaurants. Our operations depend upon our ability to protect our computer equipment and systems against damage from physical theft, fire, power loss, telecommunications failure or other catastrophic events, as well as from internal and external security breaches, viruses, worms and other disruptive problems. Any damage or failure of our computer systems or network infrastructure that causes an interruption in our operations could and subject us to litigation or actions by regulatory authorities. In addition, the majority of our restaurant sales are by credit or debit cards. Other restaurants and retailers have experienced security breaches in which credit and debit card information of their guests has been stolen. If this or another type of breach occurs at one of our restaurants, we may become subject to lawsuits or other proceedings for purportedly fraudulent transactions arising out of the actual or alleged theft of our guests’ credit or debit card information. Although we employ both internal resources and external consultants to conduct auditing and testing for weaknesses in our systems, controls, firewalls and encryption and intend to maintain and upgrade our security technology and operational procedures to prevent such damage, breaches or other disruptive problems, there can be no assurance that these security measures will be successful. Any such claim, proceeding or action by a regulatory authority, or any adverse publicity resulting from these allegations, could adversely affect our business and results of operations.

Risks Related to This Offering

There is no existing market for our common stock and we do not know if one will develop to provide you with adequate liquidity.

Prior to this offering, there has not been a public market for our common stock. We cannot predict the extent to which investor interest in our company will lead to the development of an active trading market, and if developed, may not be sustained, or how liquid any trading market might become. The initial public offering price for our common stock was determined by negotiations between us and the underwriters and does not purport to be indicative of prices that will prevail in the open market following this offering. The lack of an active market may also

 

25


Table of Contents

reduce the fair market value of your shares. An inactive market may also impair our ability to raise capital by selling shares of capital stock and may impair our ability to acquire other companies by using our shares as consideration. If an active trading market does not develop, you may have difficulty selling any of our common stock that you buy at the time you wish to sell them or at a price that you consider reasonable.

Our stock price may be volatile, the market price of our common stock may decline and you could lose all or a significant part of your investment.

Even if an active trading market for our common stock develops, the market price of our common stock could be subject to wide fluctuations in response to many factors, some of which are beyond our control, including:

 

   

our quarterly or annual earnings or those of other companies in our industry;

 

   

the failure of securities analysts to cover our common stock after this offering or changes in financial estimates by analysts who cover us, our competitors or the restaurant industry in general and the fine dining segment in particular;

 

   

announcements by us or our competitors of new locations or menu items, capacity changes, strategic investments or acquisitions;

 

   

actual or anticipated variations in our or our competitors’ operating results, and our and our competitors’ growth rates;

 

   

failure by us or our competitors to meet analysts’ projections or guidance that we or our competitors may give the market;

 

   

general or regional economic conditions;

 

   

fluctuations in operating results;

 

   

additions or departures of our senior management personnel;

 

   

terrorist acts;

 

   

changes in laws or regulations, or new interpretations or applications of laws and regulations, that are applicable to our business;

 

   

changes in accounting standards, policies, guidance, interpretations or principles;

 

   

short sales, hedging and other derivative transactions in the shares of our common stock;

 

   

future sales or issuances of our common stock, including sales or issuances by us, our directors or executive officers and our significant stockholders;

 

   

our dividend policy; and

 

   

investor perceptions of us, our competitors and our industry.

Furthermore, the stock markets recently have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. These fluctuations have often been unrelated or disproportionate to the operating performance of those companies. These broad market and restaurant industry fluctuations, as well as general economic, political and market conditions such as recessions or interest rate changes may cause the market price of our common stock to decline. If the market price of our common stock after this offering does not exceed the initial public offering price, you may not realize any return on your investment in us and may lose some or all of your investment.

 

26


Table of Contents

In addition, in the past, companies that have experienced volatility in the market price of their stock have been subject to securities class action litigation. We may be the target of this type of litigation in the future. Securities litigation against us could result in substantial costs and divert our management’s attention from other business concerns, which could seriously harm our business.

If securities or industry analysts do not publish research or reports about our business, or if they change their recommendations regarding our stock adversely, our stock price and trading volume could decline.

The trading market for our common stock will be influenced in part by the research and other reports that industry or securities analysts may publish about us or our business. We do not currently have any and may never obtain research coverage by industry or financial analysts. If no or few analysts commence coverage of us, the trading price of our stock would likely decrease. Even if we do obtain analyst coverage, if one or more of the analysts who cover us downgrade our stock or if analysts issue other unfavorable commentary, our stock price would likely decline. If one or more of these analysts cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.

Lone Star Fund owns a substantial portion of our common stock, it may have conflicts of interest with other stockholders in the future and its significant ownership will limit your ability to influence corporate matters.

Immediately after this offering, Lone Star Fund will beneficially own approximately     % (or     % if the underwriters’ over-allotment option is exercised in full) of our outstanding common stock. As a result of this concentration of stock ownership, Lone Star Fund acting on its own has sufficient voting power to effectively control all matters submitted to our stockholders for approval that do not require a super majority, including director elections and proposed amendments to our bylaws.

In addition, this concentration of ownership may delay or prevent a merger, consolidation or other business combination or change in control of our company and make some transactions that might otherwise give you the opportunity to realize a premium over the then-prevailing market price of our common stock more difficult or impossible without the support of Lone Star Fund. The interests of Lone Star Fund may not always coincide with our interests as a company or the interests of other stockholders. Accordingly, Lone Star Fund could cause us to enter into transactions or agreements of which you would not approve or make decisions with which you would disagree. This concentration of ownership may also adversely affect our share price.

Additionally, Lone Star Fund is in the business of making investments in companies and may from time to time acquire and hold interests in businesses that compete directly or indirectly with us. Lone Star Fund may also pursue acquisition opportunities that may be complementary to our business, and as a result, those acquisition opportunities may not be available to us. In recognition that principals, members, directors, managers, partners, stockholders, officers, employees and other representatives of Lone Star Fund and its affiliates and investment funds may serve as our directors or officers, our certificate of incorporation to be adopted in connection with this offering will provide, among other things, that none of Lone Star Fund or any principal, member, director, manager, partner, stockholder, officer, employee or other representative of Lone Star Fund has any duty to refrain from engaging directly or indirectly in the same or similar business activities or lines of business that we do. In the event

 

27


Table of Contents

that any of these persons or entities acquires knowledge of a potential transaction or matter which may be a corporate opportunity for itself and us, we will not have any expectancy in such corporate opportunity, and these persons and entities will not have any duty to communicate or offer such corporate opportunity to us and may pursue or acquire such corporate opportunity for itself or direct such opportunity to another person. These potential conflicts of interest could have a material adverse effect on our business, financial condition, results of operations or prospects if, among other things, attractive corporate opportunities are allocated by the sponsors to themselves or their other affiliates. The terms of our certificate of incorporation to be adopted are more fully described in “Description of Capital Stock—Corporate Opportunities and Transactions with Lone Star Fund.”

We are a “controlled company” within the meaning of the New York Stock Exchange and NASDAQ rules and, as a result, will qualify for, and intend to rely on, exemptions from certain corporate governance requirements.

Upon completion of this offering, Lone Star Fund will continue to control a majority of the voting power of our outstanding common stock. As a result, we are a “controlled company” within the meaning of the New York Stock Exchange and NASDAQ corporate governance standards. Under the New York Stock Exchange and NASDAQ rules, a company of which more than 50% of the voting power is held by another company is a “controlled company” and need not comply with certain requirements, including the requirement that a majority of the board of directors consist of independent directors and the requirements that our compensation and nominating and corporate governance committees be comprised entirely of independent directors. Following this offering, we intend to utilize these exemptions. As a result, we will not have a majority of independent directors nor will our nominating and compensation committees consist entirely of independent directors. Accordingly, you will not have the same protections afforded to stockholders of companies that are subject to all of the New York Stock Exchange and NASDAQ corporate governance requirements.

Future sales of our common stock in the public market could cause our stock price to fall.

If our existing stockholder sells substantial amounts of our common stock in the public market following this offering, the market price of our common stock could decrease significantly. The perception in the public market that our existing stockholder might sell substantial amounts of our common stock could also depress the market price of our common stock. Any such sale or perception could also impair our ability to raise capital or pay for acquisitions using our equity securities.

Immediately after completion of this offering, we will have             shares of common stock outstanding, including             shares that will be beneficially owned by Lone Star Fund. Of our issued and outstanding shares, all of the shares sold in this offering will be freely transferable without restriction or additional registration other than shares held by our “affiliates,” as that term is defined in Rule 144 under the Securities Act of 1933, as amended, or the Securities Act. Following completion of this offering, Lone Star Fund will beneficially own approximately    % of our outstanding shares of common stock (or    % if the underwriters exercise their over-allotment option in full) and, unless such shares are registered under the Securities Act, may only be resold into the public markets in accordance with the requirements of Rule 144, including the volume limitations, manner of sale requirements and notice requirements thereof. See “Shares Eligible for Future Sale.” In addition, the remaining shares of our common stock that will be outstanding immediately after completion of this offering will become eligible for sale in the public markets from time to time, subject to Securities Act restrictions, following the expiration of lock-up agreements. We, Lone Star Fund, and our officers and directors have

 

28


Table of Contents

signed lock-up agreements with the underwriters that will, subject to certain exceptions, restrict the sale of shares of our common stock held by them for 180 days following the date of this prospectus, subject to extension in the case of an earnings release or material news or a material event relating to us. Deutsche Bank Securities, Inc. and Piper Jaffray & Co. may, without notice except in certain limited circumstances, release all or any portion of the shares of common stock subject to lock-up agreements. See “Underwriting” for a description of these lock-up agreements. Upon the expiration of the lock-up agreements described above, all of such shares will be eligible for resale in the public market, subject in the case of shares held by our affiliates, to the volume, manner of sale and other limitations under Rule 144. We expect that Lone Star Fund will be considered an affiliate of us 180 days after this offering based on their expected share ownership following this offering.

After completion of this offering, Lone Star Fund will have the right to demand that we file a registration statement with respect to the shares of our common stock held by it, and will have the right to include its shares in any registration statement that we file with the Securities and Exchange Commission, or SEC, subject to certain exceptions. See “Shares Eligible for Future Sale.” Any registration of the shares owned by Lone Star Fund would enable those shares to be sold in the public market, subject to certain restrictions in our registration rights agreement and the restrictions under the lock-up agreements referred to above.

The market price for shares of our common stock may drop significantly when the restrictions on resale by our existing stockholders lapse or if those restrictions on resale are waived. A decline in the price of shares of our common stock might impede our ability to raise capital through the issuance of additional shares of our common stock or other equity securities. In addition, following this offering, we intend to file a registration statement on Form S-8 under the Securities Act registering shares under our stock incentive plan. Subject to the terms of the awards granting the shares included in this registration statement and except for shares held by affiliates who will have certain restrictions on their ability to sell, the shares will be available for sale in the public market immediately after the registration statement is filed. We expect that the initial registration statement on Form S-8 will cover            shares of our common stock. See “Shares Eligible for Future Sale.”

If you purchase shares of common stock sold in this offering, you will experience immediate and substantial dilution.

If you purchase shares in this offering, the value of your shares based on our actual book value will immediately be less than the price you paid. This reduction in the value of your equity is known as dilution. This dilution occurs in large part because our earlier investors paid substantially less than the initial public offering price when they purchased their shares of our common stock. If you purchase shares in this offering, you will suffer, as of September 6, 2011, immediate dilution of $             per share (or $             if the underwriters exercise their over-allotment option in full), in the net tangible book value after giving effect to the sale of common stock in this offering at an initial public offering price of $             per share less underwriting discounts and commissions and the estimated expenses payable by us, and the application of the net proceeds as described in “Use of Proceeds.” If outstanding options to purchase our shares of common stock are exercised in the future you will experience additional dilution. In addition, if we raise funds by issuing additional securities, the newly issued shares will further dilute your percentage ownership of our company.

 

29


Table of Contents

We plan to grant options in connection with this offering, and in the future expect to issue options, restricted stock and other forms of stock-based compensation, which have the potential to dilute stockholder value and cause the price of our common stock to decline.

We intend to grant options to purchase shares of common stock under our equity incentive plan at the time of the pricing of this offering with an exercise price equal to the initial public offering price, none of which will be vested at the time of this offering. In addition, we expect to offer stock options, restricted stock and other forms of stock-based compensation to our directors, officers and employees in the future. If the options that we issue are exercised, or any restricted stock that we may issue vests, and those shares are sold into the public market, the market price of our common stock may decline. In addition, the availability of shares of common stock for award under our equity incentive plan, or the grant of stock options, restricted stock or other forms of stock-based compensation, may adversely affect the market price of our common stock.

Our ability to raise capital in the future may be limited.

Our business and operations may consume resources faster than we anticipate. In the future, we may need to raise additional funds through the issuance of new equity securities, debt or a combination of both. Additional financing may not be available on favorable terms, or at all. If adequate funds are not available on acceptable terms, we may be unable to fund our capital requirements. If we issue new debt securities, the debt holders would have rights senior to common shareholders to make claims on our assets, and the terms of any debt could restrict our operations, including our ability to pay dividends on our common stock. If we issue additional equity securities, existing shareholders will experience dilution, and the new equity securities could have rights senior to those of our common stock. Because our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings. Thus, our shareholders bear the risk of our future securities offerings reducing the market price of our common stock and diluting their interest.

We are a holding company and depend on the cash flow of our subsidiaries.

We are a holding company with no material assets other than the equity interests of our subsidiaries. Our subsidiaries conduct substantially all of our operations and own substantially all of our assets and intellectual property. Consequently, our cash flow and our ability to meet our obligations and pay any future dividends to our stockholders depends upon the cash flow of our subsidiaries and the payment of funds by our subsidiaries directly or indirectly to us in the form of dividends, distributions and other payments. Any inability on the part of our subsidiaries to make payments to us could have a material adverse effect on our business, financial condition and results of operations.

Provisions of our charter documents, Delaware law and other documents could discourage, delay or prevent a merger or acquisition at a premium price.

Provisions in our certificate of incorporation and bylaws that we intend to adopt prior to the consummation of this offering may have the effect of delaying or preventing a change of control or changes in our management. For example, our certificate of incorporation and bylaws include provisions that:

 

   

permit us to issue without stockholder approval preferred stock in one or more series and, with respect to each series, fix the number of shares constituting the series and the designation of the series, the voting powers, if any, of the shares of the series and the

  preferences and other special rights, if any, and any qualifications, limitations or restrictions, of the shares of the series;

 

30


Table of Contents
   

restrict the ability of stockholders to act by written consent or to call special meetings after such time as Lone Star Fund owns less than a majority of our common stock;

 

   

limit the ability of stockholders to amend our certificate of incorporation and bylaws;

 

   

require advance notice for nominations for election to the board of directors and for stockholder proposals;

 

   

do not permit cumulative voting in the election of our directors, which means that the holders of a majority of our common stock may elect all of the directors standing for election; and

 

   

establish a classified board of directors with staggered three-year terms.

These provisions may discourage, delay or prevent a merger or acquisition of our company, including a transaction in which the acquiror may offer a premium price for our common stock.

We are also subject to Section 203 of the Delaware General Corporation Law, or the DGCL, which, subject to certain exceptions, prohibits us from engaging in any business combination with any interested stockholder, as defined in that section, for a period of three years following the date on which that stockholder became an interested stockholder. In addition, our equity incentive plan will permit vesting of stock options and restricted stock, and payments to be made to the employees thereunder in certain circumstances, in connection with a change of control of our company, which could discourage, delay or prevent a merger or acquisition at a premium price. In addition, our credit facility includes, and other debt instruments we may enter into in the future may include, provisions entitling the lenders to demand immediate repayment of all borrowings upon the occurrence of certain change of control events relating to our company, which also could discourage, delay or prevent a business combination transaction. See “Description of Capital Stock—Provisions of Our Certificate of Incorporation and Bylaws to be Adopted and Delaware Law That May Have an Anti-Takeover Effect.”

If we are unable to implement and maintain the effectiveness of our internal control over financial reporting, our independent registered public accounting firm may not be able to provide an unqualified report on our internal controls, which could adversely affect our stock price.

Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 and the related rules adopted by the SEC and the Public Company Accounting Oversight Board, starting with the second annual report that we file with the SEC after the consummation of this offering, our management will be required to report on, and our independent registered public accounting firm to attest to, the effectiveness of our internal control over financial reporting. We may encounter problems or delays in completing the implementation of any changes necessary to our internal control over financial reporting to conclude such controls are effective. If we and our independent registered public accounting firm conclude that our internal control over financial reporting is not effective, investor confidence and our stock price could decline.

Matters impacting our internal controls may cause us to be unable to report our financial information on a timely basis and thereby subject us to adverse regulatory consequences, including sanctions by the SEC or violations of applicable stock exchange listing rules, and result in a breach of the covenants under our financing arrangements. There also could be a negative reaction in the financial markets due to a loss of investor confidence in us and the reliability of our financial statements. Confidence in the reliability of our financial statements also could suffer if we or our independent registered public accounting firm were to report a material weakness in our internal controls over financial reporting. This could materially adversely affect us and lead to a decline in the price of our common stock.

 

31


Table of Contents

Because we do not anticipate paying any dividends for the foreseeable future, you may not receive any return on your investment unless you sell your common stock for a price greater than that which you paid for it.

Although the agreements governing our indebtedness do not directly restrict our ability to do so, we do not anticipate paying any dividends to our stockholders for the foreseeable future. Accordingly, you may have to sell some or all of your common stock in order to generate cash flow from your investment. You may not receive a gain on your investment when you sell our common stock and may lose some or the entire amount of your investment. Any determination to pay dividends in the future will be at the discretion of our board of directors and will depend upon our financial condition, operating results, contractual restrictions, restrictions imposed by applicable law and other factors our board of directors deems relevant.

We could incur increased costs as a result of being a publicly-traded company.

As a company with publicly-traded securities, we could incur significant legal, accounting and other expenses not presently incurred. In addition, the Sarbanes-Oxley Act of 2002, as well as rules promulgated by the SEC and the stock exchange on which we will list our common stock, require us to adopt corporate governance practices applicable to U.S. public companies. These rules and regulations may increase our legal and financial compliance costs and may place a strain on our systems and resources. The Exchange Act requires that we file annual, quarterly and current reports with respect to our business and financial condition. The Sarbanes-Oxley Act requires that we maintain effective disclosure controls and procedures and internal controls over financial reporting. To maintain and improve the effectiveness of our disclosure controls and procedures, we will need to commit significant resources, hire additional staff and provide additional management oversight. We will be implementing additional procedures and processes for the purpose of addressing the standards and requirements applicable to public companies. In addition, sustaining our growth also will require us to commit additional management, operational and financial resources to identify new professionals to join our firm and to maintain appropriate operational and financial systems to adequately support expansion. We have also been transitioning certain services previously provided to us by affiliates of Lone Star Fund, our controlling shareholder, to internal or third party providers in preparation for the termination of our Asset Advisory Agreement with them upon the completion of this offering. These services include, among other things, real estate management and legal advisory services. See “Certain Relationships and Related Party Transactions—Relationships with Lone Star Fund and its Affiliates—Termination of Asset Advisory Agreement.” These activities and the related transitions may not be successful and may divert management’s attention from other business concerns, which could have a material adverse effect on our business, financial condition, results of operations and cash flows. We expect to incur significant additional annual expenses related to these steps and, among other things, additional directors and officers liability insurance, director fees, reporting requirements, transfer agent fees, hiring additional accounting, legal and administrative personnel, increased auditing and legal fees and similar expenses.

Our reported financial results may be adversely affected by changes in accounting principles applicable to us.

Generally accepted accounting principles in the U.S. are subject to interpretation by the Financial Accounting Standards Board, or FASB, the American Institute of Certified Public Accountants, the SEC and various bodies formed to promulgate and interpret appropriate accounting principles. A change in these principles or interpretations could have a significant effect on our reported financial results, and could affect the reporting of transactions completed before the announcement of a change. In addition, the SEC has announced a multi-year plan that could ultimately lead to the use of International Financial Reporting Standards by U.S. issuers in their SEC filings. Any such change could have a significant effect on our reported financial results.

 

32


Table of Contents

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This prospectus includes “forward-looking statements.” Forward-looking statements are those that do not relate solely to historical fact. They include, but are not limited to, any statement that may predict, forecast, indicate or imply future results, performance, achievements or events. They may contain words such as “believe,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” “target,” “project,” “likely,” “will,” “would,” “could” and words or phrases of similar meaning. Forward-looking statements may relate to, among other things:

 

   

our ability to successfully adjust to changes in consumer preferences, discretionary spending patterns and general economic conditions, including recent economic events;

 

   

our restaurants’ ability to successfully compete;

 

   

our expectations regarding future growth, including our ability to open new restaurants and operate them profitably;

 

   

our ability to develop the Grille and any other new concepts;

 

   

our ability to maintain and grow our reputation and the acceptance of our brands;

 

   

our expectations regarding higher operating costs, including labor costs;

 

   

our ability to obtain our principal food products and manage related costs;

 

   

our expectations regarding the seasonality of our business;

 

   

our expectations regarding litigation or other legal proceedings;

 

   

the impact of federal, state or local government statutes, rules and regulations;

 

   

our expectations regarding the loss of key members of our management team or employees;

 

   

our expectations regarding our liquidity and capital resources, including our ability to meet our lease obligations;

 

   

our expectations regarding the amount and terms of our existing or future indebtedness;

 

   

our ability to maintain adequate protection of our intellectual property; and

 

   

the other matters described in “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Business.”

Given these risks and uncertainties, we urge you to read this prospectus completely with the understanding that actual future results may be materially different from what we plan or expect. These factors and the other risk factors described in this prospectus are not necessarily all of the important factors that could cause actual results or developments to differ materially from those expressed in any of our forward-looking statements. Consequently, there can be no assurance that actual results or developments anticipated by us will be realized or, even if substantially realized, that they will have the expected consequences to, or effects on, us. Given these uncertainties, prospective investors are cautioned not to place undue reliance on forward-looking statements.

All future written and verbal forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, the forward-looking statements made in this prospectus may not prove to be correct.

 

33


Table of Contents

USE OF PROCEEDS

Our net proceeds from this offering will be approximately $             million (or approximately $             million if the underwriters exercise in full their over-allotment option to purchase up to             additional shares of our common stock), based on an assumed initial public offering price of $             per share, which is the midpoint of the estimated price range appearing on the cover of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us. We intend to use the net proceeds from this offering as follows:

 

   

$             million to repay outstanding borrowings under our credit facility, including accrued interest;

 

   

$3.0 million to make a one-time payment to Lone Star Fund, an affiliate of our controlling shareholder, in consideration for the termination of our asset advisory agreement upon consummation of this offering as described under “Certain Relationships and Related Party Transactions—Termination of Asset Advisory Agreement;” and

 

   

the remainder of the net proceeds for working capital and other general corporate purposes.

The terms of our credit facility require us to use at least 50% of the net proceeds from all equity offerings, including this offering, to repay outstanding indebtedness under the facility. As of September 6, 2011, the balance outstanding under our credit facility was $71.1 million. Our credit facility matures in July 2016 and bears interest at an amount between LIBOR plus 4.75% and LIBOR plus 5.75%, depending on our leverage ratio. For additional information regarding our liquidity and outstanding indebtedness, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.”

The selling stockholder will receive approximately $             million (or approximately $             million if the underwriters exercise in full their over-allotment option) from this offering. We will not receive any proceeds from the sale of shares by the selling stockholder.

 

34


Table of Contents

DIVIDEND POLICY

We have never declared or paid any cash dividends on our common stock and do not anticipate paying cash dividends on our common stock for the foreseeable future. We anticipate that we will retain all of our future earnings, if any, for use in the development and expansion of our business and for general corporate purposes. Any determination to pay dividends in the future will be at the discretion of our board of directors and will depend upon our financial condition, operating results and other factors our board of directors deems relevant.

Our credit facility contains, and debt instruments that we enter into in the future may contain, covenants that place limitations on the amount of dividends we may pay. In addition, under Delaware law, our board of directors may declare dividends only to the extent of our surplus, which is defined as total assets at fair market value minus total liabilities, minus statutory capital, or, if there is no surplus, out of our net profits for the then current and immediately preceding year.

 

35


Table of Contents

CAPITALIZATION

The table below sets forth our cash and cash equivalents and capitalization as of September 6, 2011:

 

   

on a consolidated basis;

 

   

on a pro forma basis to reflect the completion of our corporate reorganization where Del Frisco’s Restaurant Group, LLC is converted into a Delaware corporation and renamed Del Frisco’s Restaurant Group, Inc.; and

 

   

on a pro forma as adjusted basis to give effect to the issuance and sale of             shares of our common stock offered by us in this offering at an assumed offering price of $             per share, which is the midpoint of the estimated price range appearing on the cover of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us and the application of such proceeds as described in “Use of Proceeds,” including the use of $             million of the proceeds received by us to repay outstanding borrowings under our credit facility, including accrued interest.

You should read this table together with the information in this prospectus under “Use of Proceeds,” “Selected Consolidated and Combined Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Description of Capital Stock,” and with the consolidated financial statements and the related notes to those statements included elsewhere in this prospectus.

 

     As of September 6, 2011  
     Actual      Pro Forma      Pro Forma As
Adjusted
 
            (Unaudited)         
     (in thousands, except share amounts)  

Cash and cash equivalents

   $ 4,079       $                    $                
  

 

 

    

 

 

    

 

 

 

Credit facility, including current portion

   $ 71,100       $         $     

Advances due affiliate

             

Stockholders’ equity:

        

Membership units

     51,376         

Undesignated preferred stock, $             par value per share: no shares authorized, issued or outstanding actual,             shares authorized, no shares issued and outstanding pro forma and pro forma as adjusted

             

Common stock, no par value per share: no shares authorized, issued or outstanding actual,             shares authorized,             shares issued and outstanding pro forma and             shares issued and outstanding pro forma as         adjusted

             

Member’s deficit

             

Additional paid-in capital

             

Retained earnings

   $ 38,653       $         $     
  

 

 

    

 

 

    

 

 

 

Total stockholders’ equity

   $ 90,029       $         $     
  

 

 

    

 

 

    

 

 

 

Total capitalization

   $ 165,208       $         $     
  

 

 

    

 

 

    

 

 

 

A $1.00 increase (decrease) in the assumed initial public offering price of $             per share (the midpoint of the initial public offering price range set forth on the cover page of this prospectus) would increase (decrease) the pro forma as adjusted amount of each of cash and cash equivalents, additional paid-in capital, total stockholders’ equity and total capitalization by approximately $             million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us.

 

36


Table of Contents

DILUTION

Dilution represents the difference between the amount per share paid by investors in this offering and the as adjusted net tangible book value per share of our common stock immediately after this offering. The data in this section have been derived from our consolidated balance sheet as of September 6, 2011. Net tangible book value per share is equal to our total tangible assets less the amount of our total liabilities, divided by the sum of the number of our shares of common stock outstanding. Our net tangible book value as of September 6, 2011 was $            million, or $            per share of common stock.

After giving effect to our receipt of the estimated net proceeds from our sale of common stock in this offering at an assumed offering price of $            per share, the midpoint of the estimated price range set forth on the cover page of this prospectus, and after deducting the underwriting discounts and commissions and other estimated offering expenses payable by us and the application of such proceeds as described in “Use of Proceeds,” our net tangible book value, as adjusted, as of September 6, 2011 would have been $            million, or $             per share of common stock. This represents an immediate decrease in net tangible book value to our existing stockholders of $            per share and an immediate dilution to new investors in this offering of $            per share. The following table illustrates this per share dilution:

 

Assumed initial public offering price per share

          $                
         

 

 

 

Net tangible book value per share of common stock as of September 6, 2011

     $                     

Pro forma increase in net tangible book value per share attributable to new investors

         
    

 

 

      

Pro forma net tangible book value per share after the offering

         
         

 

 

 

Dilution per share to new investors

          $     
         

 

 

 

The following table shows on a pro forma basis at September 6, 2011, after giving effect to the completion of our corporate reorganization, the total cash consideration paid to us and the average price per share paid by existing stockholders and by new investors in this offering before deducting estimated underwriting discounts and estimated offering expenses payable by us.

 

     Shares Purchased       Total Consideration       Average Price
Per Share
 
       Number    %         Amount              %        

Existing stockholders

                   $                                 $                

New investors

            
  

 

  

 

 

   

 

 

    

 

 

   

Total

        100   $           100  

This discussion of dilution, and the table quantifying it, assumes no exercise of any outstanding stock options after September 6, 2011. Before we complete our public offering, we will have outstanding options to purchase approximately            shares of common stock at an exercise price equal to the offering price set forth on the cover of this prospectus.

The information in the preceding table has been calculated using an assumed initial public offering price of $             per share. A $1.00 increase or decrease in the assumed initial public offering price per share would increase or decrease, respectively, the as adjusted net tangible book value per share of common stock after this offering by $            per share and increase or

 

37


Table of Contents

decrease, respectively, the dilution per share of common stock to new investors in this offering by $             per share, in each case calculated as described above and assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same.

If the underwriters exercise their over-allotment option in full, our existing stockholders would own approximately    % and our new investors would own approximately    % of the total number of shares of our common stock outstanding immediately after this offering, based on shares outstanding as of September 6, 2011, and the total consideration paid by our existing common stockholders and new investors would be approximately $            (or    %) and $            (or    %), respectively.

An aggregate of            additional shares of our common stock will initially be available for future awards under the equity incentive plan that we intend to implement in connection with this offering. To the extent that we grant awards in the future with exercise prices below the initial public offering price in this offering, investors purchasing in this offering will incur additional dilution.

 

38


Table of Contents

SELECTED CONSOLIDATED AND COMBINED FINANCIAL DATA

The selected consolidated and combined financial data below are derived from the following sources:

 

   

the combined financial statements of our company while operated as subsidiaries of Lone Star Steakhouse & Saloon, Inc. (which we refer to as our Predecessor) for the period from December 28, 2005 through December 12, 2006, which have been audited by an independent registered public accounting firm;

 

   

our consolidated financial statements for the period from December 13, 2006 through December 26, 2006 and for 2007 through 2010 which have been audited by an independent registered public accounting firm; and

 

   

our unaudited interim combined financial statements for the 36 weeks ended September 7, 2010 and September 6, 2011, which in the opinion of management reflect all adjustments necessary to present fairly in accordance with accounting principles generally accepted in the United States the information for interim periods presented. The operating results of the interim periods are not necessarily indicative of results for a full year.

The selected combined financial data for the period from December 28, 2005 through December 12, 2006 and the consolidated financial data for the period from December 13, 2006 through December 26, 2006 and the fiscal year ended December 31, 2007 and as of December 26, 2006, December 31, 2007 and December 30, 2008 are derived from our historical financial statements not included elsewhere in this prospectus. The selected consolidated financial data as of December 29, 2009 and December 28, 2010 and for the fiscal years ended December 30, 2008, December 29, 2009 and December 28, 2010 are derived from our audited consolidated financial statements appearing elsewhere in this prospectus. The selected consolidated financial data as of and for the 36 weeks ended September 7, 2010 and September 6, 2011 are derived from our unaudited interim consolidated financial statements appearing elsewhere in this prospectus.

The selected consolidated and combined financial data below represent portions of our financial statements and are not complete. Additionally, the financial and operating data set forth below may not reflect the many significant changes that will occur in the operations and capitalization of our company as a result of the reorganization. You should read this information together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes to those statements included elsewhere in this prospectus. Historical results are not necessarily indicative of future performance.

The Predecessor financial statements represent the financial position and combined results of operations of the Del Frisco’s Double Eagle Steak House and Sullivan’s Steakhouse restaurants as well as LS Management, Inc., previously a subsidiary of Lone Star Steakhouse & Saloon, Inc. and now a subsidiary of an affiliate that provided cash management and treasury support for all of Lone Star Steakhouse & Saloon, Inc.’s restaurants, which have been “carved-out” from the consolidated financial statements of Lone Star Steakhouse & Saloon, Inc. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Financial Definitions—Management and Accounting Fees Paid to Related Party.”

 

39


Table of Contents
    Predecessor           Successor  
    December 28,
2005 through
December 12,
2006
          December 13,
2006 through
December 26,
2006
    Fiscal Year Ended(1)     36 Weeks Ended  
        December 31,
2007
    December 30,
2008
    December 29,
2009
    December 28,
2010
    September 7,
2010
    September 6,
2011
 
                                              (Unaudited)  
                      (in thousands, except per share amounts)              

Income Statement Data :

                   

Revenues

  $ 144,536          $ 7,714      $ 163,868      $ 178,386      $ 160,177      $ 165,575      $ 107,968      $ 128,758   

Costs and expenses:

                   

Costs of sales

    51,108            2,623        56,850        58,587        47,593        50,339        32,659        39,413   

Restaurant operating expenses

    61,214            2,711        67,290        73,718        69,209        73,404        50,112        58,087   

Marketing and advertising costs

            3,293        3,473        3,523        2,825        1,640        2,705   

Pre-opening costs

    486                   2,124        2,469        493        798        729        2,177   

General and administrative

    11,140            37        4,719        6,354        8,236        7,512        5,030        7,511   

Abandoned registration costs

                             2,379                               

Costs associated with strategic alternatives and merger expense

    2,360                   223                                      

Management and accounting fees paid to related party

               195        2,907        2,104        2,878        3,345        2,091        2,366   

Non-cash impairment charges

                                                         1,400   

Depreciation and amortization

    4,150            119        3,333        4,555        6,422        6,624        4,572        4,790   
 

 

 

       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

    14,078            2,029        23,129        24,747        21,823        20,728        11,135        10,309   

Other income (expense), net:

                   

Interest expense— affiliates

               (425     (4,533     (2,295     (2,281     (1,775     (1,335       

Interest expense— other

    (169         (5     (4,355     (10,147     (5,942     (9,906     (7,162     (7,447

Other, net

    2,249            30        290        (182     36        (249     (59     (274
 

 

 

       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations before income taxes

    16,158            1.629        14.531        12,123        13,636        8,798        2,579        2,588   

Provision for (benefit from) income taxes

    6,754            541        4,407        4,924        3,616        (44     2,022        943   
 

 

 

       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations

    9,404            1,088        10,124        7,199        10,020        8,842        557        1,645   

Discontinued operations:

                   

Loss from operations of discontinued restaurant

    (773         (43     (309     (68                            

Income tax benefit

    271            15        116        24                               
 

 

 

       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss on discontinued operations

    (502         (28     (193     (44                            
 

 

 

       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

  $ 8,902          $ 1,060      $ 9,931      $ 7,155      $ 10,020      $ 8,842      $ 557      $ 1,645   
 

 

 

       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Pro forma net income per common share(2):

                   

Basic and diluted

  $          $      $        $        $        $        $        $     
 

 

 

       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Shares used in computing pro forma unaudited net income per share(2):

                   

Basic and diluted

                             
 

 

 

       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

40


Table of Contents
    December 26,
2006
    December 31,
2007
    December 30,
2008
    December 29,
2009
    December 28,
2010
    September 7,
2010
    September 6,
2011
 
                                  (Unaudited)  
                      (in thousands)                    

Balance Sheet Data (at end of period):

             

Cash and cash equivalents.

  $ 8,732      $ 8,205      $ 7,292      $ 13,257      $ 4,157      $ 4,491      $ 4,079   

Working capital (deficit)

    191,728        (34,063     (34,229     1,061        (2,276     211        (2,089

Total assets

    218,906        214,482        225,033        236,424        218,834        220,371        220,624   

Total debt

    163,624        151,004        151,706        150,544        78,922        133,358        71,100   

Total member’s equity (deficit)

    (29,318     (18,674     (10,154     32,741        89,100        33,636        90,029   

 

    Predecessor           Successor  
    December 28,
2005 through
December 12,
2006
          December 13,
2006 through
December 26,
2006
    Fiscal Year Ended(1)     36 Weeks Ended  
          December 31,
2007
    December 30,
2008
    December 29,
2009
    December 28,
2010
    September 7,
2010
    September 6,
2011
 
                                              (Unaudited)  
                (in thousands, except restaurant and percentage amounts)        

Other Financial Data :

                   

Net cash provided by operating activities

  $ 23,204          $ (1,289   $ 20,625      $ 16,003      $ 18,916      $ 12,278      $ 8,782      $ 10,832   

Net cash provided by (used in) investing activities

    308            27,441        (5,491     (16,947     (28,538     (1,489     972        (695

Net cash provided by (used in) financing activities

    (13,384         (33,602     (15,669     75        15,587        (19,889     (18,521     (10,215

Capital expenditures

    5,534            55        16,878        21,422        7,755        5,550        3,035        13,850   

Adjusted EBITDA(3)

    18,714            2,148        29,129        34,281        30,373        30,220        17,716        20,773   

Adjusted EBITDA margin(4)

    12.9         27.8     17.7     19.2     18.9     18.3     16.4     16.1

Restaurant-level EBITDA(3)

    29,854            2,380        36,212        42,256        39,852        39,007        23,557        28,553   

Restaurant-level EBITDA margin(5)

    20.7         30.9     22.1     23.7     24.9     23.6     21.8     22.2
                   

Operating Data:(5)

                 

Total restaurants (at end of period)

        20        23        26        27        28        28        30   

Total comparable restaurants (at end of period)(7)

        20        20        21        23        27        27        27   

Average sales per comparable restaurant

      $ 7,562      $ 7,762      $ 7,539      $ 6,049      $ 6,107      $ 3,995      $ 4,478   

Percentage Change in comparable restaurant sales(7)

        7.2     2.6     (2.3 )%      (18.7 )%      4.3     2.0     12.1

 

(1) We utilize a 52- or 53-week accounting period which ends on the last Tuesday of December. The fiscal year ended December 30, 2008 had 53 weeks. The fiscal years ended December 29, 2009 and December 28, 2010 each had 52 weeks.
(2) Unaudited pro forma basic and diluted income per share will be computed by dividing net income for each period by the shares of common stock to be issued following our conversion from a limited liability company to a corporation concurrent with the closing of this offering. Such shares will be assumed to be outstanding for all periods presented. There will be no potentially dilutive securities. There is no other impact to the financial statements as a result of converting from a limited liability company to a corporation, because our historical financial statements have included a provision for income taxes and related deferred income taxes.
(3) For our definition of adjusted EBITDA and restaurant-level EBITDA and a discussion of why we consider them useful, see “Summary Historical Consolidated Financial and Operating Data.”

 

41


Table of Contents

The following table presents a reconciliation of adjusted EBITDA and restaurant-level EBITDA to net income:

 

    Predecessor           Successor  
    December 28,
2005 through
December 12,
2006
          December 13,
2006 through
December 26,
2006
    Fiscal Year Ended     36 Weeks Ended  
        December 31,
2007
    December 30,
2008
    December 29,
2009
    December 28,
2010
    September 7,
2010
    September 6,
2011
 
                                              (Unaudited)  
                            (in thousands)                    

Income from continuing operations

  $ 9,404          $ 1,088      $ 10,124      $ 7,199      $ 10,020      $ 8,842      $ 557      $ 1,645   

Provision (benefit) for income taxes

    6,754            541        4,407        4,924        3,616        (44     2,022        943   

Interest income

    (2,249         (30     (290     (170     (36     (75     (5     (6

Interest expense—other

    169            5        4,355        10,147        5,942        9,906        7,162        7,447   

Interest expense—affiliate

               425        4,533        2,295        2,281        1,775        1,335          

Non-cash impairment charges

                                                         1,400   

Depreciation and amortization

    4,150            119        3,333        4,555        6,422        6,624        4,572        4,790   

Lease guarantee payments

                                           324        64        280   

Pre-opening costs

    486                   2,124        2,469        493        798        729        2,177   

Abandoned registration costs

                             2,379                               

Management fees and expenses(a)

                      543        483        1,635        2,070        1,280        2,097   
 

 

 

       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

  $ 18,714          $ 2,148      $ 29,129      $ 34,281      $ 30,373      $ 30,220      $ 17,716      $ 20,773   

General and administrative.

    11,140            37        4,719        6,354        8,236        7,512        5,030        7,511   

Related party shared services fees

               195        2,364        1,621        1,243        1,275        811        269   
 

 

 

       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Restaurant-level EBITDA

  $ 29,854          $ 2,380      $ 36,212      $ 42,256      $ 39,852      $ 39,007      $ 23,557      $ 28,553   

 

  (a) Includes asset management fees and expenses paid to an affiliate of Lone Star Fund pursuant to our asset advisory agreement, but excludes amounts paid to another affiliate of Lone Star Fund for accounting, administrative and management services under our shared services agreement, which is referred to as the related party shared services fee. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Financial Definitions—Management and Accounting Fees Paid to Related Party” and “Certain Relationships and Related Party Transactions—Relationships with Lone Star Fund and its Affiliates—Termination of Asset Advisory Agreement.”

 

(4) Adjusted EBITDA margin is the ratio of adjusted EBITDA to revenues.
(5) Restaurant-level EBITDA margin is the ratio of restaurant-level EBITDA to revenues.
(6) Operating data for the predecessor period from December 28, 2005 through December 12, 2006 and the successor period from December 13, 2006 through December 26, 2006 have been combined for the purposes of comparison to other annual periods.
(7) We consider a restaurant to be comparable in the first full period following the eighteenth month of operations. Changes in comparable restaurant sales reflect changes in sales for the comparable group of restaurants over a specified period of time.

 

42


Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our consolidated financial condition and results of operations for the thirty-six weeks ended September 6, 2011 and September 7, 2010 and for the fiscal years ended December 28, 2010, December 29, 2009 and December 30, 2008 should be read in conjunction with “Selected Consolidated and Combined Financial Data” and the consolidated and combined financial statements and related notes to those statements included elsewhere in this prospectus. Some of the information contained in this discussion and analysis or set forth elsewhere in this prospectus, including information with respect to our plans and strategies for our business, includes forward-looking statements that involve risks and uncertainties. You should review the section entitled “Risk Factors” for a discussion of important factors that could cause actual results to differ materially from the results described in, or implied by, the forward-looking statements contained in this prospectus.

Overview

We develop, own and operate three contemporary, high end, complementary restaurant concepts: Del Frisco’s Double Eagle Steak House, Sullivan’s Steakhouse, and Del Frisco’s Grille. We are a leader in the full-service steakhouse industry based on average unit volume, or AUV, EBITDA margin and comparable restaurant sales growth. We currently operate 31 high-volume, full-service restaurants in 18 states. Each of our three concepts offers steaks as well as other menu selections, such as chops and fresh seafood. These menu selections are complemented by an extensive, award-winning wine selection. Our restaurants use a distinctive, highly attentive serving process and offer sophisticated interior décors which we believe differentiate us from our peers by creating an upscale, high-energy environment. While positioned within the fine dining segment, Del Frisco’s, Sullivan’s and the Grille have each developed distinctive appeal for both business and local dining guests. Our Del Frisco’s restaurants are sited in urban locations that allow guests seeking a “destination dining” experience to access them easily. The broad appeal of our Sullivan’s and Grille restaurants allows them to be located either in urban locations or in close proximity to affluent residential areas. We believe our success reflects consistent execution across all aspects of the dining experience, from the formulation of proprietary recipes to the procurement and presentation of high quality menu items and delivery of excellent guest service.

We believe we have an attractive unit economic model that enables us to generate high AUV and restaurant-level EBITDA margins. For the four quarters ended September 6, 2011, the AUV across all concepts was $6.5 million and restaurant-level EBITDA margin was 23.6%. AUV and restaurant-level EBITDA margin increased 8.9% and 12.3% over the prior year, respectively. Furthermore, for that same period, all 27 comparable restaurants had positive restaurant-level EBITDA. After allocating corporate general and administrative expenses, our adjusted EBITDA margin was 17.9%. Restaurant-level and adjusted EBITDA exclude a number of significant items, including our interest expense and depreciation and amortization expense.

Our Growth Strategies and Outlook

Our growth model is comprised of the following three primary drivers:

 

   

Pursue Disciplined Restaurant Growth.     We believe that there are significant opportunities to grow our brands on a nationwide basis in both existing and new markets where we believe we can generate attractive unit-level economics. We are presented with many opportunities to grow our restaurant base, and we carefully

 

43


Table of Contents
 

evaluate each opportunity to determine that each site selected for development has a high probability of meeting our return on investment targets. Our disciplined growth strategy includes accepting only those sites that we believe present attractive rent and tenant allowance structures as well as reasonable construction costs given the sales potential of the site. We believe our concepts’ complementary market positioning and ability to coexist in the same markets, coupled with our flexible unit models, will allow us to expand each of our three concepts into a greater number of locations.

 

   

Grow Existing Revenue.     We will continue to pursue opportunities to increase the sales and average check at our existing restaurants, pursue targeted local marketing efforts and evaluate operational initiatives, including growth in private dining, designed to increase restaurant unit volumes.

 

   

Maintain Margins Throughout Our Growth.     We will continue to aggressively protect our margins using economies of scale, including marketing and purchasing synergies between our concepts and leveraging our corporate infrastructure as we continue to open new restaurants.

In 2011, we expanded our national platform by opening a Del Frisco’s in Boston, Massachusetts and our first two Grille restaurants in New York City and Dallas, Texas. We believe there are opportunities to open three to five restaurants annually, generally composed of one Del Frisco’s and two to four Sullivan’s and/or Grilles, with new openings of our Grille concept likely serving as the primary driver of new unit growth in the near term.

Performance Indicators

We use the following key metrics in evaluating the performance of our restaurants:

 

   

Comparable Restaurants and Comparable Restaurant Sales .    We consider a restaurant to be comparable during the first full quarter following the eighteenth month of operations. Changes in comparable restaurant sales reflect changes in sales for the comparable group of restaurants over a specified period of time. Changes in comparable sales reflect changes in guest count trends as well as changes in average check. Our comparable restaurant base consisted of 21, 23 and 27 restaurants at December 30, 2008, December 29, 2009 and December 28, 2010, respectively.

 

   

Average Check.     Average check is calculated by dividing total restaurant sales by guest counts for a given time period. Average check is influenced by menu prices and menu mix. Management uses this indicator to analyze trends in guests’ preferences, the effectiveness of menu changes and price increases and per guest expenditures.

 

   

Average Unit Volume.     Average unit volume, or AUV, consists of the average sales of our restaurants over a certain period of time. This measure is calculated by dividing total restaurant sales within a period by the number of restaurants operating during the relevant period. This indicator assists management in measuring changes in guest traffic, pricing and development of our concepts.

 

   

Guest Counts .    Guest counts are measured by the number of entrees ordered at our restaurants over a given time period.

 

   

Adjusted EBITDA Margin .    Adjusted EBITDA margin represents net income before interest, taxes and depreciation and amortization plus the sum of certain non-operating expenses, including pre-opening costs, abandoned registration costs and management fees and expenses, as a percentage of our revenues. By monitoring and controlling our adjusted EBITDA margins, we can gauge the overall profitability of our company.

 

44


Table of Contents
   

Restaurant-Level EBITDA Margin .    Restaurant-level EBITDA margin represents net income before interest, taxes and depreciation and amortization plus the sum of certain non-operating expenses, including pre-opening costs, abandoned registration costs, management fees and expenses and general and administrative expenses, as a percentage of our revenues. By monitoring and controlling our restaurant-level EBITDA margins, we can gauge the overall profitability of our core restaurant operations.

We operate on a 52/53-week fiscal year ending the last Tuesday of each December. Our fiscal quarters consist of 12, 12, 12, and 16 or 17 weeks, respectively.

Key Financial Definitions

Revenues .    Revenues consist primarily of food and beverage sales at our restaurants, net of any discounts, such as management meals and employee meals, associated with each sale. In 2010, food comprised 65% of food and beverage sales with beverage comprising the remaining 35%. Revenues are directly influenced by the number of operating weeks in the relevant period and comparable restaurant sales growth. Comparable restaurant sales growth reflects the change in year-over-year sales for the comparable restaurant base. Comparable restaurant sales growth is primarily influenced by the number of guests eating in our restaurants, which is influenced by the popularity of our menu items, competition with other restaurants in each market, our guest mix and our ability to deliver a high quality dining experience, and the average check, which is driven by menu mix and pricing.

Cost of Sales .    Cost of sales is comprised primarily of food and beverage expenses. We measure food and beverage costs by tracking cost of sales as a percentage of revenues. Food and beverage expenses are generally influenced by the cost of food and beverage items, distribution costs and menu mix. The components of cost of sales are variable in nature, increase with revenues, are subject to increases or decreases based on fluctuations in commodity costs, including beef prices, and depend in part on the controls we have in place to manage costs of sales at our restaurants.

Restaurant Operating Expenses .    We measure restaurant operating expenses as a percentage of revenue. Restaurant operating expenses include the following:

 

   

Labor expenses, which comprise restaurant management salaries, hourly staff payroll and other payroll-related expenses, including management bonus expenses, vacation pay, payroll taxes, fringe benefits and health insurance expenses and are measured by tracking hourly and total labor as a percentage of revenues;

 

   

Occupancy expenses, which comprise all occupancy costs, consisting of both fixed and variable portions of rent, common area maintenance charges, real estate property taxes and other related occupancy costs and are measured by tracking occupancy as a percentage of revenues; and

 

   

Other operating expenses, which comprise repairs and maintenance, utilities, operating supplies and other restaurant-level related operating expenses and are measured by tracking other operating expenses as a percentage of revenues.

Marketing and Advertising Costs .    Marketing and advertising costs include all media, production and related costs for both local restaurant advertising and national marketing. We measure the efficiency of our marketing and advertising expenditures by tracking these costs as a percentage of total revenues. We have historically spent approximately 1.5% to 2.5% of total revenues on marketing and advertising and expect to maintain this level in the near term.

 

45


Table of Contents

Pre-opening Costs .    Pre-opening costs are costs incurred prior to opening a restaurant, and primarily consist of manager salaries, relocation costs, recruiting expenses, employee payroll and related training costs for new employees, including rehearsal of service activities, as well as lease costs incurred prior to opening. In addition, pre-opening expenses include marketing costs incurred prior to opening as well as meal expenses for entertaining local dignitaries, families and friends. We currently target pre-opening costs per restaurant at $0.8 million for a Del Frisco’s and a Grille and $0.6 million for a Sullivan’s.

General and Administrative Expenses.     General and administrative expenses are comprised of costs related to certain corporate and administrative functions that support development and restaurant operations and provide an infrastructure to support future company growth. These expenses reflect management, supervisory and staff salaries and employee benefits, travel, information systems, training, corporate rent, professional and consulting fees, technology and market research. We measure general and administrative costs by tracking general and administrative expenses as a percentage of revenues. These expenses are expected to increase as a result of costs associated with being a public company as well as costs related to our anticipated growth, including substantial training costs and significant investments in infrastructure. As we are able to leverage these investments made in our people and systems, we expect these expenses to decrease as a percentage of total revenues over time.

Management and Accounting Fees Paid to Related Party .    In December 2006, Lone Star Fund acquired Lone Star Steakhouse & Saloon, Inc., which owned the Del Frisco’s and Sullivan’s concepts, as well as others, including the Texas Land & Cattle and Lone Star Steakhouse & Saloon. We refer to this transaction in this prospectus as the Acquisition. Following the Acquisition, Lone Star Fund restructured the company to separate the concepts by, among other things, spinning off to one of its affiliates the subsidiaries that operated the Texas Land & Cattle and Lone Star Steakhouse & Saloon concepts. The subsidiaries of Lone Star Fund that operated these concepts were spun-off as part of the restructuring. These entities, which along with their affiliate companies, are referred to in this prospectus as the Casual Dining Companies, are wholly-owned by Lone Star Fund and are therefore considered related parties of us. We do not have any ownership interest in them and they do not have any ownership interest in us.

From December 13, 2006 to December 31, 2010, we were provided with certain accounting, administrative and management services by LS Management, Inc., one of the Casual Dining Companies, which we refer to in this prospectus as the Shared Services Provider, under a shared services agreement, or the Shared Services Agreement. The Shared Services Provider provided similar services to each of the other Casual Dining Companies. In exchange for these services, we were charged an accounting fee of $1,800 per restaurant per four-week accounting period, except for the New York City Del Frisco’s, which was charged $5,400 per four-week accounting period, plus a management fee equal to 19.5% of certain agreed upon expenses, as defined in the Shared Services Agreement, which totaled $1.6 million, $1.2 million and $1.3 million in 2008, 2009 and 2010, respectively. Effective January 1, 2011, we ended this relationship and InfoSync Services, LLC, a business process outsourcing provider focused exclusively on the restaurant industry, began providing similar services under a three-year agreement. We incurred expenses from InfoSync of $0.4 million for services provided during the 36-week period ended September 6, 2011 which is included in general and administrative expenses.

Additionally, since December 13, 2006, we have incurred an asset management fee from an affiliate of Lone Star Fund. This fee is billed monthly based upon the actual direct costs incurred by this affiliate in providing support to us. In 2008, 2009, 2010 and the 36-week period ended September 6, 2011, we paid this affiliate of Lone Star Fund approximately $0.5 million, $1.6

 

46


Table of Contents

million, $2.1 million and $2.1 million, respectively, for these services. Concurrent with this offering, this fee will be terminated in exchange for a lump sum $3.0 million payment from the proceeds to the Company of this offering. See “Certain Relationships and Related Party Transactions—Relationships with Lone Star Fund and its Affiliates—Termination of Asset Advisory Agreement.”

We measure management and accounting fees paid as a percentage of revenue.

Depreciation and Amortization .    Depreciation and amortization includes depreciation of fixed assets and certain definite life intangible assets. We depreciate capitalized leasehold improvements over the shorter of the total expected lease term or their estimated useful life. As we accelerate our restaurant openings, depreciation and amortization is expected to increase as a result of our increased capital expenditures.

Results of Operations

The following table sets forth certain statements of income data for the periods indicated:

 

    Fiscal Year Ended     36 Weeks Ended  
    December 30,
2008
    December 29,
2009
    December 28,
2010
    September 7,
2010
    September 6,
2011
 
                      (Unaudited)  
                (in thousands)              

Revenues

  $ 178,386      $ 160,177      $ 165,575      $ 107,968      $ 128,758   

Costs and expenses:

         

Cost of sales

    58,587        47,593        50,339        32,659        39,413   

Restaurant operating expenses

    73,718        69,209        73,404        50,112        58,087   

Marketing and advertising costs

    3,473        3,523        2,825        1,640        2,705   

Pre-opening costs

    2,469        493        798        729        2,177   

General and administrative expenses

    6,354        8,236        7,512        5,030        7,511   

Abandoned registration costs

    2,379                               

Management and accounting fees paid to related party

    2,104        2,878        3,345        2,091        2,366   

Non-cash impairment charges

                                1,400   

Depreciation and amortization

    4,555        6,422        6,624        4,572        4,790   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

    24,747        21,823        20,728        11,135        10,309   

Other income (expense), net:

         

Interest expense—affiliates

    (2,295     (2,281     (1,775     (1,335       

Interest expense—other

    (10,147     (5,942     (9,906     (7,162     (7,447

Other, net

    (182     36        (249     (59     (274
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations before income taxes

    12,123        13,636        8,798        2,579        2,588   

Provision for income taxes

    4,924        3,616        (44     2,022        943   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations

  $ 7,199      $ 10,020      $ 8,842      $ 557      $ 1,645   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

47


Table of Contents

The following table sets forth certain statements of income data expressed as a percentage of revenues for the periods indicated:

 

     Fiscal Year Ended     36 Weeks Ended  
     December 30,
2008
    December 29,
2009
    December 28,
2010
    September 7,
2010
    September 6,
2011
 
                       (Unaudited)  

Revenues

     100.0     100.0     100.0     100.0     100.0

Costs and expenses:

          

Cost of sales

     32.8     29.7     30.4     30.2     30.6

Restaurant operating expenses

     41.3     43.2     44.3     46.4     45.1

Marketing and advertising costs

     1.9     2.2     1.7     1.5     2.1

Pre-opening costs

     1.4     0.3     0.5     0.7     1.7

General and administrative expenses

     3.6     5.1     4.5     4.7     5.8

Abandoned registration costs

     1.3                            

Management and accounting fees paid to related party

     1.2     1.8     2.0     1.9     1.8

Non-cash impairment charges

                                 1.1

Depreciation and amortization

     2.6     4.0     4.0     4.2     3.7
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     13.9     13.7     12.6     10.4     8.1

Other income (expense), net:

          

Interest expense—affiliates

     (1.3 %)      (1.4 %)      (1.1 %)      (1.2 %)      0.0

Interest expense—other

     (5.7 %)      (3.7 %)      (6.0 %)      (6.6 %)      (5.8 %) 

Other, net

     (0.1 %)      0.0     (0.2 %)      0.0     (0.2 %) 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations before income taxes

     6.8     8.6     5.3     2.6     2.1

Provision for income taxes

     2.8     2.3     0.0     1.9     0.7
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations

     4.0     6.3     5.3     0.7     1.4
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Thirty-Six Weeks Ended September 6, 2011 Compared to the Thirty-Six Weeks Ended September 7, 2010

Revenues .     Revenues increased $20.8 million, or 19.3%, to $128.8 million for the 36 weeks ended September 6, 2011 from, $108.0 million in the comparable period in 2010. The increase was due primarily to a 12.1% increase in total comparable restaurant sales comprised of an increase in comparable sales of 15.0% at Del Frisco’s restaurants and an increase in comparable sales of 8.9% at Sullivan’s restaurants. This overall comparable increase was driven primarily by an increase in average check of 5.7% and an increase in guest counts of 6.0%. The increase in average check was impacted by menu price increases of approximately 2% implemented in the second quarter of 2011, with the remainder the result of the menu mix shifting to higher priced items. Additionally, there was approximately $8.0 million in revenues related to an additional 47

 

48


Table of Contents

operating weeks provided by one Grille that opened in the third quarter of 2011, one Del Frisco’s that opened in the second quarter of 2011 and one Sullivan’s that opened in the second quarter of 2010.

Cost of Sales .     Cost of sales increased $6.8 million, or 20.7%, to $39.4 million in the 36 weeks ended September 6, 2011, from $32.7 million in the comparable period in 2010. The increase in costs of sales is primarily related to the growth in comparable restaurant sales and to additional restaurants opened during 2010 and 2011. As a percentage of revenues, cost of sales increased to 30.6% during the 2011 period from 30.2% in the prior year’s period. The increase in cost of sales, as a percentage of revenues, was due to higher commodity costs, primarily for our meat and seafood.

Restaurant Operating Expenses .    Restaurant operating expenses increased $8.0 million, or 15.9%, to $58.1 million in the 36 weeks ended September 6, 2011, from $50.1 million in the comparable period in 2010. This increase was primarily due to an additional 47 operating weeks in 2011 as compared to 2010 from the one restaurant opened in 2010 and the two restaurants opened in the first thirty-six weeks of 2011. As a percentage of revenues, restaurant operating expenses decreased to 45.1% in the 2011 period from 46.4% in the prior year period. This decrease was primarily a result of the leveraging effect on the fixed cost base caused by positive growth in comparable restaurant revenues, partially offset by higher occupancy costs, due in part to two sale-leaseback transactions during the first thirty-six weeks of 2011.

Marketing and Advertising Costs .    Marketing and advertising costs increased $1.1 million, or 64.9%, to $2.7 million in the 36 weeks ended September 6, 2011, from $1.6 million in the comparable period in 2010. As a percentage of revenues, marketing and advertising costs increased to 2.1% in the 2011 period from 1.5% in the prior year period.

Pre-opening Costs .    Pre-opening costs increased by $1.5 million to $2.2 million in the 36 weeks ended September 6, 2011 from $0.7 million in the comparable period in 2010. This change related to the opening of two new restaurants during the 36 weeks ended September 6, 2011 versus one during the comparable period in 2010.

General and Administrative Expenses .    General and administrative expenses increased by $2.5 million, or 49.3%, to $7.5 million in the 36 weeks ended September 6, 2011, from $5.0 million in the comparable period in 2010. As a percentage of revenues, general and administrative expenses increased to 5.8% in the 36 weeks ended September 6, 2011 from 4.7% in the comparable period in 2010. The majority of this increase relates to certain accounting, administrative, and management services we received that were performed by the Shared Services Provider in 2010 and reflected in management fees to the related party, as described above under “—Management and Accounting Fees Paid to Related Party.” There was also an increase in compensation costs related to incentive compensation and growth in the number of corporate personnel to support recent growth, as well as an increase in costs associated with training restaurant management. These expenses are expected to increase as a result of costs associated with being a public company as well as costs related to our anticipated growth, including further investments in our infrastructure. As we are able to leverage these investments made in our people and systems, we expect these expenses to decrease as a percentage of total revenues over time.

Management and Accounting Fees Paid to Related Party .    Management and accounting fees paid to related party increased by $0.3 million, or 13.1%, to $2.4 million in the 36 weeks ended September 6, 2011, from $2.1 million in the comparable period in 2010. For the thirty-six weeks ended September 6, 2011, these fees consisted primarily of asset management fees paid

 

49


Table of Contents

to an affiliate of Lone Star Fund. For the thirty-six weeks ended September 7, 2010, these fees consisted of asset management fees paid to an affiliate of Lone Star Fund as well as fees paid to the Shared Services Provider for certain accounting, administrative, and management services. On December 29, 2010, these accounting, administrative, and management services were transferred to a third-party outsourcing firm or performed by Company personnel, and therefore these costs are reflected in general and administrative expenses in 2011. See “Certain Relationships and Related Party Transactions—Relationships with Lone Star Fund and its Affiliates—Termination of Asset Advisory Agreement” and “—Management and Accounting Fees Paid to Related Party.”

Non-Cash Impairment Charges .    We recognized non-cash impairment charges of long-lived assets of $1.4 million in the 36 weeks ended September 6, 2011. This impairment charge was related to our determination that the carrying amount of long-lived assets at one Sullivan’s exceeded its estimated future cash flows.

Depreciation and Amortization .    Depreciation and amortization increased $0.2 million, or 4.8%, to $4.8 million in the 36 weeks ended September 6, 2011, from $4.6 million in the comparable period in 2010. The increase in depreciation and amortization expense primarily resulted from new assets placed in service during 2011 upon the opening of the two new restaurants, partially offset by a decrease in depreciable assets related to the sale-leaseback of two restaurants in the first quarter of 2011.

Interest Expense .    Interest expense-affiliates was zero for the 36 weeks ended September 6, 2011, compared to $1.3 million in the comparable period in 2010 due to the payoff of the advances due to affiliates in November 2010. See “Certain Relationships and Related Party Transactions—Relationships with the Casual Dining Companies—Note Payable to Casual Dining Company.” Interest expense-other increased $0.3 million to $7.5 million for the 36 weeks ended September 6, 2011, from $7.2 million in the comparable period in 2010. This increase was due primarily to the write-off of approximately $2.5 million of deferred loan costs relating to the prior credit facility, which was terminated in July 2011 as discussed below under “—Liquidity and Capital Resources—Credit Facility.” This increase was partially offset by lower interest payments during the 36 weeks ended September 6, 2011 that were the result of a lower average credit facility balance and a lower average interest rate.

Other, Net .    Other, net, which consists primarily of payments made to extinguish certain pre-acquisition lease guarantees we made on behalf of affiliates, was $0.3 million for the 36 weeks ended September 6, 2011 compared to $0.1 million in the comparable period in 2010. See “—Off-Balance Sheet Arrangements” and “Certain Relationships and Related Party Transactions—Relationships with the Casual Dining Companies—Lease Guarantees and Reimbursement Agreement.”

Provision for Income Taxes .    The effective income tax rate was 36.4% and 78.4% for the 36 weeks ended September 6, 2011 and the comparable period in 2010, respectively. The factors that cause the effective tax rates to vary from the federal statutory rate of 35% include the impact of FICA tip and other credits, partially offset by state income taxes and certain non-deductible expenses. The change in the effective tax rate from 2010 to 2011 primarily relates to $1.4 million of incremental tax expense recorded during 2010 related to additional uncertain tax positions, partially offset by higher pre-tax income in 2011 relative to FICA tip and other credits.

 

50


Table of Contents

Fiscal Year Ended December 28, 2010 (52 weeks) Compared to Fiscal Year Ended December 29, 2009 (52 weeks)

Revenues.     Revenues increased $5.4 million, or 3.4%, to $165.6 million in 2010, from $160.2 million in 2009. The increase was due to a 4.3% increase in total comparable restaurant sales comprised of an increase in comparable sales of 7.0% at Del Frisco’s restaurants and an increase in comparable sales of 1.4% at Sullivan’s restaurants. This overall increase was driven primarily by an increase in guest counts of 5.3%, partially offset by a decrease in average check of 1.0%. The decrease in average check was impacted by the menu mix shifting to lower priced items. Additionally, there was approximately $2.1 million in revenues related to an additional 33 operating weeks provided by one Sullivan’s that opened in the second quarter of 2010 and one Sullivan’s that opened in the first quarter of 2009.

Cost of Sales.     Cost of sales increased $2.7 million, or 5.8%, to $50.3 million in 2010, from $47.6 million in 2009. The increase in costs of sales is primarily related to the growth in comparable restaurant sales and to the growth in total restaurants in 2010 as compared to 2009. As a percentage of revenues, cost of sales increased to 30.4% in 2010 from 29.7% in 2009. The increase in cost of sales, as a percentage of revenues, was due to higher commodity costs, primarily for our meat and seafood.

Restaurant Operating Expenses.     Restaurant operating expenses increased $4.2 million, or 6.1%, to $73.4 million in 2010, from $69.2 million in 2009. This increase was primarily due to an additional 33 operating weeks in 2010 as compared to 2009 from the Sullivan’s opened in 2010 and the Sullivan’s opened in 2009. As a percentage of revenues, restaurant operating expenses increased to 44.3% in 2010 from 43.2% in the prior year period. This increase was primarily a result of higher labor costs resulting from increased restaurant-level performance incentives, as well as increased post-opening staffing and training costs related to the opening of a Sullivan’s in 2010.

Marketing and Advertising Costs .    Marketing and advertising costs decreased $0.7 million, or 19.8%, to $2.8 million in 2010, from $3.5 million in 2009. As a percentage of revenues, marketing and advertising costs decreased to 1.7% in 2010 from 2.2% in the prior year period.

Pre-opening Costs.     Pre-opening costs increased by $0.3 million to $0.8 million in 2010, from $0.5 million in 2009 as a result of increased travel, labor, and occupancy costs associated with the Sullivan’s opening in 2010 as compared to the opening activities in 2009.

General and Administrative Expenses.     General and administrative expenses decreased by $0.7 million, or 8.8%, to $7.5 million in 2010, from $8.2 million in 2009. As a percentage of revenues, general and administrative expenses decreased to 4.5% in 2010, from 5.1% in 2009. The decrease was primarily attributable to a decrease in legal and professional costs related to the 2009 settlement of a dispute related to lien filings in the construction of one of our restaurants opened in 2008 and the 2009 settlement of a dissenting shareholder lawsuit related to the Acquisition. These decreases were partially offset by increases in incentive compensation costs and increases in staffing costs at the regional management-level to provide for infrastructure enhancements.

Management and Accounting Fees Paid to Related Party.     Management and accounting fees paid to related party increased $0.4 million, or 16.2%, to $3.3 million in 2010, from $2.9 million in 2009. For 2010 and 2009, these fees consisted of asset management fees paid to an affiliate of Lone Star Fund as well as fees paid to a related party for certain accounting, administrative, and management services. See “Certain Relationships and Related Party Transactions—Relationships with Lone Star Fund and its Affiliates—Termination of Asset Advisory Agreement” and “—Management and Accounting Fees Paid to Related Party.”

 

51


Table of Contents

Depreciation and Amortization.     Depreciation and amortization increased $0.2 million, or 3.1%, to $6.6 million in 2010, from $6.4 million in 2009. The increase in depreciation and amortization expense primarily resulted from new assets placed in service during 2010 upon the opening of the one new Sullivan’s restaurant.

Interest Expense.     Interest expense-affiliates decreased $0.5 million, or 22.2%, to $1.8 million for 2010, from $2.3 million in 2009 due to the payoff of the advances due to affiliates in November 2010. See “Certain Relationships and Related Party Transactions—Relationships with the Casual Dining Companies—Note Payable to Casual Dining Company.” Interest expense-other increased $4.0 million to $9.9 million in 2010 from $5.9 million in 2009. This increase was due primarily to the increase in the effective interest rate resulting from the October 2009 amendment to the Company’s prior credit facility. Additionally, there was a credit to interest expense in 2009 of $1.2 million for the reversal of interest accrued resulting from the dissenting shareholder litigation relating to the Acquisition prior to its settlement in 2009.

Other, Net.     Other, net, consisted primarily of payments made to extinguish certain pre-acquisition lease guarantees we made on behalf of affiliates in 2010. See “—Off-Balance Sheet Arrangements” and “Certain Relationships and Related Party Transactions—Relationships with the Casual Dining Companies—Lease Guarantees and Reimbursement Agreement.” In 2009, other income (expense), net, consisted primarily of interest income.

Provision for Income Taxes.     The effective income tax rate was -0.5% and 26.5% for 2010 and 2009, respectively. The factors that caused the effective tax rates to vary from the federal statutory rate of 35% include the impact of FICA tip and other credits, the impact of state income taxes and the impact of certain nondeductible or nontaxable insurance expenses or income. In addition, 2010 includes a tax benefit for the reversal of previously unrecognized tax benefits in the approximate amount of $1.7 million resulting primarily from the expiration of the statute of limitations in 2010 relating to various uncertain tax positions.

Fiscal Year Ended December 29, 2009 (52 weeks) Compared to Fiscal Year Ended December 30, 2008 (53 weeks)

Revenues.     Revenues decreased $18.2 million, or 10.2%, to $160.2 million in 2009, from $178.4 million in 2008. We believe the decrease was primarily due to the recessionary environment and a decline in business and leisure travel, which caused our guests to spend less on dining out as disposable income decreased and businesses cut back on travel and entertainment expenses. Specifically, we experienced an 18.7% decrease in total comparable restaurant sales comprised of a decrease in comparable sales of 17.2% at Del Frisco’s restaurants and a decrease in comparable sales of 20.3% at Sullivan’s restaurants. This overall decrease was driven primarily by a decrease in guest counts of 15.0% and by a decrease in average check of 4.2%. The decrease in average check was impacted by the menu mix shifting to lower priced items. In addition, 2008 was a 53-week fiscal period, which included an additional operating week contributing an additional $2.5 million to the decrease in revenues from 2008 to 2009. Partially offsetting these decreases was approximately $17.4 million in revenues related to an additional 169 operating weeks provided by one Sullivan’s that opened in the first quarter of 2009, one Sullivan’s and one Del Frisco’s that opened in the fourth quarter of 2008, and one Sullivan’s that opened in the third quarter of 2008.

Cost of Sales.     Cost of sales decreased $11.0 million, or 18.8%, to $47.6 million in 2009, from $58.6 million in 2008. The decrease in total costs is primarily related to the decline in comparable restaurant sales partially offset by the growth in total restaurants in 2009 as compared to 2008 as well as one less operating week in 2009. We believe this decline was primarily due to the effects of the economic downturn described above in “—Revenues.” As a

 

52


Table of Contents

percentage of revenues, cost of sales decreased to 29.7% in 2009 from 32.8% in 2008. The decrease in cost of sales, as a percentage of revenues, was the result of lower commodity costs, primarily for our meat and seafood.

Restaurant Operating Expenses.     Restaurant operating expenses decreased $4.5 million, or 6.1%, to $69.2 million in 2009, from $73.7 million in 2008. The decrease in restaurant operating expenses is primarily related to the decline in comparable restaurant sales partially offset by the growth in total restaurants in 2009 as compared to 2008. We believe this decline was primarily due to the effects of the economic downturn described above in “—Revenues.” As a percentage of revenues, restaurant operating expenses increased to 43.2% in 2009 from 41.3% in 2008. This increase was primarily a result of the de-leveraging effect on the fixed cost base caused by negative comparable restaurant revenues.

Marketing and Advertising Costs .    Marketing and advertising costs stayed relatively constant at $3.5 million in 2009 and 2008. As a percentage of revenues, marketing and advertising costs increased to 2.2% in 2009 from 1.9% in the prior year period.

Pre-opening Costs.     Pre-opening costs decreased by $2.0 million to $0.5 million in 2009, from $2.5 million in 2008, as the result of reduced restaurant development activities in 2009 as compared to 2008.

General and Administrative Expenses.     General and administrative expenses increased by $1.9 million, or 29.6%, to $8.2 million in 2009 from $6.3 million in 2008. As a percentage of revenues, general and administrative expenses increased to 5.1% in 2009 from 3.6% in 2008. The increase was primarily attributable to an increase in legal and professional costs primarily associated with a dispute related to lien filings in the construction of one of our restaurants opened in 2008 and the settlement of the dissenting shareholder lawsuit related to the Acquisition.

Management Fees Paid to Related Party .    Management fees paid to related party increased $0.8 million, or 36.8%, to $2.9 million in 2009 from $2.1 million in 2008. For 2009 and 2008, these fees consisted of asset management fees paid to an affiliate of the Lone Star Funds as well as fees paid to a related party for certain accounting, administrative, and management services. See “Certain Relationships and Related Party Transactions—Relationships with Lone Star Fund and its Affiliates—Termination of Asset Advisory Agreement” and “—Management and Accounting Fees Paid to Related Party.”

Abandoned Registration Costs.     Abandoned registration costs were zero in 2009 compared to $2.4 million in 2008. We withdrew our attempted initial public offering in the fourth quarter of 2008 due to unfavorable market conditions, resulting in the write-off of these previously deferred costs related to the offering.

Depreciation and Amortization.     Depreciation and amortization increased $1.9 million, or 41.0%, to $6.4 million in 2009 from $4.5 million in 2008. The increase in depreciation and amortization expense primarily resulted from new assets placed in service during 2009 upon the opening of the one new restaurant in 2009 and three new restaurants in the second half of 2008.

Interest Expense.     Interest expense-affiliates was the same in 2009 and 2008 at $2.3 million. Interest expense-other decreased $4.2 million to $5.9 million in 2009 from $10.1 million in 2008. This decrease was due primarily to a lower average credit facility balance in 2009 compared to 2008. Additionally, there was a credit-to-interest expense in 2009 of $1.2 million relating to the reversal of interest accrued resulting from the dissenting shareholder litigation relating to the Acquisition prior to its settlement in 2009.

 

53


Table of Contents

Other, Net.     Other, net, consisted primarily of interest income in 2009. In 2008 other income (expense), net, consisted primarily of a loss on the sale of an undeveloped property, partially offset by interest income.

Provision for Income Taxes.     The effective income tax rate was 26.5% in 2009 and 40.6% in 2008. The Company’s effective tax rate varies from the federal statutory rate of 35% primarily due to the favorable impact of FICA tip and other credits and the increase of non-taxable insurance in 2009. In addition, 2008 includes a tax expense of approximately $0.8 million resulting from the income tax accruals provided for various uncertain tax positions. The comparable amount for uncertain tax positions in 2009 was not significant.

Potential Fluctuations in Quarterly Results and Seasonality

Our business is subject to seasonal fluctuations. Historically, the percentage of our annual revenues earned during the first and fourth fiscal quarters has been higher due, in part, to increased gift card redemptions and increased private dining during the year-end holiday season, respectively. In addition, our first, second and third quarters each contain 12 operating weeks with the fourth quarter containing 16 or 17 operating weeks. As many of our operating expenses have a fixed component, our operating income and operating income margin have historically varied significantly from quarter to quarter. Accordingly, results for any one quarter are not necessarily indicative of results to be expected for any other quarter or for any year. See “Risk Factors—Risks Related to Our Business,” which discloses material risks that could cause our quarterly operating results to change.

The following table presents quarterly measures of seasonality for 2010 and the first three quarters of 2011:

 

    Quarter Ended  
    March 23,
2010
    June 15,
2010
    September 7,
2010
    December 28,
2010
    March 22,
2011
    June 14,
2011
    September 6,
2011
 
                      (Unaudited)                    

Quarterly revenues as a percentage of annual revenues

    23.1     21.9     20.2     34.8      

Quarterly operating income as a percentage of annual operating income

    28.8     19.4     5.5     46.3      

Operating income margin(1)

    15.7     11.0     3.3     16.7     12.3     7.5     4.2

 

(1) Our measure of operating income margin consists of operating income for a period divided by the revenues for such period. Operating margin is used by our management and investors to determine our ability to control expenses in relation to our revenues. We believe it is useful to our management and investors when presented on a quarterly basis because it allows our management and investors to accurately view seasonal fluctuations in these operating results related to the fixed components of our costs and expenses.

Liquidity and Capital Resources

Upon the consummation of this offering, our principal liquidity requirements will be to meet our lease obligations and our working capital and capital expenditure needs and to pay

 

54


Table of Contents

principal and interest on our debt. Subject to our operating performance, which, if significantly adversely affected, would adversely affect the availability of funds, we expect to finance our operations for at least the next several years, including costs of opening currently planned new restaurants, through cash provided by operations and existing borrowings available under our credit facility discussed below. We cannot be sure that these sources will be sufficient to finance our operations, however, and we may seek additional financing in the future. As of September 6, 2011, we had cash and cash equivalents of approximately $4.1 million.

Our operations have not required significant working capital and, like many restaurant companies, we may at times have negative working capital. Revenues are received primarily in cash or by credit card, and restaurant operations do not require significant receivables or inventories, other than our wine inventory. In addition, we receive trade credit for the purchase of food, beverages and supplies, thereby reducing the need for incremental working capital to support growth.

Cash Flows

The following table summarizes our statement of cash flows for the 36 weeks ended September 7, 2010 and September 6, 2011:

 

     36 Weeks Ended  
     September 7,
2010
    September 6,
2011
 
     (Unaudited)  
     (in thousands)  

Net cash provided by (used in):

    

Operating activities

   $ 8,782      $ 10,832   

Investing activities

     972        (695

Financing activities

     (18,521     (10,215
  

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

   $ (8,767   $ (78
  

 

 

   

 

 

 

Operating Activities .    Cash flows provided by operating activities was $10.8 million for the 36 weeks ended September 6, 2011, consisting primarily of net income, and adjustments for depreciation, amortization, an impairment charge and other non-cash charges totaling $10.9 million and a net increase in cash of $4.2 million resulting from an increase in accounts payable, a decrease in other current assets, and a decrease in other liabilities. These cash inflows were partially offset by tax payments of $2.6 million, an increase in restricted cash of $1.1 million and an increase of $0.6 million in inventories from the opening of two new restaurants during the period. Cash flows provided by operating activities was $8.8 million for the 36 weeks ended September 7, 2010 consisting primarily of net income, and adjustments for depreciation, amortization and other non-cash charges totaling $7.2 million, a net increase in cash of $1.5 million resulting from a decrease in inventory and other current assets, and a net tax refund of $1.7 million, partially offset by a decrease of $1.6 million in accounts payable and other liabilities during the period.

Investing Activities .    Net cash used in investing activities for the 36 weeks ended September 6, 2011 was $0.7 million, consisting primarily of purchases of property and equipment of $13.9 million, primarily related to the construction of the new Del Frisco’s and Grille restaurants during the period, partially offset by net proceeds of $13.2 million received from the sale and leaseback of two restaurant properties during the period. Net cash provided by investing activities for the 36 weeks ended September 7, 2010 was $1.0 million, consisting primarily of net proceeds of $4.3 million received from the sale and leaseback of one restaurant property during the period, partially offset by purchases of property and equipment of $3.0 million, primarily related to the construction of the new Sullivan’s restaurant during the period.

 

55


Table of Contents

Financing Activities .    Net cash used in financing activities for the 36 weeks ended September 6, 2011 was $10.2 million, consisting primarily of $11.9 million in principal payments made on our previous credit facility prior to its termination in July 2011, in addition to the payment of $2.0 million in loan costs associated with entering into the new credit facility. See “—Credit Facility” below. These payments were partially offset by $4.1 million in incremental financing under the new credit facility over the prior credit facility. Net cash used in financing activities for the 36 weeks ended September 7, 2010 was $18.5 million consisting of principal payments made on our credit facility.

The following table summarizes the statement of cash flows for the fiscal years ended December 30, 2008, December 29, 2009 and December 28, 2010:

 

     Fiscal Year Ended  
     December 30,
2008
    December 29,
2009
    December 28,
2010
 
     (in thousands)  

Net cash provided by (used in):

      

Operating activities

   $ 16,003      $ 18,916      $ 12,278   

Investing activities

     (16,947     (28,538     (1,489

Financing activities

     75        15,587        (19,889

Discontinued Operations

     (44              
  

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

   $ (913   $ 5,965      $ (9,100
  

 

 

   

 

 

   

 

 

 

Operating Activities .    Cash flows provided by operating activities was $12.3 million in 2010, consisting primarily of net income, and adjustments for depreciation, amortization and other non-cash charges totaling $18.3 million, a net increase in cash of $2.4 million resulting from an increase in income taxes payable and other liabilities, and the receipt of $1.6 million in tenant improvement allowances. These cash inflows were partially offset by $6.5 million in payments attributable to accrued interest associated with the payoff of advances due to one of the Casual Dining Companies, as discussed under “Certain Relationships and Related Party Transactions—Relationships with the Casual Dining Companies—Note Payable to Casual Dining Company,” as well as a decrease in accounts payable of $2.4 million and an increase in other assets and inventories of $1.2 million. Cash flows provided by operating activities was $18.9 million in 2009 consisting primarily of net income, and adjustments for depreciation, amortization and other non-cash charges totaling $19.2 million, a net increase in cash of $4.2 million resulting from a decrease in inventory and an increase in income taxes payable, partially offset by a decrease of $3.2 million in accounts payable and other liabilities and an increase of $1.2 million in other assets during the period. Cash flows provided by operating activities was $16.0 million in 2008 consisting primarily of net income, and adjustments for depreciation, amortization, and other non-cash charges totaling $17.2 million and a net increase in cash of $1.1 million resulting from an increase in income taxes payable and other liabilities, partially offset by an increase of $2.1 million in inventory and other assets during the period.

Investing Activities .    Net cash used in investing activities in 2010 was $1.5 million, consisting primarily of net proceeds of $4.3 million received from the sale and leaseback of one restaurant property during the period, partially offset by purchases of property and equipment of $5.6 million, primarily related to the construction of a Del Frisco’s and a Sullivan’s restaurant during the period. Net cash used in investing activities in 2009 was $28.5 million, consisting primarily of $19.8 million in payments related to settling a dissenting shareholder lawsuit related to the Acquisition as discussed in greater detail in note 10 in the notes to the consolidated financial statements included elsewhere in this prospectus (offset by a $19.8 million member contribution referenced under “—Financing Activities” below) and $7.8 million

 

56


Table of Contents

in purchases of property and equipment, mainly related to the construction of a Del Frisco’s and a Sullivan’s restaurant during the period. Net cash used in investing activities in 2008 was $16.9 million, consisting primarily of $1.5 million in settlement payments to dissenting shareholders and $21.4 million in purchases of property and equipment, mainly related to the construction of the new Del Frisco’s and two new Sullivan’s restaurants during the period, partially offset by $3.9 million in proceeds from the sale of assets and short-term investments.

Financing Activities .    Net cash used in financing activities in 2010 was $19.9 million, consisting primarily of $26.4 million in principal payments made on our previous credit facility and $40.7 million in payments made to pay off advances due to one of the Casual Dining Companies, as discussed under “Certain Relationships and Related Party Transactions—Relationships with the Casual Dining Companies—Note Payable to Casual Dining Company.” These cash outflows were partially offset by a $47.1 million member contribution made to fund the principal and accrued interest due to one of the Casual Dining Companies. Net cash provided by financing activities in 2009 was $15.6 million, consisting primarily of a $19.8 million member contribution to fund the settlement of a dissenting shareholder lawsuit related to the Acquisition as discussed in greater detail in note 10 in the notes to the consolidated financial statements included elsewhere in this prospectus, partially offset by $3.1 million in principal payments made on our previous credit facility and $1.1 million in payments made associated with the amendment made to the credit facility in October 2009. Net cash provided by financing activities in 2008 was $0.1 million, consisting of a $1.5 million member contribution, partially offset by $1.1 million in principal payments made on our previous credit facility and $0.2 million in additional loan costs associated with the credit facility.

Discontinued Operations .    Net cash used in discontinued operations in 2008 was $0.1 million, which constitutes the net loss from discontinued operations related to the December 23, 2007 closing of the Branson, Missouri Sullivan’s discussed in note 14 in the notes to the consolidated financial statements included elsewhere in this prospectus.

Capital Expenditures

To the extent we open new restaurants, we anticipate capital expenditures in the future will increase from the amounts described in “—Investing Activities” above. We typically target an average cash investment of approximately $7.0 million to $9.0 million per restaurant for a Del Frisco’s restaurant and $3.0 million to $4.5 million for a Sullivan’s or a Grille, in each case net of landlord contributions and equipment financing and including pre-opening costs. In addition, we are currently “refreshing” a number of our Sullivan’s locations to, among other things, add additional seating, private dining space and patio seating. We expect to complete refreshes of four to five Sullivan’s each year at an approximate cost of $0.5 million per location, and one Del Frisco’s per year at an approximate cost of $0.5 million. These capital expenditures will primarily be funded by cash flows from operations and, if necessary, by the use of our credit facility, depending upon the timing of expenditures.

Credit Facility

We entered into a new credit facility in July 2011 and terminated our prior credit facility that consisted of a seven-year $110 million term loan and six-year revolving credit facility of up to $20.0 million. Our new credit facility provides for a five-year term loan of $70.0 million and a five-year revolving credit facility of up to $10.0 million. We used the net proceeds of the borrowings under our new credit facility to retire our prior credit facility, which at the time we entered into this new credit facility had a balance of approximately $67.0 million. The remaining proceeds were used to pay related fees and expenses and for working capital.

 

57


Table of Contents

Borrowings under the new credit facility bear interest at a rate between LIBOR plus 4.75% and LIBOR plus 5.75%, depending on our leverage ratio. Our obligations under our new credit facility are guaranteed by each of our existing and future subsidiaries and are secured by substantially all of our assets and the capital stock of our subsidiaries.

Our new credit facility contains various financial covenants, including a maximum ratio of total indebtedness to EBITDA, as defined in the credit agreement, a minimum amount of EBITDA plus corporate general and administrative expenses, a minimum ratio of EBITDA plus certain non-recurring items to fixed charges (including consolidated capital expenses) and a minimum level of liquidity, as defined in the credit agreement. Our new credit facility also contains covenants restricting certain corporate actions, including asset dispositions, acquisitions, the payment of dividends, changes of control, the incurrence of indebtedness and providing financing or other transactions with affiliates. Our new credit facility also contains customary events of default. We were in compliance with all of our debt covenants as of September 6, 2011.

Our new credit facility requires us to use at least 50% of the net proceeds from all equity offerings, including this offering, to repay indebtedness under the facility. Therefore, $            million of the proceeds received by us in this offering will be used to pay down long-term debt. See “Use of Proceeds.”

We believe that net cash provided by operating activities, net proceeds to be received by us from this offering and existing available borrowings under our new credit facility will be sufficient to fund currently anticipated working capital, planned capital expenditures and debt service requirements for the next 24 months. We regularly review acquisitions and other strategic opportunities, which may require additional debt or equity financing. We currently do not have any pending agreements or understandings with respect to any acquisition or other strategic opportunities.

Contractual Obligations

The following table summarizes our contractual obligations as of December 28, 2010:

 

     Total      Less than 1
year
     1-3 years      3-5 years      More than 5
years
 
     (in thousands)  

Long-term debt(1)

   $ 78,922       $ 3,000       $ 75,922       $       $   

Operating leases

     148,138         8,119         17,945         18,749         103,325   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 227,060       $ 11,119       $ 93,867       $ 18,749       $ 103,325   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) This reflects our obligations as of December 28, 2010 with respect to the debt outstanding under our prior credit facility, which was refinanced on July 29, 2011.

Off-Balance Sheet Arrangements

Prior to the acquisition of Lone Star Steakhouse & Saloon, Inc. by Lone Star Fund, the Predecessor guaranteed certain lease payments of certain of the Casual Dining Companies in connection with the leasing of real estate for restaurant locations. As of December 27, 2011, we continue to be a guarantor for five of these leases. The leases expire at various times through 2016. These guarantees would require payment by us only in an event of default by the Casual Dining Company tenant where it failed to make the required lease payments or perform other obligations under a lease. We believe that the likelihood is remote that material payments will

 

58


Table of Contents

be required under these guarantees. At December 27, 2011, the maximum potential amount of future lease payments we could be required to make as a result of the guarantees was $2.7 million.

Critical Accounting Policies and Estimates

Our discussion and analysis of results of operations and financial condition are based upon our audited consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements is based on our critical accounting policies that require us to make estimates and judgments that affect the amounts reported in those financial statements. Our significant accounting policies, which may be affected by our estimates and assumptions, are more fully described in note 2 in the notes to the consolidated financial statements included elsewhere in this prospectus. Critical accounting policies are those that we believe are most important to portraying our financial condition and results of operations and also require the greatest amount of subjective or complex judgments by management. Judgments or uncertainties regarding the application of these policies may result in materially different amounts being reported under different conditions or using different assumptions. We consider the following policies to be the most critical in understanding the judgments that are involved in preparing the consolidated financial statements.

Goodwill and Other Intangible Assets

We account for our goodwill and intangible assets in accordance with Accounting Standards Codification, or ASC, Topic 350, Intangibles—Goodwill and Other . In accordance with ASC 350, goodwill and intangible assets, primarily trade names, which have indefinite useful lives, are not being amortized. However, both goodwill and trade names are subject to annual impairment testing in accordance with ASC Topic 350.

The impairment evaluation for goodwill is conducted annually using a two-step process. In the first step, the fair value of each reporting unit is compared with the carrying amount of the reporting unit, including goodwill. The estimated fair value of the reporting unit is generally determined on the basis of discounted future cash flows. If the estimated fair value of the reporting unit is less than the carrying amount of the reporting unit, then a second step must be completed in order to determine the amount of the goodwill impairment that should be recorded. In the second step, the implied fair value of the reporting unit’s goodwill is determined by allocating the reporting unit’s fair value to all of its assets and liabilities other than goodwill in a manner similar to a purchase price allocation. The resulting implied fair value of the goodwill that results from the application of this second step is then compared to the carrying amount of the goodwill and an impairment charge is recorded for the difference.

The evaluation of the carrying amount of other intangible assets with indefinite lives is made annually by comparing the carrying amount of these assets to their estimated fair value. The estimated fair value is generally determined on the basis of discounted future cash flows of the restaurant concepts. We make assumptions regarding future profits and cash flows, expected growth rates, terminal value, and other factors which could significantly impact the fair value calculations. If the estimated fair value is less than the carrying amount of the other intangible assets with indefinite lives, then an impairment charge is recorded to reduce the asset to its estimated fair value.

The assumptions used in the estimate of fair value are generally consistent with the past performance of each reporting unit and other intangible assets and are also consistent with the

 

59


Table of Contents

projections and assumptions that are used in current operating plans. These assumptions are subject to change as a result of changing economic and competitive conditions.

The fair value of our restaurant concepts were substantially in excess of the carrying value as of our 2010 goodwill impairment test that was performed at year-end.

Property and Equipment

We assess recoverability of property and equipment in accordance with ASC Topic 360, Property, Plant and Equipment . Our assessment of recoverability of property and equipment is performed on a restaurant-by-restaurant basis. Certain events or changes in circumstances may indicate that the recoverability of the carrying amount of property and equipment should be assessed. These events or changes may include a significant decrease in market value, a significant change in the business climate in a particular market, or a current-period operating or cash flow loss combined with historical losses or projected future losses. If an event occurs or changes in circumstances are present, we estimate the future cash flows expected to result from the use of the asset and its eventual disposition. If the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying amount, we recognize an impairment loss. The impairment loss recognized is the amount by which the carrying amount exceeds the fair value. Additionally, we periodically review assets for changes in circumstances which may impact their useful lives.

Our assessments of cash flows represent our best estimate as of the time of the impairment review and are consistent with our internal planning. If different cash flows had been estimated in the current period, the property and equipment balances could have been materially impacted. Furthermore, our accounting estimates may change from period to period as conditions change, and this could materially impact our results in future periods. Factors that we must estimate when performing impairment tests include sales volume, prices, inflation, marketing expense, and capital expenses.

We recognized non-cash impairment charges of long-lived assets of $1.4 million in the 36 weeks ended September 6, 2011. This impairment charge was related to our determination that the carrying amount of long-lived assets at one Sullivan’s exceeded its estimated future cash flows. The estimated fair value was based on an estimated sales price for this location.

Leases

We currently lease all but two of our restaurant locations. We evaluate each lease to determine its appropriate classification as an operating or capital lease for financial reporting purposes. All of our leases are classified as operating leases. We record the minimum lease payments for our operating leases on a straight-line basis over the lease term, including option periods which in the judgment of management are reasonably assured of renewal. The lease term commences on the date that the lessee obtains control of the property, which is normally when the property is ready for tenant improvements. Contingent rent expense is recognized as incurred and is usually based on either a percentage of restaurant sales or as a percentage of restaurant sales in excess of a defined amount. Our lease costs will change based on the lease terms of our lease renewals as well as leases that we enter into with respect to our new restaurants.

Leasehold improvements financed by the landlord through tenant improvement allowances are capitalized as leasehold improvements with the tenant improvement allowances recorded as deferred lease incentives. Deferred lease incentives are amortized on a straight-line basis over

 

60


Table of Contents

the lesser of the life of the asset or the lease term, including option periods which in the judgment of management are reasonably assured of renewal (same term that is used for related leasehold improvements) and are recorded as a reduction of occupancy expense. As part of the initial lease terms, we negotiate with our landlords to secure these tenant improvement allowances. There is no guarantee that we will receive tenant improvement allowances for any of our future locations, which would result in additional occupancy expenses.

Income Taxes

We have accounted for, and currently account for, income taxes in accordance with ASC Topic 740, Accounting for Income Taxes . This statement requires an asset and liability approach for financial accounting and reporting of income taxes. Under ASC Topic 740, income taxes are accounted for based upon the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and operating loss and tax credit carry-forwards. Income taxes are one of our critical accounting policies and estimates and therefore involve a certain degree of judgment. We use an estimate of our annual effective tax rate at each interim period based on the facts and circumstances available at that time while the actual effective tax rate is calculated at year-end.

The realization of tax benefits of deductible temporary differences will depend on whether we will have sufficient taxable income of an appropriate character to allow for utilization of the deductible amounts.

We record a liability for unrecognized tax benefits resulting from tax positions taken, or expected to be taken, in an income tax return. We recognize any interest and penalties related to unrecognized tax benefits in income tax expense. Significant judgment is required in assessing, among other things, the timing and amounts of deductible and taxable items. Tax reserves are evaluated and adjusted as appropriate, while taking into account the progress of audits of various taxing jurisdictions.

Self-Insurance Reserves

We maintain various insurance policies including workers’ compensation and general liability. Pursuant to those policies, we are responsible for losses up to certain limits and are required to estimate a liability that represents our ultimate exposure for aggregate losses below those limits. This liability is based on management’s estimates of the ultimate costs to be incurred to settle known claims and claims not reported as of the balance sheet date. Our estimated liability is not discounted and is based on a number of assumptions and factors, including historical trends, actuarial assumptions, and economic conditions. If actual trends, including the severity or frequency of claims, differ from our estimates, our financial results could be impacted.

Recent Accounting Pronouncements

In January 2010, the FASB issued Accounting Standards Update (ASU) 2010-06, Fair Value Measurements and Disclosures (Topic 820), Improving Disclosures about Fair Value Measurements , which required additional disclosure of significant transfers in and out of instruments categorized as Level 1 and 2 in the Fair Value hierarchy. The update also clarified existing disclosure requirements by defining the level of disaggregation of instruments into classes as well as additional disclosure around the valuation techniques and inputs used to measure fair value. Additionally, for instruments categorized as Level 3 in the Fair Value hierarchy, the guidance required a roll forward of activities on purchases, sales, issuance, and

 

61


Table of Contents

settlements of the assets and liabilities. The update became effective for us in fiscal 2010. Other than requiring additional disclosures, adoption of this new guidance did not have a significant impact on our consolidated financial statements.

Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

The inherent risk in market risk sensitive instruments and positions primarily relates to potential losses arising from adverse changes in interest rates.

We are exposed to market risk from fluctuations in interest rates. For fixed rate debt, interest rate changes affect the fair market value of the debt but do not impact earnings or cash flows. Conversely for variable rate debt, including borrowings under our new credit facility, interest rate changes generally do not affect the fair market value of the debt, but do impact future earnings and cash flows, assuming other factors are held constant. At September 6, 2011, we had $71.1 million of variable rate debt. Holding other variables constant, such as foreign exchange rates and debt levels, a hypothetical immediate one percentage point change in interest rates would be expected to have an impact on pre-tax earnings and cash flows for 2011 of approximately $0.7 million. After giving effect to this offering and the application of net proceeds therefrom, we would have had $            million of variable rate debt at September 6, 2011, and, holding other variables constant, a hypothetical immediate one percentage point change in interest rates would be expected to have an estimated impact on pre-tax earnings and cash flows for 2011 of approximately $            million.

Commodity Price Risk

We are exposed to market price fluctuations in beef, seafood, produce and other food product prices. Given the historical volatility of beef, seafood, produce and other food product prices, these fluctuations can materially impact our food and beverage costs. While we have taken steps to qualify multiple suppliers who meet our standards as suppliers for our restaurants and enter into agreements with suppliers for some of the commodities used in our restaurant operations, there can be no assurance that future supplies and costs for such commodities will not fluctuate due to weather and other market conditions outside of our control. We are currently unable to contract for some of our commodities, such as fresh seafood and certain produce, for periods longer than one week. Consequently, such commodities can be subject to unforeseen supply and cost fluctuations. Dairy costs can also fluctuate due to government regulation. Because we typically set our menu prices in advance of our food product prices, our menu prices cannot immediately take into account changing costs of food items. To the extent that we are unable to pass the increased costs on to our guests through price increases, our results of operations would be adversely affected. We do not use financial instruments to hedge our risk to market price fluctuations in beef, seafood, produce and other food product prices at this time.

Inflation

Over the past five years, inflation has not significantly affected our operations. However, the impact of inflation on labor, food and occupancy costs could, in the future, significantly affect our operations. We pay many of our employees hourly rates related to the applicable federal or state minimum wage. Food costs as a percentage of revenues have been somewhat stable due to procurement efficiencies and menu price adjustments, although no assurance can be made that our procurement will continue to be efficient or that we will be able to raise menu prices in

 

62


Table of Contents

the future. Costs for construction, taxes, repairs, maintenance and insurance all impact our occupancy costs. We believe that our current strategy, which is to seek to maintain operating margins through a combination of menu price increases, cost controls, careful evaluation of property and equipment needs, and efficient purchasing practices, has been an effective tool for dealing with inflation. There can be no assurance, however, that future inflationary or other cost pressure will be effectively offset by this strategy.

 

63


Table of Contents

BUSINESS

Our Company

We develop, own and operate three contemporary, high end, complementary restaurant concepts: Del Frisco’s Double Eagle Steak House, Sullivan’s Steakhouse and Del Frisco’s Grille. We are a leader in the full-service steakhouse industry based on average unit volume, or AUV, EBITDA margin and comparable restaurant sales growth. We currently operate 31 high-volume, full-service restaurants in 18 states. Each of our three concepts offers steaks as well as other menu selections, such as chops and fresh seafood. These menu selections are complemented by an extensive, award-winning wine selection. Our restaurants use a distinctive, highly attentive serving process and offer sophisticated interior décors which we believe differentiate us from our peers by creating an upscale, high-energy environment. While positioned within the fine dining segment, Del Frisco’s, Sullivan’s and the Grille have each developed distinctive appeal for both business and local dining guests. Our Del Frisco’s restaurants are sited in urban locations that allow guests seeking a “destination dining” experience to access them easily. The broad appeal of our Sullivan’s and Grille restaurants allows them to be located either in urban locations or in close proximity to affluent residential areas. We believe our success reflects consistent execution across all aspects of the dining experience, from the formulation of proprietary recipes to the procurement and presentation of high quality menu items and delivery of excellent guest service.

We recorded revenues of $186.4 million for the four quarters ended September 6, 2011, representing 16.1% total revenue growth and 11.0% comparable restaurant sales growth over the same period in the prior year. These revenues resulted in adjusted EBITDA of $33.3 million and net income of $9.9 million for the same four quarters ended September 6, 2011, representing 13.0% adjusted EBITDA growth and 130.8% net income growth over the same period in the prior year. Our adjusted EBITDA margin during this period was 17.9%. For a reconciliation of adjusted EBITDA and adjusted EBITDA margin, see “—Summary Historical Consolidated Financial and Operating Data.”

Del Frisco’s Double Eagle Steak House

We believe Del Frisco’s is one of the premier steakhouse concepts in the United States. The Del Frisco’s brand is defined by its distinctive service and exceptional menu, including USDA Prime grade, wet-aged steaks hand-cut at the time of order, and a range of other premium offerings. Additional offerings include prime lamb, fresh seafood, and signature side dishes and desserts, all served in a sophisticated and energetic setting. Each restaurant has a sommelier to guide diners through an extensive, award-winning wine list and our bartenders specialize in hand-shaken martinis and crafted cocktails. Del Frisco’s restaurants target guests seeking a premium full-service, fine-dining experience. We believe the décor and ambiance, with both contemporary and classic designs, enhance the experience and differentiate Del Frisco’s from other upscale steakhouse concepts. We currently operate nine Del Frisco’s steakhouses in seven states. These restaurants range in size from 11,000 to 24,000 square feet with seating capacity for at least 300 people. Annual AUVs per comparable Del Frisco’s restaurant were $12.1 million for the four quarters ended September 6, 2011. During the same period, the average check at Del Frisco’s was $98.

Sullivan’s Steakhouse

Sullivan’s, designed as a complementary concept to Del Frisco’s in the mid-1990’s, is a vibrant neighborhood steakhouse featuring an open kitchen and art deco décor that offers fine hand-selected aged steaks, fresh seafood and a broad list of custom cocktails. We believe the

 

64


Table of Contents

ambiance of Sullivan’s has created a brand that resonates with a broad demographic and is defined by comfortable fine dining with great service in a high energy atmosphere with live music. Each Sullivan’s also features an extensive selection of quality, award-winning wines and a lively bar with signature cocktails. We currently operate 20 Sullivan’s steakhouses in 15 states. These restaurants range in size from 7,000 to 11,000 square feet with seating capacity for at least 250 people. Annual AUVs per comparable Sullivan’s restaurant were $4.2 million for the four quarters ended September 6, 2011. During the same period, the average check at Sullivan’s was $58.

Del Frisco’s Grille

We developed the Grille, our newest concept, to take advantage of the premier positioning of the Del Frisco’s brand and to provide greater potential for expansion due to its smaller size, lower build out cost and more diverse menu. The Grille’s menu is designed to have broad appeal and features Del Frisco’s prime aged steaks and top selling signature menu items. The Grille also offers an assortment of upscale, price-approachable entrees, including flatbread pizzas, sandwiches and salads alongside a broad selection of the same quality wines offered at Del Frisco’s. We believe the ambiance of the concept appeals to a wide range of guests seeking a less formal atmosphere for dining occasions. Our first Grille opened in August 2011 at Rockefeller Center in New York City, and we opened a second location in November 2011 in Dallas, Texas. Additional Grille openings are planned over the next year and we anticipate they will range in size from 6,500 to 8,500 square feet with seating capacity for at least 200 people. We are targeting annual AUVs per comparable Grille restaurant between $4.0 million and $6.0 million with an average check of between $45 and $55.

Our Business Strengths

We believe the key strengths of our business are the following:

Multiple Top Performing Concepts with an Expanding National Platform.     We are one of the nation’s leading upscale restaurant operators. We currently have 31 restaurants in 25 cities in 18 states, and our operating model has proven successful across a wide variety of geographic and demographic markets since our establishment more than 30 years ago. Of our locations that were operating throughout the four quarters ended September 6, 2011, we had AUVs of $6.5 million per location across all concepts, $12.1 million at our Del Frisco’s locations ($8.7 million excluding our New York location) and $4.2 million at our Sullivan’s locations. Our New York Del Frisco’s location is the highest grossing restaurant in the steakhouse industry. We appeal to landlords with prime locations by offering high-volume, complementary concepts adaptable to a variety of areas and venues. In 2011, we expanded our national platform by opening a Del Frisco’s in Boston, Massachusetts and our first two Grille restaurants in New York City and Dallas, Texas.

Operating Model Driving Higher Margins.     Our high-volume concepts, combined with our efficient operations and cost controls, enable us to generate a high average check per person and drive industry-leading operating margins. Our success is driven by our consistent execution across all aspects of the dining experience, from the formulation of proprietary recipes to the procurement and presentation of high quality menu items and delivery of outstanding guest service. Our entrepreneurial culture and bonus incentives empower and motivate the general manager at each restaurant to act as the owner of his or her restaurant. These general managers meet weekly as a group with senior management to share best practices. Chefs and kitchen staff at each restaurant are responsible for maintaining and ordering their own food inventory, thereby increasing efficiency and reducing waste and the need for additional headcount at the corporate level. We believe we achieve significant cost, quality and availability

 

65


Table of Contents

advantages through centralized sourcing from our primary suppliers of beef, wine and other products. In fiscal 2010 our revenues were comprised of 65% food and 35% alcohol and we had restaurant-level EBITDA margins of 23.6%.

Premium and Distinct Concepts with Complementary Market Positions.     Del Frisco’s, Sullivan’s and the Grille are premium dining concepts that are distinct from their competitors. We believe our guests seek the differentiated design, premium quality food and unique dining experience that characterize each of our concepts. While our concepts share certain corporate support functions to maximize efficiencies, each concept maintains its own identity and price point with average checks at Del Frisco’s and Sullivan’s of $98 and $58, respectively, for the four quarters ended September 6, 2011, and a targeted average check at the Grille of between $45 and $55. Currently, we operate multiple concepts in close proximity to each other in six of our markets. We believe our complementary positioning will continue to allow us to develop our concepts in a single metropolitan area without competing for guests. We have secured attractive locations for our restaurants, including a number of marquee locations such as waterfront properties, popular shopping districts and active business centers. We believe the locations of our restaurants add to the strength of our premium brands and help drive our industry-leading AUVs. Furthermore, many landlords and developers seek out our concepts to be restaurant anchors for their developments as our concepts are highly complementary to upscale national retailers and attract a desirable guest base.

Focus on Innovation.     We are an innovator in developing, creating and evolving energetic, high-volume concepts in the full-service steakhouse industry. We established the Del Frisco’s brand as a contemporary, energetic alternative to the traditional steakhouse concept. As we have grown the brand, we have evolved the concept to incorporate several innovative features. These features include a bold, flavorful menu offering, an extensive wine list, an attractive and lively bar scene and a team work-focused guest service approach, which we refer to as our “swarming service.” We also developed Sullivan’s in the mid-1990’s, incorporating music in a modern and comfortable décor to attract a broader clientele. The Grille, opened in 2011, leverages and broadens Del Frisco’s appeal in a less formal and smaller format. We remain committed to evolving our existing concepts to remain relevant to a broad range of guests.

High Quality Menu Offerings with an Unmatched Social Experience and Guest Service.     We believe we provide our guests with the highest quality steakhouse experience by combining exceptional food, atmosphere and service. We differentiate ourselves from our competitors by offering high quality cuisine across all menu items, with an emphasis on aged beef, fresh seafood and locally sourced ingredients. We also use bolder, more flavorful seasonings throughout our selection of offerings that reflect our heritage in the Southern United States. These offerings are complemented by an extensive, award-winning wine list and a broad cocktail selection. The dining experience is enhanced by a unique social atmosphere and upscale décor that includes sophisticated artwork, private dining rooms and welcoming bar areas. To further enhance our guests’ dining experience we have a staff of highly-trained, courteous and professional employees who provide our “swarming service,” which creates unique and frequent interactions with our guests while ensuring quick and efficient service.

Proven, Experienced Executive and Restaurant Management Teams.     Our executive team has extensive restaurant experience, including significant tenure with our company as well as other high-end restaurant concepts. Our restaurant-level managers and hourly personnel are also highly experienced, and bring a professional attitude to the dining experience we deliver. On average, our general managers at Del Frisco’s and Sullivan’s have been with us for nine and four years, respectively. Our management team, which includes senior management, regional

 

66


Table of Contents

managers and general managers, meets on a weekly basis to review financial and operating results as well as receive feedback from both senior management and their peers to collaborate on best practices. We believe our culture and commitment to operational excellence are key drivers of our distinctive guest experience and strong financial performance.

Our Growth Strategy

We believe there are significant opportunities to grow our business, strengthen our competitive position and enhance our concepts through the continued implementation of the following strategies:

Pursue Disciplined New Unit Expansion.     We believe our concepts have significant room to grow. We have an established growth pipeline and a disciplined strategy for opening new restaurants. We believe our concepts’ complementary market positioning and ability to coexist in the same markets coupled with our flexible unit models will allow us to expand each of our three concepts into a greater number of locations. We have a proven track record of successfully opening new restaurants in a number of diverse markets and we have continued to grow in 2011, opening three new restaurants in Boston, New York City and Dallas. We target a cash-on-cash return beginning in the third operating year of at least 25% for new restaurants across all of our concepts. We believe there are opportunities to open three to five restaurants annually, generally composed of one Del Frisco’s and two to four Sullivan’s and/or Grilles, with new openings of our Grille concept likely serving as the primary driver of new unit growth in the near term. In 2012, we expect to open four new restaurants, including Grilles in Phoenix, Arizona and Washington D.C. Beyond domestic new unit growth, we believe our concepts have the potential for expansion in select international markets. We believe the Grille is particularly attractive to upscale hotels outside the United States—both large and boutique—seeking an anchor restaurant tenant.

Grow Our Existing Restaurant Sales.     Our concepts achieve strong sales and guest count growth. We attract affluent consumers at our restaurants and have capitalized on increased business travel and corporate spending. Our comparable restaurant sales increased 12.1%, 12.3% and 11.8% for the first three quarters of fiscal 2011 as compared to the respective prior year periods. This marked our sixth consecutive quarter of comparable restaurant sales increases. We believe there are significant opportunities to continue to increase our sales and average check through maintaining our focus on tableside up-selling and salesmanship by our servers and by strategically adjusting menu prices, increasing our guest count and enhancing our concepts’ brand awareness through increased marketing efforts. In addition, we are adding seating to select locations, which we believe will increase sales at these restaurants.

Further Grow Our Private Dining Business.     We believe we are well-positioned to grow our private dining business due to our distinctive dining experience, prime locations and guest loyalty. All of our restaurants can serve large and small groups for private dining events, including corporate events, sales meetings, presentations, charity events and private parties. We are focused on growing our private dining business as it typically has a higher average check per guest and higher overall margins than regular dining room business. Private dining represented approximately 14.5% of our total sales in the four quarters ended September 6, 2011. We intend to drive growth by enhancing our private dining capacity and increasing awareness of our private dining services. To help drive this growth, we are creating additional private dining space at select locations by expanding or reconfiguring existing space. In addition, each location currently dedicates a staff member to increasing its private dining business. At the beginning of 2011, we hired a corporate-wide private dining executive who meets weekly with each restaurant’s private dining coordinator regarding upcoming events and sales initiatives.

 

67


Table of Contents

Restaurant Industry Overview

According to the National Restaurant Association, or the NRA, U.S. restaurant industry sales in 2010 were $583 billion, an increase of 3.0% over 2009 sales of $566 billion, and are projected to grow to $604 billion in 2011, representing approximately 3.9% of the U.S. gross domestic product. We compete in the full-service steak industry, as defined by Technomic, Inc., a research and consulting firm serving the food and foodservice industries. Technomic’s definition of the overall steak category includes both Limited-Service Restaurants, or LSRs, and Full-Service Restaurants, or FSRs. LSRs are defined as establishments whose patrons generally order or select items and pay before eating with average checks generally between $7 and $10. Each of our concepts fall into the FSR category, which includes fine dining, and is defined as establishments with a relatively broad menu along with table, counter, and/or booth service and a waitstaff. At the conclusion of 2010, the LSR steak category included 1,685 units and the FSR steak category included 7,356 units. The FSR steak category achieved $13.6 billion in sales in 2010, representing a 1.0% growth rate over 2009. FSR steakhouses within Technomic’s ranking of the top 500 restaurant chains (as ranked by U.S. system-wide sales) reported sales growth of 2.2% in 2010 and out-performed the overall steakhouse category, which includes both LSR and FSR steakhouses. We have industry-leading AUVs when compared to FSR steakhouses with sales above $35 million. There are 33 steakhouse brands in the FSR steakhouse category with sales above $35 million, which comprise approximately 2,600 units.

Site Selection and Development

We believe site selection is critical for the potential success of our restaurants. We carefully consider growth opportunities for each of our restaurant concepts and utilize a customized approach for each concept when selecting and prioritizing markets for expansion. We perform comprehensive demographic and customer profile studies to evaluate and rationalize the trade areas and sites within each desired market. We leverage a significant number of sources to produce extensive research and analysis on the dynamics of the local area, the specific attributes of each site considered and the unit economics we believe we can realize.

For the Del Frisco’s brand, we focus on sites in urban locations that allow us to easily access business clientele and guests seeking a premium dining experience. Many of our Del Frisco’s restaurants are in marquee locations, including waterfront property, popular shopping districts and active business centers. We believe the broader appeal of the Sullivan’s and Grille concepts allows us to target sites in both urban locations as well as more suburban locations in close proximity to affluent residential areas. Our site assessment analysis includes three primary components: customer profiling (demographics, lifestyle segmentation, spend metrics), trade area and site evaluation (physical inspection, competitive benchmarking, analysis of business generators/traffic patterns), and financial modeling (square footage and seat count analysis, predictive sales and margin evaluations, investment cost and return metrics).

 

68


Table of Contents

Understanding our guests is an essential element of our market planning and site selection processes. We’ve developed a guest profile for each of our concepts to help guide our development efforts and educate our development partners. We look for the following minimum criteria in our site areas:

 

     Population(a)      Daytime
Population(a)
     Average HH
Income
     Median
Age
     Priority Age
Blocks(b)
     Traffic
Counts(c)
 

LOGO

     100,000+         150,000+       $ 100,000+         40+        

 

35-44; 45-54;

55-64

  

  

     40,000+   

LOGO

     75,000+         100,000+       $ 75,000+         35+         35-44; 45-54         25,000+   

LOGO

     75,000+         100,000+       $ 75,000+         35+        

 

25-34; 35-44;

45-54

  

  

     25,000+   

 

(a) Represents the population within a customized target area generally with less than a 20-minute drive time.
(b) Represents the targeted age demographics for a prospective site.
(c) Represents the targeted average daily vehicle traffic for a prospective site.

We expect the size of new Del Frisco’s restaurants to range from 12,000 to 16,000 square feet, new Sullivan’s restaurants to range from 8,000 to 9,000 square feet and new Grille restaurants to range from 6,500 to 8,500 square feet. For the opening of a new restaurant, we measure our cash investment costs net of landlord contributions and equipment financing, but including pre-opening costs. We target average cash investment costs of $7.0 million to $9.0 million for a new Del Frisco’s and $3.0 million to $4.5 million for a new Sullivan’s or Grille. We target a cash-on-cash return of at least 25% beginning in the third operating year across our concepts, consistent with the average of restaurant openings in recent years. To achieve this return we target a ratio of third year restaurant revenues to net development costs in the range of approximately 1.25:1 to 1.50:1. We target restaurant-level EBITDA margins of between 20% and 25% for each of our three concepts.

We believe there are opportunities to open three to five new restaurants annually, generally composed of one Del Frisco’s and two to four Sullivan’s and/or Grilles, with new openings of our Grille concept likely serving as the primary driver of new unit growth in the near term. It generally takes nine to 12 months after the signing of a lease or the closing of a purchase to complete construction and open a new restaurant. Additional time is sometimes required to obtain certain government approvals, permits and licenses, such as liquor licenses.

Properties

We currently operate 31 high-volume restaurants across 18 states. We currently lease all of our restaurants, except for one Del Frisco’s restaurant and one Sullivan’s restaurant. The majority of our leases provide for minimum annual rents with some containing percentage-of-sales rent provisions, against which the minimum rent may be applied. Typically, our lease terms are five to 15 years at initiation, with two to four five-year extension options.

 

69


Table of Contents

Opening Date

  

City

  

State

  

Lease/Own

Del Frisco’s Double Eagle Steak House

        

September 1995

  

Dallas

   Texas    Own

April 1996

  

Ft. Worth

   Texas    Lease

January 1997

  

Denver

   Colorado    Lease

March 2000

  

New York

   New York    Lease

July 2000

  

Las Vegas

   Nevada    Lease

May 2007

  

Charlotte

   North Carolina    Lease

November 2007

  

Houston

   Texas    Lease

November 2008

  

Philadelphia

   Pennsylvania    Lease

April 2011

  

Boston

   Massachusetts    Lease

Del Frisco’s Grille

        

August 2011

  

New York

   New York    Lease

November 2011

  

Dallas

   Texas    Lease

Sullivan’s Steakhouse

        

May 1996

  

Austin

   Texas    Lease

November 1996

  

Indianapolis

   Indiana    Lease

October 1997

  

Baton Rouge

   Louisiana    Lease

December 1997

  

Wilmington

   Delaware    Lease

January 1998

  

Charlotte

   North Carolina    Lease

July 1998

  

Houston

   Texas    Lease

September 1998

  

Anchorage

   Alaska    Lease

September 1998

  

King of Prussia

   Pennsylvania    Lease

October 1998

  

Dallas

   Texas    Own

December 1998

  

Naperville

   Illinois    Lease

January 1999

  

Palm Desert

   California    Lease

January 1999

  

Denver

   Colorado    Lease

June 1999

  

Chicago

   Illinois    Lease

August 1999

  

Raleigh

   North Carolina    Lease

December 2000

  

Tucson

   Arizona    Lease

July 2007

  

Omaha

   Nebraska    Lease

July 2008

  

Leawood

   Kansas    Lease

November 2008

  

Lincolnshire

   Illinois    Lease

February 2009

  

Baltimore

   Maryland    Lease

June 2010

  

Seattle

   Washington    Lease

Our corporate headquarters is located in Southlake, Texas. We lease the property for our corporate headquarters.

Restaurant Operations and Management

Our restaurants have a distinctive combination of food, atmosphere and service in an upscale environment. We believe that our success reflects the consistency of our execution across all aspects of the dining experience, from the formulation of proprietary recipes, to the procurement and presentation of high quality menu items and the delivery of excellent guest service. We strive to ensure unsurpassed quality through a carefully controlled and established supply chain and proven preparation techniques.

 

70


Table of Contents

Depending on the volume of each restaurant, our typical restaurant-level management team consists of one general manager, two to four assistant managers, an executive chef and two sous chefs. We also have a highly tenured team of regional managers to oversee operations at multiple restaurants. Each of our regional and general managers is broadly trained across Del Frisco’s and Sullivan’s, and will also be trained for the Grille, allowing us the flexibility to move appropriate managers into various positions within the organization. To ensure that each restaurant and its employees meet our demanding performance requirements, we have developed a set of strict operational standards that are followed in all facets of our operations. For example, these standards are used to develop corporate recipes, many of which are proprietary, that are adhered to across all of our restaurants. These standards also mandate a quality control process for the menu items in each of our restaurants our chefs and managers oversee before each shift. This quality control process includes the full preparation of each item on our menu, other than our steaks, and the testing of each of these items for presentation, taste, portion size and temperature before they are prepared for our guests. Items that do not meet our rigorous standards are re-made until they do. We believe this process of full preparation for testing differentiates us from our competition.

The consistent execution at our restaurants is a result of the extensive training and supervision of our employees. Our general managers are required to undergo eight to 10 weeks of initial training in food quality, guest service, alcohol beverage service, liquor liability avoidance and employee retention programs. Each of our new hourly employees also typically participates in a training program during which the employee works under the close supervision of his or her general manager. Our chefs and their assistants receive extensive training in food quality, food supply management and kitchen maintenance. All of our employees are trained to uphold each concept’s distinct characteristics and our overall values and operating philosophy.

Our training programs are administered by the general manager at each restaurant and supervised by our vice president of human resources and training, director of new restaurant openings and a dedicated training director for each concept. This training team ensures that all new general managers have developed a comprehensive set of tools that they can use to manage their restaurant, including employee selection, performance management and wage and hourly compliance. We also require each general manager to obtain a mandatory internal certification in areas of the kitchen, dining room and bar area. Our training team also supports new restaurant openings. Del Frisco’s, Sullivan’s and the Grille have developed a streamlined training program that ensures employees opening a new restaurant function as a cohesive team and maintain our high operational and food preparation standards. As a result our corporate and concept-level infrastructure supports our growth strategy, allowing us to successfully replicate our standards in new restaurants.

Sourcing and Supply Chain

Our ability to maintain the consistent quality of our restaurants depends in part on our ability to procure food and other supplies from reliable sources in accordance with the specifications for all food products established by our corporate executive chef. We continually research and evaluate products and supplies to ensure high quality meat, seafood and other menu ingredients. Our executive corporate chef works with U.S. Foodservice, our beef distributor, for all beef purchases on a national level. We have also engaged a corporate purchasing consultant who negotiates directly with suppliers of meat, seafood and certain other food and beverage products to ensure consistent quality and freshness and to obtain competitive prices for items purchased nationally for each concept. Our strong relationships with national and regional foodservice distributors ensure that our restaurants receive a

 

71


Table of Contents

constant supply of products. Products are shipped directly to the restaurants, although invoices are sent to corporate headquarters for payment. We do not maintain a central product warehouse or commissary.

Our corporate chef and our purchasing consultant also establish strict product specifications for those items purchased at the local level. We ensure competitive pricing for such supplies by requiring each restaurant’s chef to obtain at least three prices for each locally sourced product from suppliers approved by the corporate purchasing consultant and submit these bids to their regional chef on a weekly basis. Pricing is then compared weekly on a national basis to ensure management for each restaurant has the most up-to-date information to help with procurement. Purchasing at each restaurant is directed primarily by each restaurant’s chef, who is trained in our purchasing philosophy and specifications, and who works with regional and corporate managers to ensure consistent products. Each of our restaurants also has an in-house sommelier responsible for purchasing wines based on guest preferences, market availability and menu content.

We have not experienced any significant delays in receiving restaurant supplies and equipment. Although we currently do not engage in futures contracts or other financial risk management strategies with respect to potential price fluctuations, from time to time, we may opportunistically enter into fixed price beef supply contracts or contracts for other food products or consider other risk management strategies with regard to our meat and other food costs to minimize the impact of potential price fluctuations. This practice could help stabilize our food costs during times of fluctuating prices, although there can be no assurances that this will occur.

Marketing and Advertising

We believe that our commitment to providing quality food, hospitality, service and a high level of value for each price point is an effective approach to attracting guests and maintaining their loyalty. We use a variety of national, regional and local marketing and public relations techniques intended to maintain and build our guest traffic, maintain and enhance our concepts’ images and continually improve and refine our upscale experience. Local restaurant marketing is important to the success of our concepts. For example, each restaurant’s general manager cultivates relationships with local businesses and luxury hotels that drive the restaurant’s business, in particular its private dining business. We also work with a national public relations firm that coordinates local firms in connection with new restaurant openings.

Del Frisco’s, Sullivan’s and the Grille each use specific marketing and advertising initiatives to position the concepts in the applicable segment of our industry, including ad placement in magazines targeting the affluent segment of the population. We are currently reviewing our marketing and advertising strategy, and in the future anticipate focusing our advertising expenditures on travel-related magazines while continuing to advertise in specialty magazines that appeal to our target demographics and in select local publications.

Competition

The full-service steak industry and general upscale restaurant businesses are highly competitive and fragmented, and the number, size and strength of competitors vary widely by region, especially within the general upscale restaurant segment. We believe restaurant competition is based on quality of food products, guest service, reputation, restaurant décor, location, name recognition and price. Depending on the specific concept, our restaurants

 

72


Table of Contents

compete with a number of restaurants within their markets, both locally-owned restaurants and restaurants that are part of regional or national chains. The principal upscale steakhouse chains with which Del Frisco’s, Sullivan’s and the Grille compete are Fleming’s Prime Steakhouse and Wine Bar, The Capital Grille, Smith & Wollensky, The Palm, Ruth’s Chris Steak House and Morton’s The Steakhouse. Our concepts also compete with additional restaurants in the broader upscale dining segment.

Seasonality

Our business is subject to seasonal fluctuations comparable to most restaurants. Historically, like other restaurants in our segment, the percentage of our annual revenues earned during the first and fourth fiscal quarters has been typically higher due to holiday traffic, increased gift card purchases and redemptions and increased private dining during the year-end holiday season. There is also an extra period in our fourth quarter.

Intellectual Property

We have registered the names Del Frisco’s, Double Eagle Steak House and Sullivan’s, and have applied for registration of the Del Frisco’s Grille name, as trade names, trademarks or service marks with the United States Patent and Trademark Office and in certain foreign countries. We have the exclusive right for use of these trademarks throughout the United States, other than with respect to one location in Louisville, Kentucky, including the 50-mile surrounding area, where an unrelated third party has the right to use the Del Frisco’s name. We are also aware of names similar to those of our restaurants used by various third parties in certain limited geographical areas. We also license the use of the Del Frisco’s name to one licensee in Orlando, Florida. We believe that our trade names, trademarks and service marks are valuable to the operation of our restaurants and are important to our marketing strategy.

Employees

As of September 6, 2011, we had 3,227 employees. Many of our hourly employees are employed on a part-time basis to provide services necessary during peak periods of restaurant operations. None of our employees is covered by a collective bargaining agreement. We believe that we have good relations with our employees.

Government Regulation

Our restaurants are subject to licensing and regulation by state and local health, safety, fire and other authorities, including licensing and regulation requirements for the sale of alcoholic beverages and food. We maintain the necessary restaurant, alcoholic beverage and retail licenses, permits and approvals. The development and construction of additional restaurants will also be subject to compliance with applicable zoning, land use and environmental regulations. Federal and state labor laws govern our relationship with our employees and affect operating costs. These laws regulate, among other things, minimum wage, overtime, tips, tip credits, unemployment tax rates, workers’ compensation rates, citizenship requirements and other working conditions. Our restaurants are subject in each state in which we operate to “dram shop” laws, which allow, in general, a person to sue us if that person was injured by an intoxicated person who was wrongfully served alcoholic beverages at one of our restaurants. A judgment against us under a dram shop law could exceed our liability insurance coverage policy limits and could result in substantial liability for us and have a material adverse effect on our results of operations. Our inability to continue to obtain such insurance coverage at reasonable costs also could have a material adverse effect on us. We are also subject to the Federal Americans with Disabilities Act, which prohibits discrimination on the basis of disability in public accommodations and employment.

 

73


Table of Contents

Legal Proceedings

We are subject to various claims and legal actions, including class actions, arising in the ordinary course of business from time to time, including claims related to food quality, personal injury, contract matters, health, wage and employment and other issues. While it is impossible at this time to determine with certainty the ultimate outcome of these proceedings, lawsuits and claims, management believes that adequate provisions have been made and that the ultimate outcomes will not have a material adverse effect on our financial position.

 

74


Table of Contents

MANAGEMENT

Executive Officers and Directors

The following table sets forth certain information regarding the current member of our board of directors, our director nominees and our executive officers, as of the date of this prospectus.

 

Name

   Age     

Position

Mark S. Mednansky

     54       Chief Executive Officer; Director Nominee

Thomas J. Pennison, Jr.

     44       Chief Financial Officer

Thomas G. Dritsas

     40      

Vice President of Culinary & Corporate Executive Chef

William S. Martens

     39      

Vice President of Development & Construction

Norman J. Abdallah

     49       Director Nominee

David B. Barr

     48       Director Nominee

Jodi L. Cason

     38       Director Nominee

Richard L. Davis

     59       Director Nominee

Melissa S. Hubbell

     38       Director Nominee

Jennifer R. Lamprecht

     44       Director

Samuel D. Loughlin

     39      

Chairman of the Board Nominee; Director Nominee

Leigh P. Rea

     37       Director Nominee

Executive Officers

Mark S. Mednansky has served as Chief Executive Officer since March 2007 and will become a director upon the listing of our common stock. Prior to becoming our Chief Executive Officer in connection with the Acquisition, Mr. Mednansky served in senior management roles with Lone Star Steakhouse & Saloon, Inc. From 2005 until March 2007, Mr. Mednansky was the Chief Operating Officer of several Lone Star Steakhouse & Saloon restaurant concepts, including Del Frisco’s and Sullivan’s. Mr. Mednansky also served as Vice President of Operations of the Del Frisco’s and Sullivan’s concepts from 2000 to 2005 and President of the Texas Land & Cattle concept from 2003 to 2006. Mr. Mednansky has over 35 years of restaurant industry experience and 25 years of experience as a senior operations manager. Prior to joining Lone Star Steakhouse & Saloon, Inc., he was Director of Operations for Big Four Restaurants from 1997 to 1998, Director of Culinary Services for Dial Corp. from 1990 to 1997 and Area Manager for Big Four Restaurants from 1985 to 1990.

As our Chief Executive Officer, Mr. Mednansky will bring a deep understanding of the Company’s business, industry, operations and strategic plan to the board of directors. Mr. Mednansky also has extensive institutional knowledge gained through his more than 12 years of experience with the Del Frisco’s and Sullivan’s concepts. In addition, Mr. Mednansky’s other senior leadership and restaurant experience will enable him to provide valuable insight and guidance to the board on our industry as a whole. Mr. Mednansky’s board service will also provide a direct open channel of communication between the board and senior management.

Thomas J. Pennison, Jr. has served as Chief Financial Officer since November 2011. Prior to joining our company Mr. Pennison served as Chief Financial Officer for iSeatz Inc., a customized software technology company primarily serving the travel and leisure industry, from 2009 to 2011. Mr. Pennison also operated his own financial consulting firm in Louisiana from 2008 to 2009 where he provided financial and business consulting services to clients in the hospitality

 

75


Table of Contents

and other consumer and retail related industries. Prior to that, Mr. Pennison spent 12 years at Ruth’s Hospitality Group, Inc., a restaurant company focused exclusively on the upscale dining segment, formerly known as Ruth’s Chris Steak House, Inc., from 1996 to 2008 serving in various capacities, including Senior Vice President and Chief Financial Officer. Additionally, from 1994 to 1996, Mr. Pennison served as Assistant Corporate Controller of Casino Magic Corp., with primary responsibilities for corporate finance and SEC reporting, and from 1991 to 1994, Mr. Pennison was at the public accounting firm KPMG LLP. Mr. Pennison is a member of the Financial Executive Institute and the Louisiana Society of Certified Public Accountants.

Thomas G. Dritsas has served as Vice President of Culinary & Corporate Executive Chef since December 2006 and oversees the day to day culinary operations of Del Frisco’s, Sullivan’s and the Grille. From 2003 to 2006, Mr. Dritsas served as Corporate Executive Chef for Lone Star Steakhouse & Saloon, Inc., during which time he oversaw the daily culinary operations for each of its concepts. Mr. Dritsas joined Lone Star Steakhouse & Saloon, Inc. in 1999 and served in various culinary capacities, including as part of new opening teams. Prior to joining Lone Star Steakhouse & Saloon, Mr. Dritsas assisted in the opening of numerous independent restaurants and operated his own restaurant.

William S. Martens has served as Vice President of Development & Construction since 2011 and is responsible for market planning, site selection, site acquisition and construction for our three concepts. Mr. Martens also oversees concept design, portfolio management and facilities operations. Mr. Martens has been with us since 2008, previously serving as our Director of Development where he managed all facets of new unit development and established the infrastructure to support our growth in new and existing markets. Before joining our company, Mr. Martens served as Vice President of Portfolio Management with Hudson Americas, LLC, and affiliate of ours and Lone Star Fund, from 2007 to 2008. Prior to Hudson Americas, Mr. Martens spent nine years with Yum! Brands, where he held multiple leadership roles in Finance and Development, including the position of Senior Manager of Development. In this role, he worked with senior brand leadership teams to develop market plans, define asset strategies and make capital appropriations decisions for approximately 350 new restaurants annually.

Directors and Director Nominees

Norman J. Abdallah will become a director upon the listing of our common stock. Mr. Abdallah has served as a member of our Advisory Board since March 2011. Mr. Abdallah has served as the Chief Executive Officer of Romano’s Macaroni Grill, a privately-held restaurant concept, since 2010. Mr. Abdallah has also served as a member of the Board of Directors of California Pizza Kitchen, Inc. since 2011. Prior to joining Romano’s Macaroni Grill, Mr. Abdallah served as Chief Executive Officer of Restaurants Unlimited Inc., a privately-held multi-concept restaurant company, from 2009 to 2010. Prior to joining Restaurants Unlimited, Mr. Abdallah served as the Chief Executive Officer and Co-Founder of Fired Up, Inc., the parent company of U.S.-based casual dining concept Carino’s Italian, from 1997 to 2008.

Mr. Abdallah will bring extensive knowledge of the restaurant industry to the board of directors from his experience with a number of national restaurant concepts. In addition, Mr. Abdallah’s service as a chief executive officer of various other restaurant holding companies will contribute valuable management experience to the board’s collective knowledge. His service on the Company’s Advisory Board also provides Mr. Abdallah with a working knowledge of the Company’s business and operations that will be important to the development of the board following the completion of this offering.

David B. Barr will become a director upon the listing of our common stock. Mr. Barr has served as a member of our Advisory Board since 2008. Mr. Barr has been the Chairman of the

 

76


Table of Contents

board of directors of PMTD Restaurants LLC and its affiliates, a franchisee of KFC since 1998. Mr. Barr has also been Chairman of the board of directors of Rita Restaurant Corp., the owner and operator of Don Pablo’s Mexican Restaurants and Hops Grill and Brewery since 2008, in addition to having served on the board of the prior owner. Mr. Barr also serves on the boards of directors of Mrs. Fields Original Cookies, Inc. (owner of the Ms. Fields and TCBY brands), and Charles & Colvard Ltd., and was previously the Chairman of the board of directors of Samuels Jewelers, Inc. from 2000 to 2006. From 1994 to 2008, Mr. Barr served as the Chief Financial Officer and then Chief Executive Officer of the Great American Cookie Company, a franchisor and operator of cookie stores. Mr. Barr began his career with Price Waterhouse in 1986 where he worked until 1991 when he left to join the finance department of Pizza Hut, Inc. Mr. Barr was a licensed certified public accountant in the State of Georgia and a member of the American Institute of Certified Public Accountants from 1991 to 2003. Mr. Barr currently sits on the board of directors of International Franchise Association and the advisory board of the McIntire School of Commerce at the University of Virginia.

Mr. Barr will bring extensive knowledge of the restaurant industry to the board of directors from his experience with a number of restaurant and retail concepts. His board service for various companies, including as chairman, will also provide valuable insight to the board regarding the dynamics and interactions of a board of directors. Mr. Barr’s financial background will assist the board in taking responsibility for our public company reporting of financial information. His service on the Company’s Advisory Board also provides Mr. Barr with working knowledge of the Company’s business and operations that will be important to the development of the board following the completion of this offering.

Jodi L. Cason will become a director upon the listing of our common stock. Ms. Cason is the Senior Vice President of Corporate Finance and Investor Reporting for Hudson Advisors, LLC, an affiliate of ours and Lone Star Fund. Ms. Cason has worked for Hudson Advisors since 2000. Her responsibilities include the oversight of, and global coordination for, the financial reporting requirements of the Limited Partners, General Partner and Co-investment Partners of Lone Star Fund, including Hudson Advisors and its subsidiaries. Prior to 2000, Ms. Cason worked in the Investor Relations group of Lone Star Fund, focusing on the analysis of, and reporting on, the trends and projections of cash flows impacting both the Limited Partners and General Partner of Lone Star Fund. She began her career at KPMG in the Assurance Services group.

Ms. Cason’s background and extensive expertise in financial markets, financing and other funding operations will provide the board of directors with insight regarding investing, accounting and other financial reporting matters. Her tenure at KPMG will assist the board in taking responsibility for our public company reporting of financial information.

Richard L. Davis will become a director upon the listing of our common stock. Mr. Davis has served as a member of our Advisory Board since 2011. Mr. Davis has also served as a member of the board of directors of Bi-Lo Holdings, LLC, a 207-unit grocery company also controlled by Lone Star Fund, since 2011. Mr. Davis’ 40 year business career has been devoted to managing and developing various businesses in retail, printing services and the restaurant and entertainment industries. Mr. Davis was the founder and owner of Main Street Crossing, a restaurant and live entertainment venue, JoeAuto, a chain of auto repair shops, Extreme Logic, a software training company and Night-Rider Overnight Copy Service, a printing business. Mr. Davis was the CEO of CCG Venture Partners from 1992 to 2010 and served in an advisory board capacity in 2011 for Del Frisco’s.

 

77


Table of Contents

Mr. Davis’ extensive experience in business development across a wide range of industries will allow him to provide insight to the board of directors regarding developing and implementing strategies for growing our business. His service on the Company’s Advisory Board also provides Mr. Davis with working knowledge of the Company’s business and operations that will be important to the development of the board following the completion of this offering.

Melissa S. Hubbell will become a director upon the listing of our common stock. Ms. Hubbell has been the Chief Operating Officer of Hudson Americas, LLC, an affiliate of ours and Lone Star Fund, since 2008, with direct oversight of all business management functions, including Human Capital, Finance, Legal, IT and Investor Relations, as well as asset management responsibility for Lone Star Fund’s investment in our company. Since joining Hudson Americas, Ms. Hubbell has advised operating company management teams and internal leaders on operations matters, including organizational restructurings, executive alignment and recruiting executive-level talent. Prior to joining Hudson Americas, Ms. Hubbell was the Director of Human Resources for GMAC ResCap, a financial services company, a position she held from 2001 to 2008. Ms. Hubbell has over 14 years of strategic human resources experience in the financial services and consumer products industries.

Ms. Hubbell will bring management expertise to the board of directors covering many facets of our business, including investor relations. The breadth of her experience across multiple substantive areas will assist the board in understanding and addressing the wide variety of issues it will face following the completion of the offering. Her knowledge of employment and human resource matters will also provide the board with valuable expertise regarding these matters, including recruitment, succession planning, and relations with management personnel. Her prior involvement with Lone Star Fund’s investment in us also provides Ms. Hubbell with a working knowledge of our business and operations that will be important to the development of the board following the completion of this offering.

Jennifer R. Lamprecht has served as a director since March 2011. In 2009, Ms. Lamprecht joined Hudson Americas, LLC, an affiliate of ours and Lone Star Fund, as Director of Capital Markets, focused on optimizing capital structure and financing arrangements for portfolio entities as well as managing commercial and investment banking relationships across multiple asset classes and funds. Ms. Lamprecht’s current responsibilities include asset management for all of Lone Star Fund’s restaurant investments, including our company as well as the Lone Star Steakhouse & Saloon and Texas Land & Cattle brands. Prior to joining Hudson Americas, Ms. Lamprecht spent 18 years in the financial services industry, including 10 years at Morgan Stanley in its capital markets and investment banking divisions where she covered healthcare and retail clients.

Ms. Lamprecht’s knowledge of our company allows her to bring a well-informed perspective to the board of directors regarding our operations and our vision for the future. Her extensive experience in the financial markets also allows her to make valuable contributions with respect to our capital structure and financing and investing activities. This experience will also be helpful in forming our relationship with investors following the completion of this offering.

Samuel D. Loughlin will become a director and Chairman of the Board upon the listing of our common stock. Mr. Loughlin is currently a Managing Director of Lone Star U.S. Acquisitions, LLC, an affiliate of ours and Lone Star Fund, where he focuses on originations initiatives. Previously, from 2008 to 2011, he served in various capacities at Hudson Americas, LLC, an affiliate of ours and Lone Star Fund, with responsibility for its retail and restaurant

 

78


Table of Contents

operating companies, in addition to leading teams in special originations initiatives. Mr. Loughlin joined Hudson Americas in 2008 and focused on asset management, origination and monetization strategies of a number of assets. Mr. Loughlin has more than 13 years of finance and legal experience, including mergers and acquisitions, financing, private equity investment, originations and asset management transactions. Prior to joining Hudson Americas, Mr. Loughlin was a Partner of CCG Venture Partners, a private equity firm with real estate, operating company and securities holdings, where he was responsible for legal oversight, deal structuring, asset evaluation, acquisitions and sales. Previously, Mr. Loughlin was an attorney in the Business and Corporate Securities Group at Vinson & Elkins LLP, where he supported clients in venture capital and mezzanine financing transactions, private and public securities offerings, mergers and acquisitions, management buyouts and debt financing transactions.

Mr. Loughlin has significant experience with the strategic, financial and operational requirements facing companies in the restaurant and related industries, allowing him to guide the board in analyzing, shaping, and overseeing our execution of important operational and policy issues. His responsibilities for Lone Star Fund’s restaurant companies, including our company, also provide Mr. Loughlin with a working knowledge of our business and operations that will be important to the development of the board following the completion of this offering.

Leigh P. Rea will become a director upon the listing of our common stock. Ms. Rea has served as Managing Director of Lone Star U.S. Acquisitions, LLC, an affiliate of ours and Lone Star Fund, since 2007, where she focuses on origination activities related to distressed residential mortgage related securities. She has served in this capacity since July 2007 and during this time her responsibilities have included the analysis, underwriting, closing and asset management of residential structured products. From 2001 to 2007, Ms. Rea worked on the origination and management of corporate and real estate distressed debt and private equity opportunities. From 1998 to 2000, Ms. Rea worked for Hudson Advisors in the workout of distressed real estate and corporate credits. Ms. Rea currently serves as a director or officer of several privately-held companies owned or controlled by Lone Star Fund.

Ms. Rea brings broad expertise in financial management to the board of directors. Ms. Rea also has extensive experience in real estate matters, which are a significant aspect of our business and growth prospects for the future.

There are no family relationships among any of our directors, director nominees or executive officers.

Management Compensation

After this offering, we expect to continue to compensate our management on a basis substantially similar to immediately prior to this offering, except that, in light of our proposed status as a public company, our equity-based incentive program will be different from the program in effect prior to the offering.

Equity-Based Arrangements. Currently, we do not maintain an equity-based compensation program, other than Class B and Class C interests in our direct parent, LSF5 Wagon Holdings, LLC, or Wagon, granted to certain of our executive officers and described below under “—Payments in Connection with Offering.” However, in connection with this offering, we intend to adopt a long-term equity incentive plan for employees, officers, non-employee directors and other service providers, to be known as the Del Frisco Restaurant Group 2012 Long-Term Incentive Plan, or the 2012 Plan. The 2012 Plan will be designed to promote our interests by

 

79


Table of Contents

providing eligible persons with the opportunity to share in appreciation of our stock resulting from our performance. We have reserved              shares of our common stock for issuance under the equity incentive plan. Of these              shares reserved for issuance, we anticipate granting options for the issuance of              shares at the time of the pricing of this offering with an exercise price equal to the initial public offering price. See “Executive Compensation—2012 Long-Term Incentive Plan” below.

Incentive-Based Arrangements. We currently maintain the Del Frisco’s Restaurant Group Management Bonus Plan, which provides general managers, salaried managers, sous chefs, and executive chefs with bonus payments based on actual restaurant-level financial results.

We also currently maintain an informal bonus policy for certain corporate-level employees of the Company and its subsidiaries, including our named executive officers (as defined under “Executive Compensation” below). Under this policy, all participants are potentially eligible to receive an annual performance-based bonus equal to a target percentage of their annual salary, based upon their corresponding level of individual responsibility within the organization. Whether an individual’s target is achieved depends upon whether various financial performance metrics tied to each individual’s responsibilities (such as EBITDA, same store sales, regional sales, food costs, etc.) are satisfied. Our Chief Executive Officer, Mark S. Mednansky, may then recommend a discretionary upward or downward adjustment to each individual’s target bonus (other than his own) based upon such individual’s overall performance and contributions for the year. Mr. Mednansky’s recommendations are reviewed by our Board of Directors, who retains final discretion in determining the amount of any bonuses actually paid.

We expect that our informal bonus policy will be reduced to writing and incorporated within the 2012 Plan after this offering. The 2012 Plan authorizes the payment of cash or stock incentive bonuses. Such incentive bonus will confer upon the participant the opportunity to earn a future payment tied to a level of achievement with respect to one or more performance criteria established for a performance period of typically not less than one year. Our compensation committee will establish the performance criteria and level of achievement versus these criteria that will determine the amount payable under any incentive bonus. Notwithstanding the satisfaction of any award criteria, incentive bonuses awarded or granted under the 2012 Plan may be subject to discretionary adjustment by our compensation committee. However, any adjustment for named executive officers will be downward only, and any downward adjustment for one named executive officer will not result in an upward adjustment for any other named executive officer.

Director Compensation

Historically, we have not paid any compensation to our non-employee directors for their services as directors. However, we intend to pay compensation to independent directors following the completion of this offering. We expect to pay an annual retainer of $15,000 per year to each independent director for his or her services, with an additional $15,000 annual fee for service as the chairman of the board or as chairperson of a committee of the board. In addition, we expect to pay our independent directors an additional fee of $1,500 for each meeting attended in person and $250 for each meeting attended telephonically. Such fees are expected to be paid quarterly in arrears.

Board of Directors

Our certificate of incorporation will provide that our board of directors will be divided into three classes of directors, with the classes to be as nearly equal in number as possible. The members of each class will serve for a three-year term. As a result, one-third of our board of

 

80


Table of Contents

directors will be elected each year, and Mses. Hubbell and Lamprecht and Mr. Loughlin will be class I directors, up for election in 2013, Mses. Cason and Rea and Mr. Barr will be class II directors, up for election in 2014, and Messrs. Abdallah, Davis and Mednansky will be class III directors, up for election in 2015.

Before the completion of this offering, our board of directors will establish an audit committee, a compensation committee and a nominating and corporate governance committee, each of which will operate pursuant to a charter that will be adopted by our board of directors. Upon the closing of this offering, the composition and functioning of all of our committees will comply with all applicable requirements of the Sarbanes-Oxley Act of 2002, the stock exchange on which we will list our common stock and the SEC rules and regulations.

Following this offering, Lone Star Fund will continue to control more than 50% of the voting power of our common stock in the election of directors. Accordingly, we intend to avail ourselves of the “controlled company” exception available under the rules of the stock exchange on which we will list our common stock which eliminates certain requirements, such as the requirements that a company have a majority of independent directors on its board of directors, that compensation of the executive officers be determined, or recommended to the board of directors for determination, by a majority of the independent directors or a compensation committee comprised solely of independent directors, and that director nominees be selected, or recommended for the board of directors’ selection, by a majority of the independent directors or a nominations committee comprised solely of independent directors. In the event that we cease to be a controlled company, we will be required to comply with these provisions within the transition periods specified in the rules of the stock exchange on which we will list our common stock. These exemptions do not modify the independence requirements for our audit committee, and we intend to comply with the applicable requirements of the SEC and rules of the stock exchange on which we will list our common stock with respect to our audit committee within the applicable time frame.

Audit Committee

The primary responsibilities of our audit committee will be to oversee the accounting and financial reporting processes of our company as well as our affiliated and subsidiary companies, and to oversee the internal and external audit processes. The audit committee will also assist the board of directors in fulfilling its oversight responsibilities by reviewing the financial information provided to stockholders and others, and the system of internal controls established by management and the board of directors. The audit committee will oversee the independent auditors, including their independence and objectivity. However, the committee members will not act as professional accountants or auditors, and their functions are not intended to duplicate or substitute for the activities of management and the independent auditors. The audit committee will be empowered to retain independent legal counsel and other advisors as it deems necessary or appropriate to assist it in fulfilling its responsibilities, and to approve the fees and other retention terms of the advisors.

The audit committee will be comprised of three members, Ms. Cason and Messrs. Barr and Davis, with Mr. Barr serving as chair. Our board of directors has determined that each of             is independent, as defined under and required by the federal securities laws and the rules of the stock exchanges. Our board of directors has determined that             qualifies as an audit committee financial expert under the federal securities laws and that each member of the audit committee has the financial sophistication required under the rules of the stock exchanges. The rules of the SEC and the stock exchanges require us to have a fully independent audit committee within one year of the date of the effectiveness of the registration statement of which this prospectus is a part and the listing of our common stock, respectively.

 

81


Table of Contents

Compensation Committee

The primary responsibilities of our compensation committee will be to periodically review and approve the compensation and other benefits for our employees, officers and independent directors. This will include reviewing and approving corporate goals and objectives relevant to the compensation of our executive officers in light of those goals and objectives, and setting compensation for these officers based on those evaluations. Our compensation committee will also administer and have discretionary authority over the issuance of stock awards under our equity incentive plan.

The compensation committee may delegate authority to review and approve the compensation of our employees to certain of our executive officers, including with respect to awards made under our equity incentive plan. Even where the compensation committee does not delegate authority, our executive officers will typically make recommendations to the compensation committee regarding compensation to be paid to our employees and the size of grants of stock option, restricted stock and other forms of stock-based compensation.

The compensation committee will be comprised of three members, Mses. Hubbell and Lamprecht and Mr. Abdallah, with Ms. Hubbell serving as chair. For so long as we are a controlled company, we are not required to have a compensation committee comprised of independent directors under stock exchange rules. The board has nonetheless determined that             is independent under the rules of the stock exchanges.

Nominating and Corporate Governance Committee

Our nominating and corporate governance committee will oversee all aspects of our corporate governance functions. The committee will make recommendations to our board of directors regarding director candidates and assist our board of directors in determining the composition of our board of directors and its committees. The nominating and corporate governance committee will be comprised of three members, Ms. Rea and Messrs. Davis and Loughlin, with Mr. Loughlin serving as chair. For so long as we are a controlled company, we are not required to have a nominating and governance committee comprised of independent directors under stock exchange rules. The board has nonetheless determined that             is independent under the rules of the stock exchanges.

Code of Conduct and Ethics

Our board of directors will adopt a code of conduct and ethics that establishes the standards of ethical conduct applicable to all directors, officers and employees of our company. The code will address, among other things, conflicts of interest, compliance with disclosure controls and procedures and internal control over financial reporting, corporate opportunities and confidentiality requirements. The audit committee will be responsible for applying and interpreting our code of conduct and ethics in situations where questions are presented to it.

Compensation Committee Interlocks and Insider Participation

Our compensation committee will be comprised of Mses. Hubbell and Lamprecht and Mr. Abdallah. None of our executive officers currently serves or has served during the last completed fiscal year, as a member of the board of directors, or as a member of the compensation or similar committee, of any entity that has one or more executive officers who served on our board of directors. For a description of the transactions between us and members of the compensation committee, and entities affiliated with such members, see the transactions described under the section entitled “Certain Relationships and Related Party Transactions.”

 

82


Table of Contents

EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

Overview

This Compensation Discussion and Analysis provides an overview of our executive compensation program and explains our compensation philosophy, objectives and design. The compensation provided to our chief executive officer, our chief financial officer, our former chief financial officer and our three other most highly compensated executive officers during fiscal year 2011, or collectively, the named executive officers, is set forth in detail in the tables and narratives that follow this section.

Compensation of Our Named Executive Officers.      Our named executive officers for fiscal 2011 were:

 

   

Mark S. Mednansky, Chief Executive Officer;

 

   

Thomas J. Pennison, Jr., Chief Financial Officer;

 

   

Thomas G. Dritsas, Corporate Executive Chef;

 

   

William S. Martens, Vice President of Development & Construction;

 

   

Jon W. Howie, former Chief Financial Officer; and

 

   

Edie A. Ames, former Chief Operating Officer.

The Company does not directly employ any individuals other than Mr. Dritsas. All of our corporate-level employees, including our named executive officers, with the exception of Mr. Dritsas, have historically been employed and compensated by Center Cut Hospitality, Inc., or CCH, a direct, wholly-owned subsidiary of the Company, and, in the case of Mr. Dritsas, by one of our indirect subsidiaries, Sullivan’s of North Carolina. Nevertheless, our board of directors has retained final oversight and responsibility with respect to the compensation provided to the employees of CCH. Mr. Dritsas has entered into a new employment agreement with us. After this offering, we expect the compensation of our executive officers will be determined by our compensation committee and approved by the board of directors.

Executive Compensation Objectives and Philosophy.     Our primary executive compensation objective has been to attract and retain top talent from within a highly competitive global marketplace to maximize value to our equityholder. We seek to recruit and retain individuals who have demonstrated a high level of expertise and who are market leaders in the restaurant industry. We believe that the compensation paid to our executives is competitive in this marketplace. While we do not formally benchmark the compensation of our executives to any particular group of peer companies, we regularly review publicly available information regarding executive compensation in the restaurant industry to assess whether our executives are generally compensated at competitive levels.

We anticipate that upon completion of this offering, our compensation program will be composed of three principal components:

 

   

annual base salary;

 

   

annual non-equity incentive compensation; and

 

   

long-term equity incentive compensation.

 

83


Table of Contents

We anticipate that we will set base salaries for our executives at levels sufficient to attract and retain talent and provide a fixed level of income, which would enable them to focus on short-term execution objectives. In addition, we will use variable cash and long-term incentives to ensure a performance-based delivery of pay that closely aligns our named executive officers’ compensation with stockholders’ interests, which would enable them to focus on long-term sustained performance of the Company. After the completion of this offering, and periodically from time to time thereafter, our compensation committee will review our compensation program and may alter or adjust some or all of its components based on various factors, including compensation levels within our industry, corporate performance and individual performance of our named executive officers.

Elements of Compensation

Salary.     Base salaries for named executive officers reflect each executive’s level of experience, responsibilities and expected future contributions to our success, as well as market competitiveness. For fiscal year 2011, Messrs. Mednansky, Pennison, Dritsas, Martens and Howie and Ms. Ames were paid annual base salaries of $400,000, $250,000, $191,076, $172,000, $270,000 and $290,000, respectively. The salary levels for each of Messrs. Mednansky and Howie were memorialized in their respective amended and restated employment agreements entered into with Messrs. Mednansky and Howie dated February 7, 2011. As discussed below, Mr. Howie terminated employment with CCH, effective May 4, 2011. Mr. Pennison was hired to replace Mr. Howie. He entered into an employment agreement with CCH dated October 17, 2011, pursuant to which he is paid a base salary of $250,000/year. Mr. Dritsas had an employment agreement with Sullivan’s of North Carolina dated as of June 10, 2010, which established his base salary at $180,000, which was increased to $198,000 effective May 11, 2011. Mr. Martens does not have an employment agreement. His base salary is set, and reviewed periodically, by our board of directors after considering his level of experience and responsibilities. Ms. Ames entered into an employment agreement dated as of May 11, 2010, and updated on February 7, 2011, which sets forth her base salary. Ms. Ames terminated employment with CCH effective July 1, 2011.

Following the completion of this offering, we expect that our compensation committee will conduct a review of each named executive officer’s base salary on an annual basis or at such time as responsibilities change, and we expect that our compensation committee will consider factors such as individual and Company performance, base salaries of executives at similarly situated companies and the competitive environment in our industry in determining whether salary adjustments are warranted.

Non-Equity Incentive Compensation

We maintain a performance-based incentive bonus policy for certain corporate-level employees of the Company and its subsidiaries, including CCH and Sullivan’s of North Carolina. Under this policy, all participants, including our named executive officers, are potentially eligible to receive an annual performance-based bonus equal to a target percentage of their annual salary, based upon their corresponding level of individual responsibility within the organization. Whether an individual’s target is achieved depends upon whether various financial performance metrics tied to each individual’s responsibilities (such as EBITDA, same store sales, regional sales, food costs, etc.) are satisfied. Historically, Mr. Mednansky then recommends a discretionary upward or downward adjustment to each individual’s target bonus (other than his own) based upon such individual’s overall performance and contributions over the prior year. Mr. Mednansky’s recommendations are reviewed by our board of directors, which retains final discretion in determining the amount of any bonuses actually paid. Once established, we expect that our compensation committee will administer this bonus policy.

 

84


Table of Contents

Messrs. Mednansky’s, Pennison’s and Howie’s and Ms. Ames’ target bonus levels are based on a combination of revenue and profitability metrics. Mr. Dritsas’ target bonus level includes revenue and profitability metrics as well as measures of food costs. Mr. Martens’ target bonus level includes profitability metrics as well as measures related to the timing and costs of restaurant development projects.

The annual incentive plan awards for fiscal 2011 have not yet been determined. They are expected to be determined in March 2012.

In setting the 2011 bonus amounts, our board of directors will consider the pre-established target bonus levels, the Company’s performance on the metrics that compose the target bonus levels, and for employees other than Mr. Mednansky, Mr. Mednansky’s recommendations on adjustments to the amounts implied by the target bonus levels. The board will then make its own subjective determination of each named executive officer’s individual performance and level of contribution toward achieving such targets. The Company’s pre-established target performance levels are aggressive, but achievable, and historically have not been achieved every year.

Pursuant to his February 7, 2011 amended and restated employment agreement, Mr. Mednansky’s annual potential bonus eligibility under the Company’s current or future bonus compensation plan is targeted at 50% of his annual base salary. Mr. Howie’s and Ms. Ames’ respective February 7, 2011 employment agreements contained similar provisions. However, in light of their respective terminations of employment, Mr. Howie and Ms. Ames are not entitled to participate in the bonus plan in fiscal year 2011. Pursuant to Mr. Pennison’s October 17, 2011 employment agreement, he is eligible for a potential annual incentive plan bonus targeted at 50% of his annual base salary.

The 2012 Plan that we intend to adopt in connection with this offering will replace the bonus policy described above, and will authorize the payment of cash or stock incentive bonuses to various employees of the Company and its subsidiaries, including the named executive officers. Such incentive bonuses would confer upon the participant the opportunity to earn a future payment tied to a level of achievement with respect to one or more performance criteria established for a performance period of typically not less than one year. Once the 2012 Plan is adopted, our compensation committee, or such other body administering the plan, will establish the performance criteria and level of achievement versus these criteria that will determine the amount payable under an incentive bonus. Notwithstanding the satisfaction of any award criteria, any incentive bonuses awarded under the 2012 Plan may be subject to discretionary adjustment by our compensation committee or such other body administering the plan. See “—2012 Long-Term Incentive Plan.”

Long-Term Equity Incentive Compensation

We do not currently maintain a long-term equity incentive plan. However, in connection with this offering, we intend to adopt the 2012 Long-Term Incentive Plan. See “—2012 Long-Term Incentive Plan.”

Nonqualified Deferred Compensation Plan.     CCH maintains the Del Frisco’s Restaurant Group Nonqualified Deferred Compensation Plan under which a select group of highly compensated management employees generally employees who are at the level of district manager or above may elect to defer a portion of their annual compensation, including base pay and/or bonuses. Employees who are eligible to participate in this plan are not eligible to participate in the Del Frisco’s Restaurant Group 401(k) Plan. The benefits under the deferred compensation plan are unfunded and evidenced by an account entry credited with the amount

 

85


Table of Contents

deferred each year plus earnings. However, all contributions by the employee and matching contributions by CCH are contributable to a grantor trust, which is invested in certain insurance policies. These assets, although not required by the plan, are segregated to pay benefits to the plan participants. In the event of CCH’s bankruptcy, these assets will be subject to the claims of CCH’s creditors. Each year, plan participants elect a percentage of pay they wish to defer for the following year. Additionally, CCH makes a matching contribution of 50% of a participant’s deferrals, up to the first 20% of a participant’s annual pay contributed to the plan. This matching contribution is also credited to a participant’s account under the plan. Matching contributions vest at a rate of 25% per year over four years. Participants may, consistent with applicable procedures, allocate the amount of deferral and Company contributions credited to their account to or between deemed investment alternatives offered by the plan for purposes of determining earnings on a participant’s account. The plan, however, has no obligation to actually invest any amounts in a participant’s account in these investment alternatives. Generally, a participant’s account balance will be distributed upon death, termination of employment, retirement or on a fixed date, subject to certain limitations. In addition, and in the sole discretion of the plan administration committee, a participant may receive a distribution of all or a portion of his or her account balance in the event of an unforeseen emergency. Each of our named executive officers, with the exception of Mr. Pennison, participated in the Nonqualified Deferred Compensation Plan in 2011. See “—2011 Nonqualified Deferred Compensation Plan.”

All Other Compensation

We provide our named executive officers with health and welfare benefits, limited perquisites and severance benefits that are intended to be part of a competitive compensation program.

Perquisites and Other Personal Benefits

Messrs. Mednansky’s and Howie’s and Ms. Ames’ February 7, 2011 employment agreements, and Mr. Pennison’s October 17, 2011 employment agreement provide for certain benefits, including Company-paid medical insurance, the use of a Company automobile or an automobile allowance not to exceed $1,000 per month, and Company-provided life insurance in the amount of $2,000,000 for Mr. Mednansky, and $1,000,000 for each of Mr. Pennison, Mr. Howie and Ms. Ames. The Company also provides a similar automobile allowance and life insurance in the amount of $50,000 for each of Mr. Dritsas and Mr. Martens.

Pursuant to his October 17, 2011 employment agreement, Mr. Pennison receives reimbursement of up to $50,000 of relocation and temporary living expenses in connection with his initial hiring and move from New Orleans, Louisiana to Southlake, Texas.

Following the completion of this offering, we expect to continue from time to time to provide limited perquisites and other personal benefits to our executives consistent with the compensation practices within our industry.

Severance and Change of Control Arrangements

During fiscal year 2011, Messrs. Mednansky, Pennison, Dritsas and Howie and Ms. Ames were eligible for severance benefits consisting of base salary continuation for a specified period under certain termination scenarios, as described in greater detail below under “—Potential Payments Upon Termination of Change of Control.” We believe these severance and change of control arrangements are standard in our industry and are intended to attract and retain qualified executives while easing the consequences in the event of an unexpected termination of employment.

 

86


Table of Contents

On May 26, 2011, CCH entered into a Separation and Release Agreement with Mr. Howie providing for the termination of his employment as Chief Financial Officer, effective as of May 4, 2011. See “Potential Payments Upon Termination or Change in Control.” In addition, Mr. Howie received $356,294 in exchange for the surrender and release of his Class B and Class C interests in Wagon as described below under “—Payments in Connection with Offering—LSF5 Wagon Holdings, LLC Class B and Class C Interests.”

Ms. Ames voluntarily terminated her employment with CCH effective July 1, 2011, and was not entitled to (and did not receive) any severance benefits.

Tax Deductibility

We have considered the potential future effects of Section 162(m) of the Internal Revenue Code of 1986, as amended, or the Code, on the compensation paid to our named executive officers. Section 162(m) places a limit of $1 million on the amount of compensation that a publicly held corporation may deduct in any one year with respect to its chief executive officer and each of the next three most highly compensated executive officers (other than its chief financial officer). In general, certain performance-based compensation approved by stockholders is not subject to this deduction limit. As we are not currently publicly-traded, we have not previously taken the deductibility limit imposed by Section 162(m) into consideration in making compensation decisions. We expect that following the consummation of this offering, we will adopt a policy that, where reasonably practicable, we will seek to qualify the variable compensation paid to our named executive officers for an exemption from the deductibility limits of Section 162(m). However, we may authorize compensation payments that do not comply with the exemptions in Section 162(m) when we believe that such payments are appropriate to attract and retain executive talent.

Summary Compensation Table

The following table sets forth information regarding compensation earned by our named executive officers and paid by CCH during the fiscal year ended December 27, 2011:

 

Name and Principal Position

   Year      Salary ($)      Non-Equity
Incentive Plan
Compensation
($)(1)
     All Other
Compensation
($)(2)
     Total ($)  

Mark S. Mednansky

     2011         400,000                 60,840         460,840   

Chief Executive Officer

              

Thomas J. Pennison, Jr.

     2011         35,577                 7,210         42,787   

Chief Financial Officer

              

Thomas G. Dritsas

     2011         191,077                 37,392         228,469   

Corporate Executive Chef

              

William S. Martens

     2011         172,000                 26,379         198,379   

Vice President of Development & Construction

              

Jon W. Howie

     2011         255,462                 18,873         274,335   

Former Chief Financial Officer

              

Edie A. Ames

     2011         150,577                 23,700         174,277   

Former Chief Operating Officer

              

 

87


Table of Contents
(1) For an explanation of non-equity incentive compensation awards, see “—Compensation Discussion and Analysis—Elements of Compensation—Non-Equity Incentive Compensation” above. 2011 annual incentive plan cash bonus awards have not yet been determined, and therefore are not included in this table. Due to their termination effective May 4, 2011 and July 1, 2011, respectively, Mr. Howie and Ms. Ames are not entitled to a 2011 bonus.
(2) Individual breakdowns of amounts included in “All Other Compensation” are as follows:

 

Name

  Company Matching
Contributions to
Deferred
Compensation Plan

($)
    Health and  Life
Insurance
Premiums

($)
    Car Benefits
($)
    Relocation
Allowance

($)
    Total All
Other
Compensation
($)
 

Mark S. Mednansky

    49,444        11,396                      60,840   

Thomas J. Pennison, Jr.

           1,141        1,708        4,361        7,210   

Thomas G. Dritsas

    25,996        11,396                      37,392   

William S. Martens

    6,883        11,396        8,100               26,379   

Jon W. Howie

    7,477        11,396                      18,873   

Edie A. Ames

    14,173        3,989        5.538               23,700   

Grants of Plan-Based Awards in 2011

The following table provides information regarding grants of plan-based awards to each of our named executive officers during the fiscal year ended December 27, 2011.

 

     Estimated Future Payouts Under Non-Equity Incentive Plan
Awards(1)
 

Name

   Target ($)  

Mark S. Mednansky

     200,000   

Thomas J. Pennison, Jr.

     17,788   

Thomas G. Dritsas

     79,200   

William S. Martens

     68,800   

Jon W. Howie

       

Edie A. Ames

       

 

(1) These amounts reflect the 2011 target levels under the Company’s annual non-equity incentive bonus policy. The actual bonus amounts associated with these targets are expected to be determined in March 2012 and will be disclosed in the Summary Compensation Table under the heading “Non-Equity Incentive Plan Compensation.” The annual performance bonus plan provides for one payout level. The board has discretion to increase or decrease the same based on a variety of factors. For additional information concerning these awards, please see “—Compensation Discussion and Analysis—Elements of Compensation—Non-Equity Incentive Compensation”: above as well as the narrative description provided below.

Employee Agreements

All of our named executive officers have either an employment agreement or a letter agreement.

Messrs. Mednansky and Howie and Ms. Ames

Pursuant to February 7, 2011 employment agreements entered into between CCH and Messrs. Mednansky and Howie and Ms. Ames, Mr. Mednansky’s annual base salary is set at $400,000, Mr. Howie’s at $270,000, and Ms. Ames’ at $290,000. Under the employment agreements, these salaries are subject to review by the board of directors annually in the first quarter of each year and may be increased at the board’s discretion. In addition, pursuant to these employment agreements, each executive is entitled to participate in all bonus compensation plans, in accordance with the terms of such plans. The target level for each of these executive’s annual bonus is to be set at least 50% of his or her annual salary, but entitlement to any such bonus and the amount of any bonus actually paid to the executive is to

 

88


Table of Contents

be determined by the board in its good faith discretion. For 2011, each of these executive’s target bonus level was set at 50% of their annual base salary. Each of these executive’s employment agreement also provides for certain perquisites, including an automobile allowance of up to $1,000 per month or use of a company car, Company-paid medical and life insurance and reimbursement of relocation costs incurred in connection with their transfer to the Company’s headquarters in Southlake, Texas. In addition, the executives are entitled to participate in the Company’s Transaction Bonus Plan, as further discussed below under “—Payments in Connection with Offering—Transaction Bonus.”

On May 26, 2011, Mr. Howie entered into a Separation Agreement and Release with the Company, as described in greater detail below under “—Potential Payments Upon Termination of Change of Control—Separation Agreement and Release with Mr. Howie.”

Ms. Ames terminated her employment with CCH effective July 1, 2011 without good reason (as defined in Ms. Ames’ employment agreement). Ms. Ames did not enter into any separation agreement and, pursuant to her February 7, 2011 employment agreement, received no compensation in connection with her termination.

Mr. Pennison

On October 17, 2011, Mr. Pennison entered into an employment agreement to serve as its new Chief Financial Officer. Pursuant to the employment agreement, Mr. Pennison is entitled to a base salary of $250,000 and participation in the annual incentive plan described above under “—Compensation Discussion and Analysis—Elements of Compensation—Non-Equity Incentive Compensation,” with a potential target bonus level set at 50% of his annual base salary, subject to achievement of various performance criteria, and further subject to the board’s discretion. Pursuant to his employment agreement, Mr. Pennison is entitled to certain other benefits, including Company-paid medical insurance, Company-paid life insurance in the amount of $1,000,000, an automobile allowance not to exceed $1,000 per month and reimbursement for up to $50,000 of relocation and temporary living expenses in connection with his relocation to Southlake, Texas. In addition, Mr. Pennison is entitled to participate in the Company’s Transaction Bonus Plan, as further discussed below under “—Payments in Connection with Offering—Transaction Bonus.”

Mr. Dritsas

Effective June 10, 2010, Mr. Dritsas and Sullivan’s of North Carolina, Inc. entered into an amended and restated employment agreement. Under this agreement, Mr. Dritsas is entitled to an annual base salary of $198,000 per year. He is also entitled to participate in all bonus compensation and stock plans which are specifically applicable to general managers. Accordingly, Mr. Dritsas participates in the Company’s annual bonus plan, described in greater detail under “—Compensation Discussion and Analysis—Elements of Compensation—Non-Equity Incentive Compensation” above. For 2011, Mr. Dritsas’ potential performance bonus target was set at 40% of his annual salary. Mr. Dritsas is also entitled to an automobile allowance and Company-paid life and health insurance benefits similar to those provided to Messrs. Mednansky, Pennison and Howie and Ms. Ames. Effective January 4, 2012, Mr. Dritsas and the Company entered into an employment agreement.

Mr. Martens

Mr. Martens is subject to the Company’s standard Non-Competition, Confidentiality, and Non-Solicitation Agreement dated April 16, 2008, but does not have any other employment agreements with us.

 

89


Table of Contents

At the Company’s discretion, Mr. Martens, as a corporate-level employee participates in the Company’s annual bonus plan described in greater detail under “—Compensation Discussion and Analysis—Elements of Compensation—Non-Equity Incentive Compensation” above. For 2011, Mr. Martens’ potential performance bonus target was set at 40% of his annual salary. Mr. Martens is also entitled to an automobile allowance and Company-paid life and health insurance benefits similar to those provided to Messrs. Mednansky, Pennison and Howie and Ms. Ames.

Payments in Connection with the Offering

LSF5 Wagon Holdings, LLC Class B and Class C Interests

Lone Star Fund provided long-term incentives to certain of our named executive officers by allowing such officers to purchase Class B interests in Wagon, the Company’s sole equityholder, and by granting equity incentive awards in the form of Class C Interests in Wagon. The Class B Interests were fully vested upon issuance and have a stated return, but do not participate in any increase in the value of our business. The Class C Interests, however, were designed to enable the executives to participate in any appreciation of our business by conditioning a portion of the vesting on the achievement of certain performance targets. The Class C Interests also vest in part based on the executive’s continued employment with the Company. Each of Messrs. Mednansky and Howie acquired Class B and Class C Interests in 2007 pursuant to subscription agreements.

Class C Interests vest annually at a rate of 7.5% over a five-year period if the holder was employed on December 31 of each year, and an additional 12.5% each year if certain performance targets with respect to a given year were achieved by December 31 of that year. Interests subject to vesting upon achievement of performance targets are forfeited and cannot vest at a later date if the applicable performance targets for the year were not achieved. The relevant performance targets for 2007, 2008, 2009, 2010 and 2011 were based upon a combination of adjusted EBITDA targets, which Wagon achieved in each year. Accordingly, as of December 31, 2011, Mr. Mednansky was 100% vested in his Class C interests. As discussed below, Mr. Howie surrendered his Class B and Class C interests to Wagon in connection with his termination of employment.

Mr. Mednansky’s Class C Interests, once fully vested, will entitle him to 3.5% of Wagon’s total value in excess of amounts used to pay a 12% preferred return on Class A and Class B Interests and return all members’ unrecovered capital contributions. However, as discussed below under “—Transaction Bonus,” if Mr. Mednansky receives a transaction bonus greater in value than his Class C Interests in connection with this offering and/or any subsequent offerings, then, pursuant to the Transaction Bonus Agreement, Mr. Mednansky’s Class C interests will not have any value or be entitled to any payment.

The terms of the subscription agreements entered into with Messrs. Mednansky and Howie allow for the repurchase of the Class B and Class C Interests upon a termination of employment. Mr. Howie terminated his employment on May 4, 2011 and, pursuant to the terms of an Equity Surrender and Release Agreement entered into between Mr. Howie and Wagon’s majority owner, LSF5 COI Holdings, LLC, or COI, Mr. Howie surrendered Class B and Class C interests on May 26, 2011 in exchange for a cash payment of $356,294.

Additionally, pursuant to a February 14, 2011 letter agreement between Wagon and Mr. Mednansky, in the event of a public offering or a secondary public offering of the Company after which Wagon’s direct or indirect ownership of the Company’s common equity is 50% or less or

 

90


Table of Contents

in the event of a sale of the Company, Mr. Mednansky may require Wagon to purchase his Class B interests in Wagon for $ 350,000 minus all distributions of available cash paid to him on any date before the transaction is consummated. This payment is conditioned upon Mr. Mednansky’s execution of a release and that he is employed by CCH on the payment date (which may be 75 days after the relevant offering or sale is consummated). Mr. Howie was party to a similar letter agreement with Wagon, but it was terminated in connection with the termination of his employment and the repurchase of his Class B and Class C Interests.

Transaction Bonus

Mr. Mednansky is also eligible pursuant to an amended and restated letter agreement dated October 21, 2011 to receive a transaction bonus in connection with certain change of control transactions. Specifically Mr. Mednansky may receive a transaction bonus from a bonus pool in connection with this or another firm commitment underwritten public offering resulting in at least $30,000,000 of gross proceeds to the Company; a qualified secondary public offering; any sale, transfer or exchange of all or substantially all of the assets of Company; or in connection with a disposition of a majority of the equity interests currently held in the Company, provided that he is employed by CCH on the date the applicable transaction is consummated, or the Transaction Date.

Upon the occurrence of an eligible transaction, Mr. Mednansky is entitled to receive 45%, subject to a 5% increase in the Company’s sole and absolute discretion, of a total bonus pool calculated based on either the sum of the aggregate outstanding principal balance for Company borrowed money plus the total net purchase price in connection with a private sale of the Company or the sum of the aggregate outstanding principal balance for Company borrowed money plus implied aggregate common equity value of the Company based on the per share price in a qualified offering or public offering. The aggregate value of the bonus pool is determined by the ultimate value ascribed to the Company in the applicable transaction, as follows:

 

Transaction Bonus Pool Amount

Aggregate Value of Company

 

Bonus Share%

 

Bonus Pool Amount

Minimum

 

Maximum

   

Minimum

 

Maximum

Less than

$228,000,000

    0.0%   $0   $0

$228,000,000

  $260,200,000   0.5%   $1,140,000   $1,301,000

Greater than

$260,200,000

  $277,800,000   1.0%   $2,603,000   $2,778,000

Greater than

$277,800,000

  Less than $292,500,000   1.5%   $4,168,500   $4,386,000

$292,500,000

  Greater than $292,500,000     $5,850,000 + 5% of any Aggregate Value over $292,500,000

In the case of a qualified public offering, the value of the bonus pool will be reduced pro rata to reflect Wagon’s outstanding direct or indirect ownership interest in the Company immediately following such offering. For example, if Wagon’s direct or indirect ownership percentage of the Company is reduced by only 30% as a result of this offering, then only 30% of the implied bonus pool will be available for payment. Eligible employees retain the right to be paid subsequent bonuses if and when any secondary offerings are consummated using the same methodology.

 

91


Table of Contents

Under the October 21, 2011 letter agreement, if Mr. Mednansky is entitled to a bonus payment in connection with a qualified public offering and Wagon or its successors maintains any direct or indirect ownership interest in the Company following the offering, as is expected with this offering, then Mr. Mednansky will be eligible for additional, future transaction bonus payments in the event of subsequent qualified secondary public offerings until Wagon no longer has any direct or indirect ownership interest in the Company. In order to receive these subsequent payments, Mr. Mednansky must (i) remain employed with CCH or any successor or acquirer of the Company’s business; (ii) not breach or violate the terms of his employment agreement or any other obligation to the Company; (iii) execute and deliver to the Company a release and award termination instrument; and (iv) have been entitled to transaction bonuses with respect to prior secondary offerings, if any.

In addition, if Mr. Mednansky remains actively employed by CCH at all times for 21 months after the Transaction Date of an initial qualified offering, does not breach his employment agreement or any other obligation to the Company during this 21-month period and does not terminate his employment for cause (as defined in Mr. Mednansky’s employment agreement) or voluntarily resign where cause exists, he will not forfeit his right to any transaction bonus in connection with a qualified secondary offering solely because he is not actively employed by CCH on the Transaction Date of such secondary offering.

Furthermore, if at any time Wagon’s direct or indirect interest in the Company is greater than zero but less than 50%, Wagon will have the right to pay Mr. Mednansky a bonus in lieu of the secondary offering transaction bonuses described above equal to the product of (i) the percentage interest in the Company held directly or indirectly by Wagon on the date that notice is provided to Mr. Mednansky of Wagon’s decision to exercise this right multiplied by (ii) the amount of the transaction bonus Mr. Mednansky would receive if the Company consummated a secondary public offering at a per share price of 105% of the fair market value of one share of the Company’s common stock on the date of such notice. Such bonus would be payable, at Wagon’s election, in any combination of cash and/or Company stock (valued as of the date of the grant) within 75 days of the notice. No bonus is payable with respect to any private sale that occurs after a qualifying public offering.

Furthermore, pursuant to the October 21, 2011 letter agreement, any transaction bonus payable to Mr. Mednansky will be subject to additional conditions. If the transaction is a private sale, Mr. Mednansky is entitled to be paid in the same form of consideration that the ownership of the Company receives in connection with the sale. In addition, if any portion of the consideration payable to the ownership in a private sale is deferred or contingent, then Mr. Mednansky’s bonus will also be deferred and/or subject to the same contingency.

Pursuant to the terms of the October 21, 2011 letter agreement, the value of Mr. Mednansky’s Class C Interests in Wagon will be reduced (but not below $0) by any transaction bonus payable to Mr. Mednansky under the October 21, 2011 letter agreement, Thus, Mr. Mednansky will be paid only the greater of the transaction bonus set forth above or the value of his Class C interests. In accordance with the terms of the October 21, 2011 letter agreement, it is expected that Mr. Mednansky will receive a transaction bonus of $         in connection with this offering, which is greater than the value of his Class C interests, and thus the Class C Interests will not have any value, and upon the eventual liquidation and distribution of Wagon, will be cancelled without any payment therefor. Any transaction bonus is to be paid within 75 days after the Transaction Date and is subject to Mr. Mednansky’s execution of a general release of the Company and its affiliates. If Mr. Mednansky’s employment is terminated within the 180-day period ending on the Transaction Date due to disability, without cause, or by Mr. Mednansky for good reason (as defined in Mr. Mednansky’s employment agreement), then Mr. Mednansky will

 

92


Table of Contents

be treated as actively employed as of the Transaction Date, and will be entitled to a bonus payment. Mr. Mednansky is not however entitled to any bonus if the applicable transaction is a sale and Mr. Mednansky is terminated for cause or quits without good reason prior to the payment of the bonus.

Mr. Pennison is party to a similar transaction bonus agreement dated as of October 17, 2011. Pursuant to this agreement, Mr. Pennison is entitled to 20%, subject to a 5% increase in the Company’s sole and absolute discretion, of the total bonus pool described above. Mr. Pennison’s transaction bonus agreement is otherwise identical to Mr. Mednansky’s agreement in all material respects.

Mr. Howie and Ms. Ames were each a party to a similar transaction bonus letter agreement. However, pursuant to the terms of these agreements, Mr. Howie and Ms. Ames were required to be employed by CCH within 180 days of the date that any of the above-described transactions were consummated, if terminated without cause or for good reason, or to be employed as of such date, if terminated without good reason. Mr. Howie’s employment was terminated without cause on May 4, 2011, and Ms. Ames voluntarily terminated her employment on July 1, 2011 without good reason, and therefore neither Mr. Howie nor Ms. Ames is eligible for a transaction bonus.

Outstanding Equity Awards at 2011 Year-End

The following table sets forth information concerning outstanding equity awards for each of our named executive officers as of December 27, 2011.

 

    Stock Awards  

Name

  Number of Shares
or Units of Stock
That Have Not
Vested (#)
    Market Value of
Shares or Units
of Stock That
Have Not
Vested ($)
    Equity Incentive Plan
Awards: Number of
Unearned Shares,
Units or Other
Rights That Have
Not Vested(#)
    Equity Incentive Plan
Awards: Market or
Payout Value of
Unearned Shares,
Units or Other
Rights That Have
Not Vested($)(1)
 

Mark S. Mednansky

    (1     (2     (1 )       (2 )  

Thomas J. Pennison, Jr.

                           

Thomas G. Dritsas

                           

William S. Martens

                           

Jon W. Howie

                           

Edie A. Ames

                           

 

(1) Mr. Mednansky’s unvested Class C Interests in Wagon represent 0.70% of Wagon’s total value in excess of amounts used to pay a 12% preferred return on Class A and Class B Interests and return all members’ unrecovered capital contributions.
(2) The market value of the unvested Class C Interests in Wagon is based upon             .

 

93


Table of Contents

Option Exercises and Stock Vested

The following table sets forth information for each of our named executive officers concerning stock awards vested during the fiscal year ended December 27, 2011.

Option Exercises and Stock Vested in 2011

 

    Stock Awards

Name

  Number of Shares Acquired on
Vesting (#)
  Value Realized on Vesting ($)(1)

Mark S. Mednansky

  (2)  

Thomas J. Pennison, Jr.

   

Thomas G. Dritsas

   

William S. Martens

   

Jon W. Howie

   

Edie A. Ames

   

 

(1) The market value of the vested Class C Interests in Wagon as of December 27, 2011 is based upon             .
(2) Consists of Class C Interests in Wagon, which vested on December 31, 2010. Such Class C Interests represent 0.70% of Wagon’s total value in excess of amounts used to pay a 12% preferred return on Class A and Class B Interests and return all members’ unrecovered capital contributions.

2011 Nonqualified Deferred Compensation Plan

The following table sets forth the deferred compensation activity for each named executive officer during the fiscal year ended December 27, 2011.

 

Name

  Executive
Contributions
in Last FY
($)(1)
    Registrant
Contributions in
Last FY ($)(2)
    Aggregate
Earnings in
Last FY ($)
    Aggregate
Withdrawals/
Distributions ($)
    Aggregate Balance
at Last FYE ($)
 

Mark S. Mednansky

    98,887        49,444        7,747               1,465,276   

Thomas J. Pennison, Jr.

                                  

Thomas G. Dritsas

    51,992        25,996        (54,284            529,466   

William S. Martens

    13,767        6,883        57               64,986   

Jon W. Howie

    14,954        7,477        (68,571     707,081          

Edie A. Ames

    28,346        14,173        (180     28,226          

 

(1) This amount is also reported in the “Salary” column of the Summary Compensation Table.
(2) This amount is also reported in the “All Other Compensation” column of the Summary Compensation Table. See footnote 2 to the Summary Compensation Table.

Potential Payments Upon Termination or Change in Control

The information below describes certain compensation and benefits to which our named executive officers are entitled in the event their employment is terminated under certain circumstances. As explained below and summarized in the table that follows this section, each of our named executive officers, with the exception of Mr. Martens, would have been entitled to such compensation and benefits assuming a termination of employment had occurred on December 27, 2011.

Mr. Mednansky

On February 7, 2011, Mr. Mednansky entered into an amended and restated employment agreement that provides for enhanced benefits in the event that he is terminated without cause, resigns for good reason, or is terminated as a result of disability on or after such date.

 

94


Table of Contents

Under the February 7, 2011 agreement, upon a termination without cause or a resignation for good reason, not as a result of death or disability and that occurs prior to a change in control, Mr. Mednansky is entitled to continue to receive his base monthly salary for a period of 12 months and to payment of his medical premiums for 12 months for the medical coverage that was in effect under CCH’s benefit plans immediately prior to such termination or resignation, provided that he receives COBRA benefits during this period. Upon a termination without cause or a resignation for good reason that occurs within 180 days following a change in control, Mr. Mednansky will be entitled to continue to receive his base monthly salary for a period of 18 months and to payment of his medical premiums for 18 months for the medical coverage that was in effect under CCH’s benefit plans immediately prior to such termination or resignation, provided that he receives COBRA benefits during this period. All severance benefits payable upon a termination without cause or a resignation for good reason are conditioned upon Mr. Mednansky’s execution of a separation agreement and general release of claims in favor of CCH and its affiliates.

Upon termination due to disability, Mr. Mednansky is entitled to receive 50% of his annual salary in addition to any disability insurance benefits received under CCH’s employee benefit plans, paid semi-monthly, in 12 equal installments.

CCH’s obligation to provide any of the severance benefits payable upon a termination without cause, a resignation for good reason, or a termination due to disability will cease immediately in the event of Mr. Mednansky’s violation of the confidentiality, non-compete, or non-solicitation covenants contained in his employment agreement. In addition, Mr. Mednansky must repay CCH any such severance benefits received by him during the period of non-compliance with such confidentiality, non-compete and non-solicitation covenants, as determined by CCH in good faith.

Upon termination for any other reason, Mr. Mednansky is not entitled to any severance or other termination benefits, but only to payment of his accrued compensation through the date of termination.

For the purposes of Mr. Mednansky’s 2011 employment agreement:

 

   

“Cause” is defined as (i) a failure by Mr. Mednansky to substantially perform his material duties under his employment agreement or to devote his full time and effort to his position with CCH (other than as a result of death, injury, illness, or disability), which, if curable, is not cured within 30 days after receipt of written notice of such failure; (ii) failure by Mr. Mednansky to comply materially with all policies of CCH, which, if curable, is not cured within 30 days after receipt of written notice of such failure; (iii) commission by Mr. Mednansky of an illegal act or an act not within the ordinary course of his responsibilities that exposes CCH to a significant level of undue liability (explicitly excluding a use by the Company of Mr. Mednansky’s liquor license); (iv) Mr. Mednansky’s conviction or plea of guilty or nolo contendre to any felony; or (v) breach of the confidentiality or non-compete covenants contained in Mr. Mednansky’s employment agreement.

 

   

“Change in control” is defined as either (i) the closing of a firm commitment underwritten public offering of common equity securities for gross cash proceeds to the issuer of at least $30,000,000, where the shares of the Company or CCH are listed on a national securities exchange or are quoted on NASDAQ; or (ii) the closing of a sale or transfer of all or substantially all of the assets of CCH in one or a series of transactions, the sale, exchange, or other disposition of a majority of the equity interests in the Company or CCH, or any transaction having similar effect (including, without limitation,

 

95


Table of Contents
 

a merger or consolidation), excluding certain sales or transfers within the Wagon’s controlled group. This offering is expected to qualify as a change in control under Mr. Mednansky’s employment agreement.

 

   

“Good reason” is defined as, without his consent, the relocation of his place of employment to a location more than 50 miles from his current location, a reduction in his base salary (other than a general cost reduction not exceeding 10%, that affects all salaried employees of CCH proportionally), a material breach by CCH of the employment agreement, or a material diminution in his title and/or duties, responsibilities or authority. Prior to any of the above qualifying as “good reason,” Mr. Mednansky must provide CCH with notice and a 30-day period to cure any of the above.

Mr. Mednansky currently holds no Company equity, but the Company anticipates granting him stock options at the time of this offering with an exercise price equal to the initial public offering price. These awards may contain change of control accelerated vesting provisions.

Mr. Pennison

Pursuant to his employment agreement with us, Mr. Pennison is entitled to similar severance and change in control benefits as those described above with respect to Mr. Mednansky’s employment agreement, except that if Mr. Pennison is terminated without cause or resigns for good reason at any time before October 18, 2012 (but prior to a change in control), then Mr. Pennison is entitled to continue to receive his base monthly salary for a period of six months and to payment of his medical premiums for six months for the medical coverage that was in effect under CCH’s benefit plans immediately prior to such termination or resignation, provided that he receives COBRA benefits during this period.

Mr. Dritsas

Pursuant to Mr. Dritsas’ Amended and Restated Employment Agreement in effect on December 27, 2011, he is entitled to certain payments if he is terminated without cause. Upon a termination without cause, not as a result of resignation, death or disability, and subject to his execution of a general release, Mr. Dritsas is entitled to continue to receive his base salary for a period of 12 months from the date of termination and to continued health benefits as he had enrolled and participated in prior to termination for a period of 12 months. Mr. Dritsas is not entitled to any severance or benefits other than the payment of accrued compensation through the date of termination if he is terminated for cause, due to death or disability, or he resigns.

“Cause” is defined in Mr. Dritsas’ amended and restated employment agreement dated June 10, 2011 as (i) a material breach by Mr. Dritsas of his employment obligations; (ii) the commission of an act of fraud, embezzlement, misappropriation, willful misconduct or breach of fiduciary duty against Sullivan’s of North Carolina, Inc. or other conduct potentially harmful to Sullivan’s of North Carolina, Inc.’s best interests; (iii) a material breach of confidentiality, non-disclosure, non-compete, or non-solicitation provisions contained in his employment agreement; (iv) Mr. Dritsas’ conviction, plea of guilty, no contest, or nolo contendre, deferred adjudication, or unadjudicated probation for any felony or any crime involving moral turpitude; (v) the failure of Mr. Dritsas to carry out or comply with, in any material respect, any lawful order of Sullivan’s of North Carolina, Inc.; or (vi) Mr. Dritsas’ unlawful use (including being under the influence) or possession of illegal drugs.

Mr. Martens

Mr. Martens has never been and is not currently entitled to any severance or other payments upon termination or a change of control event.

 

96


Table of Contents

Mr. Howie

On February 7, 2011, Mr. Howie entered into an amended and restated employment agreement with terms substantially similar to those described above with respect to Mr. Mednansky’s 2011 employment agreement. On May 4, 2011, Mr. Howie was terminated without cause triggering certain benefits under this agreement. On May 26, 2011, Mr. Howie entered into a Separation and Release Agreement providing for the termination of his employment as Chief Financial Officer, effective as of May 4, 2011. Pursuant to the agreement, CCH (i) paid Mr. Howie a severance payment of $85,000; (ii) agreed to continue paying Mr. Howie’s monthly salary of $22,500 for a period of 12 months, commencing on the first regular payroll date following June 18, 2011; and (iii) agreed to pay Mr. Howie’s medical premiums for 12 months, provided that Mr. Howie elected COBRA coverage. In addition to these benefits, Mr. Howie received $356,294 in exchange for the surrender and release of his Class B and Class C interests in Wagon as described above under “—Compensation Discussion and Analysis—Payments in Connection with Offering—LSF5 Wagon Holdings, LLC Class B and Class C Interests.”

Ms. Ames

On February 7, 2011, Ms. Ames entered into an amended and restated employment agreement with terms substantially similar to those described above with respect to Mr. Mednansky’s 2011 employment agreement. Ms. Ames voluntarily resigned effective July 1, 2011 without good reason, and consequently was not entitled to, and did not receive, any severance payments.

The table below sets forth the estimated value of the potential payments to each of our named executive officers, assuming the executive’s employment had terminated on December 27, 2011 under an employment agreement or a letter agreement in effect at that time, except in the case of Mr. Howie and Ms. Ames, whose employment terminated on May 4, 2011 and July 1, 2011, respectively for whom the actual payments, if any, are detailed below.

 

Name

  Potential Payments and
Benefits Upon  Termination
Without Cause or for Good
Reason  not  Within 180
days of a CIC
    Potential Payments and
Benefits Upon Termination
Without Cause or for Good
Reason Within 180

Days of a CIC
    Potential Payments
Upon Termination
Due to Disability(3)
 
    Cash
Compensation(2)
    Company-paid
COBRA
Premiums
    Cash
Compensation
    Company-paid
COBRA
       

Mark S. Mednansky

  $ 400,000      $ 11,396      $ 600,000      $ 22,792      $ 200,000   

Thomas J. Pennison, Jr.(4)

  $ 250,000      $ 11,396      $ 375,000      $ 17,094      $ 125,000   

Thomas G. Dritsas(5)

  $ 198,000      $ 11,396      $ 191,077      $ 11,396        0   

William S. Martens

    0        0        0        0        0   

Jon W. Howie(6)

  $ 355,000      $ 11,396      $ 355,000      $ 11,396        0   

Edie A. Ames(7)

    0        0        0        0        0   

 

(1) Payments include those that would have been made to Mr. Mednansky in the event of non-renewal of his employment agreement as well.
(2) Amount payable over 12-month period following termination as a continuation of base salary for 12 months.
(3) Amount payable semi-monthly in 12 equal installments.
(4) Cash compensation and Company premiums will be reduced by 50% if termination is within one year of entering into employment agreement (and not in context of a change in control).
(5) Mr. Dritsas is only entitled to severance upon an involuntary termination not for Cause. He is not entitled to any severance for a Good Reason resignation.
(6) Mr. Howie terminated his employment on May 4, 2011.
(7) Ms. Ames terminated her employment on July 1, 2011.

 

97


Table of Contents

2012 Long-Term Incentive Plan

Prior to completion of this offering, we will adopt the 2012 Plan. The purpose of the 2012 Plan is to advance the interests of the Company and its affiliates by encouraging the efforts of directors, officers, employees, and other service providers, by incentivizing such individuals to continue working toward and contributing to the progress and success of the Company, and to align their interest with the interests of the Company’s stockholders. The 2012 Plan allows for the grant of stock options, both incentive stock options and “non-qualified” stock options; stock appreciation rights, or SARs, alone or in conjunction with other awards; shares of restricted stock and restricted stock units, or RSUs; and incentive bonuses, which may be paid in cash or stock or a combination thereof.

The following description of the 2012 Plan is not intended to be complete and is qualified in its entirety by the complete text of the 2012 Plan, which will be filed as an exhibit to the registration statement of which this prospectus is a part. Stockholders are urged to read the 2012 Plan in its entirety. Any capitalized terms which are used in this summary description but not defined here or elsewhere in this registration statement have the meanings assigned to them in the 2012 Plan.

Administration.     The 2012 Plan is administered by a plan Administrator, which will be the Compensation Committee of the board of directors, or in the absence of a Compensation Committee, the board of directors itself. The Administrator has broad authority, subject to the provisions of the 2012 Plan, to administer and interpret the 2012 Plan. All decisions and actions of the Administrator are final.

Stock Subject to 2012 Plan.     The maximum number of shares that may be issued under the 2012 Plan is equal to            , subject to certain adjustments in the event of a change in the Company’s capitalization. Shares of common stock issued under the 2012 Plan may be either authorized and unissued shares or previously issued shares acquired by the Company. On termination or expiration of an unexercised option, SAR or other stock-based award under the 2012 Plan, in whole or in part, the number of shares of common stock subject to such award will again become available for grant under the 2012 Plan. Once the 2012 Plan becomes subject to Section 162(m) (generally three years after the IPO), no single participant may be granted awards under the 2012 Plan covering more than             shares of common stock in any fiscal year. The maximum number of shares of common stock that may be issued pursuant to stock options intended to be incentive stock options is             shares. Once the 2012 Plan becomes subject to Section 162(m) (generally three years after the IPO), the maximum amount payable to any one employee in any performance period pursuant to that portion of an incentive bonus that is intended to satisfy the requirements for “performance based compensation” under Section 162(m) is $10,000,000.

Stock Options.     All stock options granted under the 2012 Plan will be evidenced by a written agreement between the Company and the participant, which provides, among other things, whether the option is intended to be an agreement for an incentive stock option or a non-qualified stock option, the number of shares subject to the option, the exercise price, exercisability (or vesting), the term of the option, which may not exceed 10 years, and other terms and conditions. Subject to the express provisions of the 2012 Plan, options generally may be exercised over such period, in installments or otherwise, as the Administrator may determine. The exercise price for any stock option granted may not generally be less than the fair market value of the common stock subject to that option on the grant date. The exercise price may be paid in shares, cash or a combination thereof, as determined by the Administrator, including an irrevocable commitment by a broker to pay over such amount from a sale of the

 

98


Table of Contents

shares issuable under an option, the delivery of previously owned shares and withholding of shares deliverable upon exercise. Other than in connection with a change in the Company’s capitalization, at any time when the exercise price of an option is above the fair market value of a share, the Company will not, without stockholder approval, (i) reduce the exercise price of such option, (ii) exchange such option for cash, another award or a new option or stock appreciation right with a lower exercise or base price or (iii) otherwise reprice such option.

Stock Appreciation Rights.     Stock Appreciation Rights may be granted alone or in conjunction with all or part of a stock option. Upon exercising a SAR, the participant is entitled to receive the amount by which the fair market value of the common stock at the time of exercise exceeds the strike price of the SAR. This amount is payable in common stock, cash, or a combination of common stock and cash, at the Administrator’s discretion.

Restricted Stock and RSUs.     The Committee may award restricted common stock and RSUs. Restricted stock awards consist of shares of stock that are transferred to the participant subject to restrictions that may result in forfeiture if specified conditions are not satisfied. RSUs result in the transfer of shares of cash or stock to the participant only after specified conditions are satisfied. The Committee will determine the restrictions and conditions applicable to each award of restricted stock or RSUs, which may include performance vesting conditions.

Incentive Bonuses .    Each incentive bonus will confer upon the participant the opportunity to earn a future payment tied to the level of achievement with respect to one or more performance criteria established for a performance period of not less than one year. The Administrator will establish the performance criteria and level of achievement versus these criteria that will determine the threshold, target and maximum amount payable under an incentive bonus, which criteria may be based on financial performance and/or personal performance evaluations. Payment of the amount due under an incentive bonus may be made in cash or shares, as determined by the Administrator.

Performance Criteria.     The Administrator may specify certain performance criteria which must be satisfied before stock options, stock appreciation rights, restricted stock, RSUs, and incentive bonuses will be granted or will vest. The performance goals may vary from participant to participant, group to group, and period to period.

Transferability.     Awards generally may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated by a participant other than by will or the laws of descent and distribution, and each option or stock appreciation right may be exercisable only by the participant during his or her lifetime.

Amendment and Termination.     The board of directors has the right to amend, alter, suspend or terminate the 2012 Plan at any time, provided that no material amendment may be made without stockholder approval, and no other amendment or alteration, or any suspension, discontinuation or termination will be made without stockholder approval if the approval is required by applicable law, regulatory requirement or stock exchange or accounting rules, or if the board of directors deems it necessary or desirable to qualify for or comply with any tax, applicable law, stock exchange, accounting or regulatory requirement. In addition, no such amendment, alteration, suspension, discontinuation or termination can be made, except as required by applicable law or stock exchange or accounting rules, without the consent of a participant if that action would impair the participant’s rights under any award. The 2012 Plan will be adopted by the board and the Company’s shareholders in connection with this offering and will automatically terminate, unless earlier terminated by the Company’s board of directors, 10 years after approval by the board of directors.

 

99


Table of Contents

PRINCIPAL AND SELLING STOCKHOLDERS

The following table presents information concerning the beneficial ownership of the shares of our common stock as of                     , 2012 by (1) each person known to us to beneficially own more than 5% of the outstanding shares of our common stock, (2) each selling stockholder, (3) each of our directors, director nominees and named executive officers and (4) all of our directors and executive officers as a group, each as of the date of this prospectus. The table also contains information about beneficial ownership, as adjusted, to reflect the sale of common stock in this offering assuming:

 

   

            shares of common stock outstanding as of                     , 2012 and             shares outstanding immediately following the completion of this offering; and

 

   

no exercise of the underwriters’ over-allotment option.

Beneficial ownership is determined under the rules of the SEC and generally includes voting or investment power over securities. Except in cases where community property laws apply or as indicated in the footnotes to this table, we believe that each stockholder identified in the table possesses sole voting and investment power over all shares of common stock shown as beneficially owned by the stockholder. Shares of common stock subject to options and warrants that are exercisable or exercisable within 60 days of                     , 2012 are considered outstanding and beneficially owned by the person holding the options for the purpose of computing the percentage ownership of that person but are not treated as outstanding for the purpose of computing the percentage ownership of any other person. Unless indicated below, the address of each individual listed below is c/o Del Frisco’s Restaurant Group, LLC, 930 S. Kimball Ave., Suite 100, Southlake, TX 76092.

 

    Shares Beneficially Owned
Prior to this Offering
  Number
of Shares
of Being
Sold in
this
Offering
  Shares Beneficially
Owned After this
Offering Assuming
No Exercise of Over-
Allotment Option
  Shares Beneficially
Owned After this
Offering Assuming
Full Exercise of Over-
Allotment Option

Name of Beneficial Owner

  Shares of
Common
Stock
  Percentage of
Total Outstanding
Common Stock
(%)
    Shares of
Common
Stock
  Percentage of
Total Outstanding
Common  Stock

(%)
  Shares of
Common
Stock
  Percentage of
Total Outstanding
Common Stock
(%)

5% Stockholders

             

LSF5 Wagon Holdings, LLC(1)

             

Named Executive Officers

             

Mark S. Mednansky

             

Thomas J. Pennison, Jr.

             

Jon W. Howie(2)

             

Thomas G. Dritsas

             

William S. Martens

             

Directors and Director Nominees

             

Norman J. Abdallah

             

David B. Barr

             

Jodi L. Cason

             

Richard L. Davis

             

Melissa S. Hubbell

             

Jennifer R. Lamprecht

             

Samuel D. Loughlin

             

Leigh P. Rea

             

All executive officers and directors as a group
(12 persons)

             

 

* Represents less than 1%.
(1)

LSF5 Wagon Holdings, LLC directly owns            shares of common stock. LSF5 Wagon Holdings, LLC, a Delaware limited liability company is controlled by Lone Star Fund V (U.S.) L.P., a Delaware limited partnership, which is controlled by its general

 

100


Table of Contents
  partner, Lone Star Partners V, L.P., a Bermuda limited partnership, which is controlled by Lone Star Management Co. V, Ltd., a Bermuda exempted limited company, which is controlled by its sole owner John P. Grayken. See “Shares Eligible for Future Sale—Registration Rights Agreements—Petitioners in Acquisition Dissenting Shareholder Litigation.” The address for all of these persons, other than Lone Star Partners V, L.P. and Lone Star Management Co. V, Ltd., is 2711 North Haskell Avenue, Suite 1700, Dallas, Texas 75204. The address for Lone Star Partners V, L.P. and Lone Star Management Co. V, Ltd. is Washington Mall, Suite 304, Third Floor,

7 Reid Street, Hamilton HM11, Bermuda.

(2) Mr. Howie’s employment with the Company terminated effective May 4, 2011.

 

101


Table of Contents

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

Relationships with the Casual Dining Companies

In the Acquisition, Lone Star Fund acquired not only the Del Frisco’s and Sullivan’s concepts, but also the Texas Land & Cattle and Lone Star Steakhouse & Saloon concepts. Lone Star Fund spun-off the subsidiaries that operated the Texas Land & Cattle and Lone Star Steakhouse & Saloon concepts as part of the restructuring. These entities, which along with their affiliate companies are referred to in this prospectus as the Casual Dining Companies, are wholly-owned by Lone Star Fund and are therefore considered related parties of us. We do not have any ownership interest in them and they do not have any ownership interest in us.

Prior Shared Services Agreement

From December 13, 2006 to December 31, 2010, we were provided with certain accounting, administrative and management services by the Shared Services Provider, one of the Casual Dining Companies, under the Shared Services Agreement. In exchange for these services, we were charged an accounting fee of $1,800 per restaurant per four-week accounting period, except for the New York City Del Frisco’s, which was charged $5,400 per four-week accounting period, plus a management fee equal to 19.5% of certain agreed upon expenses, as provided for in the Shared Services Agreement, which totaled $1.2 million and $1.3 million in 2009 and 2010, respectively. Effective January 1, 2011, InfoSync Services, LLC, a leading business process outsourcing provider focused exclusively on the restaurant industry, began providing these services to us.

Note Payable to Casual Dining Company

In July 2007, we converted all outstanding advances payable to one of the Casual Dining Companies into a $42.2 million note bearing interest at an annual rate of 4.65%. We made no payments on this note until the note was repaid in full in November 2010.

Lease Guarantees and Reimbursement Agreement

Prior to the acquisition of Lone Star Steakhouse & Saloon, Inc. by Lone Star Fund, Lone Star Steakhouse & Saloon guaranteed certain leases entered into by various operating subsidiaries of Lone Star Steakhouse & Saloon, including certain of the Casual Dining Companies. We continue to be a guarantor for five of these leases, which expire at various times through 2016. These guarantees would require payment by us only in an event of default by the Casual Dining Company tenant if it failed to make the required lease payments or perform other obligations under a lease. At December 27, 2011, the maximum potential amount of future lease payments we could be required to make as a result of the guarantees was $2.7 million.

Relationships with Lone Star Fund and its Affiliates

General

Upon completion of this offering, Lone Star Fund will own     % of our outstanding common stock (or     % if the underwriters’ over-allotment option is exercised in full).

For as long as Lone Star Fund and its affiliates continue to beneficially own shares of common stock representing more than a majority of the voting power of our common stock, they will be able to direct the election of all of the members of our board of directors and exercise a controlling influence over our business and affairs, including any determinations with respect to mergers or other business combinations, the acquisition or disposition of assets, the incurrence of indebtedness, the issuance of any additional common stock or other equity

 

102


Table of Contents

securities, the repurchase or redemption of common stock and the payment of dividends. Similarly, Lone Star Fund will have the power to determine matters submitted to a vote of our stockholders without the consent of our other stockholders, will have the power to prevent a change in our control and could take other actions that might be favorable to them.

Lone Star Fund has advised us that it currently intends to continue to hold all of the common stock beneficially owned by it following this offering. However, Lone Star Fund is not subject to any contractual obligations to retain its controlling interest, except that it has agreed, subject to certain exceptions, not to sell or otherwise dispose of any shares of common stock for a period of 180 days after the date of this prospectus without the prior written consent of the underwriters. Except for this brief period, there can be no assurance as to the period of time during which Lone Star Fund will maintain its beneficial ownership of our common stock following this offering. Following this brief period, Lone Star Fund will have rights to cause us to register its shares as described under “—Registration Rights Agreement” below.

Termination of Asset Advisory Agreement

In connection with Lone Star Fund’s acquisition of Lone Star Steakhouse & Saloon, Inc., we entered into arrangements with an affiliate of Lone Star Fund requiring us to reimburse the affiliate for the costs of certain services it provides us. These services include accounting, cash management, financial analysis and other financial services, real estate management, legal services, various tax services and other services. In 2009, 2010 and the 36-week period ended September 6, 2011, we paid this affiliate of Lone Star Fund approximately $1.6 million, $2.1 million and $2.1 million, respectively, for these services. We have reimbursed this Lone Star Fund affiliate directly for these services.

Upon the consummation of this offering these arrangements to reimburse the affiliate of Lone Star Fund directly for these services will be terminated in exchange for a one-time termination payment of $3.0 million. See “Use of Proceeds.”

Registration Rights Agreement

Prior to the consummation of this offering, we will enter into a registration rights agreement with Lone Star Fund. The terms of the registration rights agreement will include provisions for demand registration rights and piggyback registration rights in favor of Lone Star Fund. The registration rights agreement will not provide for the payment of any consideration by us to Lone Star Fund if a registration statement for the resale of shares of common stock held by Lone Star Fund is not declared effective or if the effectiveness is not maintained. Immediately following consummation of this offering,             shares of our common stock will be entitled to these registration rights. Shares registered with the SEC pursuant to these registrations rights will be eligible for sale in the public markets, subject to the lock-up agreements described in “Underwriting.” See “Shares Eligible for Future Sale—Registration Rights Agreement.”

Director Indemnification Agreements

Our certificate of incorporation to be effective following this offering permits us to indemnify our directors to the fullest extent permitted by law, subject to limited exceptions. Prior to the consummation of this offering, we will enter into indemnification agreements with each of our directors that provide, in general, that we will indemnify them to the fullest extent permitted by law in connection with their service to us or on our behalf.

 

103


Table of Contents

Review and Approval of Related Party Transactions

Following this offering, we will implement a written policy pursuant to which our board of directors will review and approve transactions with our directors, officers and holders of more than 5% of our voting securities and their affiliates (each, a related party). Prior to approving any transaction with a related party, our board of directors will consider the material facts as to the related party’s relationship with the company or interest in the transaction. Following this offering, related party transactions will not be approved unless the nominating and corporate governance committee has approved of the transaction. We did not have a formal review and approval policy for related party transactions at the time of any transaction described in this “Certain Relationships and Related Party Transactions” section.

 

104


Table of Contents

DESCRIPTION OF CAPITAL STOCK

The following is a description of the material provisions of our capital stock, as well as other material terms of our certificate of incorporation and bylaws, which we will adopt prior to the consummation of this offering, as they will be in effect as of the consummation of this offering. Copies of the forms of our certificate of incorporation and bylaws to be adopted have been filed as exhibits to the registration statement of which this prospectus is a part.

General

Upon consummation of this offering, our authorized capital stock will consist of              shares of common stock, no par value, and             shares of preferred stock, no par value.

Common Stock

All outstanding shares of common stock are validly issued, fully paid and nonassessable, and the shares of common stock that will be issued on completion of this offering will be validly issued, fully paid and nonassessable.

The holders of our common stock are entitled to one vote per share on all matters submitted to a vote of stockholders and our certificate of incorporation will not provide for cumulative voting in the election of directors. Subject to preferences that may be applicable to any outstanding series of preferred stock, the holders of our common stock will receive ratably any dividends declared by our board of directors out of funds legally available for the payment of dividends. In the event of our liquidation, dissolution or winding-up, the holders of our common stock are entitled to share ratably in all assets remaining after payment of or provision for any liabilities, subject to prior distribution rights of preferred stock, if any, then outstanding.

Preferred Stock

Our certificate of incorporation will provide that our board of directors has the authority, without further action by the stockholders, to issue up to             shares of preferred stock. Our board of directors will be able to issue preferred stock in one or more series and determine the rights, preferences, privileges, qualifications and restrictions granted to or imposed upon our preferred stock, including dividend rights, conversion rights, voting rights, rights and terms of redemption, liquidation preferences and sinking fund terms, any or all of which may be greater than the rights of our common stock. Issuances of preferred stock could adversely affect the voting power of holders of our common stock and reduce the likelihood that holders of our common stock will receive dividend payments and payments upon liquidation. Any issuance of preferred stock also could have the effect of decreasing the market price of our common stock and could delay, deter or prevent a change in control of our company. Our board of directors does not presently have any plans to issue shares of preferred stock.

Limitations on Directors’ Liability

Our certificate of incorporation will provide for us to indemnify our directors to the fullest extent permitted by the DGCL. The DGCL permits a corporation to limit or eliminate a director’s personal liability to the corporation or the holders of its capital stock for breach of fiduciary duty. This limitation is generally unavailable for acts or omissions by a director which (a) were in bad faith, (b) were the result of intentional misconduct or a knowing violation of law, (c) the director derived an improper personal benefit from (such as a financial profit or other advantage to which the director was not legally entitled) or (d) breached the director’s duty of loyalty. The

 

105


Table of Contents

DGCL also prohibits limitations on director liability under Section 174 of the DGCL, which relates to certain unlawful dividend declarations and stock repurchases. The limitation of liability and indemnification provisions in our certificate of incorporation and bylaws to be adopted may discourage stockholders from bringing a lawsuit against directors for breach of their fiduciary duty. These provisions may also have the effect of reducing the likelihood of derivative litigation against directors and officers, even though such an action, if successful, might otherwise benefit us and our stockholders. In addition, your investment may be adversely affected to the extent we pay the costs of settlement and damage awards against directors and officers pursuant to these indemnification provisions.

We will obtain insurance that insures our directors and officers against certain losses and which insures us against our obligations to indemnify the directors and officers, and we intend to obtain greater coverage. We also intend to enter into indemnification agreements with our directors and executive officers.

Provisions of Our Certificate of Incorporation and Bylaws to be Adopted and Delaware Law That May Have an Anti-Takeover Effect

Provisions of the DGCL and our certificate of incorporation and bylaws to be adopted prior to the completion of this offering could make it more difficult to acquire us by means of a tender offer, a proxy contest or otherwise, or to remove incumbent officers and directors. These provisions, summarized below, are expected to discourage types of coercive takeover practices and inadequate takeover bids and to encourage persons seeking to acquire control of us to first negotiate with us. We believe that the benefits of increased protection of our potential ability to negotiate with the proponent of an unfriendly or unsolicited proposal to acquire or restructure us outweigh the disadvantages of discouraging takeover or acquisition proposals because, among other things, negotiation of these proposals could result in an improvement of their terms.

Delaware Anti-Takeover Statute

We are subject to Section 203 of the DGCL, an anti-takeover statute. In general, Section 203 prohibits a publicly held Delaware corporation from engaging in a “business combination” with an “interested stockholder” for a period of three years following the time the person became an interested stockholder, unless (with certain exceptions) the business combination or the transaction in which the person became an interested stockholder is approved in a prescribed manner. Generally, a “business combination” includes a merger, asset or stock sale, or other transaction resulting in a financial benefit to the interested stockholder. Generally, an “interested stockholder” is a person who, together with affiliates and associates, owns (or within three years prior to the determination of interested stockholder status, did own) 15% or more of a corporation’s voting stock. The existence of this provision would be expected to have an anti-takeover effect with respect to transactions not approved in advance by the board of directors, including discouraging attempts that might result in a premium over the market price for the shares of common stock held by stockholders.

No Cumulative Voting

The DGCL provides that stockholders are denied the right to cumulate votes in the election of directors unless our certificate of incorporation provides otherwise. Our certificate of incorporation will not provide for cumulative voting.

 

106


Table of Contents

Classified Board of Directors

Our certificate of incorporation will provide that our board of directors will be divided into three classes of directors, with the classes to be as nearly equal in number as possible. The members of each class serve for a three-year term. As a result, approximately one-third of our board of directors will be elected each year. The classification of directors will have the effect of making it more difficult for stockholders to change the composition of our board of directors. Our certificate of incorporation and the bylaws will provide that the number of directors will be fixed from time to time pursuant to a resolution adopted by the board of directors, but must consist of not less than three or more than 13 directors.

Removal of Directors

Our certificate of incorporation and bylaws will provide that (i) prior to the date on which Lone Star and its affiliates cease to beneficially own, in aggregate, at least a majority of the voting power of all outstanding shares entitled to vote generally in the election of directors, directors may be removed with or without cause upon the affirmative vote of holders of at least a majority of the voting power of all the then outstanding shares of stock entitled to vote generally in the election of directors, voting together as a single class and (ii) on and after the date Lone Star and its affiliates cease to beneficially own, in aggregate, at least a majority of the voting power of all outstanding shares entitled to vote generally in the election of directors, directors may be removed only for cause and only upon the affirmative vote of holders of at least 66  2 / 3 % of the voting power of all the then outstanding shares of stock entitled to vote generally in the election of directors, voting together as a single class. In addition, our certificate of incorporation will also provide that any newly created directorships and any vacancies on our board of directors will be filled only by the affirmative vote of the majority of remaining directors; provided that so long as affiliates of Lone Star own at least 25% of the total voting power of our capital stock, the positions can only be filled by our stockholders.

Stockholder Action by Written Consent

The DGCL permits any action required to be taken at any annual or special meeting of the stockholders may be taken without a meeting, without prior notice and without a vote if a consent or consents in writing, setting forth the action so taken, is signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares of stock entitled to vote thereon were present and voted, unless the certificate of incorporation provides otherwise. Our certificate of incorporation will preclude stockholder action by written consent after the date on which Lone Star and its affiliates ceases to beneficially own, in the aggregate, at least a majority of the voting power of all outstanding shares of our stock entitled to vote generally in the election of directors.

Limitations on Liability and Indemnification of Officers and Directors

The DGCL authorizes corporations to limit or eliminate the personal liability of directors to corporations and their stockholders for monetary damages for breaches of directors’ fiduciary duties as directors. Our organizational documents will include provisions that eliminate, to the extent allowable under the DGCL, the personal liability of directors or officers for monetary damages for actions taken as a director or officer, as the case may be. Our organizational documents will also provide that we must indemnify and advance reasonable expenses to our directors and officers to the fullest extent authorized by the DGCL. We are also expressly authorized to carry directors’ and officers’ insurance for our directors, officers and certain employees for some liabilities.

 

107


Table of Contents

The limitation of liability and indemnification provisions in our certificate of incorporation and bylaws to be adopted may discourage stockholders from bringing a lawsuit against directors for breach of their fiduciary duty. These provisions may also have the effect of reducing the likelihood of derivative litigation against directors and officers, even though such an action, if successful, might otherwise benefit us and our stockholders. In addition, your investment may be adversely affected to the extent that, in a class action or direct suit, we pay the costs of settlement and damage awards against directors and officers pursuant to these indemnification provisions.

There is currently no pending material litigation or proceeding involving any of our directors, officers or employees for which indemnification is sought.

Authorized but Unissued Shares

Our authorized but unissued shares of common stock and preferred stock will be available for future issuance without your approval. The DGCL does not require stockholder approval for any issuance of authorized shares. However, the listing requirements of the stock exchange on which we will list our common stock require stockholder approval of certain issuances equal to or exceeding 20% of the then-outstanding voting power or the then-outstanding number of shares of common stock. No assurances can be given that our shares will remain so listed. We may use additional shares for a variety of corporate purposes, including future public offerings to raise additional capital, corporate acquisitions and employee benefit plans. The existence of authorized but unissued shares of common stock and preferred stock could render more difficult or discourage an attempt to obtain control of us by means of a proxy contest, tender offer, merger or otherwise.

Corporate Opportunities and Transactions with Lone Star Fund

In recognition that principals, members, directors, managers, partners, stockholders, officers, employees and other representatives of Lone Star Fund and its affiliates and affiliated investment funds, referred to as the Lone Star entities, may serve as our directors or officers, and that the Lone Star entities may engage in similar activities or lines of business that we do, our certificate of incorporation will provide for the allocation of certain corporate opportunities between us and the Lone Star entities. Specifically, none of the Lone Star entities or any principal, member, director, manager, partner, stockholder, officer, employee or other representative of the Lone Star entities has any duty to refrain from engaging directly or indirectly in the same or similar business activities or lines of business that we do. In the event that any Lone Star entity acquires knowledge of a potential transaction or matter which may be a corporate opportunity for itself and us, we will not have any expectancy in the corporate opportunity, and the Lone Star entity will not have any duty to communicate or offer the corporate opportunity to us and may pursue or acquire such corporate opportunity for itself or direct such opportunity to another person. In addition, if a director or officer of our company who is also a principal, member, director, manager, partner, stockholder, officer, employee or other representative of any Lone Star entity acquires knowledge of a potential transaction or matter which may be a corporate opportunity for us and a Lone Star entity, we will not have any expectancy in the corporate opportunity unless the corporate opportunity is expressly offered to the person solely in his or her capacity as a director or officer of our company.

In recognition that we may engage in material business transactions with the Lone Star entities, from which we are expected to benefit, our certificate of incorporation will provide that any of our directors or officers who are also principals, members, directors, managers, partners, stockholders, officers, employees and other representatives of any Lone Star entity will have

 

108


Table of Contents

fully satisfied and fulfilled his or her fiduciary duty to us and our stockholders with respect to such transaction, if:

 

   

the transaction was approved, after being made aware of the material facts of the relationship between each of Del Frisco’s Restaurant Group, Inc. or a subsidiary thereof and the Lone Star entity and the material terms and facts of the transaction, by (1) an affirmative vote of a majority of the members of our board of directors who do not have a material financial interest in the transaction, known as disinterested persons, or (2) an affirmative vote of a majority of the members of a committee of our board of directors consisting of members who are disinterested persons; or

 

   

the transaction was fair to us at the time we entered into the transaction; or

 

   

the transaction was approved by an affirmative vote of the holders of a majority of shares of our common stock entitled to vote, excluding the Lone Star entities and any holder who has a material financial interest in the transaction.

By becoming a stockholder in our company, you will be deemed to have received notice of and consented to these provisions of our certificate of incorporation. Any amendment to the foregoing provisions of our certificate of incorporation will require the affirmative vote of at least 662/3% of the voting power of all shares of our common stock then outstanding.

Transfer Agent and Registrar

The Transfer Agent and Registrar for our common stock is                     .

Listing

We intend to apply for listing of our common stock on either the New York Stock Exchange or the Nasdaq Global Market under the symbol “             .”

 

109


Table of Contents

SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering, there has been no market for our common stock. Immediately following the consummation of the offering, based on shares outstanding as of                     , 2012, we will have an aggregate of             shares of common stock outstanding, assuming no exercise of the underwriters’ over-allotment option and no exercise of outstanding options. If the underwriters exercise their over-allotment option in full, assuming no exercise of outstanding options, we will have an aggregate of             shares of common stock outstanding. Of the outstanding shares, the             shares sold in this offering (or             shares if the underwriters exercise their over-allotment option in full) will be freely tradable without restriction or further registration under the Securities Act, except that any shares held by our affiliates, as that term is defined in Rule 144 of the Securities Act, may generally be sold only in compliance with the limitations described below. The remaining outstanding shares of our common stock will be deemed restricted securities, as defined in Rule 144. We expect that Lone Star Fund will be considered an affiliate 180 days after this offering based on its expected share ownership (consisting of             shares owned by Lone Star Fund assuming no exercise of the underwriters’ over-allotment option). Certain other of our stockholders may also be considered affiliates at that time.

Lock-Up Agreements

We and our officers, directors and holders of all of our outstanding shares of common stock immediately prior to this offering will be subject to lock-up agreements with the underwriters that will restrict the sale of shares of our common stock held by them for 180 days after the date of this prospectus, subject to certain exceptions. See “Underwriting” for a description of these lock-up agreements.

Sales of Restricted Securities

Other than the shares sold in this offering, all of the remaining shares of our common stock will be available for sale, subject to the lock-up agreements described above, after the date of this prospectus in registered sales or pursuant to Rule 144 or another exemption from registration. For the purpose of the volume, manner of sale and other limitations under Rule 144 applicable to affiliates described below, we expect that Lone Star Fund will be considered an affiliate 180 days after this offering based on its expected share ownership (consisting of             shares owned by Lone Star Fund assuming no exercise of the underwriters’ option to purchase additional shares).

Restricted shares may be sold in the public market only if registered or if they qualify for an exemption from registration including under Rule 144 or 701 promulgated under the Securities Act, each of which is summarized below.

In general, under Rule 144, beginning 90 days after the date of this prospectus, a person who is not our affiliate and has not been our affiliate at any time during the preceding three months will be entitled to sell any shares of our common stock that such person has beneficially owned for at least six months, including the holding period of any prior owner other than one of our affiliates, without regard to the volume limitations summarized below. Sales of our common stock by any such person would be subject to the availability of current public information about us if the shares to be sold were beneficially owned by such person for less than one year.

In addition, under Rule 144, a person may sell shares of our common stock acquired from us immediately after the consummation of this offering, without regard to volume limitations or the availability of public information about us, if: (i) the person is not our affiliate and has not

 

110


Table of Contents

been our affiliate at any time during the preceding three months; and (ii) the person has beneficially owned the shares to be sold for at least one year, including the holding period of any prior owner other than one of our affiliates.

Beginning 90 days after the date of this prospectus, our affiliates who have beneficially owned shares of our common stock for at least six months, including the holding period of any prior owner other than one of our affiliates, would be entitled to sell within any three-month period a number of shares that does not exceed the greater of: (i) 1% of the number of shares of our common stock then-outstanding, which will equal approximately             shares immediately after the consummation of this offering; and (ii) the average weekly trading volume in our common stock on the stock exchange on which we will list our common stock during the four calendar weeks preceding the date of filing of a Notice of Proposed Sale of Securities Pursuant to Rule 144 with respect to the sale.

Sales under Rule 144 by our affiliates are also subject to manner of sale provisions and notice requirements and to the availability of current public information about us.

Rule 701 provides that the shares of common stock acquired upon the exercise of currently outstanding options or pursuant to other rights granted under our equity incentive plan may be resold by persons, other than our affiliates, beginning 90 days after the effective date of the registration statement of which this prospectus is a part, subject only to the manner of sale provisions of Rule 144, and by our affiliates under Rule 144, without compliance with its one-year minimum holding period. As of the date of this prospectus, no options to purchase shares of our common stock were outstanding.

As a result of lock-up agreements described in “Underwriting” and the provisions of Rules 144 and 701, additional shares will be available for sale in the public market upon the expiration or, if earlier, the waiver of the lock-up period provided for in the lock-up agreements, subject, in some cases, to volume limitations.

Additional Registration Statements

In addition,             shares of common stock may be granted under our stock incentive plan, including             shares issuable upon the exercise of stock options that we intend to grant to our executive officers and certain director nominees at the time of the pricing of this offering with an exercise price equal to the initial public offering price. See “Executive Compensation—2012 Long-Term Incentive Plan.” We intend to file one or more registration statements under the Securities Act after this offering to register up to             shares of our common stock issued or reserved for issuance under our equity incentive plans. These registration statements will become effective upon filing, and shares covered by these registration statements will be eligible for sale in the public market immediately after the effective dates of these registration statements, subject to any limitations on exercise under our equity incentive plan, the lock-up agreements described in “Underwriting” and Rule 144 limitations applicable to affiliates.

Registration Rights Agreements

Lone Star Fund.     Prior to the consummation of this offering, we will enter into a registration rights agreement with Lone Star Fund. The terms of the registration rights agreement will include provisions for demand registration rights and piggyback registration rights in favor of Lone Star Fund. The registration rights agreement will not provide for the payment of any consideration by us to Lone Star Fund if a registration statement for the resale of shares of common stock held by Lone Star Fund is not declared effective or if the effectiveness is not maintained. Immediately following consummation of this offering,             shares of our common stock will be entitled to these registration rights. Shares registered

 

111


Table of Contents

with the SEC pursuant to these registrations rights will be eligible for sale in the public markets upon effectiveness of the registration statement covering those shares, subject to the lock-up agreements described in “Underwriting.” By exercising its registration rights and causing a large number of shares to be registered and sold in the public market, Lone Star Fund could cause the price of the common stock to fall. In addition, any demand to include these shares in our registration statements could have a material adverse effect on our ability to raise needed capital. See “Certain Relationships and Related Party Transactions—Registration Rights Agreement.”

Demand Registration Rights .    Subject to the terms of the registration rights agreement, Lone Star Fund, the holder of             shares of our common stock, will have the right to require that we register its shares under the Securities Act for sale to the public. We must pay all expenses, except for underwriters’ discounts and commissions, incurred in connection with the exercise of these demand registration rights.

Piggyback Registration Rights.     Lone Star Fund, the holder of             shares of our common stock, will have piggyback registration rights under the terms of the registration rights agreement. The registration rights agreement will provide that Lone Star Fund has the right to include its shares in any registration that we effect under the Securities Act, other than a registration effected pursuant to an exercise of demand registration rights, subject to specified exceptions. We must pay all expenses, except for underwriters’ discounts and commissions, incurred in connection with these piggyback registration rights.

Petitioners in Acquisition Dissenting Shareholder Litigation .     In 2009, in connection with the settlement of the dissenting shareholder litigation relating to the Acquisition, Dispropco LLC, an indirect wholly-owned subsidiary of Lone Star Fund and an affiliate of ours, agreed to, among other things, issue deficiency promissory notes to the petitioners in the litigation in a maximum aggregate principal amount of $5 million. Each deficiency note includes a put right that permits the holder, under certain circumstances, to cause LSF5 Wagon Holdings, LLC, our parent company, to purchase the note with shares of the common stock of LSF5 Wagon Holdings, LLC or any of its subsidiaries, including us, to the extent such stock is registered under the Exchange Act. Under the related settlement agreement, Dispropco LLC is required to cause the issuer of the stock that is registered to enter into a registration rights agreement with each petitioner on the date on which such issuer’s shares become registered under the Exchange Act. As a result, in connection with this offering, it is expected that we will enter into a registration rights agreement with each petitioner covering the number of shares of our common stock that LSF5 Wagon Holdings, LLC would be required to transfer to such petitioner upon exercise of the put right. The registration rights agreements will provide that each petitioner has the right to include its shares of our common stock in any registration that we effect under the Securities Act, subject to specified exceptions such as this offering. We must pay all expenses incurred in connection with these piggyback registration rights. We are not a party to the deficiency notes or the related settlement agreement, and our only obligation in this matter will be to perform our obligations under the registration rights agreements. A copy of the form of registration rights agreement has been filed as an exhibit to the registration statement of which this prospectus is a part.

Effects of Sales of Shares

No predictions can be made as to the effect, if any, that sales of shares of our common stock from time to time, or the availability of shares of our common stock for future sale, may have on the market price for shares of our common stock. Sales of substantial amounts of common stock, or the perception that such sales could occur, could adversely affect prevailing market prices for our common stock and could impair our future ability to obtain capital through an offering of equity securities.

 

112


Table of Contents

U.S. FEDERAL TAX CONSIDERATIONS FOR NON-U.S. HOLDERS

The following is a general discussion of material U.S. federal income and estate tax consequences of the acquisition, ownership, and disposition of our common stock purchased pursuant to this offering by a non-U.S. holder. As used in this prospectus, the term “non-U.S. holder” means a beneficial owner of 5% or less of our common stock that, for U.S. federal income tax purposes, is neither a partnership nor any of the following:

 

   

an individual who is a citizen or resident of the United States;

 

   

a corporation (including any entity treated as a corporation for U.S. federal income tax purposes) created or organized in the United States or under the laws of the United States or any state thereof (including the District of Columbia);

 

   

an estate the income of which is subject to U.S. federal income taxation regardless of its source; or

 

   

a trust (i) whose administration is subject to the primary supervision of a U.S. court and which has one or more U.S. persons who have the authority to control all substantial decisions of the trust, or (ii) that has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person.

An individual who is not a citizen of the United States may, subject to certain restrictions as well as limitations contained in any applicable income tax treaties, be deemed to be a resident of the United States by reason of being present in the United States for at least 31 days in the calendar year and an aggregate of at least 183 days during a three year period ending in the current calendar year (counting for such purposes all of the days present in the current year, one-third of the days present in the immediate preceding calendar year and one-sixth of the days present in the second preceding calendar year). U.S. residents are generally taxed for U.S. federal income tax purposes in the same manner as U.S. citizens.

This discussion assumes that you will hold our common stock issued pursuant to this offering as a capital asset within the meaning of the Internal Revenue Code of 1986, as amended, or the Code (i.e., generally, property held for investment). This discussion does not address all aspects of U.S. federal taxation that may be relevant to a particular non-U.S. holder in light of the holder’s individual investment or tax circumstances, or to non-U.S. holders that are subject to special tax rules. In addition, this description of U.S. tax consequences does not address:

 

   

U.S. state and local or non-U.S. tax consequences;

 

   

U.S. federal gift tax consequences;

 

   

specific facts and circumstances that may be relevant to a particular non-U.S. holder’s tax position;

 

   

the tax consequences for the stockholders, partners or beneficiaries of a non-U.S. holder;

 

   

special tax rules that may apply to some non-U.S. holders, including without limitation, banks, insurance companies, financial institutions, hybrid entities, broker-dealers, tax-exempt entities, controlled foreign corporations, passive foreign investment companies or U.S. expatriates; or

 

   

special tax rules that may apply to a non-U.S. holder that holds our common stock as part of a straddle, hedge or conversion transaction or other integrated investment.

 

113


Table of Contents

If a partnership is a beneficial owner of our common stock, the treatment of a partner in the partnership generally will depend upon the status of the partner and the activities of the partnership. A beneficial owner of our common stock that is a partnership and partners in such a partnership should consult their tax advisors regarding the U.S. federal income tax consequences of acquiring, owning, and disposing of our common stock.

This discussion is based on current provisions of the Code, final, temporary and proposed U.S. Treasury regulations, judicial opinions, published positions of the U.S. Internal Revenue Service, or IRS, and other applicable authorities, all as in effect on the date hereof and all of which are subject to differing interpretations or change, possibly with retroactive effect. We have not sought, and will not seek, any ruling from the IRS or any opinion of counsel with respect to the tax consequences discussed herein, and there can be no assurance that the IRS will not take a position contrary to the tax consequences discussed below or that any position taken by the IRS would not be sustained. Furthermore, this discussion does not include any discussion of any state, local or foreign tax considerations.

We urge you to consult your tax advisor regarding the U.S. federal tax consequences of acquiring, owning or disposing our common stock, as well as any tax consequences that may arise under the laws of any foreign, state, local or other taxing jurisdiction or under any applicable tax treaty.

Dividends

As described under “Dividend Policy” above, we do not anticipate paying cash dividends on our common stock in the foreseeable future. However, if distributions of cash or property (other than certain stock distributions) are made to non-U.S. holders on shares of our common stock, such distributions generally will constitute dividends for U.S. federal income tax purposes to the extent paid from our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. Distributions in excess of earnings and profits will constitute a return of capital that is applied against and reduces the non-U.S. holder’s adjusted tax basis in our common stock. Any remaining excess will be treated as gain realized on the sale or other disposition of the common stock and will be treated as described under “—Gain on Sale, Exchange or Other Taxable Disposition of Common Stock” below.

Dividends paid to a non-U.S. holder that are not effectively connected with the non-U.S. holder’s conduct of a trade or business in the United States generally will be subject to withholding of U.S. federal income tax at the rate of 30% or such lower rate as may be specified by an applicable income tax treaty. Non-U.S. holders should consult their tax advisors regarding their entitlement to benefits under an applicable income tax treaty and the requirements for and manner of claiming the benefits of such treaty (including, without limitation, the need to obtain a U.S. taxpayer identification number).

If the non-U.S. holder is engaged in a trade or business in the United States, either directly or through an entity treated as a partnership for U.S. tax purposes, and the dividends are effectively connected with the conduct of such trade or business, and, if provided in an applicable income tax treaty, are dividends attributable to a permanent establishment or fixed base maintained by the non-U.S. holder in the United States, then the dividends are not subject to the U.S. withholding tax, but instead are subject to U.S. federal income tax on a net income basis at applicable graduated U.S. federal income tax rates and in a manner applicable to U.S. persons. Certain certification and disclosure requirements must be complied with for effectively connected income or income attributable to a permanent establishment to be exempt from withholding. Any effectively connected dividends or dividends attributable to a permanent

 

114


Table of Contents

establishment received by a non-U.S. holder that is treated as a foreign corporation for U.S. tax purposes may be subject to an additional “branch profits tax” at a 30% rate, or such lower rate as may be specified by an applicable income tax treaty.

To claim the benefit of a tax treaty or an exemption from withholding because dividends are effectively connected with the conduct of a trade or business in the United States, a non-U.S. holder must provide to the withholding agent a properly executed IRS Form W-8BEN (or successor form) for treaty benefits or IRS Form W-8ECI (or successor form) for effectively connected income, before the payment of dividends, and, if claiming the benefit of a tax treaty, must certify under penalties of perjury on the appropriate forms that such non-U.S. holder is not a U.S. person and is eligible for treaty benefits. These forms must be periodically updated. Non-U.S. holders may obtain a refund of any excess amounts withheld by timely filing an appropriate claim for refund along with the required information. However,

 

   

in the case of common stock held by a foreign partnership, the certification requirement generally will be applied to the partners of the partnership and the partnership will be required to provide certain information;

 

   

in the case of common stock held by a foreign trust, the certification requirement generally will be applied to the trust or the beneficial owners of the trust depending on whether the trust is a “foreign complex trust,” “foreign simple trust,” or “foreign grantor trust” as defined in the U.S. Treasury regulations; and

 

   

look-through rules will apply for tiered partnerships, foreign simple trusts and foreign grantor trusts.

A non-U.S. holder that is a foreign partnership or a foreign trust is urged to consult its own tax advisor regarding its status under U.S. tax law and the certification requirements applicable to it.

Gain on Sale, Exchange or Other Taxable Disposition of Common Stock

A non-U.S. holder generally will not be subject to U.S. federal income tax, including by way of withholding, on gain recognized on a sale, exchange or other taxable disposition of our common stock unless any one of the following applies:

 

  1. The non-U.S. holder is a nonresident alien individual who is present in the United States for 183 days or more in the taxable year of the sale, exchange or other taxable disposition and certain other requirements are met;

 

  2. The gain is effectively connected with the non-U.S. holder’s conduct of a trade or business in the United States, directly or through an entity treated as a partnership for U.S. tax purposes and, if an applicable tax treaty requires, attributable to a U.S. permanent establishment or fixed base of such non-U.S. holder; or

 

  3.

We are or have been, at any time during the five-year period preceding such disposition (or the non-U.S. holder’s holding period, if shorter) a “United States real property holding corporation,” within the meaning of Section 897(c)(2) of the Code, unless our common stock is regularly traded on an established securities market and the non-U.S. holder holds no more than 5% of our outstanding common stock, directly or indirectly, during the relevant period, or the 5% exception. Generally, a United States corporation is treated as a United States real property holding corporation within the meaning of Section 897(c)(2) of the Code if the fair market value of its United States real property interests equals or exceeds 50% of the sum of the fair market value of its worldwide real property interests plus its other assets used or held for use in a trade or business.

 

115


Table of Contents
  We believe that we have not been and are not currently a United States real property holding corporation, and we do not expect to become a United States real property holding corporation. However, no assurances can be made in this regard. Furthermore, no assurances can be provided that our stock will be considered to be regularly traded on an established securities market for purposes of Section 897 of the Code.

Non-U.S. holders described in clause (1) above are taxed on their gains (including gains from sales of our common stock and net of applicable U.S. losses from sales or exchanges of other capital assets incurred during the year) at a flat rate of 30% or such lower rate as may be specified by an applicable income tax treaty. Non-U.S. holders described in clause (2) or (3) above will be subject to tax on the net gain derived from the sale under regular graduated U.S. federal income tax rates and in a manner applicable to U.S. persons, unless an applicable income tax treaty provides otherwise. If a non-U.S. holder described in clause (2) or (3) is a corporation, it may be subject to the additional branch profits tax at a rate equal to 30% of its effectively connected earnings and profits or at such lower rate as may be specified by an applicable income tax treaty. In addition, if we are determined to be a United States real property holding corporation and the 5% exception does not apply, then a purchaser may be required to withhold 10% of the proceeds payable to a non-U.S. holder from a sale or other taxable disposition of our common stock.

U.S. Federal Estate Taxes

Our common stock beneficially owned or treated as beneficially owned by an individual who at the time of death is a non-U.S. holder, and certain lifetime transfers of an interest in common stock made by such an individual, will be included in his or her gross estate for U.S. federal estate tax purposes, unless an applicable estate tax treaty provides otherwise and, therefore, may be subject to U.S. federal estate tax. Estates of non-resident alien individuals are generally allowed a statutory credit that has the effect of offsetting the U.S. federal estate tax imposed on the first $60,000 of the taxable estate.

Legislation Affecting Taxation of Common Stock Held by or Through Foreign Entities

Under legislation enacted in 2010, a 30% U.S. federal withholding tax will be imposed on dividends on stock of U.S. corporations, and on the gross proceeds from the disposition of such stock, paid to a “foreign financial institution” (as specially defined for this purpose), unless such institution enters into an agreement with the U.S. Treasury to collect and provide to the U.S. Treasury substantial information regarding its U.S. account holders and certain account holders that are foreign entities with U.S. owners. A 30% U.S. federal withholding tax will also apply to dividends paid on stock of U.S. corporations and on the gross proceeds from the disposition of such stock paid to a non-financial foreign entity unless such entity provides the withholding agent with a certification that it does not have any substantial U.S. owners or a certification identifying the direct and indirect substantial U.S. owners of the entity. The withholding taxes described above will apply to dividend payments made after December 31, 2013 and payments of gross proceeds made after December 31, 2014. Under certain circumstances, a non-U.S. holder may be eligible for refunds or credits of such withholding taxes. Investors are urged to consult with their own tax advisors regarding the possible application of these rules to their investment in our common stock.

Information Reporting and Backup Withholding

Under U.S. Treasury regulations, we must report annually to the IRS and to each non-U.S. holder the amount of dividends paid to such non-U.S. holder and the tax withheld with respect to those dividends. These information reporting requirements apply even if withholding was not

 

116


Table of Contents

required because the dividends were effectively connected to the conduct of the non-U.S. holder’s trade or business within the United States or withholding was reduced or eliminated by an applicable tax treaty. Copies of the information returns reporting those dividends and withholding may also be made available to the tax authorities in the country in which the non-U.S. holder is a resident under the provisions of an applicable income tax treaty or agreement.

The gross amount of dividends paid to a non-U.S. holder that fails to certify its non-U.S. holder status in accordance with applicable U.S. Treasury regulations and fails to otherwise establish an exemption generally will be reduced by backup withholding at the applicable rate (currently 28%).

A non-U.S. holder is required to certify its non-U.S. status under penalties of perjury or otherwise establish an exemption in order to avoid information reporting and backup withholding on disposition proceeds where the transaction is effected by or through a U.S. office of a broker.

U.S. information reporting and backup withholding generally will not apply to a payment of proceeds of a disposition of common stock where the transaction is effected outside the United States through a non-U.S. office of a non-U.S. broker. However, information reporting requirements, but not backup withholding, generally will apply to such a payment if the broker is (i) a U.S. person; (ii) a foreign person that derives 50% or more of its gross income for certain periods from the conduct of a trade or business in the United States; (iii) a controlled foreign corporation as defined in the Code; (iv) a foreign partnership with certain U.S. connections, unless the broker has documentary evidence in its records that the holder is a non-U.S. holder and certain conditions are met or the holder otherwise establishes an exemption; or (v) a U.S. branch of a foreign bank or a foreign insurance company.

Backup withholding is not an additional tax. Amounts that we withhold under the backup withholding rules may be refunded or credited against the non-U.S. holder’s U.S. federal income tax liability, if any, provided that certain required information is furnished to the IRS in a timely manner. Non-U.S. holders should consult their own tax advisors regarding application of backup withholding in their particular circumstance and the availability of and procedure for obtaining an exemption from backup withholding under current U.S. Treasury regulations.

The foregoing discussion is only a summary of certain U.S. federal income and estate tax consequences of the acquisition, ownership and disposition of our common stock by non-U.S. holders. You are urged to consult your own tax advisor with respect to the particular tax consequences to you of ownership and disposition of our common stock, including the effect of any U.S., state, local, non-U.S. or other tax laws and any applicable income or estate tax treaty.

 

117


Table of Contents

UNDERWRITING

Subject to the terms and conditions of the underwriting agreement, the underwriters named below, through their representatives Deutsche Bank Securities Inc. and Piper Jaffray & Co. have severally agreed to purchase from us and the selling stockholder the following respective number of shares of common stock at a public offering price less the underwriting discounts and commissions set forth on the cover page of this prospectus:

 

Underwriters

   Number
of

Shares

Deutsche Bank Securities Inc.

  

Piper Jaffray & Co.

  
  
  
  

 

Total

  
  

 

The underwriting agreement provides that the obligations of the several underwriters to purchase the shares of common stock offered hereby are subject to certain conditions precedent and that the underwriters will purchase all of the shares of common stock offered by this prospectus, other than those covered by the over-allotment option described below, if any of these shares are purchased.

We have been advised by the representatives of the underwriters that the underwriters propose to offer the shares of common stock to the public at the public offering price set forth on the cover of this prospectus and to dealers at a price that represents a concession not in excess of $             per share under the public offering price. The underwriters may allow, and these dealers may re-allow, a concession of not more than $             per share to other dealers. After the initial public offering, representatives of the underwriters may change the offering price and other selling terms.

We and the selling stockholder have granted to the underwriters an option, exercisable not later than 30 days after the date of this prospectus, to purchase up to             additional shares of common stock at the public offering price less the underwriting discounts and commissions set forth on the cover page of this prospectus. The underwriters may exercise this option only to cover over-allotments made in connection with the sale of the common stock offered by this prospectus. To the extent that the underwriters exercise this option, each of the underwriters will become obligated, subject to conditions, to purchase approximately the same percentage of these additional shares of common stock as the number of shares of common stock to be purchased by it in the above table bears to the total number of shares of common stock offered by this prospectus. We or the selling stockholder will be obligated, pursuant to the option, to sell these additional shares of common stock to the underwriters to the extent the option is exercised. If any additional shares of common stock are purchased, the underwriters will offer the additional shares on the same terms as those on which the             shares are being offered.

 

118


Table of Contents

The underwriting discounts and commissions per share are equal to the public offering price per share of common stock less the amount paid by the underwriters to us per share of common stock. The underwriting discounts and commissions are     % of the initial public offering price. We have agreed to pay the underwriters the following discounts and commissions, assuming either no exercise or full exercise by the underwriters of the underwriters’ over-allotment option:

 

          Total Fees
     Fee per
share
   Without Exercise of
Over-Allotment
Option
   With Full Exercise of
Over-Allotment
Option

Discounts and commissions paid by us

   $                $                            $                        

Discounts and commissions paid by the selling stockholder

   $                $                                $                            

In addition, we estimate that our share of the total expenses of this offering, excluding underwriting discounts and commissions, will be approximately $            .

We and the selling stockholder have agreed to indemnify the underwriters against some specified types of liabilities, including liabilities under the Securities Act, and to contribute to payments the underwriters may be required to make in respect of any of these liabilities.

Each of our officers and directors, and substantially all of our stockholders and holders of options to purchase our stock, have agreed not to offer, sell, contract to sell or otherwise dispose of, or enter into any transaction that is designed to, or could be expected to, result in the disposition of any shares of our common stock or other securities convertible into or exchangeable or exercisable for shares of our common stock or derivatives of our common stock owned by these persons prior to this offering or common stock issuable upon exercise of options held by these persons for a period of 180 days after the effective date of the registration statement of which this prospectus is a part without the prior written consent of Deutsche Bank Securities Inc. and Piper Jaffray & Co. This consent may be given at any time without public notice except in limited circumstances. Transfers or dispositions can be made during the lock-up period in the case of gifts or for estate planning purposes and other limited circumstances where the transferee signs a lock-up agreement. We have entered into a similar agreement with the representatives of the underwriters. There are no agreements between the representatives and any of our stockholders or affiliates releasing them from these lock-up agreements prior to the expiration of the 180-day period.

The representatives of the underwriters have advised us that the underwriters do not intend to confirm sales to any account over which they exercise discretionary authority.

In connection with the offering, the underwriters may purchase and sell shares of our common stock in the open market. These transactions may include short sales, purchases to cover positions created by short sales and stabilizing transactions.

Short sales involve the sale by the underwriters of a greater number of shares than they are required to purchase in the offering. Covered short sales are sales made in an amount not greater than the underwriters’ option to purchase additional shares of common stock from us in the offering. The underwriters may close out any covered short position by either exercising their option to purchase additional shares or purchasing shares in the open market. In determining the source of shares to close out the covered short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase shares through the over-allotment option.

 

119


Table of Contents

Naked short sales are any sales in excess of the over-allotment option. The underwriters must close out any naked short position by purchasing shares in the open market. A naked short position is more likely to be created if underwriters are concerned that there may be downward pressure on the price of the shares in the open market prior to the completion of the offering.

Stabilizing transactions consist of various bids for or purchases of our common stock made by the underwriters in the open market prior to the completion of the offering.

The underwriters may impose a penalty bid. This occurs when a particular underwriter repays to the other underwriters a portion of the underwriting discount received by it because the representatives of the underwriters have repurchased shares sold by or for the account of that underwriter in stabilizing or short covering transactions.

Purchases to cover a short position and stabilizing transactions may have the effect of preventing or slowing a decline in the market price of our common stock. Additionally, these purchases, along with the imposition of the penalty bid, may stabilize, maintain or otherwise affect the market price of our common stock. As a result, the price of our common stock may be higher than the price that might otherwise exist in the open market. These transactions may be effected on the stock exchange on which we will list our common stock, in the over-the-counter market or otherwise.

A prospectus in electronic format is being made available on Internet web sites maintained by one or more of the lead underwriters of this offering and may be made available on web sites maintained by other underwriters. Other than the prospectus in electronic format, the information on any underwriter’s web site and any information contained in any other web site maintained by an underwriter is not part of the prospectus or the registration statement of which the prospectus forms a part.

Some of the underwriters or their affiliates have provided investment banking services to us in the past and may do so in the future. They receive customary fees and commissions for these services.

Pricing of this Offering

Prior to this offering, there has been no public market for our common stock. Consequently, the initial public offering price of our common stock will be determined by negotiation among us, the selling stockholder and the representatives of the underwriters. Among the primary factors that will be considered in determining the public offering price are:

 

   

prevailing market conditions;

 

   

our results of operations in recent periods;

 

   

the present stage of our development;

 

   

the market capitalizations and stages of development of other companies that we and the representatives of the underwriters believe to be comparable to our business; and

 

   

estimates of our business potential.

 

120


Table of Contents

Notice to Investors in the European Economic Area

In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive (each, a Relevant Member State) an offer to the public of any shares which are the subject of the offering contemplated by this prospectus may not be made in that Relevant Member State other than the offers contemplated in the prospectus once the prospectus has been approved by the competent authority in such Member State and published and passported in accordance with the Prospectus Directive as implemented in the Relevant Member State except that an offer to the public in that Relevant Member State of any shares may be made at any time under the following exemptions under the Prospectus Directive, if they have been implemented in that Relevant Member State:

 

   

to legal entities which are authorized or regulated to operate in the financial markets or, if not so authorized or regulated, whose corporate purpose is solely to invest in securities;

 

   

to any legal entity which has two or more of (1) an average of at least 250 employees during the last financial year; (2) a total balance sheet of more than 43,000,000 and (3) an annual net turnover of more than 50,000,000, as shown in its last annual or consolidated accounts;

 

   

by the underwriters to fewer than 100 natural or legal persons (other than qualified investors as defined in the Prospectus Directive) subject to obtaining the prior consent of the underwriters for any such offer; or

 

   

in any other circumstances falling within Article 3(2) of the Prospectus Directive,

provided that no such offer of shares shall result in a requirement for the publication by the Issuer or any underwriter of a prospectus pursuant to Article 3 of the Prospectus Directive.

For the purposes of this provision, the expression an “offer to the public” in relation to any shares in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and any shares to be offered so as to enable an investor to decide to purchase any shares, as the same may be varied in that member state by any measure implementing the Prospectus Directive in that member state and the expression “Prospectus Directive” means Directive 2003/71/EC and includes any relevant implementing measure in each Relevant Member State.

Notice to Investors in the United Kingdom

Each underwriter has represented and agreed that (a) it has only communicated and will only communicate or cause to be communicated an invitation or inducement to engage in investment activity (within the meaning of Section 21 of the Financial Services and Markets Act 2000, or the FSMA, received by it in connection with the issue or sale of the shares (i) to investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, or the Order, or (ii) to high net worth entities, and other persons to whom it may lawfully be communicated, falling within Article 49(2)(a) and (d) of the Order, with all such persons together being referred to as relevant persons, and (b) it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the shares of our common stock in, from or otherwise involving the United Kingdom. This prospectus and its contents are confidential and should not be distributed, published or reproduced (in whole or in part) or disclosed by recipients to any other persons in the United Kingdom. Any person in the United Kingdom that is not a relevant person should not act or rely on this document or any of its contents.

 

121


Table of Contents

Notice to Prospective Investors in Hong Kong

The shares may not be offered or sold in Hong Kong by means of any document other than (i) in circumstances which do not constitute an offer to the public within the meaning of the Companies Ordinance (Cap. 32, Laws of Hong Kong), or (ii) to “professional investors” within the meaning of the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) and any rules made thereunder, or (iii) in other circumstances which do not result in the document being a “prospectus” within the meaning of the Companies Ordinance (Cap. 32, Laws of Hong Kong) and no advertisement, invitation or document relating to the shares may be issued or may be in the possession of any person for the purpose of issue (in each case whether in Hong Kong or elsewhere), which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the laws of Hong Kong) other than with respect to shares which are or are intended to be disposed of only to persons outside Hong Kong or only to “professional investors” within the meaning of the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) and any rules made thereunder.

Notice to Prospective Investors in Singapore

This prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the shares may not be circulated or distributed, nor may the shares be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore, or the SFA, (ii) to a relevant person pursuant to Section 275(1), or any person pursuant to Section 275(1A), and in accordance with the conditions specified in Section 275 of the SFA or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA, in each case subject to compliance with conditions set forth in the SFA.

Where the shares are subscribed or purchased under Section 275 of the SFA by a relevant person which is:

 

   

a corporation (which is not an accredited investor (as defined in Section 4A of the SFA)) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or

 

   

a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary of the trust is an individual who is an accredited investor,

shares, debentures and units of shares and debentures of that corporation or the beneficiaries’ rights and interest (howsoever described) in that trust shall not be transferred within six months after that corporation or that trust has acquired the shares pursuant to an offer made under Section 275 of the SFA except:

 

   

to an institutional investor (for corporations, under Section 274 of the SFA) or to a relevant person defined in Section 275(2) of the SFA, or to any person pursuant to an offer that is made on terms that such shares, debentures and units of shares and debentures of that corporation or such rights and interest in that trust are acquired at a consideration of not less than S$200,000 (or its equivalent in a foreign currency) for each transaction, whether such amount is to be paid for in cash or by exchange of securities or other assets, and further for corporations, in accordance with the conditions specified in Section 275 of the SFA;

 

   

where no consideration is or will be given for the transfer; or

 

   

where the transfer is by operation of law.

 

122


Table of Contents

LEGAL MATTERS

The validity of the shares of common stock offered hereby will be passed upon for us by Gibson, Dunn & Crutcher LLP. Certain legal matters in connection with this offering will be passed upon for the underwriters by White & Case LLP.

EXPERTS

The consolidated financial statements of the Company at December 29, 2009 and December 28, 2010 and for each of the three fiscal years in the period ended December 28, 2010 appearing in this prospectus and registration statement have been audited by Ernst & Young LLP, independent registered public accounting firm, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report, given on the authority of such firm as experts in accounting and auditing.

WHERE YOU CAN FIND MORE INFORMATION

We have filed with the SEC a registration statement on Form S-1, including exhibits, of which this prospectus is a part, under the Securities Act with respect to the shares of common stock to be sold in this offering. This prospectus does not contain all of the information set forth in the registration statement and exhibits and schedules to the registration statement. For further information with respect to our company and the shares of common stock to be sold in this offering, reference is made to the registration statement, including the exhibits and schedules to the registration statement. Copies of the registration statement, including the exhibits and schedules to the registration statement, may be examined without charge at the public reference room of the SEC, 100 F Street, N.E., Washington, DC 20549. Information about the operation of the public reference room may be obtained by calling the SEC at 1-800-SEC-0330. Copies of all or a portion of the registration statement can be obtained from the public reference room of the SEC upon payment of prescribed fees. Our SEC filings, including our registration statement, are also available to you for free on the SEC’s website at www.sec.gov. Upon consummation of this offering we will become subject to the informational requirements of the Exchange Act and will be required to file reports and other information. You will be able to inspect and copy these reports and other information at the public reference facilities maintained by the SEC at the address noted above. You will also be able to obtain copies of these materials from the Public Reference Room of the SEC at the address noted above or inspect them without charge at the SEC’s website. We intend to make available to our common stockholders annual reports containing consolidated financial statements audited by an independent registered public accounting firm.

 

123


Table of Contents

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

Report of Independent Registered Public Accounting Firm

     F-2   

Financial Statements:

  

Consolidated Balance Sheets

     F-3   

Consolidated Statements of Income

     F-4   

Consolidated Statements of Changes in Member’s Equity (Deficit)

     F-5   

Consolidated Statements of Cash Flows

     F-6   

Notes to Consolidated Financial Statements

     F-7   

 

F-1


Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors

Del Frisco’s Restaurant Group, LLC

We have audited the accompanying consolidated balance sheets of Del Frisco’s Restaurant Group, LLC (the Company) as of December 29, 2009 and December 28, 2010, and the related consolidated statements of income, changes in member’s equity (deficit), and cash flows for each of the three fiscal years in the period ended December 28, 2010. These financial statements are the responsibility of the company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company at December 29, 2009 and December 28, 2010, and the consolidated results of its operations and its cash flows for each of the three fiscal years in the period ended December 28, 2010, in conformity with U.S. generally accepted accounting principles.

/s/    Ernst & Young LLP

Dallas, Texas

March 28 2011,

except Note 15, as to which the date is

January 23, 2012

 

F-2


Table of Contents

DEL FRISCO’S RESTAURANT GROUP, LLC

Consolidated Balance Sheets

(In Thousands)

 

    December 29,
2009
    December 28,
2010
    September 6,
2011
    September 6,
2011
 
                (Unaudited)     Pro Forma
(Unaudited)
 

Assets

       

Current assets:

       

Cash and cash equivalents

  $ 13,257      $ 4,157      $ 4,079      $     

Restricted cash

                  1,130     

Inventories

    8,506        8,661        9,258     

Income tax receivable

    4,469        624            

Deferred income taxes

    2,569        2,018        2,043     

Other

    2,382        3,397        1,825     
 

 

 

   

 

 

   

 

 

   

Total current assets

    31,183        18,857        18,335     

Property and equipment:

       

Land

    6,804        5,007        2,874     

Buildings

    8,441        6,813        2,726     

Leasehold improvements

    64,097        67,445        72,437     

Furniture, fixtures, and equipment

    14,201        15,930        24,592     
 

 

 

   

 

 

   

 

 

   
    93,543        95,195        102,629     

Less accumulated depreciation and amortization

    (13,830     (19,984     (24,178  
 

 

 

   

 

 

   

 

 

   
    79,713        75,211        78,451     

Deferred compensation plan investments

    6,304        6,583        6,278     

Other assets:

       

Goodwill

    78,899        78,899        78,899     

Intangible assets, net

    36,536        36,361        36,507     

Loan costs, net of accumulated amortization of $1,635 in 2009, $2,507 in 2010, and $43 in 2011 (unaudited)

    3,757        2,885        1,992     

Other

    32        38        162     
 

 

 

   

 

 

   

 

 

   
    119,224        118,183        117,560     
 

 

 

   

 

 

   

 

 

   

Total assets

  $ 236,424      $ 218,834      $ 220,624      $     
 

 

 

   

 

 

   

 

 

   

Liabilities and member’s equity

       

Current liabilities:

       

Current maturities of long-term debt

  $ 9,000      $ 3,000      $      $                

Accounts payable

    5,499        3,133        6,403     

Sales tax payable

    879        920        1,110     

Accrued payroll

    3,265        3,528        4,407     

Real estate taxes

    744        693        398     

Accrued self-insurance

    2,127        1,235        1,325     

Deferred revenue for gift cards

    4,494        6,286        4,406     

Income taxes payable

                  237     

Other

    4,114        2,338        2,138     
 

 

 

   

 

 

   

 

 

   

 

 

 

Total current liabilities

    30,122        21,133        20,424     

Long-term debt, less current maturities

    96,275        75,922        71,100     

Advances due to affiliate

    45,269                   

Other noncurrent liabilities

    5,277        3,565        3,651     

Deferred-compensation plan liabilities

    7,485        7,590        7,993     

Deferred rent obligations

    4,208        7,119        16,801     

Deferred tax liabilities

    15,047        14,405        10,626     
 

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

    203,683        129,734        130,595     

Member’s equity:

       

Member’s equity

    4,795        52,092        51,376          

Common stock $            par value,             shares authorized,             shares issued and outstanding, pro-forma

                           

Accumulated other comprehensive loss

    (220                     

Additional paid-in capital, pro forma

       

Retained earnings

    28,166        37,008        38,653          
 

 

 

   

 

 

   

 

 

   

 

 

 

Total member’s equity

    32,741        89,100        90,029     
 

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities and member’s equity

  $ 236,424      $ 218,834      $ 220,624      $     
 

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes.

 

F-3


Table of Contents

DEL FRISCO’S RESTAURANT GROUP, LLC

Consolidated Statements of Income

(In Thousands)

 

    Year Ended     36 Weeks Ended  
    December 30,
2008
    December 29,
2009
    December 28,
2010
    September 7,
2010
    September 6,
2011
 
                      (Unaudited)  

Revenues

  $ 178,386      $ 160,177      $ 165,575      $ 107,968      $ 128,758   

Costs and expenses:

         

Costs of sales

    58,587        47,593        50,339        32,659        39,413   

Restaurant operating expenses

    73,718        69,209        73,404        50,112        58,087   

Marketing and advertising costs

    3,473        3,523        2,825        1,640        2,705   

Pre-opening costs

    2,469        493        798        729        2,177   

General and administrative

    6,354        8,236        7,512        5,030        7,511   

Abandoned registration costs

    2,379                               

Management and accounting fees paid to related party

    2,104        2,878        3,345        2,091        2,366   

Non-cash impairment charges

                                1,400   

Depreciation and amortization

    4,555        6,422        6,624        4,572        4,790   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

    24,747        21,823        20,728        11,135        10,309   

Other income (expense), net:

         

Interest expense—affiliates

    (2,295     (2,281     (1,775     (1,335       

Interest expense—other

    (10,147     (5,942     (9,906     (7,162     (7,447

Other, net

    (182     36        (249     (59     (274
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations before income taxes

    12,123        13,636        8,798        2,579        2,588   

Provision (benefit) for income taxes

    4,924        3,616        (44     2,022        943   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations

    7,199        10,020        8,842        557        1,645   

Discontinued operations:

         

Loss from operations of discontinued restaurant

    (68                            

Income tax benefit

    24                               
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss on discontinued operations

    (44                            
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

  $ 7,155      $ 10,020      $ 8,842      $ 557      $ 1,645   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Unaudited pro forma net income per common share:

         

Basic and diluted

  $        $        $        $        $     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Shares used in computing unaudited pro forma net income per share:

         

Basic and diluted

         
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes.

 

F-4


Table of Contents

DEL FRISCO’S RESTAURANT GROUP, LLC

Consolidated Statement of Changes in

Member’s Equity (Deficit)

(In Thousands)

 

     Member’s
Equity (Deficit)
    Retained
Earnings
     Accumulated
Other
Comprehensive
Income (Loss)
    Total  

Balance at December 25, 2007

   $ (29,550   $ 10,991       $ (115   $ (18,674

Comprehensive Income:

         

Net Income

            7,155                7,155   

Unrealized loss on cash flow hedge, net of tax benefit of $201

                    (301     (301
         

 

 

 

Total comprehensive income

            6,854   

Member contributions

     1,495                       1,495   

Equity-based compensation

     171                       171   
  

 

 

   

 

 

    

 

 

   

 

 

 

Balance at December 30, 2008

     (27,884     18,146         (416     (10,154

Comprehensive Income:

         

Net Income

            10,020                10,020   

Realized loss on cash flow hedge, net of tax benefit of $130

                    196        196   
         

 

 

 

Total comprehensive income

            10,216   

Member contributions

     32,509                       32,509   

Equity-based compensation

     170                       170   
  

 

 

   

 

 

    

 

 

   

 

 

 

Balance at December 29, 2009

     4,795        28,166         (220     32,741   

Comprehensive Income:

         

Net Income

            8,842                8,842   

Realized loss on cash flow hedge, net of tax benefit of $147

                    220        220   
         

 

 

 

Total comprehensive income

            9,062   

Member contributions

     47,127                       47,127   

Equity-based compensation

     170                       170   
  

 

 

   

 

 

    

 

 

   

 

 

 

Balance at December 28, 2010

     52,092        37,008                89,100   

Comprehensive Income:

         

Net income (unaudited)

            1,645                1,645   
         

 

 

 

Total comprehensive income (unaudited)

            1,645   

Deemed distribution (unaudited)

     (477                    (477

Cash distribution (unaudited)

     (357                    (357

Equity-based compensation (unaudited)

     118                       118   
  

 

 

   

 

 

    

 

 

   

 

 

 

Balance at September 6, 2011 (unaudited)

   $ 51,376      $ 38,653       $      $ 90,029   
  

 

 

   

 

 

    

 

 

   

 

 

 

See accompanying notes.

 

F-5


Table of Contents

DEL FRISCO’S RESTAURANT GROUP, LLC

Consolidated Statements of Cash Flows

(In Thousands)

 

    Year Ended     36 Weeks Ended  
    December 30,
2008
    December 29,
2009
    December 28,
2010
    September 7,
2010
    September 6,
2011
 
                      (Unaudited)  

Operating activities

         

Net income

  $ 7,155      $ 10,020      $ 8,842      $ 557      $ 1,645   

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

         

Depreciation and amortization

    4,555        6,422        6,624        4,572        4,790   

Loan cost amortization

    656        694        872        604        2,929   

Noncash interest charge—affiliate

    1,887        1,881        1,775        1,335          

Noncash equity-based compensation

    171        170        170        118        118   

Abandoned registration costs

    2,379                               

Noncash impairment charges

                                1,400   

Deferred income taxes

    (22     5,723        (238     (712     (3,487

Loss from discontinued operations

    44                               

Deemed landlord financing proceeds (in the form of tenant improvement allowances

                  1,601                 

Loss on sale of assets

    353                               

Changes in operating assets and liabilities:

         

Restricted cash

                                (1,130

Inventories

    (1,980     2,167        (155     297        (597

Other current assets

    (137     (1,203     (1,015     1,209        1,572   

Accounts payable

    (77     (811     (2,366     (793     3,270   

Income taxes

    345        (3,716     2,133        2,438        947   

Other liabilities

    674        (2,431     499        (843     (625

Payments attributable to accrued interest included in advances due affiliate

                  (6,464              
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by operating activities of continuing operations

    16,003        18,916        12,278        8,782        10,832   

Investing activities

         

Proceeds from sale of assets

    1,950                               

Proceeds from sale-leaseback transaction

                  4,345        4,345        13,235   

Payments to dissenting stockholders

    (1,495     (19,800                     

Sales of short-term investments

    1,950                               

Purchases of property and equipment

    (21,422     (7,755     (5,550     (3,035     (13,850

Other

    2,070        (983     (284     (338     (80
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash (used in) provided by investing activities of continuing operations

    (16,947     (28,538     (1,489     972        (695

Financing activities

         

Member contribution

    1,495        19,800        47,127                 

Proceeds from long-term debt

                                71,100   

Payment of long-term debt

    (1,100     (3,075     (26,353     (18,603     (78,922

Loan costs

    (235     (1,138                   (2,036

Distribution to parent

                                (357

Advances due to affiliate

    (85            (40,663     82          
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities of continuing operations

    75        15,587        (19,889     (18,521     (10,215

Cash flow from discontinued operations:

         

Operating cash flows

    (44                            

Investing cash flows

                                  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in discontinued operations

    (44                            

Net (decrease) increase in cash and cash equivalents

    (913     5,965        (9,100     (8,767     (78

Cash and cash equivalents at beginning of period

    8,205        7,292        13,257        13,257        4,157   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at end of period

  $ 7,292      $ 13,257      $ 4,157      $ 4,490      $ 4,079   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Supplemental disclosure of cash flow information

         

Cash paid for income taxes

  $ 4,579      $ 1,611      $ (1,939   $ 296      $ 3,482   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash paid for interest

  $ 6,446      $ 8,338      $ 10,109      $ 7,619      $ 4,335   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Noncash investing and financing activities:

         

Deemed distribution to parent

  $      $      $      $      $ 477   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Contribution to member’s equity through the assumption of a portion of the payable to dissenting shareholders by parent

  $      $ 12,709      $      $      $   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes.

 

F-6


Table of Contents

DEL FRISCO’S RESTAURANT GROUP, LLC

Notes to Consolidated Financial Statements

(Information Pertaining to the 36 Weeks Ended

September 7, 2010 and September 6, 2011 is Unaudited)

(1)    Organization and Basis of Presentation

Background

Del Frisco’s Restaurant Group, LLC (the Company) was incorporated in Delaware as a limited liability company and will have a perpetual existence. The Company is a wholly owned subsidiary of LSF5 Wagon Holdings, LLC, which is a wholly owned subsidiary of LSF5 COI Holdings, LLC (Holdings), which is majority owned by Lone Star Fund V (U.S.), L.P. (the Fund), which is a private investment fund and the ultimate parent of the Company.

Effective December 13, 2006, the Fund, through Holdings, acquired all of the outstanding capital stock of Lone Star Steakhouse & Saloon, Inc. (Star), through a series of transactions pursuant to an Agreement and Plan of Merger (the Acquisition). Prior to the Acquisition, Star was a public company that owned and operated steakhouse restaurants under four different restaurant brands, which included Lone Star Steakhouse & Saloon (Lone Star), Texas Land & Cattle Steak House (TXLC), Sullivan’s Steakhouse (Sullivan’s), and Del Frisco’s Double Eagle Steak House (Del Frisco’s).

In connection with the Acquisition, Holdings contributed all of the assets, restaurant operations, trade names, and other intangible assets of its Lone Star and TXLC restaurants to LSF5 Cowboy Holdings, LLC (Casual Dining Companies), which is a wholly owned subsidiary of Holdings. In addition, LS Management, Inc. (LSM), which was previously a wholly owned subsidiary of Star that provided all of the accounting, legal, and other administrative support to all of Star’s restaurants, was contributed to the Casual Dining Companies. Concurrently, the remaining assets and restaurant operations of Star, which primarily included the Del Frisco’s and Sullivan’s restaurants as well as LS Finance, LLC which was previously a wholly owned subsidiary of Star that provided all of the cash management and treasury support to all of Star’s restaurants, were contributed to the Company.

Description of Business

The Company owns and operates restaurants in the upscale steakhouse market under the brand names of Del Frisco’s Double Eagle Steak House, Sullivan’s Steakhouse, and Del Frisco’s Grille. In addition, the Company, through LS Finance, LLC, its wholly owned subsidiary, provided cash management and treasury services for the Company’s restaurants and, until March 2007, the restaurants owned and operated by the Casual Dining Companies. As of December 28, 2010 and September 6, 2011 the Company owned and operated eight Del Frisco’s and 20 Sullivan’s and nine Del Frisco’s and 20 Sullivan’s, respectively. In addition, at September 6, 2011, the Company operates one Del Frisco’s Grille. During fiscal 2008, the Company opened a Del Frisco’s restaurant in Philadelphia, Pennsylvania, and Sullivan’s restaurants in Leawood, Kansas and Lincolnshire, Illinois. During fiscal 2009, the Company opened a Sullivan’s restaurant in Baltimore, Maryland. In fiscal 2010, the Company opened a Sullivan’s restaurant in Seattle, Washington. During the thirty-six weeks ended September 6, 2011, the Company opened a Del Frisco’s in Boston, Massachusetts and a Del Frisco’s Grille in New York City. The Company’s sole member interest is held by LSF5 Wagon Holdings, LLC, which is wholly owned by Holdings. The business and affairs of the Company are exclusively for the benefit of its sole member.

 

F-7


Table of Contents

Basis of Presentation and Acquisition

The Acquisition resulted in a new valuation of the assets and liabilities of Star and its subsidiaries, based on their estimated fair values as of the date of Acquisition. Since the Fund acquired 100% of the capital stock of Star, the Company was required to apply push down accounting pursuant to the provisions of Securities and Exchange Commission (SEC) Staff Accounting Bulletin No. 54, Push down Basis of Accounting Required in Certain Limited Circumstances.

The Company has performed an evaluation of subsequent events through March 28, 2011, which is the date the consolidated financial statements were issued.

Unaudited Interim Financial Statements

The interim financial statements of the Company for the 36 weeks ended September 7, 2010, and September 6, 2011, respectively, included herein, have been prepared by the Company, without audit, in accordance with generally accepted accounting principles for interim financial information, pursuant to the rules and regulations of the SEC. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments, consisting of normal, recurring accruals, which the Company considers necessary for a fair presentation of the financial position and the results of the interim periods presented, have been included. The results for the 36 weeks ended September 6, 2011, are not necessarily indicative of the results to be expected for the full year ending December 27, 2011. The Company’s first, second and third quarters each contain 12 operating weeks with the fourth quarter containing 16 operating weeks. The Company has performed an evaluation of subsequent events on the unaudited interim financial statements through January 23, 2012, which is the date the interim consolidated financial statements were available.

(2)    Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated.

Fiscal Year

The Company operates on a 52- or 53-week fiscal year ending the last Tuesday in December. Fiscal 2008 included 53 weeks of operations, and fiscal 2009 and 2010 included 52 weeks of operations.

Concentrations

The Company has certain financial instruments exposed to a concentration of credit risk, which consist primarily of cash and cash equivalents. The Company places cash with high-credit-quality financial institutions, and, at times, such cash may be in excess of the federal depository insurance limit. The Company has cash equivalents of approximately $2,679 and $575 at December 29, 2009, and December 28, 2010, respectively, in money market mutual funds.

Additionally, the Company purchased approximately 96%, 97% and 100% of total beef purchases from four suppliers during fiscal 2008, 2009, and 2010, respectively. Due to the nature of the beef purchases, there are alternative sources of supply available; however, a change in suppliers could potentially cause increased costs.

 

F-8


Table of Contents

Use of Estimates

The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Cash and Cash Equivalents

Cash and cash equivalents include currency on hand, demand deposits with banks or other financial institutions, credit card receivables, and short-term investments with maturities of three months or less when purchased. Cash and cash equivalents are carried at cost, which approximates fair value.

Financial Instruments

The Company considers the carrying amounts of cash and cash equivalents, short-term investments, receivables, advances due affiliate, and accounts payable to approximate fair value based on the short-term nature of these items. Borrowings under the credit facility at December 28, 2010 and at September 6, 2011 have variable interest rates that reflect currently available terms and conditions for similar debt. The carrying amount of the debt is a reasonable estimate of its fair value.

Derivative Instruments and Hedging Activities

The Company records all derivatives on the consolidated balance sheets at fair value. Derivatives qualify for treatment as hedges when there is a high correlation between the change in fair value of the derivative instrument and the related change in value of the underlying hedged item. Derivatives that are not accounted for as hedges or the ineffective portions of qualifying hedges must be adjusted to fair value through earnings. For qualifying hedges, the effective portion of the derivative’s gain or loss is initially reported as a component of other comprehensive income (OCI) and subsequently reclassified into income when the hedged exposure affects income.

Cash flow hedges related to anticipated transactions are designated and documented at the inception of each hedge by matching the terms of the contract to the underlying transaction as well as its risk management objective and strategy for undertaking the hedge. The Company classifies the cash flows from hedging transactions in the same categories on the statements of income as the cash flows from the respective hedged items. Once established, cash flow hedges are generally not removed until maturity unless an anticipated transaction is no longer likely to occur. The Company does not engage in trading activities with its financial instruments.

The only derivative instruments used by the Company during the 2008, 2009 and 2010 fiscal years were an interest rate swap and collar to hedge the variability of a majority of its future interest payments on its variable rate debt. See Note 10 for additional information.

Inventories

Inventories, which primarily consist of food and beverages, are valued at the lower of cost, using the first-in, first-out (FIFO) method, or market.

Property and Equipment

Property and equipment are stated at cost. Maintenance, repairs, and renewals that do not enhance the value of or increase the lives of the assets are expensed as incurred. Buildings are depreciated using the straight-line method over their estimated useful lives of 20 to 25 years.

 

F-9


Table of Contents

Leasehold improvements are amortized using the straight-line method over the lesser of the estimated useful lives of the assets of 20 years or the expected term of the lease, including cancelable optional renewal periods when failure to exercise such renewal options would result in an economic penalty to the Company. Furniture, fixtures, and equipment are depreciated using the straight-line method over three to seven years, which are the estimated useful lives of the assets.

Interest is capitalized in connection with the construction of restaurant facilities. The capitalized interest is recorded as part of the asset to which it relates and is amortized over the asset’s estimated useful life. Capitalized interest was $131, $12 and $0 for the years ended December 30, 2008, December 29, 2009 and December 28, 2010, respectively.

Operating Leases

The Company leases restaurants under operating leases. The majority of the Company’s leases provide for rent escalation clauses, contingent rental expense, and/or tenant improvement allowances.

Rent expense is recognized on a straight-line basis over the expected term of the lease, which includes cancelable optional renewal periods that are reasonably assured to be exercised and where failure to exercise such renewal options would result in an economic penalty to the Company.

Certain of the Company’s operating leases contain clauses that provide additional contingent rent based on a percentage of sales greater than certain specified target amounts. The Company recognizes contingent rent expense prior to the achievement of the specified target that triggers the contingent rent, provided achievement of that target is considered probable.

The Company records tenant improvement allowances and other landlord incentives as a component of deferred rent which is amortized on a straight-line basis over the expected term of the lease.

Preopening Costs

Preopening costs, including labor costs, costs of hiring and training personnel, and certain other costs related to opening new restaurants, are expensed when the costs are incurred.

Deferred Offering Costs

During fiscal 2007, the Company incurred deferred offering costs of $1,856 in connection with a proposed public offering of common stock that was filed with the SEC. During fiscal 2008, the Company incurred additional costs of $523 in connection with the proposed public offering. Due to unfavorable market conditions, the Company withdrew its public offering in the fourth quarter of fiscal 2008, resulting in a charge to income of $2,379.

Goodwill and Other Intangible Assets

The Company’s intangible assets primarily include goodwill, trade names, and licensing permits. The Company’s trade names include “Del Frisco’s Double Eagle Steak House” and “Sullivan’s Steakhouse,” both of which have indefinite lives and, accordingly, are not subject to amortization. The trade names are used in the advertising and marketing of the restaurants and

 

F-10


Table of Contents

are widely recognized and accepted by consumers in their respective markets for providing its customers an enjoyable fine-dining experience. Goodwill represents the excess of costs over the fair value of the net assets acquired.

Goodwill and intangible assets that have indefinite useful lives are not amortized. However, both goodwill and trade names are subject to annual impairment testing. The Company amortizes its finite-lived intangible assets on a straight-line basis over the estimated period of benefit, generally seven to 17 years. See Note 3 for additional information.

The impairment evaluation for goodwill is conducted annually using a two-step process. In the first step, the fair value of each reporting unit is compared to the carrying amount of the reporting unit, including goodwill. The estimated fair value of the reporting unit is determined using discounted cash flows and a market-based approach. If the estimated fair value of the reporting unit is less than the carrying amount of the reporting unit, then a second step must be completed in order to determine the amount of the goodwill impairment that should be recorded. In the second step, the implied fair value of the reporting unit’s goodwill is determined by allocating the reporting unit’s fair value to all of its assets and liabilities, other than goodwill, in a manner similar to a purchase price allocation. If the resulting implied fair value of the goodwill that results from the application of this second step is less than the carrying amount of the goodwill, an impairment charge is recorded for the difference. Currently, the Company defines the reporting units to be Del Frisco’s and Sullivan’s concepts. The Company performs its annual impairment test as of its year-end.

The evaluation of the carrying amount of other intangible assets with indefinite lives is made annually by comparing the carrying amount of these assets to their estimated fair value. The estimated fair value is determined on the basis of existing market-based conditions as well as discounted future cash flow or the royalty-relief method for trade names. If the estimated fair value is less than the carrying amount, an impairment charge is recorded to reduce the asset to its estimated fair value.

The assumptions used in the estimate of fair value are generally consistent with the past performance of each reporting unit and other intangible assets and are also consistent with the projections and assumptions that are used in current operating plans. These assumptions are subject to change as a result of changing economic and competitive conditions.

Loan Costs

Loan costs are stated at cost and amortized using the effective interest method over the life of the related loan.

Deferred Compensation Plan

In connection with the Company’s deferred-compensation plan, the Company has created a grantor trust to which it contributes amounts equal to employee participants’ qualified deferrals and the Company’s matching portion. The plan is informally funded using life insurance policies held by the grantor trust. All assets held by the grantor trust remain the property of the Company; however, the Company does not currently intend to use such assets for any purpose other than to fund payments to the participants pursuant to the terms of the deferred-compensation plan. The assets of the plan consist principally of cash surrender values of the life insurance policies. Because the investment assets of the deferred-compensation plan are assets of the Company and would be subject to general claims by creditors in the event of the Company’s insolvency, the accompanying consolidated balance sheets reflect such investments as assets, with a liability for deferred compensation reflected in long-term liabilities for amounts owed to employees.

 

F-11


Table of Contents

Impairment of Long-Lived Assets

Property and equipment and finite-life intangibles are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. The Company reviews applicable finite-lived intangible assets and long-lived assets related to each restaurant on a periodic basis. The Company’s assessment of recoverability of property and equipment and finite-lived intangible assets is performed at the component level, which is generally an individual restaurant. When events or changes in circumstances indicate an asset may not be recoverable, the Company estimates the future cash flows expected to result from the use of the asset. If the sum of the expected undiscounted future cash flows is less than the carrying value of the asset, an impairment loss is recognized. The impairment loss is recognized by measuring the difference between the carrying value of the assets and the estimated fair value of the assets. The Company’s estimates of fair values are based on the best information available and require the use of estimates, judgments, and projections. The actual results may vary significantly from the estimates.

During the 36 weeks ended September 6, 2011, the Company determined that the carrying amount of one of its Sullivan’s restaurants is most likely not recoverable. Therefore, the Company recorded an non-cash impairment charge of $1,400 (unaudited), which represents the difference between the carrying value of the restaurant assets, which was $3,250 (unaudited) at September 6, 2011 and their estimated fair value, which was based on an estimated sales price.

Self-Insurance Reserves

The Company maintains self-insurance programs for its workers’ compensation and general liability issuance programs. In order to minimize the exposure under the self-insurance programs, the Company has purchased stop-loss coverage both on a per-occurrence and on an aggregate basis. The self-insured losses under the programs are accrued based on the Company’s estimate of the ultimate expected liability for both claims incurred and on an incurred but not reported basis. The establishment of such accruals for self-insurance involves certain management judgments and assumptions regarding the frequency or severity of claims, the historical patterns of claim development, and the Company’s experience with claim-reserve management and settlement practices. To the extent actual results differ from the assumptions used to develop the accruals, such unanticipated changes may produce significantly different amounts of expense than those estimated under the self-insurance programs.

Income Taxes

The Company uses the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company regularly evaluates the likelihood of realization of tax benefits derived from positions it has taken in various federal and state filings after consideration of all relevant facts, circumstances, and available information. For those tax benefits deemed more likely than not that will be sustained, the Company recognizes the benefit it believes is cumulatively greater than 50% likely to be realized. To the extent the Company were to prevail in matters for which accruals have been established or be required to pay amounts in excess of recorded reserves, the effective tax rate in a given financial statement period could be materially impacted.

 

F-12


Table of Contents

Advertising Costs

Advertising costs are expensed as incurred. Advertising expense for the fiscal years ended December 30, 2008, December 29, 2009 and December 28, 2010 was $3,473, $3,523 and $2,825, respectively. Advertising costs incurred for the 36 weeks ended September 7, 2010 and September 6, 2011 were $1,640 (unaudited) and $2,705 (unaudited), respectively.

Revenue Recognition

Revenue from restaurant sales is recognized when food and beverage products are sold. Proceeds from the sale of gift cards are recorded as deferred revenue at the time of sale and recognized as income when the gift card is redeemed by the holder or the likelihood of redemption becomes remote (gift card breakage) and the Company determines there is no legal obligation to remit the value of the unredeemed gift cards to governmental agencies. The Company determines the gift card breakage rate based upon historical redemption patterns. Certain of the Company’s gift cards are sold on a discount and the net value (face value to be redeemed less the discount offered) is deferred until redeemed or breakage is deemed appropriate. The Company has deemed gift card breakage income immaterial for fiscal years 2008, 2009, and 2010 and the unaudited 36 week periods ended September 7, 2010 and September 6, 2011, and it is included in revenues in the consolidated statements of income. The Company excludes from revenue any taxes assessed by governmental agencies that are directly imposed on revenue-producing transactions between the Company and a customer.

Segment Reporting

Due primarily to similar economic characteristics, including similar long-term average margins, as well as a single type of product, distribution system, and similar customers, the Company reports the operations of its Del Frisco’s, Sullivan’s, and Del Frisco’s Grille reporting units on an aggregated basis and does not separately report segment information. Revenues from external customers are derived primarily from the sale of food and beverage. The Company does not have any major customers.

Recently Issued Accounting Standards

In January 2010, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2010-06, Fair Value Measurements and Disclosures (Topic 820), Improving Disclosures about Fair Value Measurements, which required additional disclosure of significant transfers in and out of instruments categorized as Level 1 and 2 in the Fair Value hierarchy. The update also clarified existing disclosure requirements by defining the level of disaggregation of instruments into classes as well as additional disclosure around the valuation techniques and inputs used to measure fair value. Additionally, for instruments categorized as Level 3 in the Fair Value hierarchy, the guidance required a roll forward of activities on purchases, sales, issuance, and settlements of the assets and liabilities. The update became effective for the Company in fiscal 2010. Other than requiring additional disclosures, adoption of this new guidance did not have a significant impact on the Company’s consolidated financial statements.

 

F-13


Table of Contents

(3)    Intangible Assets and Goodwill

 

     December 29,
2009
    December 28,
2010
    September 6,
2011
 
     (In Thousands)  
                 (Unaudited)  

Amortized intangible assets:

      

Gross carrying amount:

      

Favorable leasehold interests

   $ 848      $ 848      $ 848   

Licensing contract rights

     1,077        1,077        1,077   

Other

     110        110        161   
  

 

 

   

 

 

   

 

 

 
     2,035        2,035        2,086   

Accumulated amortization:

      

Favorable leasehold interests

     (357     (458     (522

Licensing contract rights

     (201     (267     (312

Other

     (9     (17     (28
  

 

 

   

 

 

   

 

 

 
     (567     (742     (862
  

 

 

   

 

 

   

 

 

 

Net amortized intangible assets

   $ 1,468      $ 1,293      $ 1,224   
  

 

 

   

 

 

   

 

 

 

Unamortized intangible assets:

      

Goodwill

   $ 78,899      $ 78,899      $ 78,899   

Trade names

     34,893        34,893        34,893   

Liquor license permits

     175        175        390   
  

 

 

   

 

 

   

 

 

 
   $ 113,967      $ 113,967      $ 114,182   
  

 

 

   

 

 

   

 

 

 

Licensing contract rights and favorable lease rights are being amortized using the straight-line method over the estimated lives of the related contracts and agreements, which are seven to nine years for favorable leasehold interest and 17 years for licensing contract rights. Liquor licenses are transferable and carried at cost. Such licenses are reviewed for impairment on an annual basis.

The Company has estimated that annual amortization expense will amount to approximately $164 for 2011 and 2012, $158 for 2013, $144 for 2014, and $118 for 2015.

Amortization expense was $187, $190 and $175 for the years ended December 30, 2008, December 29, 2009 and December 28, 2010, respectively. Amortization expense was $123 (unaudited) and $120 (unaudited) for the 36 weeks ended September 7, 2010 and September 6, 2011, respectively.

During fiscal 2009, goodwill was increased by $1,583 reflecting the increase in per-share amounts paid to certain former Star shareholders in the settlement of the amounts due the shareholders (see Note 11 for additional information).

During fiscal 2010, the Company’s remaining tax deductible goodwill was fully amortized. The Company performed the annual test for impairment of goodwill and intangible assets and concluded that no impairment existed as of December 30, 2008, December 29, 2009 or December 28, 2010; accordingly, no impairment losses were recorded.

 

F-14


Table of Contents

(4)    Related Party Transactions

General and Administrative Expenses

General and administrative expenses include charges from LSM, which is an indirect wholly owned subsidiary of the Fund. These charges, which totaled $1,621, $1,243, and $1,275 for the years ended December 30, 2008, December 29, 2009 and December 28, 2010, respectively, and $811 (unaudited) and $269 (unaudited) for the 36 weeks ended September 7, 2010 and September 6, 2011, respectively, are primarily for accounting, risk management, human resources and benefits administration, legal, management information services, and other shared support services. The amounts that are included in management fees to related party in the accompanying consolidated statements of income are charged pursuant to a shared service agreement between the Company and LSM. The Company cannot estimate with any reasonable certainty what the charges for similar services would have been on a stand-alone basis. However, the Company believes that the charges are indicative of what it would have incurred on a stand-alone basis.

At the date of Acquisition, the Company entered into an agreement with Hudson Advisors, L.L.C. (Hudson), an affiliate of certain entities that holds an indirect investment interest in the Company. Pursuant to the agreement, Hudson provides certain asset management and advisory services to the Company. During the years ended December 30, 2008, December 29, 2009 and December 28, 2010, the Company incurred charges for such services of $483, $1,635 and $2,070, respectively, and $1,280 (unaudited) and $2,097 (unaudited) for the 36 weeks ended September 7, 2010 and September 6, 2011, respectively.

Advances Due to Affiliates

The Company had amounts payable to certain wholly owned subsidiaries of the Casual Dining Companies, which totaled approximately $45,269 at December 29, 2009. These advances were in the form of an unsecured promissory note bearing interest at 4.65%, for which the principal and interest were due December 31, 2014. During fiscal 2010, the Casual Dining Companies transferred their interest in the advances due from the Company to the Company’s Parent. In November 2010, the Company paid the advances in full from proceeds of a cash capital contribution from its Parent in the amount of $47,127. During the years ended December 30, 2008, December 29, 2009, and December 28, 2010 the Company incurred interest expense of $1,887, $1,881 and $1,775, respectively, under the advances due to affiliate.

The average balance of the advances due to affiliates was approximately $42,511, $44,414 and $39,124 for the years ended December 30, 2008, December 29, 2009, and December 28, 2010, respectively. Transactions during the periods presented consisted of the following items:

 

     December 30,
2008
    December 29,
2009
     December 28,
2010
 
     (In Thousands)  

Beginning balance

   $ 41,554      $ 43,356       $ 45,269   

Interest accrued on advances due to affiliates

     1,887        1,881         1,775   

Other

     (85     32         83   

Payments

                    (47,127
  

 

 

   

 

 

    

 

 

 

Ending balance

   $ 43,356      $ 45,269       $   
  

 

 

   

 

 

    

 

 

 

For cash flow presentation purposes, the Company accounts for the interest accrued on advances due to affiliates as a noncash charge to income as the accrued interest is added to the principal of the debt as payment in kind. The in-kind amounts paid in 2010 are presented as an operating activity as such amounts were settled in cash.

 

F-15


Table of Contents

During 2011, the Company recorded a $795 (unaudited) long-term liability for former employees’ health care costs with an offset to member’s equity in the form of a $477 (unaudited), net of deferred tax, deemed distribution. The liability should have been recorded at the date of Acquisition (described in Note 1). Prior years’ financial statements were not restated as the impact of this issue was immaterial to previously reported results for any individual prior year and 2011.

Long-Term Incentive Equity Compensation

In April 2007, Holdings provided long-term incentives to certain of the Company’s officers through the issuance of equity incentive awards in the form of its Class C interests. In addition, these same officers acquired Class B interests in Holdings for $525, which amount was subsequently contributed to the Company by Holdings. The Class B interests of Holdings, which were purchased at their estimated fair value, were fully vested upon issuance and have a stated return but do not participate in any increase in the value of Holdings. The Class C interests of Holdings, which represent a 7% equity participation in Holdings, vest ratably over a five-year period based on both continuing employment and the achievement of performance targets. The Class C interests vest 7.5% annually over five years if the holder is employed on December 31 of each year . The annual compensation expense related to this 7.5% is based upon the value of Class C interests calculated at April 30, 2007, the date of grant. The remaining Class C interests vest 12.5% annually in each of the five years if performance targets of each such year are achieved by December 31 of such year; however, these interests, subject to vesting upon achievement of performance targets, are forfeited and not eligible to vest at a later date if the performance targets for such year are not achieved. These awards are being accounted for as variable awards, which are revalued at the end of each reporting period until such interests are either vested or forfeited. Those Class C interests that have not been previously forfeited become fully vested if there is a change of control in the ownership of the Company or Holdings, as set forth in the operating agreement of Holdings. During 2008, 2009, and 2010, both the 7.5% service-based and the 12.5% performance-based of Class C interests vested.

An independent appraisal was conducted to value the Class B and Class C interests at the date of grant. This valuation used the option value method, as further discussed below, to determine the estimated fair value of the interests. The estimated fair value of the Class B interests approximated the purchase value by the officers and was vested upon issuance, and therefore, no compensation cost was recorded on the Class B interests.

The estimated fair value of the Class C interests was calculated based on the estimated market value of the Company with discounts applied that related to lack of marketability, restrictions on the transferability of the Class C interests, and the preferences of Class A and B interests. The Class C interests only have value after the Class A and B interests are paid the amount invested in Holdings plus the stated rate of return of 12% on such invested amounts. The estimated fair value of the Class C interests was calculated using the option value method based on a risk-free interest rate of 0.62%; an expected life of approximately 1.75 years; and expected volatility of 34%, at December 30, 2008, December 29, 2009 and December 28, 2010; and an estimated dividend yield of zero. This equity-based compensation totaled $171, $170, and $170 for the years ended December 30, 2008, December 29, 2009, and December 28, 2010, respectively. The Company has recorded this equity-based compensation as a charge to earnings in its consolidated statements of income with an affect to members’ equity in its consolidated statements of changes in member’s equity for the years ended December 30, 2008, December 29, 2009, and December 28, 2010, respectively.

 

F-16


Table of Contents

(5)    Leases

The Company leases certain facilities under noncancelable operating leases with terms expiring between 2011 and 2031. The leases have renewal options ranging from five to 20 years, which are exercisable at the Company’s option. In addition, certain leases contain escalation clauses based on a fixed percentage increase and provisions for contingent rentals based on a percentage of gross revenues, as defined. Total rental expense amounted to $7,028, $7,825, and $8,288, including contingent rentals of approximately $2,437, $1,549, and $1,751 for the years ended December 30, 2008, December 29, 2009, and December 28, 2010, respectively. For the 36 weeks ended September 7, 2010 and September 6, 2011, total rental expense was $5,500 (unaudited) and $7,165 (unaudited), respectively including contingent rentals of $1,415 (unaudited) and $1,543 (unaudited), respectively. In 2011, the company determined that straight-line rent expense on certain leases was recorded inconsistently and corrected the deferred rent liability account resulting in a non-cash $430 (unaudited) cumulative adjustment to record additional rent expense in the first fiscal quarter of 2011 relating to prior fiscal years. The adjustment did not impact historical cash flows and will not impact the timing of future payments under the related leases. Prior years’ financial statements were not restated as the impact of these issues was immaterial to previously reported results for any individual prior year and 2011.

Future minimum lease payments under noncancelable operating leases include renewal option periods for certain leases when such option periods are included for purposes of calculating straight-line rents. At December 28, 2010, future minimum rentals for each of the next five years and in total are as follows:

 

2011

   $ 8,131   

2012

     8,877   

2013

     9,058   

2014

     9,272   

2015

     9,251   

Thereafter

     95,196   
  

 

 

 

Total minimum lease payments

   $ 139,785   
  

 

 

 

During 2010, the Company entered into a sale-leaseback arrangement with a private investor group. Under the arrangement, the Company sold the land and building of its Sullivan’s restaurant located in Chicago, Illinois and leased a portion of the facility back for a term of 10 years with options to renew. The sale-leaseback transaction did not provide for any continuing involvement by the Company other than a normal lease where the Company intends to use the property during the lease term. The lease was accounted for as an operating lease. The net proceeds from the transaction of approximately $3,853 were used to reduce the Company’s indebtedness under its credit facility. The Company realized a gain of approximately $743 which has been deferred and is being amortized over the life of the lease as a reduction in rent expense.

On January 24, 2011, the Company entered into a sale-leaseback arrangement with a private investor group. Under the arrangement, the Company sold the land and building of two of its Del Frisco’s restaurants located in Denver, Colorado and Ft. Worth, Texas and leased them back for a term of 15 years with options to renew. The sale-leaseback transactions do not provide for any continuing involvement by the Company other than a normal lease where the Company intends to use the property during the lease term. The leases were accounted for as operating leases. The aggregate annual lease obligation for the first year of the arrangement is

 

F-17


Table of Contents

approximately $1,151 (unaudited) with lease rental escalating every five years thereafter. The net proceeds from the transaction were approximately $13,235 (unaudited). Approximately $10,405 (unaudited) of the net proceeds were used to pay down the Company’s indebtedness under its credit facility. The Company realized a gain of approximately $8,699 (unaudited) which has been deferred and is being amortized over the life of the leases as a reduction in rent expense.

Future minimum lease payments under noncancelable operating leases include renewal option periods for certain leases when such option periods are included for purposes of calculating straight-line rents. At September 6, 2011, future minimum rentals for each of the next five years and in total are as follows:

 

2011

  $ 2,825   

2012

    9,119   

2013

    9,310   

2014

    9,598   

2015

    9,635   

Thereafter

    108,442   
 

 

 

 

Total minimum lease payments

  $ 148,929   
 

 

 

 

(6)    Income Taxes

The components of the provision for income taxes consist of the following (in thousands):

 

     Year Ended  
     December 30,
2008
    December 29,
2009
    December 28,
2010
 

Current tax (benefit) expense:

      

Federal

   $ 3,580      $ (1,536   $ (2,349

State

     1,543        (848     2,543   
  

 

 

   

 

 

   

 

 

 

Total current tax (benefit) expense

     5,123        (2,384     194   

Deferred tax expense (benefit):

      

Federal

     (195     5,250        (208

State

     (28     750        (30
  

 

 

   

 

 

   

 

 

 

Total deferred tax expense (benefit)

     (223     6,000        (238
  

 

 

   

 

 

   

 

 

 

Total provision for income taxes

   $ 4,900      $ 3,616      $ (44
  

 

 

   

 

 

   

 

 

 

The total provision (benefit) for income tax is as follows (in thousands):

 

     Year Ended  
     December 30,
2008
    December 29,
2009
     December 28,
2010
 

Continuing operations

   $ 4,924      $ 3,616       $ (44

Discontinued operations

     (24               
  

 

 

   

 

 

    

 

 

 

Total provision for income taxes

   $ 4,900      $ 3,616       $ (44
  

 

 

   

 

 

    

 

 

 

 

F-18


Table of Contents

The difference between the reported provision for income taxes and taxes determined by applying the applicable U.S. federal statutory income tax rate to income before taxes from continuing operations is reconciled as follows (dollars in thousands):

 

     December 30,
2008
    December 29,
2009
    December 28,
2010
 

Income tax expense at federal statutory rate

   $ 4,219        35   $ 4,772        35   $ 3,079        35

State tax expense, net

     803        7     733        5     672        8

FICA tip and work opportunity credits

     (1,663     (14 )%      (1,373     (10 )%      (1,496     (17 )% 

Nondeductible (nontaxable) insurance

     704        6     (429     (3 )%      (237     (3 )% 

Nontaxable interest

     (16                                   

Other items, net

     877        7     (87            (2,062     (23 )% 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Provision for income taxes

   $ 4,924        41   $ 3,616        27   $ (44     0
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Deferred income taxes reflect the net effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and amounts used for income tax purposes. Significant components of deferred tax assets and liabilities are presented below (in thousands):

 

    December 29,
2009
    December 28,
2010
 

Deferred tax assets:

   

Equity-based compensation

  $ 258      $ 326   

Accrued liabilities

    2,467        1,903   

Deferred compensation

    2,994        3,036   

Deferred rent liabilities

    1,487        2,401   

Other

    1,386        2,159   
 

 

 

   

 

 

 

Total deferred tax assets

    8,592        9,825   

Deferred tax liabilities:

   

Property and equipment

    5,818        7,026   

Intangible assets

    15,183        15,130   

Other

    69        56   
 

 

 

   

 

 

 

Total deferred tax liabilities

    21,070        22,212   
 

 

 

   

 

 

 

Net deferred tax liabilities

  $ (12,478   $ (12,387
 

 

 

   

 

 

 

The Company accounts for unrecognized tax benefits in accordance with the provisions of FASB guidance which, among other directives, requires uncertain tax positions to be recognized only if they are more likely than not to be upheld based on their technical merits. The measurement of the uncertain tax position is based on the largest benefit amount that is more likely than not (determined on a cumulative probability basis) to be realized upon settlement.

The Company may, from time to time, be assessed interest or penalties by major tax jurisdictions, although any such assessments historically have been minimal and immaterial to the Company’s financial results. In the event the Company receives an assessment for interest and penalties, it has been classified in the consolidated financial statements as income tax expense. Generally, the Company’s federal, state, and local tax returns for years subsequent to 2005 remain open to examination by the major taxing jurisdictions to which the Company is subject.

At December 29, 2009 and December 28, 2010, the Company’s unrecognized tax benefits totaled approximately $4,133 and $1,691, respectively, related primarily to acquisitions and state

 

F-19


Table of Contents

tax issues. In 2010, the change in the unrecognized tax benefits, as reflected in the Other, net line of the effective tax rate reconciliation above, primarily relates to the release of exposure items due to the expiration of the statute of limitations, offset by additions for positions taken in prior years. The Company does not believe its uncertain tax positions will change materially during the next 12 months. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):

 

    Year Ended     36 Weeks Ended
(unaudited)
 
    December 30,
2008
    December 29,
2009
    December 28,
2010
    September 7,
2010
    September 6,
2011
 

Balance at beginning of year

  $ 4,284      $ 4,376      $ 4,133      $ 4,133      $ 1,691   

Additions resulting from current year positions

    225                               

Additions for positions taken in prior years

    225               804        804          

Expiration of statute of limitations

    (358     (243     (3,246              
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at end of year

  $ 4,376      $ 4,133      $ 1,691      $ 4,937      $ 1,691   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The Company accrues interest and penalties in its tax provision. As of December 29, 2009, and December 28, 2010, accrued interest and penalties included in the consolidated balance sheets totaled $1,144 and $1,874, respectively. The change in interest and penalties associated with the Company’s unrecognized tax benefits is included as a component of the Other, net line of the effective tax rate reconciliation.

The effective income tax rate was 78.4% and 36.4% for the 36 weeks ended September 7, 2010 and September 6 2011, respectively. The factors that cause the effective tax rates to vary from the federal statutory rate of 35% include the impact of FICA tip and other credits, partially offset by state income taxes and certain non-deductible expenses. The decrease in the effective tax rate from 2010 to 2011 primarily relates to additional tax expense of $1,414 recorded during 2010 relating to additional uncertain tax positions , partially offset by higher pre-tax income in 2011 relative to FICA tip and other credits.

(7)    Long-Term Debt as of December 28, 2010

On July 9, 2007, the Company entered into a credit facility with a bank syndicate that provided for term loans of $110,000 and up to an aggregate of $20,000 in revolving commitments, which could be used as lines of credit or letters of credit. Principal was payable in quarterly installments of $275 beginning September 4, 2007, with a final balloon payment of $102,600 due in July 2014. In addition, the Company was required to make additional principal payments of up to 75% of excess cash flows, as defined in the credit facility agreement. Interest was payable either monthly or quarterly at a rate that was determinable by the Company to equal either (i) a base rate, equal to the greater of the prime rate in effect on such day, or the federal funds effective rate in effect on such day plus 0.5%, plus an additional 1.5% or 1.75% depending on senior debt rating of the Company, or (ii) a Eurodollar rate, equal to LIBOR plus 2.5% or 2.75% depending on the senior debt rating of the Company.

On October 5, 2009, the Company amended its July 9, 2007 credit facility with a bank syndicate. The amended facility provides for term loans of $106,025 and up to an aggregate of $16,000 in revolving commitments, which can be used as lines of credit or letters of credit. In connection with the amendment, the Company was required to make an additional $1,500 principal payment in October 2009. Principal is payable in quarterly installments of $750 beginning December 29, 2009, with a final balloon payment due in July 2014. In addition, the

 

F-20


Table of Contents

Company may be required to make additional principal payments of up to 100% of excess cash flows, as defined in the amended credit facility agreement, until the outstanding combined principal balance is less than or equal to $75,000, at which time the Company may be required to make additional principal payments of up to 80% of excess cash flows. The additional principal payment required for 2009 pursuant to the excess cash flow calculation was $6,000 and was paid in March 2010. There were no additional principal payment required for 2010 due to voluntary principal payments made during 2010. The estimated accelerated payment for 2009 is included in the current portion of long-term debt. Amounts available under the revolving commitments have been permanently reduced in consecutive quarterly installments of $250, commencing March 23, 2010. The amendment also increased the interest rates payable by the Company. Interest is payable at a rate that is determinable by the Company to equal either (i) a Base Rate, or (ii) a Eurodollar Rate as defined in the agreement, plus an additional 5.5% to 8.0% depending on the senior debt rating of the Company and the outstanding combined principal balance of the loans (9.25% at December 29, 2009 and December 28, 2010). In addition, the Company is required to pay a commitment fee equal to 0.75% per annum on the available but unused revolving loan facility. The amendment reduced the existing financial covenant requirements to three, including an interest coverage ratio, an adjusted debt leverage ratio and a minimum EBITDAR requirement. The amendment also placed additional limitations on the amount of new restaurant capital expenditures the Company can invest.

As of December 28, 2010, the outstanding balances on the Company’s term loan and its revolving loan were $78,922 and $0, respectively, at a weighted-average interest rate of 9.25%. Under the amended revolving loan commitment, the Company had approximately $13,517 of borrowings available under its revolving credit facility, net of outstanding letters of credit of approximately $1,483.

The credit facility is secured by substantially all of the assets of the Company. The note requires mandatory prepayments equal to the receipt of any proceeds from the disposition of any secured assets or any insurance proceeds obtained from a covered loss of secured assets for which proceeds are not used to replace or repair such asset. The Company is required to maintain certain financial covenants as described above. In addition, among other things, the Company is prohibited from paying dividends, incurring additional indebtedness, disposing of assets, or consummating mergers or acquisitions without the prior consent of the bank syndicate. The Company is in compliance with all debt covenants at December 28, 2010.

Future maturities of long-term debt, exclusive of interest, are as follows:

 

2011

   $ 3,000   

2012

     3,000   

2013

     3,000   

2014

     69,922   
  

 

 

 

Total

     78,922   

Less current portion

     (3,000
  

 

 

 
   $ 75,922   
  

 

 

 

(8)    Long-Term Debt as of September 6, 2011 (unaudited)

On July 29 2011, the Company terminated its prior credit facility and replaced it with a new credit facility that provides for a five-year term loan of $70,000 and a five-year revolving credit facility of up to $10,000. Borrowings under the new credit facility bear interest at a rate between LIBOR plus 4.75% and LIBOR plus 5.75%, depending on the Company’s leverage ratio. The new

 

F-21


Table of Contents

credit facility contains various financial covenants, including a maximum ratio of total indebtedness to EBITDA, as defined in the credit agreement, a minimum amount of EBITDA plus corporate general and administrative expenses, a minimum ratio of EBITDA plus certain non-recurring items to fixed charges (including consolidated capital expenses) and a minimum level of liquidity, as defined in the credit agreement. The new credit facility also contains covenants restricting certain corporate actions, including asset dispositions, acquisitions, the payment of dividends, changes of control, the incurrence of indebtedness and providing financing or other transactions with affiliates. The Company was in compliance with all of the debt covenants as of September 6, 2011. Future maturities of long-term debt under the new credit facility, exclusive of interest, are as follows (unaudited):

 

2011

   $   

2012

       

2013

     875   

2014

     3,500   

2015

     3,500   

Thereafter

     63,225   
  

 

 

 

Total

     71,100   

Less current portion

       
  

 

 

 
   $ 71,100   
  

 

 

 

(9)    Retirement Plans

The Company provides two retirement benefit plans to participants. The salary-reduction plans are provided through a qualified 401(k) plan and a nonqualified deferred compensation plan (the Plans). Under the Plans, employees who meet minimum service requirements and elect to participate may make contributions of up to 15% of their annual salaries under the 401(k) plan and up to 80% under the deferred-compensation plan. The Company may make additional contributions at the discretion of the Board of Directors. Expenses related to the Plans for the years ended December 30, 2008, December 29, 2009, and December 28, 2010, totaled $776, $1,061 and $911, respectively. Expenses related to the Plan for the 36 weeks ended September 6, 2010 and September 7, 2011 totaled $572 (unaudited) and $771 (unaudited), respectively.

(10)    Derivative Financial Instruments

The Company enters into derivative instruments for risk management purposes only. The Company uses interest rate-related derivative instruments to manage its exposure to fluctuations in interest rates. By using these instruments, the Company exposes itself, from time to time, to credit risk and market risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. When the fair value of a derivative contract is positive, the counterparty owes the Company, which creates credit risk for the Company. The Company minimizes the credit risk by entering into transactions with high-quality counterparties whose credit rating is evaluated on a regular basis. The Company’s counterparty in the interest rate collar and interest rate swap was Barclays Bank PLC. Market risk is the adverse effect on the value of a financial instrument that results from changing interest rates. The Company minimizes market risk by establishing and monitoring parameters that limit the types and degree of market risk that may be taken.

On September 27, 2007, the Company entered into a three-year interest rate collar to hedge the variability of future interest payments on borrowings of approximately $64,725 of the

 

F-22


Table of Contents

Company’s outstanding long-term debt. The interest rate collar consisted of a combination of a purchased cap option with a three-month LIBOR cap rate of 5.75% and a sold floor option with a three-month LIBOR floor rate of 3.23%. This derivative is not accounted for as a hedge under the current hedge accounting guidance. Accordingly, this derivative is marked-to-market, and gains and losses are recognized in interest expense. The change in fair value of this interest rate collar during 2008, 2009, and 2010 resulted in additional interest expense (income) totaling $1,926, $(950), and $(976), respectively. The derivative transaction expired in July 2010.

On February 17, 2008, the Company entered into an interest rate swap agreement to limit the variability of its interest payments on $25,000 of its outstanding long-term debt. Under the terms of the swap, the Company pays a fixed rate of 3.1% on the $25,000 notional amount and receives payments from the counterparty based on the three-month LIBOR rate for a term ending July 9, 2010. For the year ending December 30, 2008, and for the period through October 4, 2009, this interest rate swap was accounted for as a cash flow hedge, and, accordingly, all changes in the fair value of the interest rate swap deemed highly effective in offsetting the variability in interest payments on the long-term debt attributable to fluctuations in three-month LIBOR rates were recorded in other comprehensive income on the balance sheet. On October 5, 2009, the Company determined that there was no longer a high correlation between the change in fair value of this derivative instrument and the underlying interest expense, due to the credit facility amendment placing a floor of 2.5% on the Eurodollar rate, as defined in the agreement, which equates to the three-month LIBOR rate. Therefore, as of October 5, 2009, the Company de-designated the hedge and, accordingly, commenced to amortize the unrealized deferred loss over the remaining life of the contract from other comprehensive income, net of tax. The accumulated deferred loss at December 29, 2009 was $220, net of tax and $0 at December 28, 2010. The change in the accumulated deferred loss is recorded through the consolidated income statements as interest expense.

At December 29, 2009, the fair value of these derivatives resulted in a liability of approximately $1,344, which is included in other current liabilities in the accompanying consolidated balance sheets. All of the Company’s derivative instruments expired during 2010 and the Company did not have any derivative instruments outstanding at December 28, 2010.

(11)    Litigation

On September 8, 2006, in connection with the Acquisition, a class action lawsuit was filed in Sedgwick County District Court by Superior Partners against Star, the individual members of the Board of Directors of Star, its former Chief Executive Officer, and the Fund. The complaint alleged that the Directors breached their duty of care, loyalty, and disclosure when negotiating the sale of the Company. On November 17, 2006, another class action lawsuit was filed in Sedgwick County District Court by Leo Kwalik against Star, the individual members of the Board of Directors of Star, and the Fund. The complaint contained similar allegations as the Superior Partners lawsuit. In March 2007, both cases were consolidated into one lawsuit. On May 13, 2009, the Company and the plaintiffs negotiated a settlement that dismissed this class action lawsuit. The resulting uninsured loss was not significant to the accompanying consolidated financial statements.

In connection with the Acquisition, on February 7, 2007, certain shareholders of Star exercised their dissenters’ rights and chose not to accept the $27.35 per share transaction consideration and filed a petition to have their respective shares of stock appraised at fair value pursuant to Delaware law. Initially the Company recorded a liability equal to the purchase price per share of $27.35 or an aggregate of $32,793, including estimated legal defense costs at the date of Acquisition. This liability was reduced by $372 and $1,495 during fiscal 2007 and 2008,

 

F-23


Table of Contents

respectively, as a result of certain shareholders that subsequently accepted the $27.35 per share price and accordingly, were paid by the Company. The recorded liability at December 30, 2008 was $30,926. During fiscal 2009, the Company settled its outstanding litigation with the remaining dissenting shareholders for an aggregate consideration of $32,509. Pursuant to the Company’s credit facility entered into on July 9, 2007, any cash payments made by the Company in settlement of the amounts due dissenting shareholders were required to be reimbursed by Holdings as an equity contribution. In connection with the settlement, the Company paid $19,800 in cash and received a cash equity contribution from Holdings for $19,800. In addition, Holdings assumed the remaining obligation in the amount of $12,709 due to the dissenting shareholders. The assumption of the indebtedness is reflected as an increase in member’s equity in the accompanying consolidated financial statements. As a result of the settlement, the Company increased its carrying value of goodwill by $1,583 to reflect the increase in the per share amount paid in the settlement. Further, the Company reversed certain interest expense accrued prior to the settlement, resulting in a reduction to interest expense of $1,180.

The Company is involved, from time to time, in litigation arising in the ordinary course of business. The Company believes the outcome of such matters will not have a material adverse effect on its consolidated financial position or results of operations.

(12)    Member’s Equity

In November 2010, the Company received a cash equity contribution from its Parent in the amount of $47,127. The proceeds from the equity contribution were used to retire in full certain advances due affiliate (see Note 4 for additional information).

(13)    Commitments and Contingencies

Prior to the Acquisition, the Company guaranteed certain lease payments of Star’s subsidiaries in connection with the leasing of real estate for restaurant locations. As of December 28, 2010, the Company was responsible as guarantor for 8 of the leases of its affiliates. The leases expire at various times through 2016. These guarantees will require payment by the Company only in an event of default by the affiliate where it is unable to make the required lease payments. During 2010, the Company incurred expenses of $280 in connection with certain of these guarantees in return for releases from such guarantees which are included in other expenses. Management believes that any future payments required under these guarantees will not be significant. At December 28, 2010 and September 6, 2011 the maximum potential amount of future payments the Company could be required to make as a result of the guarantee was $3,148 and $2,731 (unaudited), respectively.

At December 28, 2010 and September 6, 2011, the Company had outstanding letters of credit of $1,483 and $2,206 (unaudited), respectively. The letters of credit typically act as guarantee of payment to certain third parties in accordance with specified terms and conditions.

(14)    Fair Value Measurement

Under generally accepted accounting principles, the Company is required to measure certain assets and liabilities at fair value, or to disclose the fair value of certain assets and liabilities recorded at cost. Pursuant to these fair value measurement and disclosure requirements, fair value is defined as the price that would be received upon sale of an asset or paid upon transfer of a liability in an orderly transaction between market participants at the measurement date and in the principal or most advantageous market for that asset or liability.

 

F-24


Table of Contents

The fair value is calculated based on assumptions that market participants would use in pricing the asset or liability, not on assumptions specific to the entity. In addition, the fair value of liabilities includes consideration of non-performance risk, including the Company’s own credit risk. Each fair value measurement is reported in one of the following three levels:

 

   

Level 1—valuation inputs are based upon unadjusted quoted prices for identical instruments traded in active markets.

 

   

Level 2—valuation inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

 

   

Level 3—valuation inputs are unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques that include option pricing models, discounted cash flow models, and similar techniques.

The following tables present our financial assets and liabilities measured at fair value on a recurring basis at December 29, 2009 and December 28, 2010 (in thousands):

 

     December 29, 2009  
     Fair Value      Level 1      Level 2  

Assets:

        

Deferred compensation plan investments

   $ 6,304       $       $ 6,304   
  

 

 

    

 

 

    

 

 

 

Total assets

   $ 6,304       $       $ 6,304   
  

 

 

    

 

 

    

 

 

 

Liabilities:

        

Derivatives

   $ 1,344       $       $ 1,344   

Deferred compensation plan liabilities

     7,485                 7,485   
  

 

 

    

 

 

    

 

 

 

Total liabilities

   $ 8,829       $       $ 8,829   
  

 

 

    

 

 

    

 

 

 

 

     December 28, 2010  
     Fair Value      Level 1      Level 2  

Assets:

        

Deferred compensation plan investments

   $ 6,583       $       $ 6,583   
  

 

 

    

 

 

    

 

 

 

Total assets

   $ 6,583       $       $ 6,583   
  

 

 

    

 

 

    

 

 

 

Liabilities:

        

Deferred compensation plan liabilities

   $ 7,590       $       $ 7,590   
  

 

 

    

 

 

    

 

 

 

Total liabilities

   $ 7,590       $       $ 7,590   
  

 

 

    

 

 

    

 

 

 

 

F-25


Table of Contents

The following table presents our financial liabilities measured at fair value on a recurring basis at September 6, 2011 (in thousands):

 

     September 6, 2011 (unaudited)  
     Fair Value      Level 1      Level 2  

Assets:

        

Deferred compensation plan investments

   $ 6,278       $       $ 6,278   
  

 

 

    

 

 

    

 

 

 

Total assets

   $ 6,278       $       $ 6,278   
  

 

 

    

 

 

    

 

 

 

Liabilities:

        

Deferred compensation plan liabilities

   $ 7,993       $       $ 7,993   
  

 

 

    

 

 

    

 

 

 

Total liabilities

   $ 7,993       $       $ 7,993   
  

 

 

    

 

 

    

 

 

 

There were no transfers among levels within the fair value hierarchy during the years ended December 29, 2009 or December 28, 2010.

The Company has no derivative instruments at December 28, 2010 or September 6, 2011 (unaudited).

At December 28, 2010, the Company does not have any nonfinancial assets or liabilities that have been measured at fair value on a recurring basis.

The following table presents our non-financial assets measured at fair value on a non- recurring basis at September 6, 2011 (in thousands):

 

     September 6, 2011 (unaudited)  
     Fair Value      Level 1      Level 2  

Assets:

        

Long-lived assets held and used

   $ 1,850       $       $ 1,850   
  

 

 

    

 

 

    

 

 

 

Total assets

   $ 1,850       $       $ 1,850   
  

 

 

    

 

 

    

 

 

 

(14)    Discontinued Operations

When a restaurant is closed and the restaurant is either held for sale or abandoned, the restaurant’s operations are eliminated from ongoing operations. Accordingly, the operations of such restaurants, net of applicable income taxes, are presented as discontinued operations. On December 23, 2007, the Company closed its Sullivan’s restaurant in Branson, Missouri.

The table below reflects as discontinued operations the operations of the closed Branson restaurant:

 

     December 30,
2008
    December 29,
2009
     December 28,
2010
 
     (In Thousands)  

Loss from operations

   $ (68   $       $   

Income tax benefit

     24                  
  

 

 

   

 

 

    

 

 

 

Net loss from operations

   $ (44   $       $   
  

 

 

   

 

 

    

 

 

 

(15)    Other

Reclassifications

Certain amounts from the prior years have been reclassified to conform with the 36-week presentation.

 

F-26


Table of Contents

Initial Public Offering and Unaudited Pro Forma Information, Including Income Per Share

The Company has authorized the filing of a registration statement with the Securities and Exchange Commission (SEC) that would permit the sale of shares of the Company’s stock in a proposed initial public offering (IPO). Prior to the effective date of the IPO, the Company will convert from a limited liability company into a Delaware corporation. Additionally, shares of the newly formed corporation will be issued to the existing holders of units in the Company. Upon the successful completion of the anticipated IPO, the Fund will continue to own a majority of the Company’s outstanding shares and accordingly, will continue to control the Company.

The unaudited pro forma balance sheet at September 6, 2011 reflects the corporate reorganization of Del Frisco’s Restaurant Group, LLC into a Delaware corporation. All amounts attributable to member’s equity and undistributed earnings were reclassified as paid-in-capital in the pro forma balance sheet.

There is no impact to the financial statements as a result of converting from a limited liability company to a corporation, because the historical financial statements of the Company have included a provision for income taxes and related deferred income taxes. Unaudited pro forma basic and diluted income per share will be computed by dividing net income for each period by the shares of common stock to be issued upon the corporate reorganization. Such shares will be assumed to be outstanding for all periods presented. There will be no potentially dilutive securities.

 

F-27


Table of Contents

You should rely only on the information contained in this prospectus. We have not authorized anyone to provide information different from that contained in this prospectus. We are offering to sell, and seeking offers to buy, shares of common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of our common stock.

TABLE OF CONTENTS

 

     Page  

Prospectus Summary

     1   

Risk Factors

     13   

Cautionary Statement Regarding Forward-Looking Statements

     33   

Use of Proceeds

     34   

Dividend Policy

     35   

Capitalization

     36   

Dilution

     37   

Selected Consolidated and Combined Financial Data

     39   

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     43   

Business

     64   

Management

     75   

Executive Compensation

     83   

Principal and Selling Stockholders

     100   

Certain Relationships and Related Party Transactions

     102   

Description of Capital Stock

     105   

Shares Eligible for Future Sale

     110   

U.S. Federal Tax Considerations for Non-U.S. Holders

     113   

Underwriting

     118   

Legal Matters

     123   

Experts

     123   

Where You Can Find More Information

     123   

Index to Consolidated Financial Statements

     F-1   

Until                     , 2012 (the 25th day after the commencement of this offering), all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to unsold allotments or subscriptions.

LOGO

Del Frisco’s

Restaurant Group,

LLC

            Shares

Common Stock

Deutsche Bank Securities

Piper Jaffray

Prospectus

            , 2012


Table of Contents

PART II

INFORMATION NOT REQUIRED IN THE PROSPECTUS

Item 13.     Other Expenses of Issuance and Distribution

The following table shows the costs and expenses, other than underwriting discounts and commissions, payable in connection with the sale and distribution of the securities being registered. Except as otherwise noted, we will pay all of these amounts. All amounts except the SEC registration fee,                      listing fee and the FINRA fee are estimated.

 

Type

   Amount  

SEC registration fee

   $ 11,460   

FINRA filing fee

     10,500  

Listing fee

     *  

Legal fees and expenses

     *  

Accounting fees and expenses

     *  

Printing and engraving expenses

     *  

Transfer agent and registrar fees

     *  

Miscellaneous expenses

     *  
  

 

 

 

Total

   $ *  
  

 

 

 

 

* To be provided by amendment.

Item 14.     Indemnification of Directors and Officers

Our current amended and restated limited liability company agreement provides that each member, the managing member, officer or a director, officer, member, manager, trustee, partner or stockholder of a member and other persons acting in good faith on behalf of our company is entitled to be indemnified, defended and held harmless by us to the full extent permitted by the Delaware Limited Liability Company Act for liabilities and expenses arising from proceedings that relate to the operations of the company or any subsidiary in which an indemnitee may be involved or is threatened to be involved as a party or otherwise unless it is established that the act or omission of the indemnitee was committed in bad faith or was the result of active and deliberate dishonesty, willful misconduct or gross negligence, the indemnitee actually received an improper personal benefit or the indemnitee had reasonable cause to believe that the act or omission was unlawful.

Upon our conversion and reorganization, Del Frisco’s Restaurant Group, Inc. will be a corporation organized under the laws of the State of Delaware. Section 145(a) of the Delaware General Corporation Law, or DGCL, authorizes a corporation to indemnify any person who was or is a party, or is threatened to be made a party, to a threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation), by reason of the fact that the person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by the person in connection with such action, suit or proceeding, if the person acted in good faith and in a manner the person reasonably believed to be in, or not opposed to, the best interests of the corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe the person’s conduct was unlawful.

 

II-1


Table of Contents

Section 145(b) of the DGCL provides in relevant part that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that the person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys’ fees) actually and reasonably incurred by the person in connection with the defense or settlement of such action or suit if the person acted in good faith and in a manner the person reasonably believed to be in or not opposed to the best interests of the corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper.

The DGCL also provides that indemnification under Section 145(d) can only be made upon a determination that indemnification of the present or former director, officer or employee or agent is proper in the circumstances because such person has met the applicable standard of conduct set forth in Section 145(a) and (b). Such determination shall be made, with respect to a person who is a director or officer at the time of such determination, (1) by a majority vote of directors who are not a party to the action at issue (even though less than a quorum), or (2) by a majority vote of a designated committee of these directors (even though less than a quorum), or (3) if there are no such directors, or these directors authorize, by the written opinion of independent legal counsel, or (4) by the stockholders.

Section 145(g) of the DGCL also empowers a corporation to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such person’s status as such, whether or not the corporation would have the power to indemnify such person against such liability under Section 145 of the DGCL.

Section 102(b)(7) of the DGCL permits a corporation to provide for eliminating or limiting the personal liability of one of its directors for any monetary damages related to a breach of fiduciary duty as a director, as long as the corporation does not eliminate or limit the liability of a director for acts or omissions which (1) were in bad faith, (2) were the result of active and deliberate dishonesty and were material to the cause of action so adjudicated, (3) the director derived an improper personal benefit from (such as a financial profit or other advantage to which such director was not legally entitled) or (4) breached the director’s duty of loyalty.

We will be party to indemnification agreements with each of our officers and directors that will provide, in general, that we will indemnify them to the fullest extent permitted by law in connection with their service to us or on our behalf.

The proposed form of Underwriting Agreement to be filed as Exhibit 1.1 to this Registration Statement provides for indemnification of our directors and officers by the underwriters against certain liabilities.

 

II-2


Table of Contents

Item 15.     Recent Sales of Unregistered Securities

We have not issued any securities that were not registered under the Securities Act since January 24, 2009.

Item 16.     Exhibits and Financial Statement Schedules

 

(a) Exhibit Index

See the Exhibit Index following the signature page.

 

(b) Financial Statement Schedule

None. Financial statement schedules have been omitted because the information is included in our consolidated financial statements included elsewhere in this Registration Statement.

Item 17.     Undertakings

(a) The undersigned registrant hereby undertakes to provide to the underwriter at the closing specified in the underwriting agreements, certificates in such denominations and registered in such names as required by the underwriter to permit prompt delivery to each purchaser.

(b) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.

(c) The undersigned registrant hereby undertakes that:

(i) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act of 1933 shall be deemed to be part of this registration statement as of the time it was declared effective.

(ii) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

 

II-3


Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Southlake, State of Texas, on January 24, 2012.

 

Del Frisco’s Restaurant Group, LLC
By:  

/s/    Mark S. Mednansky

Name:   Mark S. Mednansky
Title:   Chief Executive Officer

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Mark S. Mednansky and Thomas J. Pennison, Jr., and each of them, his or her true and lawful attorneys-in-fact and agents, each with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments, including post-effective amendments, to this Registration Statement, and any registration statement relating to the offering covered by this Registration Statement and filed pursuant to Rule 462 under the Securities Act of 1933, as amended, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that each of said attorneys-in-fact and agents or their substitute or substitutes may lawfully so or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, the following persons have signed this Registration Statement in the capacities and on the date indicated.

 

/ S /    M ARK S. M EDNANSKY        

Mark S. Mednansky

  

Chief Executive Officer

(Principal Executive Officer)

  January 24, 2012

/ S /    T HOMAS J. P ENNISON , J R .        

Thomas J. Pennison, Jr.

  

Chief Financial Officer

(Principal Financial and Accounting Officer)

  January 24, 2012

/ S /    J ENNIFER R. L AMPRECHT        

Jennifer R. Lamprecht

   Director   January 24, 2012

 

II-4


Table of Contents

EXHIBIT INDEX

 

Exhibit No.

    

Description

    1.1*       Form of Underwriting Agreement.
    3.1*       Form of Certificate of Incorporation of the Registrant to be adopted.
    3.2*       Form of Bylaws of the Registrant to be adopted.
    4.1*       Form of Certificate of Common Stock of the Registrant.
    4.2*       Form of Registration Rights Agreement, dated                    , between Del Frisco’s Restaurant Group, Inc. and LSF5 Wagon Holdings, LLC.
    4.3       Form of Registration Rights Agreement to be entered into between Del Frisco’s Restaurant Group, Inc. and each petitioner in the dissenting shareholder litigation relating to the Acquisition.
    5.1*       Opinion of Gibson, Dunn & Crutcher LLP.
  10.1       Credit and Guaranty Agreement, dated as of July 29, 2011, by and among Center Cut Hospitality, Inc., Del Frisco’s Restaurant Group, LLC, certain subsidiaries of Center Cut Hospitality, Inc., as guarantors, the lenders party thereto from time to time, and Goldman Sachs Bank USA, as administrative agent, collateral agent, and lead arranger.
  10.2       First Amendment to Credit and Guaranty Agreement, dated as of August 24, 2011, by and among Center Cut Hospitality, Inc., Del Frisco’s Restaurant Group, LLC, the other Credit Parties party thereto, Goldman Sachs Bank USA, as administrative agent, and the Lenders party thereto.
  10.3*       Form of Indemnification Agreement for officers and directors.
  10.4#       Del Frisco’s Restaurant Group Nonqualified Deferred Compensation Plan, effective as Amended and Restated December 1, 2007.
  10.5#       First Amendment to Del Frisco’s Restaurant Group Nonqualified Deferred Compensation Plan, dated as of December 31, 2009.
  10.6#       Executive Employment Agreement, dated February 7, 2011, by and between Mark Mednansky and Center Cut Hospitality, Inc.
  10.7#       Letter Agreement, dated February 14, 2011, by and between Mark Mednansky and LSF5 Wagon Holdings, LLC.
  10.8#       Letter Agreement, dated October 21, 2011, by and between LSF5 Wagon Holdings, LLC, Del Frisco’s Restaurant Group, LLC and Mark Mednansky.
  10.9#       Executive Employment Agreement, dated October 17, 2011, by and between Thomas J. Pennison, Jr. and Center Cut Hospitality, Inc.
  10.10#       Letter Agreement, dated October 17, 2011, by and between Thomas J. Pennison, Jr. and LSF5 Wagon Holdings, LLC and Del Frisco’s Restaurant Group, LLC.
  10.11#       Non-Competition, Confidentiality, and Non-Solicitation Agreement, dated July 13, 1999, by and between Lone Star Steakhouse & Saloon, Inc. and Thomas George Dritsas.
  10.12#       Amended and Restated Employment Agreement, dated June 10, 2010, by and between Sullivan’s of North Carolina, Inc. and Thomas Dritsas.

 

II-5


Table of Contents

Exhibit No.

    

Description

  10.13#       Employment Agreement, effective January 4, 2012, between Thomas Dritsas and Del Frisco’s Restaurant Group, LLC
  10.14#       Non-Competition, Confidentiality, and Non-Solicitation Agreement, dated April 16, 2008, by and between Del Frisco’s Restaurant Group, LLC and William Martens.
  10.15#       Subscription Agreement, dated April 30, 2007, by and between Mark Mednansky and LSF5 Wagon Holdings, LLC.
  10.16#       Subscription Agreement, dated April 30, 2007, by and between Jon Howie and LSF5 Wagon Holdings, LLC.
  10.17#       Executive Employment Agreement, dated February 7, 2011, by and between Jon Howie and Center Cut Hospitality, Inc.
  10.18#       Letter Agreement, dated February 7, 2011, by and between LSF5 Wagon Holdings, LLC, Del Frisco’s Restaurant Group, LLC and Jon Howie.
  10.19#       Letter Agreement, dated February 14, 2011, by and between Jon Howie and LSF5 Wagon Holdings, LLC.
  10.20#       Separation Agreement and Release, dated May 26, 2011, by and between Jon Howie and Center Cut Hospitality, Inc.
  10.21#       Equity Surrender and Release Agreement, dated May 26, 2011, by and between Jon Howie and LSF5 COI Holdings, LLC.
  10.22#       Offer Letter, dated May 11, 2010, by and between Edie Ames and Del Frisco’s Restaurant Group, LLC.
  10.23#       Executive Employment Agreement, dated February 7, 2011, by and between Edie Ames and Center Cut Hospitality, Inc.
  10.24#       Letter Agreement, dated February 7, 2011, by and between LSF5 Wagon Holdings, LLC, Del Frisco’s Restaurant Group, LLC and Edie Ames.
  10.25#    Del Frisco’s Restaurant Group 2012 Long-Term Incentive Plan.
  21.1       List of Subsidiaries of the Registrant.
  23.1       Consent of Ernst & Young LLP.
  23.2*       Consent of Gibson, Dunn & Crutcher LLP (included in Exhibit 5.1).
  24.1       Powers of Attorney (included in signature page to this Form S-1).
  99.1       Consent to be named of Mark S. Mednansky.
  99.2       Consent to be named of Samuel D. Loughlin.
  99.3       Consent to be named of Norman J. Abdallah.
  99.4       Consent to be named of David B. Barr.
  99.5       Consent to be named of Jodi L. Cason.
  99.6       Consent to be named of Richard L. Davis.
  99.7       Consent to be named of Melissa S. Hubbell.
  99.8       Consent to be named of Leigh P. Rea.

 

*  

To be filed by amendment.

#  

Denotes management compensatory plan or arrangement.

 

II-6

Exhibit 4.3

Form of Registration Rights Agreement

This REGISTRATION RIGHTS AGREEMENT (this “ Agreement ”) is made as of [            , 20__] by and among [            ], a [Delaware] corporation, (the “ Company ”), and each holder of a Deficiency Note (as defined below) listed on Schedule 1 hereto (each such holder, individually, an “ Investor ” and, collectively, the “ Investors ”).

WHEREAS, in connection with the consummation of the transactions contemplated by that certain Agreement, dated as of June __, 2009, by and among             (as the same may be amended, restated, supplemented or otherwise modified from time to time, the “ Agreement ”)], [            ] made certain Deficiency Promissory Notes dated as of May             , 2009, for the benefit of the Investors (each, a “ Deficiency Note ” and, collectively, the “ Deficiency Notes ”);

WHEREAS, each Deficiency Note is convertible into shares (the “ Shares ”) of the Company’s [common stock, $0.01 par value per share (the “ Common Stock ”)], at a price and upon the terms and conditions set forth in the Deficiency Note; and

WHEREAS, the terms of the Agreement provide that it shall be a requirement following the Effective Date (as defined in the Deficiency Notes), for the Company and the Investors to execute and deliver this Agreement.

NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein, the parties hereto hereby agree as follows:

1. DEFINITIONS . The following terms shall have the meanings provided therefor below or elsewhere in this Agreement as described below:

Affiliates ” means any Person that, directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, a Person, as such terms are used and construed under Rule 144.

Board ” means the Board of Directors of the Company.

Business Day ” means any day except Saturday, Sunday and any day which shall be a federal legal holiday or a day on which banking institutions in the State of New York are authorized or required by law or other governmental action to close.

Exchange Act ” means the Securities Exchange Act of 1934, as amended, and all of the rules and regulations promulgated thereunder.

Person ” (whether or not capitalized) means an individual, partnership, limited liability company, corporation, association, trust, joint venture, unincorporated organization, and any government, governmental department or agency or political subdivision thereof.

Prospectus ” means the prospectus included in any Registration Statement (including, without limitation, a prospectus that includes any information previously omitted from a prospectus filed as part of an effective Registration Statement in reliance upon Rule 430A or Rule 430B promulgated under the Securities Act), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Shares covered by such Registration Statement, and all other amendments and supplements to the Prospectus, including post-effective amendments, and all material incorporated by reference in such Prospectus.


Registrable Shares ” means, at the relevant time of reference thereto, that number of Shares issued pursuant to the terms of a Deficiency Note (including any shares of capital stock issued in respect thereof pursuant to a stock split, stock dividend, stock combination, recapitalization, reorganization, recombination, reclassification or other similar event); provided , however , that the term “Registrable Shares” shall not include any of the Shares (a) that are actually sold pursuant to a registration statement that has been declared effective under the Securities Act by the SEC or (b) that, subject to the proviso in this clause (b), may be sold pursuant to Rule 144 subsequent to the date which is one year after the date on which such Investor can sell all of its Registrable Shares pursuant to the exemption from the registration requirements of the Securities Act provided by Rule 144 without any restriction; provided , however , that Shares shall remain Registrable Shares if the Company shall not have, upon the written request of an Investor (accompanied by the written opinion of counsel to such Investor that is reasonably acceptable to the Company as to the legal basis for such removal and termination), caused any restrictive legend from any certificate representing, and terminated any stop transfer instructions with respect to, such Shares.

Registration Statement ” means any registration statements contemplated by this Agreement, including (in each case) the Prospectus, amendments and supplements to such registration statement or Prospectus, including pre- and post-effective amendments, all exhibits thereto, and all material incorporated by reference in such registration statement or Prospectus.

Rule 144 ” means Rule 144 promulgated under the Securities Act and any successor or substitute rule, law or provision.

SEC ” means the Securities and Exchange Commission.

Securities Act ” means the Securities Act of 1933, as amended, and all of the rules and regulations promulgated thereunder.

2. RESERVED .

3. “ PIGGYBACK REGISTRATION ”.

(a) If the Company proposes to file a registration statement with respect to an offering of Common Stock under the Securities Act, whether as an offering for its own account or the account of others (but excluding (i) the Company’s registration statement filed with respect to its initial public offering of Common Stock under the Securities Act and (ii) any registrations to be effected on Form S-4 or S-8 or other applicable successor Forms), the Company shall, each such time, give to the Investors twenty (20) days’ prior written notice of its intent to do so, and such notice shall describe the proposed registration and shall offer such Investors the opportunity to register such number of Registrable Shares as each such Investor may request. Subject to Section 3(b) hereof, upon the written request of any Investor given to the Company within fifteen (15) days after the receipt of any such notice by the Company, the Company shall include in such Registration Statement all or part of the Registrable Shares of such Investor, to the extent requested to be registered.

(b) If a registration pursuant to Section 3 hereof involves an underwritten offering and the managing underwriter shall advise the Company in writing that, in its opinion, the number of shares of Common Stock requested by the Investors to be included in such registration is likely to affect materially and adversely the success of the offering or the price that would be received for any shares of Common Stock offered in such offering, then, notwithstanding anything in this Section 3 to the contrary, the Company shall only be required to include in such registration, to the extent of the number of shares of Common Stock which the

 

- 2 -


Company is so advised can be sold in such offering, (i) in the event that such registration is initiated by the Company, first, the number of shares of Common Stock proposed to be included in such registration for the account of the Company, and second, the number of shares of Common Stock requested to be included in such registration for the account of any stockholders of the Company (including the Investors), pro rata among such stockholders on the basis of the number of shares of Common Stock that each of them has requested to be included in such registration, and (ii) in the event that such registration is initiated by a stockholder of the Company, first, the number of shares of Common Stock requested to be included in such registration for the account of any stockholders of the Company (including the Investors), pro rata among such stockholders on the basis of the number of shares of Common Stock that each of them has requested to be included in such registration, and second, the number of shares of Common Stock proposed to be included in such registration for the account of the Company.

(c) In connection with any offering involving an underwriting of shares, the Company shall not be required under this Section 3 or otherwise to include the Registrable Shares of any Investor therein unless such Investor accepts and agrees to the terms of the underwriting, which shall be reasonable and customary, as agreed upon between the Company and the underwriters selected by the Company.

4. OBLIGATIONS OF THE COMPANY . In connection with the Company’s registration obligations hereunder, the Company shall, as expeditiously as practicable:

(a) (i) furnish to each selling Investor copies of all documents filed with the SEC prior to their being filed with the SEC; and (ii) notify the selling Investors of any stop order issued or threatened by the SEC and use commercially reasonable efforts to prevent the entry of such stop order or to remove it if entered.

(b) (i) prepare and file with the SEC (electronically on EDGAR) such amendments and supplements, including post-effective amendments, to each Registration Statement and the Prospectus used in connection therewith as may be necessary to comply with the Securities Act; (ii) cause any related Prospectus to be amended or supplemented by any required Prospectus supplement, and as so supplemented or amended to be filed pursuant to Rule 424; (iii) respond as promptly as possible to any comments received from the SEC with respect to each Registration Statement or any amendment thereto and as promptly as possible provide the selling Investors true and complete copies of all correspondence from and to the SEC relating to the Registration Statement (other than correspondence containing material nonpublic information); and (iv) comply with the provisions of the Securities Act and the Exchange Act with respect to the disposition of all Registrable Shares covered by such Registration Statement as so amended or in such Prospectus as so supplemented.

(c) Notify the selling Investors and selling Investors’ counsel as promptly as possible:

(i) when the SEC notifies the Company whether there will be a “review” of a Registration Statement and whenever the SEC comments in writing on such Registration Statement; and (ii) when a Registration Statement, or any post-effective amendment or supplement thereto, has become effective, and after the effectiveness thereof: (A) of any request by the SEC or any other federal or state governmental authority for amendments or supplements to the Registration Statement or Prospectus or for additional information; (B) of the issuance by the SEC or any state securities commission of any stop order suspending the effectiveness of the Registration Statement covering any or all of the Registrable Shares or the initiation of any

 

- 3 -


proceedings for that purpose; (C) of a pending proceeding against the Company under Section 8A of the Securities Act in connection with the offering of the Registrable Shares; and (D) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Shares for sale in any jurisdiction, or the initiation or threatening of any proceeding for such purpose. Without limitation of any remedies to which the Investors may be entitled under this Agreement, if any of the events described in Section 4(c)(ii)(A), (B) or (C) occur, the Company shall use commercially reasonable efforts to respond and correct the event.

(d) Notify the selling Investors and their counsel as promptly as possible of the happening of any event as a result of which the Prospectus included in or relating to a Registration Statement contains an untrue statement of a material fact or omits any fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; and, thereafter, the Company will as promptly as possible prepare (and, when completed, give notice to each Investor) a supplement or amendment to such Prospectus so that, as thereafter delivered to the purchasers of such Registrable Shares, such Prospectus will not contain an untrue statement of a material fact or omit to state any fact necessary to make the statements therein not misleading; provided that upon such notification by the Company, the selling Investors will not offer or sell Registrable Shares pursuant to such Prospectus until the Company has notified the selling Investors that it has prepared a supplement or amendment to such Prospectus and delivered copies of such supplement or amendment to the selling Investors (it being understood and agreed by the Company that the foregoing proviso shall in no way diminish or otherwise impair the Company’s obligation to as promptly as possible prepare a Prospectus amendment or supplement as above provided in this Section 4(d) and deliver copies of same as above provided in Section 4(h) hereof).

(e) Upon the occurrence of any event described in Section 4(d) hereof, as promptly as possible, prepare a supplement or amendment, including a post-effective amendment, to the Registration Statement or a supplement to the related Prospectus or any document incorporated or deemed to be incorporated therein by reference, and file any other required document so that, as thereafter delivered, neither the Registration Statement nor such Prospectus will contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they are made, not misleading.

(f) Use commercially reasonable efforts to avoid the issuance of or, if issued, obtain the withdrawal of, (i) any order suspending the effectiveness of any Registration Statement or (ii) any suspension of the qualification (or exemption from qualification) of any of the Registrable Shares for sale in any jurisdiction, in each case as promptly as possible.

(g) Furnish to the selling Investors and their counsel, without charge, at least one conformed copy of each Registration Statement and each amendment thereto, and all exhibits to the extent requested by such selling Investor or their counsel (including those previously furnished or incorporated by reference) as promptly as possible after the filing of such documents with the SEC.

(h) As promptly as possible furnish to each selling Investor, without charge, such number of copies of a Prospectus, including a preliminary Prospectus, in conformity with the requirements of the Securities Act, and such other documents (including, without limitation, Prospectus amendments and supplements) as each such selling Investor may reasonably request

 

- 4 -


in order to facilitate the disposition of the Registrable Shares covered by such Prospectus and any amendment or supplement thereto. The Company hereby consents to the use of such Prospectus and each amendment or supplement thereto by each of the selling Investors in connection with the offering and sale of the Registrable Shares covered by such Prospectus and any amendment or supplement thereto to the extent permitted by federal and state securities laws and regulations.

(i) Use commercially reasonable efforts to register and qualify (or obtain an exemption from such registration and qualification) the Registrable Shares under such other securities or blue sky laws of the states of residence of each selling Investor and such other jurisdictions as each selling Investor shall reasonably request, to keep such registration or qualification (or exemption therefrom) effective during the periods each Registration Statement is effective, and do any and all other acts or things which may be reasonably necessary or advisable to enable each selling Investor to consummate the public sale or other disposition of Registrable Shares in such jurisdiction, provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions where it is not then qualified or subject to process.

(j) Cooperate with the selling Investors to facilitate the timely preparation and delivery of certificates representing the Registrable Shares to be delivered to a transferee pursuant to a Registration Statement, which certificates shall be free, to the extent permitted by applicable law, of all restrictive legends, and to enable such Registrable Shares to be in such denominations and registered in such names as such selling Investors may request.

(k) Cooperate with any reasonable due diligence investigation undertaken by the selling Investors, any managing underwriter participating in any disposition pursuant to a Registration Statement, selling Investors’ counsel and any attorney, accountant or other agent retained by selling Investors or any managing underwriter, in connection with the sale of the Registrable Shares, including, without limitation, making available any documents and information; provided, however, that the Company will not deliver or make available to any selling Investor material, nonpublic information.

(l) Comply with all applicable rules and regulations of the SEC in all material respects.

5. EXPENSES OF REGISTRATION . The Company shall pay for all expenses incurred in connection with a registration pursuant to this Agreement and compliance with Section 4 of this Agreement, including, without limitation, (i) all registration, filing and qualification fees and expenses (including, without limitation, those related to filings with the SEC or any national securities exchange upon which the Company’s securities are listed and in connection with applicable state securities or blue sky laws), (ii) all printing expenses, (iii) all messenger, telephone and delivery expenses incurred by the Company, (iv) all fees and disbursements of counsel for the Company, and (v) all fees and expenses of all other Persons retained by the Company in connection with the consummation of the transactions contemplated by this Agreement.

6. RESERVED .

 

- 5 -


7. INDEMNIFICATION . In the event that any Registrable Shares of the Investors are included in a Registration Statement pursuant to this Agreement:

(a) To the fullest extent permitted by law, the Company will indemnify and hold harmless each Investor and each officer, director, fiduciary, agent, investment advisor, employee, member (or other equity holder), general partner and limited partner (and affiliates thereof) of such Investor, each broker, underwriter or other person acting on behalf of such Investor and each person, if any, who controls such Investor within the meaning of the Securities Act, against any losses, claims, damages or liabilities, joint or several, (the “Losses”) to which they may become subject under the Securities Act or otherwise, insofar as such Losses (or actions in respect thereof) arise out of or relate to any untrue or alleged untrue statement of any material fact contained in the Registration Statement, or arise out of or relate to 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 the Securities Act or state securities or blue sky laws applicable to the Company in connection with such registration or qualification under such Securities Act or state securities or blue sky laws; and, subject to the provisions of Section 7(c) hereof, the Company will reimburse on demand such Investor, such broker or other person acting on behalf of such Investor or such officer, director, fiduciary, employee, member (or other equity holder), general partner, limited partner, affiliate or controlling person for any legal or other expenses reasonably incurred by any of them in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the indemnity agreement contained in this Section 7(a) shall not apply to amounts paid in settlement of any such Losses if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld), nor shall the Company be liable in any such case for any such loss, damage, liability or action to the extent that it solely arises out of or is based upon an untrue statement of any material fact contained in the Registration Statement or omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent that such untrue statement or alleged untrue statement or omission or alleged omission was made in the Registration Statement, in reliance upon and in conformity with written information furnished by such Investor expressly for use in connection with such Registration Statement.

(b) To the fullest extent permitted by law, each Investor, severally (as to itself) and not jointly, will indemnify and hold harmless the Company, each of its directors, each of its officers who have signed the Registration Statement, each person, if any, who controls the Company within the meaning of the Securities Act, and all other Investors against any Losses to which the Company or any such director, officer or controlling person or other Investor may become subject to, under the Securities Act or otherwise, insofar as such Losses (or actions in respect thereto) solely arise out of or are based upon any untrue statement of any material fact contained in the Registration Statement, or solely arise out of or relate to the omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent that such untrue statement or alleged untrue statement or omission or alleged omission was made in the Registration Statement in reliance upon and in conformity with written information furnished by such Investor expressly for use in connection with such Registration Statement; and, subject to the provisions of Section 7(c) hereof, such Investor will reimburse on demand any legal expenses reasonably incurred by the Company or any such director, officer, controlling person, or other Investor in connection with investigating or defending any such Losses; provided, however, that the maximum aggregate amount of liability of such Investor under this Section 7 shall be limited to the proceeds (net of

 

- 6 -


underwriting discounts and commissions, if any) actually received by such Investor from the sale of Registrable Shares covered by such Registration Statement; and provided, further, however, that the indemnity agreement contained in this Section 7(b) or Section 7(d) hereof shall not apply to amounts paid in settlement of any such Losses if such settlement is effected without the consent of such Investor against which the request for indemnity is being made (which consent shall not be unreasonably withheld).

(c) As promptly as possible after receipt by an indemnified party under this Section 7 of notice of the threat, assertion or commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 7, notify the indemnifying party in writing of the commencement thereof and the indemnifying party shall have the right to participate in and, to the extent the indemnifying party desires, jointly with any other indemnifying party similarly noticed, to assume at its expense the defense thereof with counsel mutually satisfactory to the parties; provided, however, that the failure to notify an indemnifying party promptly of the threat, assertion or commencement of any such action shall not relieve such indemnifying party of any liability to the indemnified party under this Section 7 except (and only) to the extent that it shall be finally determined that such failure shall have proximately and adversely prejudiced the indemnifying party. An indemnified party shall have the right to employ separate counsel in any such action and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such indemnified party unless: (i) the indemnifying party agrees to pay such fees and expenses; (ii) the indemnifying party fails promptly to assume, or in the event of a conflict of interest cannot assume, the defense of such action, in which case the indemnified party shall also have the right to employ counsel and to assume the defense of such action; or (iii) in the indemnified party’s reasonable judgment a conflict of interest between such indemnified and indemnifying parties may exist in respect of such action; provided, however, that the indemnifying party shall not, in connection with any one such action or separate but substantially similar or related actions in the same jurisdiction, arising out of the same general allegations or circumstances, be liable for the fees and expenses of more than one firm of attorneys (together with appropriate local counsel) at any time for all of the indemnified parties, or for fees and expenses that are not reasonable.

(d) If the indemnification provided for in this Section 7 from the indemnifying party is applicable by its terms but unavailable to an indemnified party hereunder in respect of any Losses, then the indemnifying party, in lieu of indemnifying such indemnified party, shall, subject to the maximum aggregate liability of any Investor as set forth in Section 7(b), contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities or expenses in such proportion as is appropriate to reflect the relative fault of the indemnifying party and indemnified party in connection with the actions which resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations. The relative faults of such indemnifying party and indemnified party shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact, has been made by, or relates to information supplied by, such indemnifying party or indemnified party, and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such action. The amount paid or payable by a party as a result of the losses, claims, damages, liabilities and expenses referred to above shall be deemed to include, subject to the limitations set forth in Sections 7(a), 7(b) and 7(c), any legal or other fees, charges or expenses reasonably incurred by such party in connection with any investigation or proceeding. No person guilty of fraudulent misrepresentation (within the meaning of Section

 

- 7 -


11(f) of the Securities Act) shall be entitled to contribution from any person. The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 7(d) were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph.

(e) The indemnity and contribution agreements contained in this Section are in addition to any liability that any indemnifying party may have to any indemnified party.

8. REPORTS UNDER THE EXCHANGE ACT . The Company agrees to use commercially reasonable efforts to: (i) make and keep public information available, as those terms are understood and defined in Rule 144; (ii) file with the SEC in a timely manner all reports and other documents required to be filed by an issuer of securities registered under the Securities Act or the Exchange Act; and (iii) as long as any Investor owns any Shares, to furnish in writing upon such Investor’s request a written statement by the Company that it has complied with the reporting requirements of Rule 144 and of the Securities Act and the Exchange Act, and to furnish to such Investor a copy of the most recent annual and quarterly reports of the Company, and such other reports and documents so filed by the Company as may be reasonably requested in availing such Investor of any rule or regulation of the SEC permitting the selling of any such Shares without registration.

9. TRANSFER OF REGISTRATION RIGHTS . Neither this Agreement nor any rights under this Agreement may be assigned in whole or in part without the prior written consent of the Company; provided, however, that notwithstanding the foregoing, any permitted transferee of any Deficiency Note may be assigned, in connection with such transfer of an entire Deficiency Note, all of such assigning Investor’s rights under this Agreement without any further consent or other action required by the Company and, upon such assignee or transferee notifying the Company in writing that it agrees to be bound by the provisions of this Agreement, such assignee or transferee shall be deemed an “Investor” for all purposes of this Agreement.

10. ENTIRE AGREEMENT . This Agreement, together with the Agreement, Deficiency Notes and [            ], constitutes and contains the entire agreement and understanding of the parties with respect to the subject matter hereof, and it also supersedes any and all prior negotiations, correspondence, agreements or understandings with respect to the subject matter hereof.

11. MISCELLANEOUS .

(a) This Agreement, and any right, term or provision contained herein, may not be amended, modified or terminated, and no right, term or provision may be waived, except with the written consent of (i) the holders of at least 50% of the then outstanding Registrable Shares and (ii) the Company; provided that any amendment or modification that is materially and disproportionately adverse to any particular Investor (as compared to all Investors as a group) shall require the consent of such Investor.

(b) This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New York, as such laws are applied to contracts entered into and wholly to be performed within the State of New York and without giving effect to any principles of conflicts or choice of law that would result in the application of the laws of any other jurisdiction. This Agreement shall be binding upon the parties hereto and their respective heirs, personal representatives, successors and permitted assigns and transferees, provided that the

 

- 8 -


terms and conditions of Section 9 hereof are satisfied. Notwithstanding anything in this Agreement to the contrary, if at any time any Investor (including any successors or assigned) shall cease to own any Registrable Shares, all of such Investor’s rights under this Agreement shall immediately terminate.

(c) Any notices to be given pursuant to this Agreement shall be in writing and shall be given by certified or registered mail, return receipt request. Notices shall be deemed given when personally delivered or when mailed to the addresses of the respective parties as set forth on Exhibit A or Schedule 1 hereto, as applicable, or to such changed address of which any party may notify the others pursuant hereto, except that a notice of change of address shall be deemed given when received. An electronic communication (“Electronic Notice”) shall be deemed written notice for purposes of this Section 11(c) if sent with return receipt requested to the electronic mail address specified by the receiving party on Exhibit A or Schedule 1 hereto, as applicable. Electronic Notice shall be deemed received at the time the party sending Electronic Notice receives verification of receipt by the receiving party.

(d) The parties acknowledge and agree that in the event of any breach of this Agreement, remedies at law will be inadequate, and each of the parties hereto shall be entitled to specific performance of the obligations of the other parties hereto and to such appropriate injunctive relief as may be granted by a court of competent jurisdiction. All remedies, either under this Agreement or by law or otherwise afforded to any of the parties, shall be cumulative and not alternative.

(e) This Agreement may be executed in a number of counterparts. All such counterparts together shall constitute one Agreement, and shall be binding on all the parties hereto notwithstanding that all such parties have not signed the same counterpart. The parties hereto confirm that any facsimile copy of another party’s executed counterpart of this Agreement (or its signature page thereof) will be deemed to be an executed original thereof.

(f) Except as provided in Section 9, this Agreement is intended solely for the benefit of the parties hereto and is not intended to confer any benefits upon, or create any rights in favor of, any Person (including, without limitation, any stockholder or debt holder of the Company) other than the parties hereto or their permitted transferees or assignees.

(g) If any provision of this Agreement is invalid, illegal or unenforceable, such provision shall be ineffective to the extent, but only to the extent of, such invalidity, illegality or unenforceability, without invalidating the remainder of such provision or the remaining provisions of this Agreement, unless such a construction would be unreasonable.

[Signature Pages Follow]

 

- 9 -


IN WITNESS WHEREOF, the parties hereto have executed this Registration Rights Agreement as of the date and year first above written.

 

[            ]  
By:      
Name:  
Title:  

 

INVESTORS:
[            ]  
By:      
Name:  
Title:  

[SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT]]


Exhibit A

All correspondence to the Company shall be addressed as follows:

[Company]

[Address]

[Attention]

[Telephone]

[Facsimile]

[E-mail]

with a copy (which shall not constitute notice) to:

[Company Law Firm]

[Address]

[Attention]

[Telephone]

[Facsimile]

[E-mail]

All correspondence to the Investors shall be addressed as set forth in Schedule 1 below


Schedule 1

List of Investors

 

Investor

 

Notice Information

       
       

Exhibit 10.1

CREDIT AND GUARANTY AGREEMENT

dated as of July 29, 2011

among

CENTER CUT HOSPITALITY, INC.,

DEL FRISCO’S RESTAURANT GROUP, LLC,

CERTAIN SUBSIDIARIES OF DEL

FRISCO’S RESTAURANT GROUP, INC.,

as Guarantors,

VARIOUS LENDERS,

and

GOLDMAN SACHS BANK USA,

as Administrative Agent, Collateral Agent, and Lead Arranger

 

 

$80,000,000 Senior Secured Credit Facilities

 

 

 

Credit and Guaranty Agreement


TABLE OF CONTENTS

 

            Page  
  SECTION 1.       DEFINITIONS AND INTERPRETATION      1   
  1.1.       Definitions      1   
  1.2.       Accounting Terms      36   
  1.3.       Interpretation, etc.      36   
  1.4.       Certain Calculations      37   
  SECTION 2.       LOANS AND LETTERS OF CREDIT      38   
  2.1.       Term Loans      38   
  2.2.       Revolving Loans      39   
  2.3.       Issuance of Letters of Credit and Purchase of Participations Therein      40   
  2.4.       Pro Rata Shares; Availability of Funds      44   
  2.5.       Use of Proceeds      45   
  2.6.       Evidence of Debt; Register; Lenders’ Books and Records; Notes      45   
  2.7.       Interest on Loans      46   
  2.8.       Conversion/Continuation      48   
  2.9.       Default Interest      48   
  2.10.       Fees      49   
  2.11.       Scheduled Payments      50   
  2.12.       Voluntary Prepayments/Commitment Reductions      50   
  2.13.       Mandatory Prepayments/Commitment Reductions      51   
  2.14.       Application of Prepayments/Reductions      54   
  2.15.       General Provisions Regarding Payments      56   
  2.16.       Ratable Sharing      57   
  2.17.       Making or Maintaining LIBOR Rate Loans      58   
  2.18.       Increased Costs; Capital Adequacy      59   
  2.19.       Taxes; Withholding, etc.      61   
  2.20.       Obligation to Mitigate      63   
  2.21.       Defaulting Lenders      63   
  2.22.       Removal or Replacement of a Lender      64   
  SECTION 3.       CONDITIONS PRECEDENT      65   
  3.1.       Closing Date      65   
  3.2.       Conditions to Each Credit Extension      69   
  3.3.       Conditions Subsequent to the Closing Date      71   
  SECTION 4.       REPRESENTATIONS AND WARRANTIES      71   
  4.1.       Organization; Requisite Power and Authority; Qualification      71   
  4.2.       Capital Stock and Ownership      71   
  4.3.       Due Authorization      71   
  4.4.       No Conflict      71   
  4.5.       Governmental Consents      72   
  4.6.       Binding Obligation      72   

 

Credit and Guaranty Agreement

 

i


  4.7.       Historical Financial Statements      72   
  4.8.       Projections      72   
  4.9.       No Material Adverse Change      73   
  4.10.       No Restricted Junior Payments      73   
  4.11.       Adverse Proceedings, etc.      73   
  4.12.       Payment of Taxes      73   
  4.13.       Properties      73   
  4.14.       Environmental Matters      74   
  4.15.       No Defaults      74   
  4.16.       Material Contracts      74   
  4.17.       Governmental Regulation      74   
  4.18.       Margin Stock      75   
  4.19.       Employee Matters      75   
  4.20.       Employee Benefit Plans      75   
  4.21.       Certain Fees      76   
  4.22.       Solvency      76   
  4.23.       [Intentionally Reserved]      76   
  4.24.       Compliance with Statutes, etc.      76   
  4.25.       Disclosure      76   
  4.26.       Patriot Act      77   
  4.27.       Non-Credit Party Lease Guaranties      77   
  4.28.       Inactive Subsidiaries      77   
  SECTION 5.       AFFIRMATIVE COVENANTS      77   
  5.1.       Financial Statements and Other Reports      77   
  5.2.       Existence      81   
  5.3.       Payment of Taxes and Claims      81   
  5.4.       Maintenance of Properties      81   
  5.5.       Insurance      82   
  5.6.       Inspections      82   
  5.7.       Lenders Meetings      82   
  5.8.       Compliance with Laws      82   
  5.9.       Environmental      83   
  5.10.       Subsidiaries      84   
  5.11.       Additional Material Real Estate Assets      84   
  5.12.       [Intentionally Reserved]      85   
  5.13.       Further Assurances      85   
  5.14.       Miscellaneous Business Covenants      85   
  5.15.       Post Closing Matters      85   
  SECTION 6.       NEGATIVE COVENANTS      86   
  6.1.       Indebtedness      86   
  6.2.       Liens      88   
  6.3.       Equitable Lien      90   
  6.4.       No Further Negative Pledges      90   
  6.5.       Restricted Junior Payments      90   
  6.6.       Restrictions on Subsidiary Distributions      91   

 

Credit and Guaranty Agreement

 

ii


  6.7.       Investments      92   
  6.8.       Financial Covenants      93   
  6.9.       Fundamental Changes; Disposition of Assets; Acquisitions      94   
  6.10.       Disposal of Subsidiary Interests      95   
  6.11.       Sales and Lease-Backs      95   
  6.12.       Transactions with Affiliates      95   
  6.13.       Conduct of Business      96   
  6.14.       Permitted Activities of Holdings      96   
  6.15.       [Intentionally Reserved]      96   
  6.16.       [Intentionally Reserved]      96   
  6.17.       Fiscal Year      97   
  6.18.       Deposit Accounts      97   
  6.19.       Amendments to Organizational Agreements; Non-Credit Party Lease Guaranties and Material Contracts      97   
  6.20.       Prepayments of Certain Indebtedness      97   
  6.21.       Inactive Subsidiaries      97   
  SECTION 7.       GUARANTY      97   
  7.1.       Guaranty of the Obligations      97   
  7.2.       Contribution by Guarantors      98   
  7.3.       Payment by Guarantors      98   
  7.4.       Liability of Guarantors Absolute      99   
  7.5.       Waivers by Guarantors      100   
  7.6.       Guarantors’ Rights of Subrogation, Contribution, etc.      101   
  7.7.       Subordination of Other Obligations      102   
  7.8.       Continuing Guaranty      102   
  7.9.       Authority of Guarantors or Company      102   
  7.10.       Financial Condition of Company      102   
  7.11.       Bankruptcy, etc.      103   
  7.12.       Discharge of Guaranty Upon Sale of Guarantor      103   
  SECTION 8.       EVENTS OF DEFAULT      104   
  8.1.       Events of Default      104   
  SECTION 9.       AGENTS      107   
  9.1.       Appointment of Agents      107   
  9.2.       Powers and Duties      107   
  9.3.       General Immunity      107   
  9.4.       Agents Entitled to Act as Lender      108   
  9.5.       Lenders’ Representations, Warranties and Acknowledgment      108   
  9.6.       Right to Indemnity      109   
  9.7.       Successor Administrative Agent and Collateral Agent      110   
  9.8.       Collateral Documents and Guaranty      110   
  SECTION 10.       MISCELLANEOUS      111   
  10.1.       Notices      111   
  10.2.       Expenses      111   

 

Credit and Guaranty Agreement

 

iii


  10.3.           Indemnity      112   
  10.4.           Set-Off      113   
  10.5.           Amendments and Waivers      113   
  10.6.           Successors and Assigns; Participations      115   
  10.7.           Independence of Covenants      118   
  10.8.           Survival of Representations, Warranties and Agreements      118   
  10.9.           No Waiver; Remedies Cumulative      118   
      10.10.         Marshalling; Payments Set Aside      119   
  10.11.         Severability      119   
  10.12.         Obligations Several; Actions in Concert      119   
  10.13.         Headings      119   
  10.14.         APPLICABLE LAW      119   
  10.15.         CONSENT TO JURISDICTION      120   
  10.16.         WAIVER OF JURY TRIAL      120   
  10.17.         Confidentiality      121   
  10.18.         Usury Savings Clause      122   
  10.19.         Counterparts      122   
  10.20.         Effectiveness      122   
  10.21.         Patriot Act      122   
  10.22.         No Advisory or Fiduciary Relationship      123   

 

Credit and Guaranty Agreement

 

iv


APPENDICES:    A-1    Term Loan Commitments
   A-2    Revolving Commitments
   B    Notice Addresses
SCHEDULES:    3.1(i)    Closing Date Mortgaged Properties
   4.1   

Jurisdictionsof Organization and Qualification

   4.2    Capital Stock and Ownership
   4.13    Real Estate Assets
   4.16    Material Contracts
   4.27    Non-Credit Party Lease Guaranties
   4.28    Inactive Subsidiaries
   5.15    Certain Post Closing Matters
   6.1    Certain Indebtedness
   6.2    Certain Liens
   6.7    Certain Investments
   6.12    Certain Affiliate Transactions
EXHIBITS:    A-1    Funding Notice
   A-2    Conversion/Continuation Notice
   A-3    Issuance Notice
   B-1    Term Loan Note
   B-2    Revolving Loan Note
   C    Compliance Certificate
   D    [Intentionally Reserved.]
   E    Assignment Agreement
   F    Certificate Regarding Non-bank Status
   G-1    Closing Date Certificate
   G-2    Solvency Certificate
   H    Counterpart Agreement
   I    Pledge and Security Agreement
   J    Mortgage
   K    Landlord Personal Property Collateral Access Agreement

 

Credit and Guaranty Agreement

 

v


CREDIT AND GUARANTY AGREEMENT

This CREDIT AND GUARANTY AGREEMENT , dated as of July 29, 2011 is entered into by and among CENTER CUT HOSPITALITY, INC. , a Delaware corporation ( “Company” ), DEL FRISCO’S RESTAURANT GROUP, LLC , a Delaware limited liability company ( “Holdings” ), CERTAIN SUBSIDIARIES OF COMPANY , as Guarantors, the Lenders party hereto from time to time, and GOLDMAN SACHS BANK USA ( “GS Bank” ), as Administrative Agent (together with its successors and assigns in such capacity, “Administrative Agent” ), Collateral Agent (together with its successors and assigns in such capacity, “Collateral Agent” ), and Lead Arranger.

RECITALS:

WHEREAS, capitalized terms used in these Recitals shall have the respective meanings set forth for such terms in Section 1.1 hereof;

WHEREAS , Lenders have agreed to extend certain credit facilities to Company, in an aggregate amount not to exceed $80,000,000 consisting of $70,000,000 aggregate principal amount of Term Loans, and $10,000,000 aggregate principal amount of Revolving Commitments, the proceeds of which will be used for the purposes specified in Section 2.5 hereof;

WHEREAS, Company has agreed to secure all of its Obligations by granting to Collateral Agent, for the benefit of Secured Parties, a First Priority Lien on substantially all of its assets, including a pledge of all of the Capital Stock of each of its Domestic Subsidiaries and sixty-five percent (65%) of all of the Capital Stock of each of its first-tier Foreign Subsidiaries; and

WHEREAS, Guarantors have agreed to jointly and severally guarantee the Obligations of Company hereunder and to secure their respective Obligations by granting to Collateral Agent, for the benefit of Secured Parties, a First Priority Lien on substantially all of their respective assets, including a pledge of all of the Capital Stock of each of their respective Domestic Subsidiaries (including Company) and sixty-five percent (65%) of all of the Capital Stock of each of their respective first-tier Foreign Subsidiaries.

NOW, THEREFORE, in consideration of the premises and the agreements, provisions and covenants herein contained, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:

SECTION 1. DEFINITIONS AND INTERPRETATION

1.1. Definitions. The following terms used herein, including in the preamble, recitals, exhibits and schedules hereto, shall have the following meanings:

“Accounts” means all “accounts” (as defined in the UCC) of Company (or, if referring to another Person, of such Person), including, without limitation, accounts, accounts receivable, monies due or to become due and obligations in any form (whether arising in


connection with contracts, contract rights, instruments, general intangibles, or chattel paper), in each case whether arising out of goods sold or services rendered or from any other transaction and whether or not earned by performance, now or hereafter in existence, and all documents of title or other documents representing any of the foregoing, and all collateral security and guaranties of any kind, now or hereafter in existence, given by any Person with respect to any of the foregoing.

“Act” as defined in Section 4.26.

“Adjusted LIBOR Rate” means, for any Interest Rate Determination Date with respect to an Interest Period for a LIBOR Rate Loan, the rate per annum obtained by dividing (and rounding upward to the next whole multiple of 1/16 of 1%) (a) (I) the rate per annum (rounded to the nearest 1/100 of 1%) equal to the rate determined by Administrative Agent to be the offered rate which appears on the page of the Reuters Screen which displays an average British Bankers Association Interest Settlement Rate (such page currently being Reuters Screen LIBOR01 Page) for deposits (for delivery on the first day of such period) with a term equivalent to such period in Dollars, determined as of approximately 11:00 a.m. (London, England time) on such Interest Rate Determination Date, or (II) in the event the rate referenced in the preceding clause (I) does not appear on such page or service or if such page or service shall cease to be available, the rate per annum (rounded to the nearest 1/100 of 1%) equal to the rate determined by Administrative Agent to be the offered rate on such other page or other service which displays an average British Bankers Association Interest Settlement Rate for deposits (for delivery on the first day of such period) with a term equivalent to such period in Dollars, determined as of approximately 11:00 a.m. (London, England time) on such Interest Rate Determination Date, or (III) in the event the rates referenced in the preceding clauses (I) and (II) are not available, the rate per annum (rounded to the nearest 1/100 of 1%) equal to the offered quotation rate to first class banks in the London interbank market by GS Bank or any other Lender selected by Administrative Agent for deposits (for delivery on the first day of the relevant period) in Dollars of amounts in same day funds comparable to the principal amount of the applicable Loan of GS Bank or any other Lender selected by Administrative Agent, for which the Adjusted LIBOR Rate is then being determined with maturities comparable to such period as of approximately 11:00 a.m. (London, England time) on such Interest Rate Determination Date, by (b) an amount equal to (I) one, minus (II) the Applicable Reserve Requirement.

“Administrative Agent” as defined in the preamble hereto.

“Adverse Proceeding” means any action, suit, proceeding (whether administrative, judicial or otherwise), governmental investigation or arbitration (whether or not purportedly on behalf of Holdings or any of its Subsidiaries) at law or in equity, or before or by any Governmental Authority, domestic or foreign (including with respect to any Environmental Claims), whether pending or, to the knowledge of Holdings or any of its Subsidiaries, threatened in writing against or affecting Holdings or any of its Subsidiaries or any property of Holdings or any of its Subsidiaries.

“Affected Lender” as defined in Section 2.17(b).

“Affected Loans” as defined in Section 2.17(b).

 

Credit and Guaranty Agreement

 

2


“Affiliate” means, as applied to any Person, any other Person directly or indirectly controlling (including the Chief Executive Officer (if any), Chief Financial Officer (if any), and Chief Operating Officer (if any) of such Person), controlled by, or under common control with, that Person. For the purposes of this definition, “control” (including, with correlative meanings, the terms “controlling,” “controlled by” and “under common control with”), as applied to any Person, means the possession, directly or indirectly, of the power (i) to vote ten percent (10%) or more of the Securities having ordinary voting power for the election of directors of such Person, or (ii) to direct or cause the direction of the management and policies of that Person, whether through the ownership of voting securities or by contract or otherwise.

“Agent” means each of Administrative Agent and Collateral Agent.

“Aggregate Amounts Due” as defined in Section 2.16.

“Aggregate Payments” as defined in Section 7.2.

“Agreement” means this Credit and Guaranty Agreement, dated as of July 29, 2011, as it may be amended, restated, supplemented or otherwise modified from time to time.

“Applicable Margin” means, with respect to both Term Loans and Revolving Loans, a percentage, per annum, determined by reference to the Senior Leverage Ratio in effect from time to time as set forth below:

 

Senior Leverage
Ratio

   Applicable Margin for
LIBOR Rate Loans
   Applicable Margin for Base
Rate Loans

greater than

2.75:1.00

   5.75%    4.75%

less than or equal to

2.75:1.00

but greater than

2.00:1.00

   5.25%    4.25%

less than or equal to

2.00:1.00

   4.75%    3.75%

; provided , however , notwithstanding the foregoing, from the Closing Date until the date of delivery of the Compliance Certificate and the financial statements for the Fiscal Year ending December 29, 2011, such Applicable Margin shall not be less than five and one-quarter percent (5.25%) for LIBOR Rate Loans and four and one-quarter percent (4.25%) for Base Rate Loans. No change in the Applicable Margin shall be effective until three (3) Business Days after the date on which Administrative Agent shall have received the applicable financial statements pursuant to Section 5.1(b) or 5.1(c), together with a Compliance Certificate calculating the Senior Leverage Ratio pursuant to Section 5.1(d). At any time Company has not submitted to Administrative Agent the applicable information as and when required under Section 5.1(b) or (c) and Section 5.1(d), the Applicable Margin shall be determined as if the Senior Leverage

 

Credit and Guaranty Agreement

 

3


Ratio were in excess of 2.75:1.00. Within one (1) Business Day of receipt of the applicable information under Section 5.1(d), Administrative Agent shall give each Lender telefacsimile or telephonic notice (confirmed in writing) of the Applicable Margin in effect from such date. Without limitation of any other provision of this Agreement or any other remedy available to Administrative Agent or Lenders under any of the Credit Documents, to the extent that any financial statements or any information contained in any Compliance Certificate delivered pursuant to Section 5.1(b), (c) or (d) shall be incorrect in any manner and Company or any other Credit Party shall deliver to Administrative Agent and/or Lenders corrected financial statements or other corrected information in a Compliance Certificate (or otherwise), Administrative Agent may recalculate the Applicable Margin based upon such corrected financial statements or such other corrected information, and, upon written notice thereof to Company, the Loans shall bear interest based upon such recalculated Applicable Margin retroactively from the date of delivery of the erroneous financial statements or other erroneous information in question.

“Applicable Reserve Requirement” means, at any time, for any LIBOR Rate Loan, the maximum rate, expressed as a decimal, at which reserves (including, without limitation, any basic marginal, special, supplemental, emergency or other reserves) are required to be maintained with respect thereto against “Eurocurrency liabilities” (as such term is defined in Regulation D) under regulations issued from time to time by the Board of Governors of the Federal Reserve System or other applicable banking regulator. Without limiting the effect of the foregoing, the Applicable Reserve Requirement shall reflect any other reserves required to be maintained by such member banks with respect to (i) any category of liabilities which includes deposits by reference to which the applicable Adjusted LIBOR Rate or any other interest rate of a Loan is to be determined, or (ii) any category of extensions of credit or other assets which include LIBOR Rate Loans. A LIBOR Rate Loan shall be deemed to constitute Eurocurrency liabilities and as such shall be deemed subject to reserve requirements without benefits of credit for proration, exceptions or offsets that may be available from time to time to the applicable Lender. The rate of interest on LIBOR Rate Loans shall be adjusted automatically on and as of the effective date of any change in the Applicable Reserve Requirement.

“Asset Sale” means a sale, lease or sublease (as lessor or sublessor), sale and leaseback, assignment, conveyance, transfer, license or other disposition to, or any exchange of property with, any Person (other than to or with a Credit Party which is not Holdings), in one transaction or a series of transactions, of all or any part of any Credit Party’s businesses, assets or properties of any kind, whether real, personal, or mixed and whether tangible or intangible, whether now owned or hereafter acquired, including, without limitation, the Capital Stock of any Credit Party, other than (i) inventory (or other assets) sold, licensed (on a non-exclusive basis) for periods of one year or less or leased or subleased in the ordinary course of business; (ii) the issuance or sale of Capital Stock of Holdings; (iii) the conversion of cash into Cash Equivalents and Cash Equivalents into cash; (iv) (A) the disposition of property or assets as a direct result of an event giving rise to Net Insurance/Condemnation Proceeds or (B) the sale, lease, transfer or other disposition of machinery, parts and equipment and/or any inventory no longer used or useful in the conduct of the business of any Credit Party (including disposition in connection with ceasing operations); (v) the voluntary termination of Interest Rate Agreements or Currency Agreements; and (vi) the liquidation of any Subsidiary of a Credit Party into such Credit Party (other than Company, which may not be liquidated into Holdings) or the liquidation of any Subsidiary of a Credit Party that is not a Credit Party into any other Subsidiary of a Credit Party that is not a Credit Party.

 

Credit and Guaranty Agreement

 

4


“Asset Sale Reinvestment Amounts” has the meaning given to such term in Section 2.13(a).

“Assignment Agreement” means an Assignment and Assumption Agreement substantially in the form of Exhibit E, with such amendments or modifications as may be approved by Administrative Agent.

“Authorized Officer” means, as applied to any Person, any individual holding the position of chairman of the board (if an officer), chief executive officer, president or one of its vice presidents (or the equivalent thereof), and such Person’s chief financial officer or treasurer.

“Availability” means, on any date of determination, (i)(A) the sum of the trailing twelve months Consolidated Adjusted EBITDA of Holdings and its Subsidiaries as of the last day of the most recently ended Fiscal Month for which financial statements have been delivered pursuant to Section 5.1(a) multiplied by (B) the then in effect maximum Senior Leverage Ratio permitted as of the last day of the immediately preceding Fiscal Quarter pursuant to Section 6.8(c), less (ii) the sum of (A) the aggregate outstanding principal balance of the Loans as of such date, plus (B) all other Consolidated Total Debt as of such date, plus (C) the amount of any reserves against Availability pursuant to Sections 2.13(a) or 2.13(b), plus (D) Letter of Credit Usage, plus (E) the aggregate principal amount of all Revolving Loans requested pursuant to Section 2.2(b)(ii) but not yet funded as of such date. Availability shall be computed on a pro forma basis.

“Bankruptcy Code” means Title 11 of the United States Code entitled “Bankruptcy,” as now and hereafter in effect, or any successor statute.

“Base Rate” means, for any day, a rate per annum equal to the greatest of (i) the Prime Rate in effect on such day, (ii) the Federal Funds Effective Rate in effect on such day plus  1 / 2 of 1%, and (iii) four and one-half percent (4.50%) per annum. Any change in the Base Rate due to a change in the Prime Rate or the Federal Funds Effective Rate shall be effective on the effective day of such change in the Prime Rate or the Federal Funds Effective Rate, respectively.

“Base Rate Loan” means a Loan bearing interest at a rate determined by reference to the Base Rate.

“Beneficiary” means each Agent, Issuing Bank, Lender and Lender Counterparty.

“Business Day” means (i) any day excluding Saturday, Sunday and any day which is a legal holiday under the laws of the State of New York or the State of Texas or is a day on which banking institutions located in either such state are authorized or required by law or other governmental action to close, and (ii) with respect to all notices, determinations, fundings and payments in connection with the Adjusted LIBOR Rate or any LIBOR Rate Loans, the term “Business Day” shall mean any day which is a Business Day described in clause (i) and which is also a day for trading by and between banks in Dollar deposits in the London interbank market.

 

Credit and Guaranty Agreement

 

5


“Capital Lease” means, as applied to any Person, any lease of any property (whether real, personal or mixed) by that Person (i) as lessee that, in conformity with GAAP, is or should be accounted for as a capital lease on the balance sheet of that Person or (ii) as lessee which is a transaction of a type commonly known as a “synthetic lease” (i.e., a transaction that is treated as an operating lease for accounting purposes but with respect to which payments of rent are intended to be treated as payments of principal and interest on a loan for Federal income tax purposes).

“Capital Stock” means any and all shares, interests, participations or other equivalents (however designated) of capital stock of a corporation, any and all equivalent ownership interests in a Person (other than a corporation), including, without limitation, partnership interests and membership interests, and any and all warrants, rights or options to purchase or other arrangements or rights to acquire any of the foregoing.

“Cash” means money, currency or a credit balance in any demand or Deposit Account; provided, however, that notwithstanding anything to the contrary contained herein, for purposes of calculating compliance with the requirements of Sections 3 and 6 hereof “Cash” shall exclude any amounts that would not be considered “cash” under GAAP or “cash” as recorded on the books of the Company and the Guarantors.

“Cash Equivalents” means, as at any date of determination, (i) marketable securities (a) issued or directly and unconditionally guaranteed as to interest and principal by the United States Government, or (b) issued by any agency of the United States the obligations of which are backed by the full faith and credit of the United States, in each case maturing within one (1) year after such date; (ii) marketable direct obligations issued by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof, in each case maturing within one (1) year after such date and having, at the time of the acquisition thereof, a rating of at least A-1 from S&P or at least P-1 from Moody’s; (iii) commercial paper maturing no more than one (1) year from the date of creation thereof and having, at the time of the acquisition thereof, a rating of at least A-1 from S&P or at least P-1 from Moody’s; (iv) certificates of deposit, bankers’ acceptances, time deposits, Eurodollar time deposits or overnight bank deposits maturing within one (1) year after such date and issued or accepted by any Lender or by any commercial bank organized under the laws of the United States of America or any state thereof or the District of Columbia that (a) is at least “adequately capitalized” (as defined in the regulations of its primary Federal banking regulator), and (b) has Tier 1 capital (as defined in such regulations) of not less than $100,000,000; (v) fully collateralized repurchase obligations of any Lender or of any commercial bank satisfying the requirements of clause (iv) of this definition, having a term of not more than 30 days, with respect to securities of the type described in clause (i) of this definition; (vi) securities with maturities of six months or less from the date of acquisition backed by standby letters of credit issued by any Lender or any commercial bank satisfying the requirements of clause (iv) of this definition; and (vii) shares of any money market mutual fund that (a) has substantially all of its assets invested continuously in the types of investments referred to in clauses (i) through (vi) above, (b) has net assets of not less than $500,000,000, and (c) has the highest rating obtainable from either S&P or Moody’s.

 

Credit and Guaranty Agreement

 

6


“CCM” means Center Cut Marketing, LLC Limited Liability Company, an Indiana limited liability company.

“Certificate Regarding Non-Bank Status” means a certificate substantially in the form of Exhibit F.

Change of Control ” means, at any time, (i) Sponsor shall cease to beneficially own and control at least fifty-one percent (51%) on a fully diluted basis of the economic and voting interests in the Capital Stock of Holdings; (ii) Holdings shall cease to beneficially own and control 100% on a fully diluted basis of the economic and voting interest in the Capital Stock of Company; or (iii) except as expressly permitted hereby, the Company shall cease to beneficially own and control (I) 100% on a fully diluted basis of the economic and voting interest in the Capital Stock of each of its Subsidiaries (other than Permitted Joint Ventures) and (II) 51% on a fully diluted basis of the economic and voting interests in the Capital Stock of each Permitted Joint Venture.

“Class” means (i) with respect to Lenders, each of the following classes of Lenders: (a) Lenders having Term Loan Exposure and (b) Lenders having Revolving Exposure, and (ii) with respect to Loans, each of the following classes of Loans: (a) Term Loans and (b) Revolving Loans.

“Closing Date” means the date on which the Term Loans are made.

“Closing Date Certificate” means a Closing Date Certificate substantially in the form of Exhibit G-1.

“Closing Date Mortgaged Property” as defined in Section 3.1(i).

“Collateral” means, collectively, all of the real, personal and mixed property (including Capital Stock) in which Liens are purported to be granted pursuant to the Collateral Documents as security for the Obligations.

“Collateral Agent” as defined in the preamble hereto.

“Collateral Documents” means the Pledge and Security Agreement, the Mortgages, the Landlord Personal Property Collateral Access Agreements, if any, each Deposit Account Control Agreement, the Trademark Security Agreement, the Management Fee Subordination Agreement and all other instruments, documents and agreements delivered by any Credit Party pursuant to this Agreement or any of the other Credit Documents in order to grant to Collateral Agent, for the benefit of Secured Parties, a Lien on any real, personal or mixed property of that Credit Party as security for the Obligations.

“Collateral Questionnaire” means a certificate in form satisfactory to Collateral Agent that provides information with respect to the personal or mixed property of each Credit Party.

 

Credit and Guaranty Agreement

 

7


“Commitment” means any Revolving Commitment or Term Loan Commitment.

“Company” as defined in the preamble hereto.

“Compliance Certificate” means a Compliance Certificate substantially in the form of Exhibit C.

“Consolidated Adjusted EBITDA” means, for any period, an amount determined for Holdings and its Subsidiaries on a consolidated basis equal to (i) the sum, without duplication, of the amounts for such period of (a) Consolidated Net Income, plus (b) Consolidated Interest Expense, plus (c) provisions for taxes based on income, plus (d) total depreciation expense, plus (e) total amortization expense, plus (f) other non-Cash items reducing Consolidated Net Income (excluding any such non-Cash item to the extent that it represents an accrual or reserve for potential Cash items in any future period or amortization of a prepaid Cash item that was paid in a prior period), plus (g) Pre-Opening Costs, plus (h) the amount of management or similar fees paid during such period pursuant to the Management Agreement to the extent permitted by this Agreement and the Management Fee Subordination Agreement, plus (i) non-Cash compensation expenses arising from the issuance of stock, options to purchase stock and stock appreciation rights to the management of Holdings or Company, plus (j) extraordinary charges to the extent approved by Administrative Agent, minus (ii) the sum, without duplication of the amounts for such period of (a) other non-Cash items increasing Consolidated Net Income for such period (excluding any such non-Cash item to the extent it represents the reversal of an accrual or reserve for potential Cash item in any prior period), plus (b) interest income, plus (c) other income, plus (d) with respect to Permitted Joint Ventures, the income of which has been included in Consolidated Net Income, the amount of all Permitted Minority Interest Distributions actually paid.

“Consolidated Adjusted FCCR EBITDA” means, for any period, an amount determined for Holdings and its Subsidiaries on a consolidated basis equal to (i) the sum, without duplication, of the amounts for such period of (a) Consolidated Adjusted EBITDA, minus (ii) the aggregate of all amounts added back to Consolidated Adjusted EBITDA pursuant to clauses (i)(g) and (i)(h) of the definition thereof during such period.

“Consolidated Adjusted Store-Level EBITDA” means, for any period, an amount determined for Holdings and its Subsidiaries on a consolidated basis equal to the sum, without duplication, of the amounts for such period of (i) Consolidated Adjusted EBITDA, plus (ii) Consolidated Corporate Overhead.

“Consolidated Capital Expenditures” means, for any period, the aggregate of all expenditures of Holdings and its Subsidiaries during such period determined on a consolidated basis that, in accordance with GAAP, are or should be included in “purchase of property and equipment or which should otherwise be capitalized” or similar items reflected in the consolidated statement of cash flows of Holdings and its Subsidiaries, but excluding any such expenditures that are financed with the proceeds of Indebtedness (other than the Loans) or of Permitted Stock Issuances or that are made with the proceeds of landlord contributions or tenant improvement allowances or abatements (provided, that no Credit Party has provided or is required to provide or incur, directly or indirectly, any consideration or monetary obligation to such third party or any other Person for providing any such benefit).

 

Credit and Guaranty Agreement

 

8


“Consolidated Cash Interest Expense” means, for any period, Consolidated Interest Expense for such period based upon GAAP, excluding any paid-in-kind interest, amortization of deferred financing costs, and any realized or unrealized gains or losses attributable to Interest Rate Agreements or Currency Agreements.

“Consolidated Corporate Overhead” means, for any period, the aggregate of all expenditures of Holdings and its Subsidiaries during such period determined on a consolidated basis in accordance with GAAP including, without limitation, all expenditures associated with the compensation and benefits of the corporate and district officers and staff of Holdings and its Subsidiaries (including the chief executive officers and chief financial officers thereof) and legal, audit, insurance and accounting costs and expenses associated with the corporate compliance of Holdings and its Subsidiaries, but excluding such expenditures that, in accordance with GAAP, (i) are or should be included in Consolidated Interest Expense, (ii) are taxes based on income, (iii) are capitalized expenditures, or (iv) are restaurant operating expenses.

“Consolidated Current Assets” means, as at any date of determination, the total assets of Holdings and its Subsidiaries on a consolidated basis that may properly be classified as current assets in conformity with GAAP, excluding Cash and Cash Equivalents.

“Consolidated Current Liabilities” means, as at any date of determination, the total liabilities of Holdings and its Subsidiaries on a consolidated basis that may properly be classified as current liabilities in conformity with GAAP, excluding the current portion of long term debt.

“Consolidated Excess Cash Flow” means, for any period, an amount (if positive) determined for Holdings and its Subsidiaries on a consolidated basis equal to: (i) the sum, without duplication, of the amounts for such period of (a) Consolidated Adjusted EBITDA, plus (b) interest income, plus (c) other non-ordinary course income (excluding any gains or losses attributable to Asset Sales), plus (d) the Consolidated Working Capital Adjustment, minus (ii) the sum, without duplication, of the amounts for such period of (a) voluntary and scheduled repayments of Consolidated Total Debt (excluding repayments of Revolving Loans except to the extent the Revolving Commitments are permanently reduced in connection with such repayments), plus (b) Consolidated Capital Expenditures (net of any proceeds of (x) Net Asset Sale Proceeds to the extent reinvested in accordance with Section 2.13(a), (y) Net Insurance/Condemnation Proceeds to the extent reinvested in accordance with Section 2.13(b), and (z) any proceeds of related financings with respect to such expenditures), plus (c) Consolidated Cash Interest Expense, plus (d) provisions for current taxes based on income of Holdings and its Subsidiaries and payable in cash with respect to such period, plus (e) the aggregate of all amounts deducted from Consolidated Adjusted EBITDA pursuant to clauses (i)(g) , and (i)(h) of the definition thereof during such period, plus (f) cash amounts paid to purchase or redeem Capital Stock in accordance with Section 6.5(b), plus (g) cash amounts paid in connection with Permitted Acquisitions (to the extent such amounts are not financed), plus (h) the aggregate of all extraordinary charges paid in cash and added back to Consolidated Adjusted EBITDA pursuant to clause (i)(j) thereof of the definition thereof during such period.

 

Credit and Guaranty Agreement

 

9


“Consolidated Fixed Charges” means, for any period, the sum, without duplication, of the amounts determined for Holdings and its Subsidiaries on a consolidated basis equal to the sum of (a) Consolidated Cash Interest Expense, plus (b) scheduled payments of principal on Consolidated Total Debt, plus (c) Consolidated Maintenance Capital Expenditures, plus (d) the current portion of taxes provided for with respect to such period in accordance with GAAP, plus (e) all amounts paid pursuant to any Non-Credit Party Guaranty Agreement.

“Consolidated Growth Capital Expenditures” means, for any period, Consolidated Capital Expenditures relating to the construction, acquisition or opening of new restaurants operated by the Company and its Subsidiaries during such period.

“Consolidated Interest Expense” means, for any period, total interest expense (including that portion attributable to Capital Leases in accordance with GAAP and capitalized interest) of Holdings and its Subsidiaries on a consolidated basis with respect to all outstanding Consolidated Total Debt, including all commissions, discounts and other fees and charges owed with respect to letters of credit and net costs under Interest Rate Agreements, but excluding, however, any amounts referred to in Section 2.10(e) payable on or before the Closing Date.

“Consolidated Liquidity ” means, at any time, an amount determined for Holdings and its Subsidiaries on a consolidated basis equal to the sum of (i) Unrestricted Cash-on-hand of Holdings and its Subsidiaries at such time, plus (ii) the lesser of (a) (1) the aggregate Revolving Commitments in effect at such time minus (2) the Total Utilization of the Revolving Commitments at such time, and (b) Availability at such time.

“Consolidated Maintenance Capital Expenditures” means, for any period, (i) Consolidated Capital Expenditures for such period minus (ii) Consolidated Growth Capital Expenditures for such period.

“Consolidated Net Income” means, for any period, (i) the net income (or loss) of Holdings and its Subsidiaries on a consolidated basis for such period taken as a single accounting period determined in conformity with GAAP (excluding, without duplication, extraordinary and non-recurring items, impairment charges related to goodwill, property, plant and equipment, and any other assets, and currency translation charges), minus (ii) the sum of (a) other than with respect to any Permitted Joint Venture, the income (or loss) of any Person (other than a Subsidiary of Holdings) in which any other Person (other than Holdings or any of its Subsidiaries) has a joint interest, plus (b) the income (or loss) of any Person accrued prior to the date it becomes a Subsidiary of Holdings or is merged into or consolidated with Holdings or any of its Subsidiaries or that Person’s assets are acquired by Holdings or any of its Subsidiaries, plus (c) the income of any Subsidiary of Holdings to the extent that the declaration or payment of dividends or similar distributions by that Subsidiary of that income is not at the time permitted by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Subsidiary, plus (d) any gains or losses attributable to Asset Sales or returned surplus assets of any Pension Plan, plus (e) (to the extent not included in clauses (a) through (d) above) any net extraordinary gains or net extraordinary losses.

 

Credit and Guaranty Agreement

 

10


“Consolidated Total Debt” means, as at any date of determination, the aggregate amount of all Indebtedness of Holdings and its Subsidiaries determined on a consolidated basis in accordance with GAAP.

“Consolidated Working Capital” means, as at any date of determination, the excess or deficiency of Consolidated Current Assets over Consolidated Current Liabilities.

“Consolidated Working Capital Adjustment” means, for any period of determination on a consolidated basis, the amount (which may be a negative number) by which Consolidated Working Capital as of the beginning of such period exceeds (or is less than) Consolidated Working Capital as of the end of such period, excluding the effects of changes in current deferred tax assets and current deferred tax liabilities, to the extent such changes have no cash impact.

“Contractual Obligation” means, as applied to any Person, any provision of any Security issued by that Person or of any indenture, mortgage, deed of trust, contract, undertaking, agreement or other instrument to which that Person is a party or by which it or any of its properties is bound or to which it or any of its properties is subject.

“Contributing Guarantors” as defined in Section 7.2.

“Controlled Account” means a Deposit Account or Securities Account of a Credit Party which is subject to a Deposit Account Control Agreement or Securities Account Control Agreement in favor of the Collateral Agent, for the benefit of the Secured Parties, in accordance with the terms of the Pledge and Security Agreement.

“Conversion/Continuation Date” means the effective date of a continuation or conversion, as the case may be, as set forth in the applicable Conversion/Continuation Notice.

“Conversion/Continuation Notice” means a Conversion/Continuation Notice substantially in the form of Exhibit A-2.

“Counterpart Agreement” means a Counterpart Agreement substantially in the form of Exhibit H delivered by a Credit Party pursuant to Section 5.10.

“Credit Date” means the date of a Credit Extension.

“Credit Document” means any of this Agreement, the Notes, if any, the Collateral Documents, the Fee Letter, any documents or certificates executed by Company in favor of Issuing Bank relating to Letters of Credit, and all other documents, instruments or agreements executed and delivered by a Credit Party for the benefit of any Agent, Issuing Bank or any Lender in connection herewith.

“Credit Extension” means the making of a Loan or the issuing of a Letter of Credit.

“Credit Party” means the Company, Holdings and each of their respective direct and indirect Subsidiaries, other than any Inactive Subsidiary.

 

Credit and Guaranty Agreement

 

11


“Currency Agreement” means any foreign exchange contract, currency swap agreement, futures contract, option contract, synthetic or other similar agreement or arrangement, each of which (i) is for the purpose of hedging the foreign currency risk associated with Holdings’ and its Subsidiaries’ operations, (ii) approved by Administrative Agent, and (iii) not for speculative purposes.

“Default” means a condition or event that, after notice or lapse of time or both, would constitute an Event of Default.

“Default Excess” means, with respect to any Defaulting Lender, the excess, if any, of such Defaulting Lender’s Pro Rata Share of the aggregate outstanding principal amount of Loans of all Lenders (calculated as if all Defaulting Lenders (other than such Defaulting Lender) had funded all of their respective Defaulted Loans) over the aggregate outstanding principal amount of all Loans of such Defaulting Lender.

“Default Period” means, with respect to any Defaulting Lender, the period commencing on the date of the applicable Funding Default, or violation of Section 9.5(c), and ending on the earliest of the following dates: (i) the date on which all Commitments are cancelled or terminated and/or the Obligations are declared or become immediately due and payable, (ii) the date on which (a) the Default Excess with respect to such Defaulting Lender shall have been reduced to zero (whether by the funding by such Defaulting Lender of any Defaulted Loans of such Defaulting Lender or by the non-pro rata application of any voluntary or mandatory prepayments of the Loans in accordance with the terms of Section 2.12 or Section 2.13 or by a combination thereof), and (b) such Defaulting Lender shall have delivered to Company and Administrative Agent a written reaffirmation of its intention to honor its obligations hereunder with respect to its Commitments, (iii) the date on which Company, Administrative Agent and Requisite Lenders waive all Funding Defaults of such Defaulting Lender in writing, and (iv) the date on which Administrative Agent shall have waived all violations of Section 9.5(c) by such Defaulting Lender in writing.

“Defaulted Loan” as defined in Section 2.21.

“Defaulting Lender” as defined in Section 2.21.

“Default Rate” means any interest payable pursuant to Section 2.9.

“Deposit Account” means a demand, time, savings, passbook or like account with a bank, savings and loan association, credit union or like organization, other than an account evidenced by a negotiable certificate of deposit.

“Deposit Account Control Agreement” means any deposit account control agreement executed pursuant to Section 4.4.4(c) of the Pledge and Security Agreement, duly executed by the parties named therein and in form and substance satisfactory to Administrative Agent.

“Documentation Agent” as defined in the preamble hereto.

“Dodd-Frank Act” as defined in Section 2.17(b).

 

Credit and Guaranty Agreement

 

12


“Dollars” and the sign “$” mean the lawful money of the United States of America.

“Domestic Subsidiary” means any Subsidiary organized under the laws of the United States of America, any State thereof or the District of Columbia.

“Eligible Assignee” means (i) in the case of the Revolving Loans or Revolving Commitments, (a) any Lender with Revolving Exposure or any Affiliate (other than a natural person) of a Lender with Revolving Exposure, (b) a commercial bank organized under the laws of the United States, or any state thereof, and having total assets in excess of $100,000,000, (c) a commercial bank organized under the laws of any other country which is a member of the Organization for Economic Cooperation and Development or a political subdivision of any such country and which has total assets in excess of $100,000,000, provided that such bank is acting through a branch or agency located in the United States, and (d) a finance company, insurance company, or other financial institution or fund that is engaged in making, purchasing, or otherwise investing in commercial loans in the ordinary course of its business and having (together with its Affiliates) total assets in excess of $100,000,000, (ii) in the case of the Term Loans, (a) any Lender, any Affiliate of any Lender and any Related Fund (any two or more Related Funds being treated as a single Eligible Assignee for all purposes hereof), and (b) any commercial bank, insurance company, investment or mutual fund or other entity that is an “accredited investor” (as defined in Regulation D under the Securities Act), that extends credit or buys loans as one of its businesses and that has total assets in excess of $100,000,000, (iii) TPG Specialty Lending, Inc. and its Affiliates, and (iv) any other Person (other than a natural Person) approved by Administrative Agent that has total assets in excess of $100,000,000; provided , (x) neither (A) Holdings nor any Affiliate of Holdings nor (B) the Sponsor nor any Affiliate of the Sponsor shall, in any event, be an Eligible Assignee and (y) no Person owning or controlling any trade debt or Indebtedness of any Credit Party other than the Obligations or any Capital Stock of any Credit Party (in each case, unless approved by the Administrative Agent) shall, in any event, be an Eligible Assignee.

“Employee Benefit Plan” means any “employee benefit plan” as defined in Section 3(3) of ERISA which is or was sponsored, maintained or contributed to by, or required to be contributed by, Holdings, any of its Subsidiaries or any of their respective ERISA Affiliates.

“Environmental Claim” means any investigation, notice, notice of violation, claim, action, suit, proceeding, demand, abatement order or other order or directive (conditional or otherwise), by any Governmental Authority or any other Person, arising (i) pursuant to or in connection with any actual or alleged violation of any Environmental Law; (ii) in connection with any Hazardous Material or any actual or alleged Hazardous Materials Activity; or (iii) in connection with any actual or alleged damage, injury, threat or harm to health, safety, natural resources or the environment.

“Environmental Laws” means any and all current or future foreign or domestic, federal or state (or any subdivision of either of them), statutes, ordinances, orders, rules, regulations, judgments, Governmental Authorizations, or any other requirements of Governmental Authorities relating to (i) environmental matters, including those relating to any Hazardous Materials Activity; (ii) the generation, use, storage, transportation or disposal of

 

Credit and Guaranty Agreement

 

13


Hazardous Materials; or (iii) occupational safety and health, industrial hygiene, land use or the protection of human, plant or animal health or welfare, in any manner applicable to Holdings or any of its Subsidiaries or any Facility.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time, and any successor thereto.

“ERISA Affiliate” means, as applied to any Person, (i) any corporation which is a member of a controlled group of corporations within the meaning of Section 414(b) of the Internal Revenue Code of which that Person is a member; (ii) any trade or business (whether or not incorporated) which is a member of a group of trades or businesses under common control within the meaning of Section 414(c) of the Internal Revenue Code of which that Person is a member; and (iii) any member of an affiliated service group within the meaning of Section 414(m) or (o) of the Internal Revenue Code of which that Person, any corporation described in clause (i) above or any trade or business described in clause (ii) above is a member. Any former ERISA Affiliate of Holdings or any of its Subsidiaries shall continue to be considered an ERISA Affiliate of Holdings or any such Subsidiary within the meaning of this definition with respect to the period such entity was an ERISA Affiliate of Holdings or such Subsidiary and with respect to liabilities arising after such period for which Holdings or such Subsidiary could be liable under the Internal Revenue Code or ERISA.

“ERISA Event” means (i) a “reportable event” within the meaning of Section 4043 of ERISA and the regulations issued thereunder with respect to any Pension Plan (excluding those for which the provision for thirty (30) day notice to the PBGC has been waived by regulation); (ii) the failure to meet the minimum funding standard of Section 412 of the Internal Revenue Code with respect to any Pension Plan (whether or not waived in accordance with Section 412(c) of the Internal Revenue Code) or the failure to make by its due date a required installment under Section 430(j) of the Internal Revenue Code with respect to any Pension Plan or the failure to make any required contribution to a Multiemployer Plan; (iii) the provision by the administrator of any Pension Plan pursuant to Section 4041(a)(2) of ERISA of a notice of intent to terminate such plan in a distress termination described in Section 4041(c) of ERISA; (iv) the withdrawal by Holdings, any of its Subsidiaries or any of their respective ERISA Affiliates from any Pension Plan with two or more contributing sponsors or the termination of any such Pension Plan resulting in liability to Holdings, any of its Subsidiaries or any of their respective Affiliates pursuant to Section 4063 or 4064 of ERISA; (v) the institution by the PBGC of proceedings to terminate any Pension Plan, or the occurrence of any event or condition which might constitute grounds under ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan; (vi) the imposition of liability on Holdings, any of its Subsidiaries or any of their respective ERISA Affiliates pursuant to Section 4062(e) or 4069 of ERISA or by reason of the application of Section 4212(c) of ERISA; (vii) the withdrawal of Holdings, any of its Subsidiaries or any of their respective ERISA Affiliates in a complete or partial withdrawal (within the meaning of Sections 4203 and 4205 of ERISA) from any Multiemployer Plan if there is any potential liability therefor, or the receipt by Holdings, any of its Subsidiaries or any of their respective ERISA Affiliates of notice from any Multiemployer Plan that it is in reorganization or insolvency pursuant to Section 4241 or 4245 of ERISA, or that it intends to terminate or has terminated under Section 4041A or 4042 of ERISA; (viii) the occurrence of an act or omission which could give rise to the imposition on Holdings, any of its Subsidiaries or

 

Credit and Guaranty Agreement

 

14


any of their respective ERISA Affiliates of fines, penalties, taxes or related charges under Chapter 43 of the Internal Revenue Code or under Section 409, Section 502(c), (i) or (l), or Section 4071 of ERISA in respect of any Employee Benefit Plan; (ix) the assertion of a material claim (other than routine claims for benefits) against any Employee Benefit Plan other than a Multiemployer Plan or the assets thereof, or against Holdings, any of its Subsidiaries or any of their respective ERISA Affiliates in connection with any Employee Benefit Plan; (x) receipt from the Internal Revenue Service of notice of the failure of any Pension Plan (or any other Employee Benefit Plan intended to be qualified under Section 401(a) of the Internal Revenue Code) to qualify under Section 401(a) of the Internal Revenue Code, or the failure of any trust forming part of any Pension Plan to qualify for exemption from taxation under Section 501(a) of the Internal Revenue Code; or (xi) the imposition of a Lien pursuant to Section 430(k) of the Internal Revenue Code or pursuant to Section 303(k) of ERISA with respect to any Pension Plan.

“Event of Default” means each of the conditions or events set forth in Section 8.1.

“Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time, and any successor statute.

“Excluded Account” means individually or collectively as the context requires, (i) any account used solely for payroll, payroll taxes or other employee wage and benefit payments, (ii) any escrow accounts used solely for consideration that could reasonably be expected to become payable in connection with Permitted Acquisitions, (iii) any accounts used solely to cash collateralize or otherwise satisfy Governmental Authorizations relating to the sale and service of liquor, and (iv) any petty cash deposit account for which a control agreement has not otherwise been obtained, so long as, with respect to this clause (iv), the aggregate amount on deposit in each such petty cash account does not exceed $50,000 at any one time and the aggregate amount on deposit in all such petty cash accounts does not exceed $500,000 at any one time as of or after the Closing Date (or such greater amounts, if any, approved by Administrative Agent from time to time in its reasonable discretion).

“Existing Indebtedness” means Indebtedness and other obligations outstanding under that certain Credit Agreement dated as of July 6, 2007 by and among Company, Holdings, Barclay’ Bank plc and the lenders party thereto, as amended prior to the Closing Date.

“Facility” means any real property (including all buildings, fixtures or other improvements located thereon) now, hereafter or heretofore owned, leased, operated or used by Holdings or any of its Subsidiaries or any of their respective predecessors or Affiliates.

“Fair Share Contribution Amount” as defined in Section 7.2.

“Fair Share” as defined in Section 7.2.

“Federal Funds Effective Rate” means for any day, the rate per annum (expressed, as a decimal, rounded upwards, if necessary, to the next higher 1/100 of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the

 

Credit and Guaranty Agreement

 

15


Federal Reserve Bank of New York on the Business Day next succeeding such day; provided , (i) if such day is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day, and (ii) if no such rate is so published on such next succeeding Business Day, the Federal Funds Rate for such day shall be the average rate charged to GS Bank or any other Lender selected by Administrative Agent on such day on such transactions as determined by Administrative Agent.

“Fee Letter” means the letter agreement dated as of the Closing Date between Company and Administrative Agent.

“Financial Officer Certification” means, with respect to the financial statements for which such certification is required, the certification of the chief financial officer of Holdings (or to the extent no Person holds such position at such time, the chief executive officer or controller of Holdings) that such financial statements fairly present, in all material respects, the financial condition of Holdings and its Subsidiaries as at the dates indicated and the results of their operations and their cash flows for the periods indicated, subject to changes resulting from audit and normal year-end adjustments.

“Financial Plan” as defined in Section 5.1(i).

“First Priority” means, with respect to any Lien purported to be created in any Collateral pursuant to any Collateral Document, that such Lien is the only Lien to which such Collateral is subject, other than any Permitted Lien.

“Fiscal Month” means a single period in Holdings’ and its Subsidiaries’ 13 period annual operating calendar (typically 28 days, with one 35 day period approximately every 5 years).

“Fiscal Quarter” means a fiscal quarter of any Fiscal Year (the first Fiscal Quarter includes Fiscal Months 1-3, the second Fiscal Quarter includes Fiscal Months 4-6, the third Fiscal Quarter includes Fiscal Months 7-9, and the fourth Fiscal Quarter includes Fiscal Months 10-13).

“Fiscal Year” means the fiscal year of Holdings and its Subsidiaries ending on the last Tuesday of each calendar year.

“Fixed Charge Coverage Ratio” means the ratio as of the last day of (i) the first Fiscal Quarter ending after the Closing Date of (a) Consolidated Adjusted FCCR EBITDA for such Fiscal Quarter, to (b) Consolidated Fixed Charges for such Fiscal Quarter, (ii) the second Fiscal Quarter ending after the Closing Date of (a) Consolidated Adjusted FCCR EBITDA for the two Fiscal Quarters period ending on such date, to (b) Consolidated Fixed Charges for such two Fiscal Quarters, (iii) the third Fiscal Quarter period ending after the Closing Date of (a) Consolidated Adjusted FCCR EBITDA for the three Fiscal Quarter period ending on such date, to (b) Consolidated Fixed Charges for such three Fiscal Quarter period, and (iv) any other Fiscal Quarter of (a) Consolidated Adjusted FCCR EBITDA for the four-Fiscal Quarter period then ending, to (b) Consolidated Fixed Charges for such four-Fiscal Quarter period.

 

Credit and Guaranty Agreement

 

16


“Flood Hazard Property” means any Real Estate Asset subject to a mortgage in favor of Collateral Agent, for the benefit of the Secured Parties, and located in an area designated by the Federal Emergency Management Agency as having special flood or mud slide hazards.

“Foreign Subsidiary” means any Subsidiary that is not a Domestic Subsidiary.

“Funding Default” as defined in Section 2.21.

“Funding Guarantors” as defined in Section 7.2.

“Funding Notice” means a notice substantially in the form of Exhibit A-1.

“GAAP” means, subject to the limitations on the application thereof set forth in Section 1.2, United States generally accepted accounting principles in effect as of the date of determination thereof.

“Governmental Acts” means any act or omission, whether rightful or wrongful, of any present or future de jure or de facto government or Governmental Authority.

“Governmental Authority” means any federal, state, municipal, national or other government, governmental department, commission, board, bureau, court, agency or instrumentality or political subdivision thereof or any entity or officer exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to any government or any court, in each case whether associated with any municipality, any state of the United States, the United States, or a foreign entity or government.

“Governmental Authorization” means any permit, license, authorization, plan, directive, consent order or consent decree of or from any Governmental Authority (including, without limitation, any of the foregoing necessary for the continued operation of any restaurant operated by any Credit Party with full food and liquor service).

“Grandfathered LCs” as defined in Section 6.1(l).

“Grantor” as defined in the Pledge and Security Agreement.

“GS Bank” as defined in the preamble hereto.

“Guaranteed Lease” means any lease of real property, with respect to which the obligations of the tenant (which tenant is a Credit Party) thereunder are guaranteed by a Credit Party.

“Guaranteed Obligations” as defined in Section 7.1.

“Guarantor” means each of Holdings and each Domestic Subsidiary of Holdings (other than Company), other than any Inactive Subsidiary.

“Guarantor Subsidiary” means each Guarantor other than Holdings.

 

Credit and Guaranty Agreement

 

17


“Guaranty” means the guaranty of each Guarantor set forth in Section 7.

“Hazardous Materials” means any chemical, material or substance, exposure to which is prohibited, limited or regulated by any Governmental Authority or which may or could pose a hazard to the health and safety of the owners, occupants or any Persons in the vicinity of any Facility or to the indoor or outdoor environment.

“Hazardous Materials Activity” means any past, current, proposed or threatened activity, event or occurrence involving any Hazardous Materials, including the use, manufacture, possession, storage, holding, presence, existence, location, Release, threatened Release, discharge, placement, generation, transportation, processing, construction, treatment, abatement, removal, remediation, disposal, disposition or handling of any Hazardous Materials, and any corrective action or response action with respect to any of the foregoing.

“Highest Lawful Rate” means the maximum lawful interest rate, if any, that at any time or from time to time may be contracted for, charged, or received under the laws applicable to any Lender which are presently in effect or, to the extent allowed by law, under such applicable laws which may hereafter be in effect and which allow a higher maximum nonusurious interest rate than applicable laws now allow.

“Historical Financial Statements” means as of the Closing Date, (i) the audited financial statements of Holdings and its Subsidiaries, for the Fiscal Year ended December 28, 2010 consisting of balance sheets and the related consolidated statements of income, members’ equity and cash flows for such Fiscal Year, and (ii) for the interim period from December 29, 2010 to the Closing Date, internally prepared, unaudited financial statements of Holdings and its Subsidiaries, consisting of a balance sheet and the related consolidated statements of income, members’ equity and cash flows for each quarterly period completed prior to forty-six (46) days before the Closing Date and a balance sheet and the related consolidated statements of income and cash flows for each monthly period completed prior to thirty-one (31) days prior to the Closing Date, in the case of clauses (i) and (ii), certified by the chief financial officer of Holdings that they fairly present, in all material respects, the financial condition of Holdings and its Subsidiaries as at the dates indicated and the results of their operations and their cash flows for the periods indicated, subject, if applicable, to changes resulting from audit and normal year end adjustments.

“Holdings” as defined in the preamble hereto.

Inactive Subsidiary ” means any Subsidiary of Holdings that (a) is designated in writing by Company to Administrative Agent as an “Inactive Subsidiary” for purposes of the Credit Documents, (b) does not engage in any type of business activity (other than organizational or winding-up activities), (c) does not own or possess any assets having a fair market value in excess of $50,000 in the aggregate, including, without limitation, any Capital Stock of any Credit Party (other than certain licenses which are in the process of being terminated or transferred), (d) does not have any Indebtedness, and (e) is not party to any lease or sublease of any real property.

“Increased-Cost Lenders” as defined in Section 2.22.

 

Credit and Guaranty Agreement

 

18


“Indebtedness,” as applied to any Person, means, without duplication, (i) all indebtedness for borrowed money; (ii) that portion of obligations with respect to Capital Leases that is properly classified as a liability on a balance sheet in conformity with GAAP; (iii) notes payable and drafts accepted representing extensions of credit whether or not representing obligations for borrowed money; (iv) any obligation owed for all or any part of the deferred purchase price of property or services (excluding (a) any such obligations incurred under ERISA, trade payables related to legal or accounting fees, and (c) other trade payables incurred in the ordinary course of business that are not more than 180 days past due or, if more than 180 days past due, are being contested in good faith by appropriate proceedings and so long as adequate reserves or other appropriate provisions, if any, as shall be required in conformity with GAAP shall have been made or provided therefor); (v) all indebtedness secured by any Lien on any property or asset owned or held by that Person regardless of whether the indebtedness secured thereby shall have been assumed by that Person or is nonrecourse to the credit of that Person; (vi) the face amount of any letter of credit issued for the account of that Person or as to which that Person is otherwise liable for reimbursement of drawings; (vii) the direct or indirect guaranty, endorsement (otherwise than for collection or deposit in the ordinary course of business), co-making, discounting with recourse or sale with recourse by such Person of the Indebtedness of another; (viii) any obligation of such Person the primary purpose or intent of which is to provide assurance to an obligee that the Indebtedness of the obligor thereof will be paid or discharged, or any agreement relating thereto will be complied with, or the holders thereof will be protected (in whole or in part) against loss in respect thereof; (ix) any liability of such Person for any Indebtedness of another through any agreement (contingent or otherwise) (a) to purchase, repurchase or otherwise acquire such Indebtedness or any security therefor, or to provide funds for the payment or discharge of such Indebtedness (whether in the form of loans, advances, stock purchases, capital contributions or otherwise) or (b) to maintain the solvency or any balance sheet item, level of income or financial condition of another if, in the case of any agreement described under subclauses (a) or (b) of this clause (ix), the primary purpose or intent thereof is as described in clause (viii) above; and (x) all obligations of such Person in respect of any exchange traded or over the counter derivative transaction, including, without limitation, any Interest Rate Agreement or Currency Agreement, whether entered into for hedging or speculative purposes (with the amount of such obligations being the amount which would appear on a balance sheet of that Person in accordance with GAAP).

“Indemnified Liabilities” means, collectively, any and all liabilities, obligations, losses, damages (including natural resource damages), penalties, claims (including Environmental Claims), costs (including the costs of any investigation, study, sampling, testing, abatement, cleanup, removal, remediation or other response action necessary to remove, remediate, clean up or abate any Hazardous Materials Activity), expenses and disbursements of any kind or nature whatsoever (including the reasonable fees and disbursements of counsel for Indemnitees in connection with any investigative, administrative or judicial proceeding commenced or threatened by any Person, whether or not any such Indemnitee shall be designated as a party or a potential party thereto, and any fees or expenses incurred by Indemnitees in enforcing this indemnity), whether direct, indirect or consequential and whether based on any federal, state or foreign laws, statutes, rules or regulations (including securities and commercial laws, statutes, rules or regulations and Environmental Laws), on common law or equitable cause or on contract or otherwise, that may be imposed on, incurred by, or asserted against any such Indemnitee, in any manner relating to or arising out of (i) this Agreement or the other Credit

 

Credit and Guaranty Agreement

 

19


Documents or the transactions contemplated hereby or thereby (including the Lenders’ agreement to make Credit Extensions or the use or intended use of the proceeds thereof, or any enforcement of any of the Credit Documents (including any sale of, collection from, or other realization upon any of the Collateral or the enforcement of the Guaranty)); (ii) the statements contained in any commitment letter delivered by any Lender to Company with respect to the transactions contemplated by this Agreement; or (iii) any Environmental Claim or any Hazardous Materials Activity relating to or arising from, directly or indirectly, any past or present activity, operation, land ownership, or practice of Holdings or any of its Subsidiaries.

“Indemnitee” as defined in Section 10.3.

“Indemnitee Agent Party” as defined in Section 9.6.

“Installment” as defined in Section 2.11.

“Installment Date” as defined in Section 2.11.

“Interest Payment Date” means with respect to (i) any Base Rate Loan, (a) the last day of each Fiscal Quarter, commencing on the first such date to occur after the Closing Date, and (b) the final maturity date of such Loan; and (ii) any LIBOR Rate Loan, (a) the last day of each Interest Period applicable to such Loan, and (b) as to any LIBOR Rate Loan having an interest period that is longer than three months, each day that is three months, or a whole multiple thereof, after the first day of such Interest Period.

“Interest Period” means, in connection with a LIBOR Rate Loan, an interest period of one-, two-, three- or six-months or (if agreed to by all Lenders of the relevant Class) nine or twelve months, as selected by Company in the applicable Funding Notice or Conversion/Continuation Notice, (i) initially, commencing on the Credit Date or Conversion/Continuation Date thereof, as the case may be; and (ii) thereafter, commencing on the day on which the immediately preceding Interest Period expires; provided , (a) if an Interest Period would otherwise expire on a day that is not a Business Day, such Interest Period shall expire on the next succeeding Business Day unless no further Business Day occurs in such month, in which case such Interest Period shall expire on the immediately preceding Business Day; (b) any Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall, subject to clauses (c) and (d), of this definition, end on the last Business Day of a calendar month; (c) no Interest Period with respect to any portion of any Class of Term Loans shall extend beyond such Class’s Term Loan Maturity Date; and (d) no Interest Period with respect to any portion of the Revolving Loans shall extend beyond the Revolving Commitment Termination Date.

“Interest Rate Agreement” means any interest rate swap agreement, interest rate cap agreement, interest rate collar agreement, interest rate hedging agreement or other similar agreement or arrangement, each of which is (i) for the purpose of hedging the interest rate exposure associated with Holdings’ and its Subsidiaries’ operations, (ii) approved by Administrative Agent, and (iii) not for speculative purposes.

 

Credit and Guaranty Agreement

 

20


“Interest Rate Determination Date” means, with respect to any Interest Period, the date that is two (2) Business Days prior to the first day of such Interest Period.

“Internal Revenue Code” means the Internal Revenue Code of 1986, as amended to the date hereof and from time to time hereafter, and any successor statute.

“Investment” means (i) any direct or indirect purchase or other acquisition by Holdings or any of its Subsidiaries of, or of a beneficial interest in, any of the Securities of any other Person (other than a Guarantor Subsidiary); (ii) any direct or indirect redemption, retirement, purchase or other acquisition for value, by any Subsidiary of Holdings from any Person (other than Holdings or any Guarantor Subsidiary), of any Capital Stock of such Person; and (iii) any direct or indirect loan, advance (other than advances to employees for moving, entertainment and travel expenses, drawing accounts and similar expenditures in the ordinary course of business) or capital contributions by Holdings or any of its Subsidiaries to any other Person (other than Holdings or any Guarantor Subsidiary), including all indebtedness and accounts receivable from that other Person that are not current assets or did not arise from sales to that other Person in the ordinary course of business. The amount of any Investment shall be the original cost of such Investment plus the cost of all additions thereto, without any adjustments for increases or decreases in value, or write-ups, write-downs or write-offs with respect to such Investment.

“Issuance Notice” means an Issuance Notice substantially in the form of Exhibit A-3.

“Issuing Bank” means any Lender or any Affiliate of any Lender that issues Letters of Credit under and pursuant to this Agreement, to the extent such Lender or such Affiliate selected by Administrative Agent and reasonably acceptable to the Company agrees to serve as Issuing Bank hereunder (which agreement to serve shall be made in the sole discretion of such Lender or such Affiliate), together with its permitted successors and assigns in such capacity.

“Joint Venture” means a joint venture, partnership or other similar arrangement, whether in corporate, partnership or other legal form.

“Landlord Personal Property Collateral Access Agreement” means a Landlord Waiver and Consent Agreement substantially in the form of Exhibit K with such amendments or modifications as may be approved by Collateral Agent.

“LC Availability Period” means the period, if any, commencing on the date on which Administrative Agent notifies Company in writing that a Lender or an Affiliate of a Lender is willing to serve as Issuing Bank hereunder and issue Letters of Credit as contemplated by Section 2.3 hereof and ending on the date on which Administrative Agent notifies Company in writing that a Lender or an Affiliate of a Lender is no longer willing to serve as Issuing Bank hereunder or issue Letters of Credit as contemplated by Section 2.3 hereof.

“Lead Arranger” as defined in the preamble hereto.

 

Credit and Guaranty Agreement

 

21


“Leasehold Property” means any leasehold interest of any Credit Party as lessee under any lease of real property, other than any such leasehold interest designated from time to time by Collateral Agent in its sole discretion as not being required to be included in the Collateral.

“Lender” means each financial institution listed on the signature pages hereto as a Lender, and any other Person that becomes a party hereto pursuant to an Assignment Agreement.

“Lender Counterparty” means each Lender or any Affiliate of a Lender counterparty to an Interest Rate Agreement or Currency Agreement (including any Person who is a Lender (and any Affiliate thereof) as of the time of entering into an Interest Rate Agreement or Currency Agreement but subsequently, ceases to be a Lender) including, without limitation, each such Affiliate that enters into a joinder agreement with Collateral Agent.

“Letter of Credit” means a standby letter of credit issued or to be issued by Issuing Bank pursuant to this Agreement.

“Letter of Credit Sublimit” means, during the LC Availability Period, (i) $3,000,000, minus (ii) the face amount of any Grandfathered LCs.

“Letter of Credit Usage” means, as at any date of determination during the LC Availability Period, the sum of (i) the maximum aggregate amount which is, or at any time thereafter may become, available for drawing under all Letters of Credit then outstanding, and (ii) the aggregate amount of all drawings under Letters of Credit honored by Issuing Bank and not theretofore reimbursed by or on behalf of Company.

“LIBOR Rate Loan” means a Loan bearing interest at a rate determined by reference to the Adjusted LIBOR Rate.

“Lien” means (i) any lien, mortgage, pledge, assignment, security interest, charge or encumbrance of any kind (including any agreement to give any of the foregoing, any conditional sale or other title retention agreement, and any lease in the nature thereof) and any option, trust or other preferential arrangement having the practical effect of any of the foregoing, and (ii) in the case of Securities, any purchase option, call or similar right of a third party with respect to such Securities.

Liquidation Event”  means any event described in Section 8.1(b), (f), (g) or (h) that occurs solely with respect to any Inactive Subsidiary or with respect to any operating Subsidiary as a result of such operating Subsidiary ceasing operations.

“Loan” means, individually or collectively as the context requires, a Term Loan and/or a Revolving Loan.

“Management Agreement” means that certain Asset Advisory Agreement, effective as of December 13, 2006, among Hudson Americas, L.L.C. (as assignee of Hudson Advisors, L.L.C.) and Company (formerly known as Lone Star Steakhouse & Saloon, Inc.), as the same has been amended, restated, supplemented or otherwise modified through the Closing Date and as the same may hereafter be amended, restated, supplemented or otherwise modified in accordance with this Agreement.

 

Credit and Guaranty Agreement

 

22


“Management Fee Subordination Agreement” means that certain management fee subordination agreement, dated as of the Closing Date, between Hudson Americas, L.L.C. and Collateral Agent, as the same may be amended, restated, supplemented or otherwise modified from time to time.

“Margin Stock” as defined in Regulation U of the Board of Governors of the Federal Reserve System as in effect from time to time.

“Material Adverse Effect”  means a material adverse effect on and/or material adverse developments with respect to (i) the business operations, properties, assets, or financial condition of Holdings and its Subsidiaries taken as a whole; (ii) the ability of the Credit Parties, taken as a whole, to fully and timely perform their Obligations; (iii) the legality, validity, binding effect, or enforceability against the Credit Parties, taken as a whole, of the Credit Documents to which they are a party; or (iv) any material rights, remedies and benefits available to, or conferred upon, any Agent and any Lender or any Secured Party under the Credit Documents.

“Material Contract” means (i) the Management Agreement, (ii) each Non-Credit Party Lease Guaranty, and (iii) any contract or other arrangement to which Holdings or any of its Subsidiaries is a party (other than the Credit Documents) for which breach, nonperformance, cancellation or failure to renew could reasonably be expected to have a Material Adverse Effect, all of which contracts and arrangements in effect as of the Closing Date are listed on Schedule 4.16.

“Material Real Estate Asset” means (a) any fee-owned Real Estate Asset (I) listed on Schedule 4.13(a) or (II) acquired after Closing Date having a fair market value in excess of $1,000,000 as of the date of the acquisition thereof, and (b) all Leasehold Properties (I) listed on Schedule 4.13(b) or (II) acquired after Closing Date.

“Minority Interest Holder” means, in respect of any Permitted Joint Venture, any Person (other than a Credit Party, Sponsor or an Affiliate of any Credit Party or Sponsor) owning any Capital Stock in such Permitted Joint Venture.

“Moody’s” means Moody’s Investor Services, Inc.

“Mortgage” means a mortgage, deed of trust, deed to secure debt or similar instrument substantially in the form of Exhibit J, as it may be amended, restated, supplemented or otherwise modified from time to time.

“Multiemployer Plan” means any Employee Benefit Plan which is a “multiemployer plan” as defined in Section 3(37) of ERISA.

“NAIC” means The National Association of Insurance Commissioners, and any successor thereto.

 

Credit and Guaranty Agreement

 

23


“Narrative Report” means, with respect to the financial statements for which such narrative report is required, a narrative report describing the operations of Holdings and its Subsidiaries in the form prepared for presentation to senior management thereof for the applicable month, Fiscal Quarter or Fiscal Year and for the period from the beginning of the then current Fiscal Year to the end of such period to which such financial statements relate with comparison to and variances from the immediately preceding period and budget.

“Net Asset Sale Proceeds” means, with respect to any Asset Sale, an amount equal to: (i) Cash payments received by Holdings or any of its Subsidiaries from such Asset Sale, minus (ii) (a) any bona fide direct costs incurred in connection with such Asset Sale to the extent paid or payable to non-Affiliates (including sales commissions, legal, accounting and investment banking fees, and survey costs), (b) income or gains taxes payable by the seller as a result of any gain recognized in connection with such Asset Sale, (c) payment of the outstanding principal amount of, premium or penalty, if any, and interest on any Indebtedness (other than the Loans) that is secured by a Lien on the stock or assets in question and that is required to be repaid under the terms thereof as a result of such Asset Sale, (d) a reasonable reserve for any indemnification payments (fixed or contingent) attributable to seller’s indemnities and representations and warranties to purchaser in respect of such Asset Sale undertaken by Holdings or any of its Subsidiaries in connection with such Asset Sale; provided that upon release of any such reserve, the amount released shall be considered Net Asset Sale Proceeds, and (e) Holdings’ good faith estimate of payments required to be made with respect to unassumed liabilities relating to the assets and properties disposed of within one year after such Asset Sale; provided that immediately following the end of such year, the amount not so used to satisfy such unassumed liabilities shall be considered Net Asset Sale Proceeds.

“Net Insurance/Condemnation Proceeds” means an amount equal to: (i) any Cash payments or proceeds received by Holdings or any of its Subsidiaries (a) under any casualty, business interruption or “key man” insurance policies in respect of any covered loss thereunder, or (b) as a result of the taking of any assets of Holdings or any of its Subsidiaries by any Person pursuant to the power of eminent domain, condemnation or otherwise, or pursuant to a sale of any such assets to a purchaser with such power under threat of such a taking, minus (ii) (a) any actual and reasonable costs incurred by Holdings or any of its Subsidiaries in connection with the adjustment or settlement of any claims of Holdings or such Subsidiary in respect thereof, and (b) any bona fide direct costs incurred in connection with any sale of such assets as referred to in clause (i)(b) of this definition to the extent paid or payable to non-Affiliates, including income taxes payable as a result of any gain recognized in connection therewith.

“New York Location” means the Del Frisco’s Double Eagle Steakhouse located at 1221 Avenue of the Americas, New York, NY.

“Non-Credit Party Lease Guaranty” means each guaranty by any Credit Party of the lease obligations of Persons other than Credit Parties in effect on the Closing Date, as identified on Schedule 4.27.

“Non-US Lender” as defined in Section 2.19(c).

 

Credit and Guaranty Agreement

 

24


“Note” means, individually or collectively as the context requires, a Term Loan Note and/or a Revolving Loan Note.

“Notice” means a Funding Notice, an Issuance Notice, or a Conversion/Continuation Notice.

“Obligations” means all obligations of every nature of each Credit Party from time to time owed to the Agents (including former Agents), the Lenders or any of them and Lender Counterparties, under any Credit Document, Interest Rate Agreement or Currency Agreement (including, without limitation, with respect to an Interest Rate Agreement or Currency Agreement, obligations owed thereunder to any Person who was a Lender or an Affiliate of a Lender at the time such Interest Rate Agreement or Currency Agreement was entered into, but subsequently ceases to be a Lender or an Affiliate thereof), whether for principal, interest (including interest which, but for the filing of a petition in bankruptcy with respect to such Credit Party, would have accrued on any Obligation, whether or not a claim is allowed against such Credit Party for such interest in the related bankruptcy proceeding), reimbursement of amounts drawn under Letters of Credit, payments for early termination of Interest Rate Agreements or Currency Agreements, fees, expenses, indemnification or otherwise.

“Obligee Guarantor” as defined in Section 7.7.

“Organizational Documents” means (i) with respect to any corporation, its certificate or articles of incorporation or organization, as amended, and its by-laws, as amended, (ii) with respect to any limited partnership, its certificate of limited partnership, as amended, and its partnership agreement, as amended, (iii) with respect to any general partnership, its partnership agreement, as amended, and (iv) with respect to any limited liability company, its articles of organization, as amended, and its operating agreement, as amended. In the event any term or condition of this Agreement or any other Credit Document requires any Organizational Document to be certified by a secretary of state or similar governmental official, the reference to any such “Organizational Document” shall only be to a document of a type customarily certified by such governmental official.

Ownership Share ” means, with respect to any Permitted Joint Venture, the quotient (expressed as a percentage) obtained by dividing (i) any Person’s ownership of the Capital Stock of such Permitted Joint Venture, by (ii) all ownership interests of such Permitted Joint Venture, in each case, as ownership is determined in accordance with the applicable provisions of the joint venture agreement and/or other applicable Organizational Document of such Permitted Joint Venture.

“Participant Register” as defined in Section 10.6(h).

“PBGC” means the Pension Benefit Guaranty Corporation or any successor thereto.

“Pension Plan” means any Employee Benefit Plan, other than a Multiemployer Plan, which is subject to Section 412 of the Internal Revenue Code or Section 302 of ERISA.

 

Credit and Guaranty Agreement

 

25


“Permitted Acquisition” means an acquisition or any series of related acquisitions by Company or any of its wholly owned Guarantor Subsidiaries of (a) all or substantially all of the assets of a Person, all or a majority of the outstanding Capital Stock of a Person, or all of the Capital Stock of any Permitted Joint Venture in which a Credit Party holds an interest, or (b) any division, line of business or other business unit of a Person (such Person or such division, line of business or other business unit of such Person shall be referred to herein as the  “Target” ), in each case that is a type of business (or assets used in a type of business) permitted to be engaged in by the Credit Parties pursuant to Section 6.13, so long as:

(i) immediately prior to, and after giving effect thereto, no Default or Event of Default shall have occurred and be continuing;

(ii) all transactions in connection therewith shall be consummated, in all material respects, in accordance with all applicable laws and in conformity with all applicable Governmental Authorizations;

(iii) the Administrative Agent, on behalf of the Lenders, shall have received (or shall receive in connection with the closing of such acquisition) a first priority perfected security interest in all property (including, without limitation, Capital Stock) acquired with respect to the Target in accordance with the terms of Section 5.10 and the Target, if a Person, shall have executed a joinder agreement with Collateral Agent in accordance with the terms of Section 5.10;

(iv) Holdings and its Subsidiaries shall be in compliance with the financial covenants set forth in Section 6.8 on a pro forma basis after giving effect to such acquisition as of the last day of the Fiscal Quarter most recently ended (as determined in accordance with Section 1.4);

(v) Company shall have delivered to Administrative Agent at least five (5) Business Days prior to such proposed acquisition, a Compliance Certificate, evidencing compliance with Section 6.8 as required under clause (iv) above, together with all relevant financial information with respect to such acquired assets, including without limitation, the aggregate consideration for such acquisition and any other information required to demonstrate compliance with Section 6.8;

(vi) any Person or assets or division acquired in accordance herewith (A) shall be engaged in a type of business (or used in a type of business) permitted to be engaged in by the Credit Parties and their Subsidiaries pursuant to Section 6.13 and (B) for the four Fiscal Quarter period most recently ended prior to the date of such acquisition, shall have generated earnings before income taxes, depreciation, and amortization during such period that shall exceed the amount of capital expenditures related to such Person or assets or division during such period (calculated in substantially the same manner as Consolidated Adjusted EBITDA and Consolidated Capital Expenditures are calculated), unless otherwise waived by Administrative Agent in its reasonable discretion;

 

Credit and Guaranty Agreement

 

26


(vii) such acquisition shall not be a “hostile” acquisition and shall have been approved by the Board of Directors (or similar governing body) and/or shareholders of the applicable Credit Party and the Target;

(viii) the aggregate consideration (including the amount of any liabilities assumed by the applicable Credit Parties), net of the Target’s Unrestricted Cash, paid or payable by the Credit Parties (A) for all such acquisitions made during such Fiscal Quarter and the three most recently ended Fiscal Quarters shall not exceed $10,000,000 and (B) for all such acquisitions made during the term of this Agreement shall not exceed $50,000,000;  provided   however , the foregoing amounts in clauses (A) and (B) of this paragraph (viii) shall be increased up to (1) $15,000,000 and $75,000,000, respectively, if (I)(x) the Senior Leverage Ratio is less than or equal to 2.50 to 1.00 (as of the most recent measurement date immediately prior to any such acquisition) and (y) the Senior Leverage Ratio would be less than or equal to 2.50 to 1.00 (calculated on a pro forma basis after giving effect to any such acquisition) or (II) such incremental amounts are funded solely with Capital Stock of Holdings, or Cash proceeds from Permitted Stock Issuances, or Cash proceeds from the issuance of Subordinated Indebtedness, in each case, in excess of the amount otherwise required by clause (x) below and to the extent permitted by this Agreement, and (2) $25,000,000 and $125,000,000, respectively, if such acquisitions are funded solely with Capital Stock of Holdings, or Cash proceeds from Permitted Stock Issuances, or Cash proceeds from the issuance of Subordinated Indebtedness, in each case, to the extent permitted by this Agreement;

(ix) the Credit Parties shall not assume any Indebtedness of the Target in connection with such acquisition (unless such Indebtedness is permitted under Sections 6.1(c) or (j) hereof, and Holdings and its Subsidiaries would be in compliance with Sections 6.1(c) and (j) on a pro forma basis after giving effect to such acquisition);

(x) not less than fifty percent (50%) of the total consideration paid in connection with the acquisition shall be in the form of (A) Capital Stock of Holdings, (B) the proceeds of Permitted Stock Issuances after the Closing Date not required to be used to prepay the Loans or (C) the proceeds of Subordinated Indebtedness permitted to be incurred by this Agreement and not otherwise required to be used to prepay the Loans;

(xi) in the case of an acquisition of a majority (but not all) of the outstanding Capital Stock of a Person, such Person shall be a Permitted Joint Venture; and

(xii) after giving effect to such acquisition, Consolidated Liquidity shall be at least $3,000,000.

“Permitted Dallas Dispositions” means the sale, lease or sublease, sale and leaseback, assignment, conveyance, transfer or other disposition to, any Person (other than an Affiliate of a Credit Party or Sponsor), in one transaction or a series of transactions, of all, but not less than all, of the Credit Parties’ businesses located at (i) 5251 Spring Valley Road, Dallas, Texas and/or (ii) 17795 Dallas Parkway, Dallas, Texas.

 

Credit and Guaranty Agreement

 

27


Permitted Joint Venture ” means any Person, in the form of a registered organization, in which Company or a Subsidiary Guarantor owns more than fifty percent (50%) but less than one hundred percent (100%) of the Capital Stock of such Person, which Person:

(i) was acquired in a Permitted Acquisition (and satisfied all of the terms thereof, including, without limitation, no Default or Event of Default shall occur as a result thereof);

(ii) is managed and/or controlled solely by one or more Credit Parties;

(iii) is a Credit Party and is bound by, and subject to the terms of, the Credit Documents (including, without limitation, such Person shall (a) be engaged in a line of business permitted by Section 6.13, (b) have granted to Collateral Agent, for the benefit of Secured Parties, a First Priority perfected Lien on all of its assets, and (c) not have permitted any Lien against any of its assets or properties other than those expressly set forth in Section 6.2);

(iv) shall be formed or organized and governed in a manner that (a) limits the exposure of Company or such Subsidiary Guarantor (and each other Credit Party) for the Indebtedness and liabilities (including, without limitation, with respect to capital calls and contingent liabilities) of such Person to the initial investment of Company or such Subsidiary Guarantor at the time of the Permitted Acquisition or any additional Investments to extent expressly permitted hereby, and (b) grants Company or such Subsidiary Guarantor an irrevocable, unrestricted right to cause a sale or other disposition of all of such Person’s Capital Stock or assets;

(v) Company or such Subsidiary Guarantor shall have granted to Collateral Agent, for the benefit of Secured Parties, a First Priority perfected Lien on such Company’s or such Subsidiary Guarantor’s Capital Stock in such Permitted Joint Venture; and

(vi) to the extent not owned by Company or such Subsidiary Guarantor, be owned by a Minority Interest Holder reasonably satisfactory to Administrative Agent who has (a) granted to Collateral Agent, for the benefit of Secured Parties, a First Priority perfected Lien on all of such Minority Interest Holder’s Capital Stock in such Person, and (b) executed and delivered a subordination agreement, in form and substance satisfactory to Administrative Agent, with respect to distributions in respect of such Minority Interest Holder’s Capital Stock and other matters requested by Administrative Agent.

“Permitted Liens” means each of the Liens permitted pursuant to Section 6.2.

“Permitted Management Fee Payments” means payments by Holdings and its Subsidiaries of management fees in an aggregate amount not to exceed (i) $3,000,000 in Fiscal Year 2011, (ii) $3,500,000 in Fiscal Year 2012, and (iii) $4,000,000 in Fiscal Year 2013 and each Fiscal Year thereafter, in each case, pursuant to the terms of the Management Agreement and the Management Fee Subordination Agreement.

“Permitted Minority Interest Distributions” means dividends or other distributions, in Cash, made by any Permitted Joint Venture to any of its Minority Interest Holders if and only to the extent that all of the following conditions are satisfied (i) such dividends or distributions are made following the end of a Fiscal Year for which Holdings and its

 

Credit and Guaranty Agreement

 

28


Subsidiaries have delivered to Administrative Agent and Lenders the documentation required by Section 5.1(c) and Section 5.1(d) of this Agreement in accordance with the terms thereof, (ii) any payments required to be made pursuant to Section 2.13(e) with respect to such Fiscal Year shall have been made prior to the payment of any such dividend or distribution, (iii) such dividends or distributions with respect to such Fiscal Year are in an amount not to exceed (a) with respect to any such Permitted Joint Venture, an amount equal to the product of (I) the EBITDA of such Permitted Joint Venture, determined on a stand-alone basis for such Permitted Joint Venture (calculated in substantially the same manner as “Consolidated Adjusted EBITDA” but disregarding the provisions of “Consolidated Adjusted EBITDA” referencing Holdings and its Subsidiaries), for such Fiscal Year, multiplied by (II) such Minority Interest Holder’s Ownership Share of such Permitted Joint Venture, and (b) with respect to all such Permitted Joint Ventures, the amount of Consolidated Excess Cash Flow for such Fiscal Year not required to be paid pursuant to Section 2.13(e), (iv) both before and after giving effect to the payment of any such dividend or distribution, no Default or Event of Default shall then exist or be caused thereby, (v) any such dividend or distribution is otherwise made in accordance with the Organizational Documents of such Permitted Joint Venture and applicable law, and (vi) at least three (3) Business Days’ prior to the payment of any such dividend or distribution, the Credit Parties shall have delivered to Administrative Agent a Compliance Certificate evidencing the Credit Parties’ pro forma compliance with Section 6.8 after giving effect to such payment.

“Permitted Non-Credit Party Guaranty Payments” means payments by Holdings or Company of amounts required pursuant to any Non-Credit Party Lease Guaranty.

“Permitted Stock Issuances” means any sale, transfer, issuance or other disposition of any Capital Stock by Holdings in accordance with applicable law and its Organizational Documents, other than Capital Stock that (a) (1) is mandatorily redeemable, in whole or in part, or required to be repurchased or redeemed, in whole or in part, by Holdings or any other Credit Party, or (2) requires the payment of cash dividends, in each case of clauses (1) and (2), prior to the date which is at least ninety-one (91) days after the date on which all Commitments have been terminated, all of the Obligations (other than contingent indemnification Obligations in respect of which no claim has been asserted) have been paid in full in Cash and all Letters of Credit shall have expired or been cancelled; (ii) is secured by any assets of any Credit Party; (b) is convertible or exchangeable into Indebtedness of any Credit Party prior to the date which is at least ninety-one (91) days after the date on which all Commitments have been terminated, all of the Obligations (other than contingent indemnification Obligations in respect of which no claim has been asserted) have been paid in full in Cash and all Letters of Credit shall have expired or been cancelled; or (c) when issued, would result in a Change of Control.

“Person” means and includes natural persons, corporations, limited partnerships, general partnerships, limited liability companies, limited liability partnerships, joint stock companies, Joint Ventures, associations, companies, trusts, banks, trust companies, land trusts, business trusts or other organizations, whether or not legal entities, and Governmental Authorities.

“Phase I Report” means, with respect to any Facility, a report prepared by one or more environmental consulting firms, which conforms to the ASTM Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process, E 1527 and sets forth the finding of such firm(s) relating thereto.

 

Credit and Guaranty Agreement

 

29


“Pledge and Security Agreement” means the Pledge and Security Agreement to be executed by Company and each Guarantor substantially in the form of Exhibit I, as it may be amended, restated, supplemented or otherwise modified from time to time.

“Pre-Opening Costs” means customary costs and expenses incurred by Holdings or its Subsidiaries in connection with the opening of new or relocated restaurants, to the extent directly relating to food costs, hiring costs, training costs, labor costs, marketing costs, travel and relocation costs, utilities, other restaurant operating costs and rent expenses for such location actually incurred on or prior to the opening of such restaurant.

“Prime Rate” means the rate of interest quoted in The Wall Street Journal , Money Rates Section as the Prime Rate (currently defined as the base rate on corporate loans posted by at least seventy percent (70%) of the nation’s ten (10) largest banks), as in effect from time to time. The Prime Rate is a reference rate and does not necessarily represent the lowest or best rate actually charged to any customer. Agent or any other Lender may make commercial loans or other loans at rates of interest at, above or below the Prime Rate.

“Principal Office” means, for each of Administrative Agent and Issuing Bank, such Person’s “Principal Office” as set forth on Appendix B, or such other office as such Person may from time to time designate in writing to Company, Administrative Agent and each Lender; provided , however , that for the purpose of making any payment on the Obligations or any other amount due hereunder or any other Credit Document, the Principal Office of Administrative Agent shall be 200 West Street, New York, New York, 10282 (or such other location within the City and State of New York as Administrative Agent may from time to time designate in writing to Company and each Lender).

“Projections” as defined in Section 4.8.

“Pro Rata Share” means (i) with respect to all payments, computations and other matters relating to the Term Loan of any Lender, the percentage obtained by dividing (a) the Term Loan Exposure of that Lender, by (b) the aggregate Term Loan Exposure of all Lenders; and (ii) with respect to all payments, computations and other matters relating to the Revolving Commitment or Revolving Loans of any Lender or any Letters of Credit issued or participations purchased therein by any Lender, the percentage obtained by dividing (a) the Revolving Exposure of that Lender, by (b) the aggregate Revolving Exposure of all Lenders. For all other purposes with respect to each Lender, “ Pro Rata Share ” means the percentage obtained by dividing (A) an amount equal to the sum of the Term Loan Exposure and the Revolving Exposure of that Lender, by (B) an amount equal to the sum of the aggregate Term Loan Exposure and the aggregate Revolving Exposure of all Lenders.

“Protective Advance” as defined in Section 2.2(c).

 

Credit and Guaranty Agreement

 

30


“Qualified IPO” means a firmly underwritten initial public offering of Capital Stock of Holdings: (i) which results in net aggregate proceeds to Holdings (after accounting for underwriting discounts and commissions) of not less than $25,000,000; and (ii) immediately after giving effect to which, the Capital Stock of Holding is listed for trading on the New York Stock Exchange, the American Stock Exchange, or the Nasdaq National Market.

“Real Estate Asset” means, at any time of determination, any interest (fee, leasehold or otherwise) then owned by any Credit Party in any real property.

“Register” as defined in Section 2.6(b).

“Registered Loan” as defined in Section 10.6(h).

“Regulation D” means Regulation D of the Board of Governors of the Federal Reserve System, as in effect from time to time.

“Reimbursement Date” as defined in Section 2.3(d).

“Related Fund” means, with respect to any Lender that is an investment fund, any other investment fund that invests in commercial loans and that is managed or advised by the same investment advisor as such Lender or by an Affiliate of such investment advisor.

“Release” means any release, spill, emission, leaking, pumping, pouring, injection, escaping, deposit, disposal, discharge, dispersal, dumping, leaching or migration of any Hazardous Material into the indoor or outdoor environment (including the abandonment or disposal of any barrels, containers or other closed receptacles containing any Hazardous Material), including the movement of any Hazardous Material through the air, soil, surface water or groundwater.

“Replacement Lender” as defined in Section 2.22.

“Required Prepayment Date” as defined in Section 2.14(c).

“Requisite Lenders” means one or more Lenders having or holding Term Loan Exposure and/or Revolving Exposure and representing more than fifty percent (50%) of the sum of (i) the aggregate Term Loan Exposure of all Lenders; and (ii) the aggregate Revolving Exposure of all Lenders; provided , however , that if there is more than one (1) Lender under this Agreement at any time, “Requisite Lenders” shall also require at least two (2) Lenders ( provided , that for purposes of the foregoing, a Lender, its Affiliates and Related Funds shall, collectively, be deemed to be a single Lender).

“Restricted Junior Payment” means (i) any dividend or other distribution, direct or indirect, on account of any shares of any class of Capital Stock of Holdings, Company or any Permitted Joint Venture now or hereafter outstanding, except a dividend payable solely in shares of that class of Capital Stock to the holders of that class; (ii) any redemption, retirement, sinking fund or similar payment, purchase or other acquisition for value, direct or indirect, of any shares of any class of Capital Stock of Holdings, Company or any Permitted Joint Venture now or hereafter outstanding; (iii) any payment made to retire, or to obtain the surrender of, any outstanding warrants, options or other rights to acquire shares of any class of Capital Stock of Holdings, Company or any Permitted Joint Venture now or hereafter outstanding; (iv) any

 

Credit and Guaranty Agreement

 

31


management, advisory or similar fees payable to Sponsor or any of its Affiliates; (v) any payment or prepayment of principal of, premium, if any, or interest on, or redemption, purchase, retirement, defeasance (including in-substance or legal defeasance), sinking fund or similar payment with respect to, any Subordinated Indebtedness; and (vi) any payment under a Non-Credit Party Lease Guaranty.

“Revolving Commitment” means the commitment of a Lender to make or otherwise fund any Revolving Loan and to acquire participations in Letters of Credit and “Revolving Commitments” means such commitments of all Lenders in the aggregate. The amount of each Lender’s Revolving Commitment, if any, is set forth on Appendix A-3 or in the applicable Assignment Agreement, subject to any adjustment or reduction pursuant to the terms and conditions hereof. The aggregate amount of the Revolving Commitments as of the Closing Date is $10,000,000.

“Revolving Commitment Period” means the period from the Closing Date to but excluding the Revolving Commitment Termination Date.

“Revolving Commitment Termination Date” means the earliest to occur of: (i) July 29, 2016; (ii) the date the Revolving Commitments are permanently reduced to zero pursuant to Section 2.12(b) or 2.13; (iii) the date the Term Loans are repaid in full; and (iv) the date of the termination of the Revolving Commitments pursuant to Section 8.1.

“Revolving Exposure” means, with respect to any Lender as of any date of determination, (i) prior to the termination of the Revolving Commitments, that Lender’s Revolving Commitment; and (ii) after the termination of the Revolving Commitments, the sum of (a) the aggregate outstanding principal amount of the Revolving Loans of that Lender, (b) in the case of Issuing Bank, the aggregate Letter of Credit Usage in respect of all Letters of Credit issued by that Lender (net of any participations by Lenders in such Letters of Credit), and (c) the aggregate amount of all participations by that Lender in any outstanding Letters of Credit or any unreimbursed drawing under any Letter of Credit.

“Revolving Loan” means a Loan made by a Lender to Company pursuant to Section 2.2(a) and/or a Protective Advance.

“Revolving Loan Note” means a promissory note in the form of Exhibit B-2, as it may be amended, restated, supplemented or otherwise modified from time to time.

“S&P” means Standard & Poor’s Ratings Group, a division of The McGraw Hill Corporation.

“Secured Parties” has the meaning assigned to that term in the Pledge and Security Agreement.

“Securities” means any stock, shares, partnership interests, voting trust certificates, certificates of interest or participation in any profit-sharing agreement or arrangement, options, warrants, bonds, debentures, notes, or other evidences of indebtedness, secured or unsecured, convertible, subordinated or otherwise, or in general any instruments commonly known as “securities” or any certificates of interest, shares or participations in temporary or interim certificates for the purchase or acquisition of, or any right to subscribe to, purchase or acquire, any of the foregoing.

 

Credit and Guaranty Agreement

 

32


“Securities Account” has the meaning given to such term by Section 8-501 of the UCC.

“Securities Act” means the Securities Act of 1933, as amended from time to time, and any successor statute.

“Senior Leverage Ratio” means the ratio as of the last day of any Fiscal Quarter or other date of determination of (i) (I) Consolidated Total Debt (excluding any Subordinated Indebtedness) as of such day, minus (II) Unrestricted Cash of the Credit Parties in excess of $1,000,000 as of such day, to (ii) (I) Consolidated Adjusted EBITDA for the four-Fiscal Quarter period ending on such date (or if such date of determination is not the last day of a Fiscal Quarter, for the four-Fiscal Quarter period ending as of the most recently concluded Fiscal Quarter) minus (II) the dollar amount, if any, by which the Consolidated Adjusted Store-Level EBITDA generated by the New York Location during such period exceeds thirty-five percent (35%) of the Consolidated Adjusted Store-Level EBITDA for such period (or if such date of determination is not the last day of a Fiscal Quarter, for the four-Fiscal Quarter period ending as of the most recently concluded Fiscal Quarter).

“Solvency Certificate” means a Solvency Certificate of the chief financial officer of Holdings substantially in the form of Exhibit G-2.

“Solvent” means, with respect to any Credit Party, that as of the date of determination, both (i) (a) the sum of such Credit Party’s debt (including contingent liabilities) does not exceed the present fair saleable value of such Credit Party’s present assets; (b) such Credit Party’s capital is not unreasonably small in relation to its business as contemplated on the Closing Date and reflected in the Projections or with respect to any transaction contemplated or undertaken after the Closing Date; and (c) such Person has not incurred and does not intend to incur, or believe (nor should it reasonably believe) that it will incur, debts beyond its ability to pay such debts as they become due (whether at maturity or otherwise); and (ii) such Person is “solvent” within the meaning given that term and similar terms under applicable laws relating to fraudulent transfers and conveyances. For purposes of this definition, the amount of any contingent liability at any time shall be computed as the amount that, in light of all of the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability (irrespective of whether such contingent liabilities meet the criteria for accrual under Statement of Financial Accounting Standard No. 5).

“Sponsor” means Lone Star Fund V (U.S.), L.P. and/or one or more of its Affiliates.

“Subject Transaction”  means (a) any Asset Sale, (b) any Permitted Acquisition, and/or (c) any liquidation of a Subsidiary or cessation of business activities by a Subsidiary, in any case, to the extent permitted hereby.

 

Credit and Guaranty Agreement

 

33


“Subordinated Indebtedness” means any Indebtedness of any Credit Party expressly subordinated to the Obligations as to right and time of payment and as to any other rights and remedies thereunder, pursuant to a subordination agreement, in form and substance reasonably satisfactory to Administrative Agent and Requisite Lenders (including, without limitation, subordination, turn-over, remedies blockage and insolvency provisions reasonably satisfactory to Administrative Agent and Requisite Lenders). Without limiting the foregoing, any such Indebtedness shall (a) be expressly subordinated to the prior payment in full in cash of the Obligations, (b) not mature or otherwise become due prior to the date which is at least ninety-one (91) days following the later to occur of (i) the Revolving Commitment Termination Date, and (ii) the Term Loan Maturity Date, (c) not be secured by any asset or property of any Credit Party, (d) not require cash interest payments at a rate in excess of thirteen percent (13%) per annum, and no such payments may be paid if an Event of Default exists or would be caused thereby, (e) have no scheduled principal installments, and (f) contain covenants, events of default and other material terms that are no more restrictive than the terms of the Credit Documents and otherwise be reasonably satisfactory to Administrative Agent and Requisite Lenders.

“Subsidiary” means, with respect to any Person, any corporation, partnership, limited liability company, association, joint venture or other business entity of which more than fifty percent (50%) of the total voting power of shares of stock or other ownership interests entitled (without regard to the occurrence of any contingency) to vote in the election of the Person or Persons (whether directors, managers, trustees or other Persons performing similar functions) having the power to direct or cause the direction of the management and policies thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof; provided , in determining the percentage of ownership interests of any Person controlled by another Person, no ownership interest in the nature of a “qualifying share” of the former Person shall be deemed to be outstanding. Notwithstanding anything to the contrary contained herein, the term “Subsidiary” (i) shall not include any Inactive Subsidiary for purposes of Section 4 hereof, and (ii) shall include Permitted Joint Ventures for purposes of this Agreement.

“Syndication Agent” as defined in the preamble hereto.

“Tax” means any present or future tax, levy, impost, duty, assessment, charge, fee, deduction or withholding of any nature and whatever called, by whomsoever, on whomsoever and wherever imposed, levied, collected, withheld or assessed; provided , “Tax on the overall net income” of a Person shall be construed as a reference to a tax imposed by the jurisdiction in which that Person is organized or in which that Person’s applicable principal office (and/or, in the case of a Lender, its lending office) is located or in which that Person (and/or, in the case of a Lender, its lending office) is deemed to be doing business on all or part of the net income, profits or gains (whether worldwide, or only insofar as such income, profits or gains are considered to arise in or to relate to a particular jurisdiction, or otherwise) of that Person (and/or, in the case of a Lender, its applicable lending office).

“Term Loan” means a Term Loan made by a Lender to Company pursuant to Section 2.1(a).

 

Credit and Guaranty Agreement

 

34


“Term Loan Commitment” means the commitment of a Lender to make or otherwise fund a Term Loan and “Term Loan Commitments” means such commitments of all Lenders in the aggregate. The amount of each Lender’s Term Loan Commitment, if any, is set forth on Appendix A-1 or in the applicable Assignment Agreement, subject to any adjustment or reduction pursuant to the terms and conditions hereof. The aggregate amount of the Term Loan Commitments as of the Closing Date is $70,000,000.

“Term Loan Exposure” means, with respect to any Lender, as of any date of determination, the outstanding principal amount of the Term Loans of such Lender; provided , at any time prior to the making of the Term Loans, the Term Loan Exposure of any Lender shall be equal to such Lender’s Term Loan Commitment.

“Term Loan Maturity Date” means the earlier of (i) July 29, 2016, and (ii) the date that all Term Loans shall become due and payable in full hereunder, whether by acceleration or otherwise.

“Term Loan Note” means a promissory note in the form of Exhibit B-1, as it may be amended, restated, supplemented or otherwise modified from time to time.

“Terminated Lender” as defined in Section 2.22.

“Title Policy” as defined in Section 3.1(i).

“Total Utilization of Revolving Commitments” means, as at any date of determination, the sum of (i) the aggregate principal amount of all outstanding Revolving Loans (other than Revolving Loans made for the purpose of reimbursing Issuing Bank for any amount drawn under any Letter of Credit, but not yet so applied), and (ii) the Letter of Credit Usage.

“Transaction Costs” means the fees, costs and expenses payable by Holdings, Company or any of Company’s Subsidiaries on or before the Closing Date in connection with the transactions contemplated by the Credit Documents.

“Type of Loan” means with respect to either Term Loans or Revolving Loans, a Base Rate Loan or a LIBOR Rate Loan.

“UCC” means the Uniform Commercial Code (or any similar or equivalent legislation) as in effect in any applicable jurisdiction.

“Unadjusted LIBOR Rate Component” means that component of the interest costs to the Company in respect of a LIBOR Rate Loan that is based upon the rate obtained pursuant to clause (i) of the definition of Adjusted LIBOR Rate.

“Unrestricted Cash” means, with respect to any Person(s) as of any date of determination (i) Cash or Cash Equivalents on hand of such Person(s), minus , (ii) the sum of (a) Asset Sale Reinvestment Amounts, (b) Net Insurance/Condemnation Proceeds, (c) any amounts held by the issuer of a bond or letter of credit to cash collateralize the obligations of a Credit Party with respect to such bond or letter of credit and (d) any other Cash or Cash Equivalents of such Person(s) that have been pledged to a third party (other than pursuant to the Credit Documents).

 

Credit and Guaranty Agreement

 

35


Waivable Mandatory Prepayment ” as defined in Section 2.14(c).

1.2. Accounting Terms. Except as otherwise expressly provided herein, all accounting terms not otherwise defined herein shall have the meanings assigned to them in conformity with GAAP, and financial statements and other information required to be delivered by Holdings to Lenders pursuant to Section 5.1(a), 5.1(b) and 5.1(c) shall be prepared in accordance with GAAP as in effect at the time of such preparation. Except as provided below in this Section 1.2, calculations in connection with the definitions, covenants and other provisions hereof shall utilize accounting principles and policies in conformity with those used to prepare the Historical Financial Statements. If at any time, any Accounting Change (defined below) would affect the computation of any financial ratio or requirement set forth in any Credit Document if such Accounting Change were applied to such computation, and Holdings shall so request, the Administrative Agent, the Lenders and Holdings shall negotiate in good faith to amend such ratio or requirement to preserve the original intent thereof in light of such Accounting Change (subject to the approval of the Requisite Lenders);  provided  that, until so amended, (i) such ratio or requirement shall continue to be computed in accordance with GAAP as used to prepare the Historical Financial Statements, and (ii) Holdings shall provide to the Administrative Agent and the Lenders such documents as reasonably requested by the Administrative Agent setting forth a reconciliation between calculations of such ratio or requirement made before and after giving effect to such Accounting Change. The parties hereto agree that if any Accounting Change is made that has the effect of causing certain operating leases to be treated for accounting purposes similar to capital leases (including, but not limited to, any Accounting Standards Updates to ASC 840 (formerly Financial Accounting Standards statement No. 13 “Accounting for Leases”), such Accounting Change shall be disregarded when computing any financial ratio or requirement, whether or not any further amendment is made to this Agreement with that effect. “ Accounting Changes ” refers to changes in accounting principles required by the promulgation of any rule, regulation, pronouncement or opinion by the Financial Accounting Standards Board of the American Institute of Certified Public Accountants or, if applicable, the SEC.

1.3. Interpretation, etc. Any of the terms defined herein may, unless the context otherwise requires, be used in the singular or the plural, depending on the reference. References herein to any Section, Appendix, Schedule or Exhibit shall be to a Section, an Appendix, a Schedule or an Exhibit, as the case may be, hereof unless otherwise specifically provided. The use herein of the word “include” or “including,” when following any general statement, term or matter, shall not be construed to limit such statement, term or matter to the specific items or matters set forth immediately following such word or to similar items or matters, whether or not no limiting language (such as “without limitation” or “but not limited to” or words of similar import) is used with reference thereto, but rather shall be deemed to refer to all other items or matters that fall within the broadest possible scope of such general statement, term or matter. Unless otherwise expressly provided herein, (a) all references to documents, instruments and other agreements (including the Credit Documents) shall be deemed to include all subsequent amendments, restatements, amendments and restatements, supplements and other modifications thereto, but only to the extent that such amendments, restatements, amendments and

 

Credit and Guaranty Agreement

 

36


restatements, supplements and other modifications are not prohibited by any Credit Document and (b) references to any law, statute, rule or regulation shall include all statutory and regulatory provisions consolidating, amending, replacing, supplementing or interpreting such law. Unless otherwise specified, all references herein to times of day shall be references to New York City time (daylight or standard, as applicable).

1.4. Certain Calculations. For purposes of (i) determining compliance with the financial covenants set forth in Section 6.8, including when giving pro forma effect to a Permitted Acquisition pursuant to clause (iv) of the definition of “Permitted Acquisitions,” and (ii) the calculation of the Senior Leverage Ratio for purposes of Section 2.13(e) or the definition of “Applicable Margin” (collectively, the  “Applicable Calculations” ), the following shall apply:

(a) If any Subject Transaction shall have occurred during the period of four consecutive Fiscal Quarters ended on or prior to the applicable Calculation Date (as hereinafter defined) (the  “Test Period” ) or subsequent to such Test Period and on or prior to the applicable Calculation Date, the Applicable Calculations shall be calculated with respect to such period giving pro forma effect to such Subject Transaction.

(b) In the event that Holdings or any of its Subsidiaries incurs, assumes, guarantees, repays, repurchases, redeems, defeases, retires, extinguishes or otherwise discharges any Indebtedness subsequent to the commencement of the Test Period for which the Applicable Calculations are being calculated and on or prior to the date on which the event for which the Applicable Calculations are being calculated occurs or as of which the calculation is otherwise made (the “ Calculation Date ”), then the Applicable Calculations will be calculated giving pro forma effect to such incurrence, assumption, guarantee, repayment, repurchase, redemption, defeasance, retirement, extinguishment or other discharge of Indebtedness (and any change in Consolidated Interest Expense resulting therefrom), and the use of the proceeds therefrom, as if the same had occurred at the beginning of the applicable Test Period, provided that (i) in calculating the Consolidated Cash Interest Expense and Consolidated Interest Expense, no pro forma effect shall be given to the incurrence or repayment of working capital borrowings, unless such Indebtedness has been permanently repaid and (ii) in calculating the Senior Leverage Ratio as of the Calculation Date or the last day of the Test Period, the amount of outstanding Consolidated Total Debt and Subordinated Indebtedness shall be calculated based upon the amount outstanding as of the Calculation Date or such last day of the Test Period, as the case may be, giving pro forma effect to the incurrence or repayment of any such Indebtedness on such date.

(c) If since the beginning of the Test Period any Person (that subsequently became a Subsidiary of Holdings or was merged with or into Holdings or any Subsidiary of Holdings since the beginning of such period) shall have made any transaction that would have required adjustment pursuant to this Section 1.4, then the Applicable Calculations shall be calculated giving pro forma effect thereto for such period as if such transaction had occurred at the beginning of the applicable Test Period.

 

Credit and Guaranty Agreement

 

37


(d) In calculating the Applicable Calculations, any Person that is a Subsidiary on the applicable Calculation Date will be deemed to have been a Subsidiary at all times during such Test Period.

(e) In calculating the Applicable Calculations, any Person that is not a Subsidiary on the applicable Calculation Date will be deemed not to have been a Subsidiary at any time during such Test Period.

(f) In calculating the Applicable Calculations, if any Indebtedness bears a floating rate of interest, the interest expense on such Indebtedness will be calculated as if the rate in effect on the applicable Calculation Date had been the applicable rate for the entire period (after giving effect to the operation of any Interest Rate Agreement applicable to such Indebtedness).

(g) In calculating the Applicable Calculations for any period, interest on any Indebtedness under a revolving credit facility shall be computed based upon the average daily balance of such Indebtedness during the portion of the period during which the Indebtedness was outstanding.

SECTION 2. LOANS AND LETTERS OF CREDIT

2.1. Term Loans.

(a) Term Loan Commitments . Subject to the terms and conditions hereof, each Lender severally agrees to make, on the Closing Date, a Term Loan to Company in an amount equal to such Lender’s Term Loan Commitment. Company may make only one borrowing under the Term Loan Commitment which shall be on the Closing Date. Any amount borrowed under this Section 2.1(a) and subsequently repaid or prepaid may not be reborrowed. Subject to Sections 2.11, 2.12 and 2.13, all amounts owed hereunder with respect to the Term Loans shall be paid in full no later than the Term Loan Maturity Date. Each Lender’s Term Loan Commitment shall terminate immediately and without further action on the Closing Date after giving effect to the funding of such Lender’s Term Loan Commitment on such date.

(b) Borrowing Mechanics for Term Loans .

(i) Company shall deliver to Administrative Agent a fully executed Funding Notice no later than one (1) Business Day prior to the Closing Date with respect to Term Loans made on the Closing Date. Promptly upon receipt by Administrative Agent of such Funding Notice, Administrative Agent shall notify each Lender of the proposed borrowing.

(ii) Each Lender shall make its Term Loan available to Administrative Agent not later than 12:00 p.m. (New York City time) on the Closing Date, by wire transfer of same day funds in Dollars, at Administrative Agent’s Principal Office. Upon satisfaction or waiver of the conditions precedent specified herein, Administrative Agent shall make the proceeds of the Term Loans available to Company on the Closing Date by causing an amount of same day funds in Dollars equal to the proceeds of all such Loans

 

Credit and Guaranty Agreement

 

38


received by Administrative Agent from Lenders to be credited to the account of Company at Administrative Agent’s Principal Office or to such other account as may be designated in writing to Administrative Agent by Company.

2.2. Revolving Loans.

(a) Revolving Commitments . During the Revolving Commitment Period, subject to the terms and conditions hereof, each Lender severally agrees to make Revolving Loans to Company in an aggregate amount up to but not exceeding such Lender’s Revolving Commitment; provided , that after giving effect to the making of any Revolving Loans in no event shall (i) the Total Utilization of Revolving Commitments exceed the Revolving Commitments then in effect, and (ii) Availability at such time be less than $0. Amounts borrowed pursuant to this Section 2.2(a) may be repaid and reborrowed during the Revolving Commitment Period. Each Lender’s Revolving Commitment shall expire on the Revolving Commitment Termination Date and all Revolving Loans and all other amounts owed hereunder with respect to the Revolving Loans (including Protective Advances) and the Revolving Commitments shall be paid in full no later than such date.

(b) Borrowing Mechanics for Revolving Loans .

(i) Except pursuant to Section 2.3(d), Revolving Loans that are Base Rate Loans shall be made in an aggregate minimum amount of $100,000 and integral multiples of $100,000 in excess of that amount, and Revolving Loans that are LIBOR Rate Loans shall be in an aggregate minimum amount of $100,000 and integral multiples of $100,000 in excess of that amount.

(ii) Whenever Company desires that Lenders make Revolving Loans, Company shall deliver to Administrative Agent a fully executed Funding Notice no later than 12:00 p.m. (New York City time) at least three (3) Business Days in advance of the proposed Credit Date in the case of a LIBOR Rate Loan, and at least one (1) Business Day in advance of the proposed Credit Date in the case of a Revolving Loan that is a Base Rate Loan. Except as otherwise provided herein, a Funding Notice for a Revolving Loan that is a LIBOR Rate Loan shall be irrevocable on and after the related Interest Rate Determination Date, and Company shall be bound to make a borrowing in accordance therewith.

(iii) Notice of receipt of each Funding Notice in respect of Revolving Loans, together with the amount of each Lender’s Pro Rata Share thereof, if any, together with the applicable interest rate, shall be provided by Administrative Agent to each applicable Lender by telefacsimile with reasonable promptness, but (provided Administrative Agent shall have received such notice by 12:00 p.m. (New York City time)) not later than 4:00 p.m. (New York City time) on the same day as Administrative Agent’s receipt of such Notice from Company.

(iv) Each Lender shall make the amount of its Revolving Loan available to Administrative Agent not later than 12:00 p.m. (New York City time) on the applicable Credit Date by wire transfer of same day funds in Dollars, at Administrative

 

Credit and Guaranty Agreement

 

39


Agent’s Principal Office. Except as provided herein, upon satisfaction or waiver of the conditions precedent specified herein, Administrative Agent shall make the proceeds of such Revolving Loans available to Company on the applicable Credit Date by causing an amount of same day funds in Dollars equal to the proceeds of all such Revolving Loans received by Administrative Agent from Lenders to be credited to the account of Company at Administrative Agent’s Principal Office or such other account as may be designated in writing to Administrative Agent by Company.

(c) Protective Advances . Subject to the limitations set forth below, upon the occurrence and during the continuation of an Event of Default, Administrative Agent is authorized by Company and the Lenders, from time to time in Administrative Agent’s sole discretion (but Administrative Agent shall have absolutely no obligation to), to make Revolving Loans to Company on behalf of the Revolving Lenders, which Administrative Agent, in its sole discretion, deems necessary or desirable (i) to preserve or protect the Collateral, or any portion thereof, (ii) to enhance the likelihood of, or maximize the amount of, repayment of the Loans and other Obligations, or (iii) to pay any other amount chargeable to or required to be paid by Company pursuant to the terms of this Agreement and the other Credit Documents, including, without limitation, payments of principal, interest, fees and reimbursable expenses (any of such Loans are in this clause (c) referred to as “Protective Advances ); provided , that the amount of Revolving Loans plus Protective Advances shall not exceed the Revolving Commitments then in effect. Protective Advances may be made even if the conditions precedent set forth in Section 3 have not been satisfied. All Protective Advances shall be Base Rate Loans. Protective Advances shall not exceed $2,000,000 in the aggregate at any time without the prior consent of Requisite Lenders. Each Protective Advance shall be secured by the Liens in favor of the Collateral Agent in and to the Collateral and shall constitute Obligations hereunder. Company shall pay the unpaid principal amount and all unpaid and accrued interest of each Protective Advance on the earlier of the Revolving Commitment Termination Date and the date on which demand for payment is made by Administrative Agent. Upon the making of a Protective Advance by Administrative Agent, Administrative Agent shall be deemed, without further action by any party hereto, to have unconditionally and irrevocably sold to each Lender having Revolving Exposure and each Lender having Revolving Exposure shall be deemed, without further action by any party hereto, to have unconditionally and irrevocably purchased from Administrative Agent, without recourse or warranty, an undivided interest and participation in such Protective Advance equal to its Pro Rata Share (with respect to its Revolving Commitments) of such Protective Advance.

2.3. Issuance of Letters of Credit and Purchase of Participations Therein.

(a) Letters of Credit . During the LC Availability Period and during the Revolving Commitment Period, subject to the terms and conditions hereof, Issuing Bank agrees to issue Letters of Credit for the account of Company in the aggregate amount up to but not exceeding the Letter of Credit Sublimit; provided , (i) the issuance of any Letters of Credit by Issuing Bank shall be at the sole discretion of Administrative Agent, (ii) each Letter of Credit shall be denominated in Dollars; (iii) the stated amount of each Letter of Credit shall not be less than $5,000 or such lesser amount as is acceptable to Issuing Bank; (iv) after giving effect to such issuance, in no event shall the Total Utilization of Revolving Commitments exceed the Revolving Commitments then in effect; (v) after giving effect to such issuance, in no event shall

 

Credit and Guaranty Agreement

 

40


the Letter of Credit Usage exceed the Letter of Credit Sublimit then in effect; and (vi) in no event shall any standby Letter of Credit have an expiration date later than the earlier of (1) five (5) Business Days prior to the Revolving Commitment Termination Date, and (2) the date which is one year from the date of issuance of such standby Letter of Credit (except that any Letter of Credit with a one-year term may provide for the renewal thereof for additional one-year periods, which shall in no event extend beyond the date referred to in subclause (1) above); provided , Issuing Bank shall not extend any such Letter of Credit if it has received written notice that an Event of Default has occurred and is continuing at the time Issuing Bank must elect to allow such extension; provided , further , in the event a Funding Default exists, Issuing Bank shall not be required to issue any Letter of Credit unless Issuing Bank has entered into arrangements satisfactory to it and Company to eliminate Issuing Bank’s risk with respect to the participation in Letters of Credit of the Defaulting Lender, including by cash collateralizing such Defaulting Lender’s Pro Rata Share of the Letter of Credit Usage.

(b) Notice of Issuance . Whenever Company desires the issuance of a Letter of Credit, it shall deliver to Administrative Agent an Issuance Notice no later than 12:00 p.m. (New York City time) at least three (3) Business Days or such shorter period as may be agreed to by Issuing Bank in any particular instance, in advance of the proposed date of issuance. Upon satisfaction or waiver of the conditions set forth in Section 3.2, Issuing Bank shall issue the requested Letter of Credit only in accordance with Issuing Bank’s standard operating procedures. Upon the issuance of any Letter of Credit or amendment or modification to a Letter of Credit, Issuing Bank shall promptly notify each Lender of such issuance, which notice shall be accompanied by a copy of such Letter of Credit or amendment or modification to a Letter of Credit and the amount of such Lender’s respective participation in such Letter of Credit pursuant to Section 2.3(e).

(c) Responsibility of Issuing Bank With Respect to Requests for Drawings and Payments . In determining whether to honor any drawing under any Letter of Credit by the beneficiary thereof, Issuing Bank shall be responsible only to examine the documents delivered under such Letter of Credit with reasonable care so as to ascertain whether they appear on their face to be in accordance with the terms and conditions of such Letter of Credit. As between Company and Issuing Bank, Company assumes all risks of the acts and omissions of, or misuse of the Letters of Credit issued by Issuing Bank, by the respective beneficiaries of such Letters of Credit. In furtherance and not in limitation of the foregoing, Issuing Bank shall not be responsible for: (i) the form, validity, sufficiency, accuracy, genuineness or legal effect of any document submitted by any party in connection with the application for and issuance of any such Letter of Credit, even if it should in fact prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent or forged; (ii) the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign any such Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason; (iii) failure of the beneficiary of any such Letter of Credit to comply fully with any conditions required in order to draw upon such Letter of Credit; (iv) errors, omissions, interruptions or delays in transmission or delivery of any messages, by mail, cable, telegraph, telex or otherwise, whether or not they be in cipher; (v) errors in interpretation of technical terms; (vi) any loss or delay in the transmission or otherwise of any document required in order to make a drawing under any such Letter of Credit or of the proceeds thereof; (vii) the misapplication by the beneficiary of any such Letter of Credit of the proceeds of any drawing

 

Credit and Guaranty Agreement

 

41


under such Letter of Credit; or (viii) any consequences arising from causes beyond the control of Issuing Bank, including any Governmental Acts; none of the above shall affect or impair, or prevent the vesting of, any of Issuing Bank’s rights or powers hereunder. Without limiting the foregoing and in furtherance thereof, any action taken or omitted by Issuing Bank under or in connection with the Letters of Credit or any documents and certificates delivered thereunder, if taken or omitted in good faith, shall not give rise to any liability on the part of Issuing Bank to Company. Notwithstanding anything to the contrary contained in this Section 2.3(c), Company shall retain any and all rights it may have against Issuing Bank for any liability arising solely out of the gross negligence or willful misconduct of Issuing Bank, as determined by a court of competent jurisdiction in a final, non-appealable order.

(d) Reimbursement by Company of Amounts Drawn or Paid Under Letters of Credit . In the event Issuing Bank has determined to honor a drawing under a Letter of Credit, it shall immediately notify Company and Administrative Agent, and Company shall reimburse Issuing Bank on or before the Business Day immediately following the date on which such drawing is honored (the “Reimbursement Date” ) in an amount in Dollars and in same day funds equal to the amount of such honored drawing; provided , anything contained herein to the contrary notwithstanding, (i) unless Company shall have notified Administrative Agent and Issuing Bank prior to 10:00 a.m. (New York City time) on the date such drawing is honored that Company intends to reimburse Issuing Bank for the amount of such honored drawing with funds other than the proceeds of Revolving Loans, Company shall be deemed to have given a timely Funding Notice to Administrative Agent requesting Lenders to make Revolving Loans that are Base Rate Loans on the Reimbursement Date in an amount in Dollars equal to the amount of such honored drawing, and (ii) subject to satisfaction or waiver of the conditions specified in Section 3.2, Lenders shall, on the Reimbursement Date, make Revolving Loans that are Base Rate Loans in the amount of such honored drawing, the proceeds of which shall be applied directly by Administrative Agent to reimburse Issuing Bank for the amount of such honored drawing; and provided further, if for any reason proceeds of Revolving Loans are not received by Issuing Bank on the Reimbursement Date in an amount equal to the amount of such honored drawing, Issuing Bank shall be entitled to recover such corresponding amount on demand from such Lender together with interest thereon, for each day from such Reimbursement Date until the date such amount is paid to Issuing Bank, at the customary rate set by Issuing Bank for the correction of errors among banks for three (3) Business Days and thereafter at the Base Rate. If such Lender does not pay such corresponding amount forthwith upon Issuing Bank’s demand therefor, Issuing Bank shall promptly notify Company and Company shall immediately pay such corresponding amount to Issuing Bank together with interest thereon, for each day from such Reimbursement Date until the date such amount is paid to Issuing Bank, at the rate payable hereunder for Base Rate Revolving Loans. Nothing in this Section 2.3(d) shall be deemed to relieve any Lender from its obligation to make Revolving Loans on the terms and conditions set forth herein, and Company shall retain any and all rights it may have against any Lender resulting from the failure of such Lender to make such Revolving Loans under this Section 2.3(d).

(e) Lenders’ Purchase of Participations in Letters of Credit . Immediately upon the issuance of each Letter of Credit, each Lender having a Revolving Commitment shall be deemed to have purchased, and hereby agrees to irrevocably purchase, from Issuing Bank a participation in such Letter of Credit and any drawings honored thereunder in an amount equal to

 

Credit and Guaranty Agreement

 

42


such Lender’s Pro Rata Share (with respect to the Revolving Commitments) of the maximum amount which is or at any time may become available to be drawn thereunder. In the event that Company shall fail for any reason to reimburse Issuing Bank as provided in Section 2.3(d), Issuing Bank shall promptly notify each Lender of the unreimbursed amount of such honored drawing and of such Lender’s respective participation therein based on such Lender’s Pro Rata Share of the Revolving Commitments. Each Lender shall make available to Issuing Bank an amount equal to its respective participation, in Dollars and in same day funds, at the office of Issuing Bank specified in such notice, not later than 12:00 p.m. (New York City time) on the first business day (under the laws of the jurisdiction in which such office of Issuing Bank is located) after the date notified by Issuing Bank. In the event that any Lender fails to make available to Issuing Bank on such business day the amount of such Lender’s participation in such Letter of Credit as provided in this Section 2.3(e), Issuing Bank shall be entitled to recover such amount on demand from such Lender together with interest thereon for three Business Days at the rate customarily used by Issuing Bank for the correction of errors among banks and thereafter at the Base Rate. Nothing in this Section 2.3(e) shall be deemed to prejudice the right of any Lender to recover from Issuing Bank any amounts made available by such Lender to Issuing Bank pursuant to this Section in the event that it is determined that the payment with respect to a Letter of Credit in respect of which payment was made by such Lender constituted gross negligence or willful misconduct on the part of Issuing Bank, as determined by a court of competent jurisdiction in a final, non-appealable order. In the event Issuing Bank shall have been reimbursed by other Lenders pursuant to this Section 2.3(e) for all or any portion of any drawing honored by Issuing Bank under a Letter of Credit, such Issuing Bank shall distribute to each Lender which has paid all amounts payable by it under this Section 2.3(e) with respect to such honored drawing such Lender’s Pro Rata Share of all payments subsequently received by Issuing Bank from Company in reimbursement of such honored drawing when such payments are received. Any such distribution shall be made to a Lender at its primary address set forth below its name on Appendix B or at such other address as such Lender may request.

(f) Obligations Absolute . The obligation of Company to reimburse Issuing Bank for drawings honored under the Letters of Credit issued by it and to repay any Revolving Loans made by Lenders pursuant to Section 2.3(d) and the obligations of Lenders under Section 2.3(e) shall be unconditional and irrevocable and shall be paid strictly in accordance with the terms hereof under all circumstances including any of the following circumstances: (i) any lack of validity or enforceability of any Letter of Credit; (ii) the existence of any claim, set-off, defense or other right which Company or any Lender may have at any time against a beneficiary or any transferee of any Letter of Credit (or any Persons for whom any such transferee may be acting), Issuing Bank, Lender or any other Person or, in the case of a Lender, against Company, whether in connection herewith, the transactions contemplated herein or any unrelated transaction (including any underlying transaction between Company or one of its Subsidiaries and the beneficiary for which any Letter of Credit was procured); (iii) any draft or other document presented under any Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; (iv) payment by Issuing Bank under any Letter of Credit against presentation of a draft or other document which does not substantially comply with the terms of such Letter of Credit; (v) any adverse change in the business, operations, properties, assets, condition (financial or otherwise) or prospects of Holdings or any of its Subsidiaries; (vi) any breach hereof or any other Credit Document by any party thereto; (vii) any other circumstance or happening whatsoever, whether

 

Credit and Guaranty Agreement

 

43


or not similar to any of the foregoing; or (viii) the fact that an Event of Default or a Default shall have occurred and be continuing; provided , in each case, that payment by Issuing Bank under the applicable Letter of Credit shall not have constituted gross negligence or willful misconduct of Issuing Bank under the circumstances in question, as determined by a court of competent jurisdiction in a final, non-appealable order.

(g) Indemnification . Without duplication of any obligation of Company under Section 10.2 or 10.3, in addition to amounts payable as provided herein, Company hereby agrees to protect, indemnify, pay and save harmless Issuing Bank from and against any and all claims, demands, liabilities, damages, losses, costs, charges and expenses (including reasonable fees, expenses and disbursements of counsel and allocated costs of internal counsel) which Issuing Bank may incur or be subject to as a consequence, direct or indirect, of (i) the issuance of any Letter of Credit by Issuing Bank, other than as a result of (1) the gross negligence or willful misconduct of Issuing Bank, as determined by a court of competent jurisdiction in a final, non-appealable order, or (2) the wrongful dishonor by Issuing Bank of a proper demand for payment made under any Letter of Credit issued by it, or (ii) the failure of Issuing Bank to honor a drawing under any such Letter of Credit as a result of any Governmental Act.

2.4. Pro Rata Shares; Availability of Funds.

(a) Pro Rata Shares . All Loans shall be made, and all participations purchased, by Lenders simultaneously and proportionately to their respective Pro Rata Shares, it being understood that no Lender shall be responsible for any default by any other Lender in such other Lender’s obligation to make a Loan requested hereunder or purchase a participation required hereby nor shall any Term Loan Commitment or any Revolving Commitment of any Lender be increased or decreased as a result of a default by any other Lender in such other Lender’s obligation to make a Loan requested hereunder or purchase a participation required hereby.

(b) Availability of Funds . Unless Administrative Agent shall have been notified by any Lender prior to the applicable Credit Date that such Lender does not intend to make available to Administrative Agent the amount of such Lender’s Loan requested on such Credit Date, Administrative Agent may assume that such Lender has made such amount available to Administrative Agent on such Credit Date and Administrative Agent may, in its sole discretion, but shall not be obligated to, make available to Company a corresponding amount on such Credit Date. If such corresponding amount is not in fact made available to Administrative Agent by such Lender, Administrative Agent shall be entitled to recover such corresponding amount on demand from such Lender together with interest thereon, for each day from such Credit Date until the date such amount is paid to Administrative Agent, at the customary rate set by Administrative Agent for the correction of errors among banks for three (3) Business Days and thereafter at the Base Rate. If such Lender does not pay such corresponding amount forthwith upon Administrative Agent’s demand therefor, Administrative Agent shall promptly notify Company and Company shall immediately pay such corresponding amount to Administrative Agent together with interest thereon, for each day from such Credit Date until the date such amount is paid to Administrative Agent, at the rate payable hereunder for Base Rate Loans for such Class of Loans. Nothing in this Section 2.4(b) shall be deemed to relieve any Lender from its obligation to fulfill its Term Loan Commitments and Revolving Commitments hereunder or to prejudice any rights that Company may have against any Lender as a result of any default by such Lender hereunder.

 

Credit and Guaranty Agreement

 

44


2.5. Use of Proceeds. The proceeds of the Term Loans and the Revolving Loans, if any, made on the Closing Date shall be used by Company to (i) repay the Existing Indebtedness and (ii) to pay Transaction Costs. The proceeds of the Revolving Loans, and Letters of Credit made after the Closing Date shall be applied by Company for working capital and general corporate purposes of Holdings and its Subsidiaries. No portion of the proceeds of any Credit Extension shall be used in any manner that causes or might cause such Credit Extension or the application of such proceeds to violate Regulation T, Regulation U or Regulation X of the Board of Governors of the Federal Reserve System or any other regulation thereof or to violate the Exchange Act.

2.6. Evidence of Debt; Register; Lenders’ Books and Records; Notes.

(a) Lenders’ Evidence of Debt . Each Lender shall maintain on its internal records an account or accounts evidencing the Obligations of Company to such Lender, including the amounts of the Loans made by it and each repayment and prepayment in respect thereof. Any such recordation shall be conclusive and binding on Company, absent manifest error; provided , that the failure to make any such recordation, or any error in such recordation, shall not affect any Lender’s Revolving Commitments or Company’s Obligations in respect of any applicable Loans; and provided further, in the event of any inconsistency between the Register and any Lender’s records, the recordations in the Register shall govern.

(b) Register . Administrative Agent shall maintain at its Principal Office a register for the recordation of the names and addresses of Lenders and the Revolving Commitments and Loans (including Protective Advances) of each Lender from time to time (the “Register” ). The Register shall be available for inspection by Company or any Lender at any reasonable time and from time to time upon reasonable prior notice. Administrative Agent shall record in the Register the Revolving Commitments and the Loans (including Protective Advances), and each repayment or prepayment in respect of the principal amount of the Loans, and any such recordation shall be conclusive and binding on Company and each Lender, absent manifest error; provided , failure to make any such recordation, or any error in such recordation, shall not affect any Lender’s Revolving Commitments or Company’s Obligations in respect of any Loan. Company hereby designates the entity serving as Administrative Agent to serve as Company’s agent solely for purposes of maintaining the Register as provided in this Section 2.6, and Company hereby agrees that, to the extent such entity serves in such capacity, the entity serving as Administrative Agent and its officers, directors, employees, agents and affiliates shall constitute “Indemnitees.”

(c) Notes . If so requested by any Lender by written notice to Company (with a copy to Administrative Agent) at least two (2) Business Days prior to the Closing Date, or at any time thereafter, Company shall execute and deliver to such Lender (and/or, if applicable and if so specified in such notice, to any Person who is an assignee of such Lender pursuant to Section 10.6) on the Closing Date (or, if such notice is delivered after the Closing Date, promptly after Company’s receipt of such notice) a Note or Notes to evidence such Lender’s Term Loan or Revolving Loan, as the case may be.

 

Credit and Guaranty Agreement

 

45


2.7. Interest on Loans.

(a) Except as otherwise set forth herein, each Class of Loan shall bear interest on the unpaid principal amount thereof from the date made through repayment (whether by acceleration or otherwise) thereof as follows:

(i) if a Base Rate Loan, at the Base Rate plus the Applicable Margin; or

(ii) if a LIBOR Rate Loan, at the Adjusted LIBOR Rate plus the Applicable Margin;

provided , however , that notwithstanding the foregoing, each Revolving Loan made (outside the LC Availability Period, if any) solely for the purpose of providing cash collateral for any letter of credit permitted by Section 6.1(l) shall bear interest on the unpaid principal amount thereof at the Applicable Margin with respect to LIBOR Rate Loans from the date made through the earlier of the date of repayment (whether by acceleration or otherwise) of such Revolving Loan or the date of expiration of cancellation of such letter of credit.

Notwithstanding anything to the contrary contained herein, but subject to Section 2.7(h), in no event shall (i) the Adjusted LIBOR Rate be less than one and one-half percent (1.50%) per annum or (ii) the Base Rate be less than four and one-half percent (4.50%) per annum.

(b) The basis for determining the rate of interest with respect to any Loan, and the Interest Period with respect to any LIBOR Rate Loan, shall be selected by Company and notified to Administrative Agent and Lenders pursuant to the applicable Funding Notice or Conversion/Continuation Notice, as the case may be. If on any day a Loan is outstanding with respect to which a Funding Notice or Conversion/Continuation Notice has not been delivered to Administrative Agent in accordance with the terms hereof specifying the applicable basis for determining the rate of interest, then for that day such Loan shall be a Base Rate Loan.

(c) In connection with LIBOR Rate Loans there shall be no more than eight (8) Interest Periods outstanding at any time. In the event Company fails to specify between a Base Rate Loan or a LIBOR Rate Loan in the applicable Funding Notice or Conversion/Continuation Notice, such Loan (if outstanding as a LIBOR Rate Loan) will be automatically converted into a Base Rate Loan on the last day of the then-current Interest Period for such Loan (or if outstanding as a Base Rate Loan will remain as, or (if not then outstanding) will be made as, a Base Rate Loan). In the event Company fails to specify an Interest Period for any LIBOR Rate Loan in the applicable Funding Notice or Conversion/Continuation Notice, Company shall be deemed to have selected an Interest Period of one month. As soon as practicable after 12:00 p.m. (New York City time) on each Interest Rate Determination Date, Administrative Agent shall determine (which determination shall, absent manifest error, be final, conclusive and binding upon all parties) the interest rate that shall apply to the LIBOR Rate Loans for which an interest rate is then being determined for the applicable Interest Period and shall promptly give notice thereof (in writing or by telephone confirmed in writing) to Company and each Lender.

 

Credit and Guaranty Agreement

 

46


(d) Interest payable pursuant to Section 2.7(a) shall be computed on the basis of a 360-day year, in each case for the actual number of days elapsed in the period during which it accrues. In computing interest on any Loan, the date of the making of such Loan or the first day of an Interest Period applicable to such Loan or, with respect to a Base Rate Loan being converted from a LIBOR Rate Loan, the date of conversion of such LIBOR Rate Loan to such Base Rate Loan, as the case may be, shall be included, and the date of payment of such Loan or the expiration date of an Interest Period applicable to such Loan or, with respect to a Base Rate Loan being converted to a LIBOR Rate Loan, the date of conversion of such Base Rate Loan to such LIBOR Rate Loan, as the case may be, shall be excluded; provided , if a Loan is repaid on the same day on which it is made, one day’s interest shall be paid on that Loan.

(e) Except as otherwise set forth herein, interest on each Loan shall be payable in arrears (i) on each Interest Payment Date applicable to that Loan; (ii) upon any prepayment of that Loan, whether voluntary or mandatory, to the extent accrued on the amount being prepaid; and (iii) at maturity, including final maturity.

(f) Company agrees to pay to Issuing Bank, with respect to drawings honored under any Letter of Credit, interest on the amount paid by Issuing Bank in respect of each such honored drawing from the date such drawing is honored to but excluding the date such amount is reimbursed by or on behalf of Company at a rate equal to (i) for the period from the date such drawing is honored to but excluding the applicable Reimbursement Date, the rate of interest otherwise payable hereunder with respect to Revolving Loans that are Base Rate Loans, and (ii) thereafter, a rate which is the lesser of (y) 2% per annum in excess of the rate of interest otherwise payable hereunder with respect to Revolving Loans that are Base Rate Loans, and (z) the Highest Lawful Rate.

(g) Interest payable pursuant to Section 2.7(f) shall be computed on the basis of a 360-day year for the actual number of days elapsed in the period during which it accrues, and shall be payable on demand or, if no demand is made, on the date on which the related drawing under a Letter of Credit is reimbursed in full. Promptly upon receipt by Issuing Bank of any payment of interest pursuant to Section 2.7(f), Issuing Bank shall distribute to each Lender, out of the interest received by Issuing Bank in respect of the period from the date such drawing is honored to but excluding the date on which Issuing Bank is reimbursed for the amount of such drawing (including any such reimbursement out of the proceeds of any Revolving Loans), the amount that such Lender would have been entitled to receive in respect of the letter of credit fee that would have been payable in respect of such Letter of Credit for such period if no drawing had been honored under such Letter of Credit. In the event Issuing Bank shall have been reimbursed by Lenders for all or any portion of such honored drawing, Issuing Bank shall distribute to each Lender which has paid all amounts payable by it under Section 2.3(e) with respect to such honored drawing such Lender’s Pro Rata Share of any interest received by Issuing Bank in respect of that portion of such honored drawing so reimbursed by Lenders for the period from the date on which Issuing Bank was so reimbursed by Lenders to but excluding the date on which such portion of such honored drawing is reimbursed by Company.

(h) Notwithstanding anything to the contrary contained herein, the interest rate on any Base Rate Loan for any day shall never be less than the sum of (i) the rate appearing on Reuters Screen LIBOR01 Page (or any successor or substitute page of such service or

 

Credit and Guaranty Agreement

 

47


successor or substitute service acceptable to the Administrative Agent) on such date (or the immediately preceding Business Day, if such date is not a Business Day), as the rate for dollar deposits with a maturity comparable to an Interest Period of one (1) month, divided by the sum of (x) 1 minus (y) the Applicable Reserve Requirement plus (ii) the Applicable Margin for LIBOR Rate Loans.

2.8. Conversion/Continuation.

(a) Subject to Section 2.17 and so long as no Default or Event of Default shall have occurred and then be continuing, Company shall have the option:

(i) to convert at any time all or any part of any Term Loan or Revolving Loan (other than Protective Advances, which shall at all times be Base Rate Loans) equal to $100,000 and integral multiples of $100,000 in excess of that amount from one Type of Loan to another Type of Loan; provided , a LIBOR Rate Loan may only be converted on the expiration of the Interest Period applicable to such LIBOR Rate Loan unless Company shall pay all amounts due under Section 2.17 in connection with any such conversion; or

(ii) upon the expiration of any Interest Period applicable to any LIBOR Rate Loan, to continue all or any portion of such Loan equal to $100,000 and integral multiples of $100,000 in excess of that amount as a LIBOR Rate Loan.

(b) Company shall deliver a Conversion/Continuation Notice to Administrative Agent no later than 12:00 p.m. (New York City time) at least one (1) Business Day in advance of the proposed conversion date (in the case of a conversion to a Base Rate Loan) and at least three (3) Business Days in advance of the proposed conversion/continuation date (in the case of a conversion to, or a continuation of, a LIBOR Rate Loan). Except as otherwise provided herein, a Conversion/Continuation Notice for conversion to, or continuation of, any LIBOR Rate Loans (or telephonic notice in lieu thereof) shall be irrevocable on and after the related Interest Rate Determination Date, and Company shall be bound to effect a conversion or continuation in accordance therewith.

2.9. Default Interest. Upon the occurrence and during the continuance of an Event of Default, the principal amount of all Loans outstanding and, to the extent permitted by applicable law, any interest payments on the Loans or any fees or other amounts owed hereunder, shall thereafter bear interest (including post-petition interest in any proceeding under the Bankruptcy Code or other applicable bankruptcy laws) payable on demand at a rate that is two percent (2.00%) per annum in excess of the interest rate otherwise payable hereunder with respect to the applicable Loans (or, in the case of any such fees and other amounts, at a rate which is two percent (2.00%) per annum in excess of the interest rate otherwise payable hereunder for Base Rate Loans); provided , in the case of LIBOR Rate Loans, upon the expiration of the Interest Period in effect at the time any such increase in interest rate is effective such LIBOR Rate Loans shall thereupon become Base Rate Loans and shall thereafter bear interest payable upon demand at a rate which is two percent (2.00%) per annum in excess of the interest rate otherwise payable hereunder for Base Rate Loans. Payment or acceptance of the increased rates of interest provided for in this Section 2.9 is not a permitted alternative to timely payment and shall not constitute a waiver of any Event of Default or otherwise prejudice or limit any rights or remedies of Administrative Agent or any Lender.

 

Credit and Guaranty Agreement

 

48


2.10. Fees.

(a) Company agrees to pay to Lenders having Revolving Exposure:

(i) commitment fees equal to (1) the average of the daily difference between (a) the Revolving Commitments, and (b) the sum of (x) the aggregate principal amount of outstanding Revolving Loans plus (y) the Letter of Credit Usage, times (2) one-half of one percent (0.50%) per annum; and

(ii) during the LC Availability Period, letter of credit fees equal to (1) the Applicable Margin for Revolving Loans that are LIBOR Rate Loans, times (2) the average aggregate daily maximum amount available to be drawn under all Letters of Credit (regardless of whether any conditions for drawing could then be met and determined as of the close of business on any date of determination).

All fees referred to in this Section 2.10(a) shall be paid to Administrative Agent as set forth in Section 2.15(a) and upon receipt, Administrative Agent shall promptly distribute to each Lender its Pro Rata Share thereof.

(b) During the LC Availability Period, Company agrees to pay directly to Issuing Bank, for its own account, the following fees:

(i) a fronting fee on all Letters of Credit as agreed by Company and Issuing Bank; and

(ii) such documentary and processing charges for any issuance, amendment, transfer or payment of a Letter of Credit as are in accordance with Issuing Bank’s standard schedule for such charges and as in effect at the time of such issuance, amendment, transfer or payment, as the case may be.

(c) [Intentionally reserved].

(d) All fees referred to in Section 2.10(a) and 2.10(b)(i) shall be calculated on the basis of a 360-day year and the actual number of days elapsed and shall be payable quarterly in arrears on March 30 th , June 30 th , September 30 th and December 31 st of each year during the Revolving Commitment Period, commencing on the first such date to occur after the Closing Date, and on the Revolving Commitment Termination Date.

(e) In addition to any of the foregoing fees, Company agrees to pay to Agents such other fees in the amounts and at the times separately agreed upon and all such fees described in this Sections 2.10 and in the Fee Letter constitute part of the Obligations. All fees described in this Section 2.10 and in the Fee Letter shall be deemed earned in full on the date when the same is due and payable hereunder and shall not be subject to rebate or proration upon termination of this Agreement for any reason.

 

Credit and Guaranty Agreement

 

49


2.11. Scheduled Payments. The principal amounts of the Term Loans shall be repaid in consecutive quarterly installments of $875,000 each (each, an “Installment” ) on the last day of each Fiscal Quarter (each, an “Installment Date” ), commencing September 30, 2013. Notwithstanding the foregoing, (x) such Installments shall be reduced in connection with any voluntary or mandatory prepayments of the Term Loans in accordance with Sections 2.11, 2.12 and 2.13, as applicable; and (y) the Term Loans, together with all other amounts owed hereunder with respect thereto, shall, in any event, be paid in full no later than the Term Loan Maturity Date.

2.12. Voluntary Prepayments/Commitment Reductions.

(a) Voluntary Prepayments .

(i) Any time and from time to time after payment in full of all Protective Advances, if any:

(1) with respect to Base Rate Loans, Company may prepay any such Loans on any Business Day in whole or in part, in an aggregate minimum amount of $100,000 and integral multiples of $100,000 in excess of that amount; and

(2) with respect to LIBOR Rate Loans, Company may prepay any such Loans on any Business Day in whole or in part (together with any amounts due pursuant to Section 2.17(c)) in an aggregate minimum amount of $100,000 and integral multiples of $100,000 in excess of that amount.

(ii) All such prepayments shall be made:

(1) upon not less than one (1) Business Day’s prior written or telephonic notice in the case of Base Rate Loans; and

(2) upon not less than three (3) Business Days’ prior written or telephonic notice in the case of LIBOR Rate Loans,

in each case given to Administrative Agent by 12:00 p.m. (New York City time) on the date required and, if given by telephone, promptly confirmed in writing to Administrative Agent (and Administrative Agent will promptly transmit such telephonic or original notice for Term Loans or Revolving Loans, as the case may be, by telefacsimile or telephone to each Lender). Upon the giving of any such notice, the principal amount of the Loans specified in such notice shall become due and payable on the prepayment date specified therein. Any such voluntary prepayment shall be applied as specified in Section 2.14(a) with respect to Revolving Loans and Section 2.14(b) with respect to Term Loans.

 

Credit and Guaranty Agreement

 

50


(b) Voluntary Commitment Reductions .

(i) Company may, upon not less than three (3) Business Days’ prior written or telephonic notice confirmed in writing to Administrative Agent (which original written or telephonic notice Administrative Agent will promptly transmit by telefacsimile or telephone to each applicable Lender), at any time and from time to time terminate in whole or permanently reduce in part (i) the Revolving Commitments in an amount up to the amount by which the Revolving Commitments exceed the Total Utilization of Revolving Commitments at the time of such proposed termination or reduction, or (ii) any unused portion of the Term Loan Commitments; provided , any such partial reduction of the Revolving Commitments shall be in an aggregate minimum amount of $100,000 and integral multiples of $100,000 in excess of that amount.

(ii) Company’s notice to Administrative Agent shall designate the date (which shall be a Business Day) of such termination or reduction and the amount of any partial reduction, and such termination or reduction of the Revolving Commitments shall be effective on the date specified in Company’s notice and shall reduce the Revolving Commitment of each Lender proportionately to its Pro Rata Share thereof.

2.13. Mandatory Prepayments/Commitment Reductions.

(a) Asset Sales . No later than the third Business Day following the date of receipt by any Credit Party of any Net Asset Sale Proceeds other than Net Asset Sale Proceeds (i) from Permitted Dallas Dispositions, and (ii) that do not exceed $2,000,000 in the aggregate for all Asset Sales during the preceding twelve (12) consecutive Fiscal Months, Company shall prepay the Loans and/or the Revolving Commitments shall be permanently reduced as set forth in Section 2.14(b) in an aggregate amount equal to such Net Asset Sale Proceeds; provided , so long as no Default or Event of Default shall have occurred and be continuing, upon delivery of a written notice to Administrative Agent, Company shall have the option, directly or through one or more Subsidiaries, to invest Net Asset Sale Proceeds (the “ Asset Sale Reinvestment Amounts ”) in non-working capital assets of the general type used in the business of Company if such assets are purchased or constructed within one year following receipt of such Net Asset Sale Proceeds; provided further , pending any such reinvestment all Asset Sale Reinvestment Amounts shall be, at the option of Company, either (i) held at all times prior to such reinvestment, in an escrow account in form and substance reasonably acceptable to Administrative Agent, or (ii) applied to prepay Revolving Loans to the extent then outstanding (without a reduction in Revolving Commitments) and upon such application, the Administrative Agent shall establish a reserve against Availability in an amount equal to the amount of such Asset Sale Reinvestment Amounts so applied and, to the extent such Asset Sale Reinvestment Amounts exceed the amount required to prepay all such Revolving Loans, the balance thereof shall be held at all times prior to such reinvestment, in an escrow account in form and substance reasonably acceptable to Administrative Agent. In the event that the Asset Sale Reinvestment Amounts are not reinvested by Company prior to the earlier of (i) the last day of such one year period, and (ii) the date of the occurrence of an Event of Default, Administrative Agent shall apply such Asset Sale Reinvestment Amounts to the Obligations as set forth in Section 2.14(b).

(b) Insurance/Condemnation Proceeds . No later than the fifth Business Day following the date of receipt by Holdings or any of its Subsidiaries, or Administrative Agent as loss payee, of any Net Insurance/Condemnation Proceeds in excess of $2,000,000, Company shall prepay the Loans and/or the Revolving Commitments shall be permanently reduced as set forth in Section 2.14(b) in an aggregate amount equal to such Net Insurance/Condemnation

 

Credit and Guaranty Agreement

 

51


Proceeds; provided , so long as no Default or Event of Default shall have occurred and be continuing, Company shall have the option, directly or through one or more of its Subsidiaries to invest such Net Insurance/Condemnation Proceeds within one year of receipt thereof in non-working capital assets of the general type used in the business of Holdings and its Subsidiaries, which investment may include the repair, restoration or replacement of the applicable assets thereof; provided further, pending any such investment all such Net Insurance/Condemnation Proceeds shall be, at the option of the Company, either (i) held at all times prior to such investment, in an escrow account in form and substance reasonably acceptable to Administrative Agent, or (ii) applied to prepay Revolving Loans to the extent outstanding (without a reduction in Revolving Commitments) and upon such application, the Administrative Agent shall establish a reserve against Availability in an amount equal to the amount of such Net Insurance/Condemnation Proceeds so applied and, to the extent such Net Insurance/Condemnation Proceeds exceed the amount required to prepay all such Revolving Loans, the balance thereof shall be held at all times prior to such reinvestment in an escrow account in form and substance reasonable acceptable to Administrative Agent. In the event that the Net Insurance/Condemnation Proceeds are not invested by Company prior to the earlier of (i) the last day of such one year period and (ii) the date of the occurrence of an Event of Default, Administrative Agent shall apply such Net Insurance/Condemnation Proceeds to the Obligations as set forth in Section 2.14(b).

(c) Issuance of Equity Securities . No later than the Business Day after receipt by Holdings of any Cash proceeds from a capital contribution to, or the issuance of any Capital Stock of, Holdings or any of its Subsidiaries (other than (i) Capital Stock issued pursuant to any employee stock or stock option compensation plan in the ordinary course of business, to consummate Permitted Acquisitions or for other purposes approved in writing by Administrative Agent, or (ii) Cash proceeds from Permitted Stock Issuances of up to an aggregate amount not to exceed $5,000,000 in any period of twelve consecutive Fiscal Months, but only to the extent that (x) no Default or Event of Default has occurred and is continuing and (y) one hundred percent (100%) of such Cash proceeds are utilized by Holdings or its Subsidiaries to fund Capital Expenditures or for general corporate purposes), Company shall prepay the Loans and/or the Revolving Commitments shall be permanently reduced as set forth in Section 2.14(b) in an aggregate amount equal to (A) in all cases other than a Qualified IPO, one hundred percent (100%) of such proceeds, and (B) in the case of a Qualified IPO, fifty percent (50%) of such proceeds, in each case, net of underwriting discounts and commissions and other reasonable costs and expenses associated therewith paid to non-Affiliates, including reasonable legal fees and expenses.

(d) Issuance of Debt . On the date of receipt by Holdings or any of its Subsidiaries of any Cash proceeds from the incurrence of any Indebtedness of Holdings or any of its Subsidiaries (other than with respect to any Indebtedness permitted to be incurred pursuant to Section 6.1), Company shall prepay the Loans and/or the Revolving Commitments shall be permanently reduced as set forth in Section 2.14(b) in an aggregate amount equal to 100% of such proceeds, net of underwriting discounts and commissions and other reasonable costs and expenses associated therewith, in each case, paid to non-Affiliates, including reasonable legal fees and expenses.

 

Credit and Guaranty Agreement

 

52


(e) Consolidated Excess Cash Flow . In the event that there shall be Consolidated Excess Cash Flow for any Fiscal Year (commencing with Fiscal Year 2011), Company shall, no later than one hundred twenty (120) days after the end of such Fiscal Year, prepay the Loans and/or the Revolving Commitments shall be permanently reduced as set forth in Section 2.14(b) in an aggregate amount equal to seventy-five percent (75%) of such Consolidated Excess Cash Flow; provided , that such percentage shall be reduced, for any Fiscal Year, to fifty percent (50%) in the event the Senior Leverage Ratio as of the end of such Fiscal Year is less than 2.50:1.00; provided further, however , that in no event shall the amount of Consolidated Excess Cash Flow for any Fiscal Year applied to prepay the Loans and/or permanently reduce the Revolving Commitments exceed an amount which would result in Consolidated Liquidity being less than $3,000,000 or Unrestricted Cash being less than $1,500,000 (such applicable amount, the “ Applicable Required ECF Amount ”). Any amounts prepaid pursuant to this Section 2.13(e) with respect to any Fiscal Year in excess of the Applicable Required ECF Amount shall be treated as voluntary prepayments made pursuant to Section 2.12(a).

(f) Revolving Loans . Company shall from time to time prepay the Revolving Loans to the extent necessary so that the Total Utilization of Revolving Commitments shall not at any time exceed the Revolving Commitments then in effect.

(g) Prepayment of Excess Outstanding Amounts . Concurrently with the delivery of the financial statements pursuant to Section 5.1(a), Company shall prepay Loans in an amount equal to 100% of the amount by which (x) the Consolidated Senior Debt as of the date of such financial statements exceeds (y) Consolidated Adjusted EBITDA for the twelve month period ending on the last day of fiscal month for which such financial statements were prepared, multiplied by the maximum Senior Leverage Ratio permitted as of the last day of the immediately preceding Fiscal Quarter pursuant to Section 6.8(c).

(h) Tax Refunds . On the date of receipt by Holdings or any of its Subsidiaries of any tax refunds in excess of $2,000,000 in the aggregate in any Fiscal Year, Company shall prepay Loans and/or Revolving Commitments shall be reduced as set forth in Section 2.14(b) in the amount of such tax refunds in excess of $2,000,000.

(i) Change of Control . Upon any Change of Control, Company shall immediately prepay the Loans and all other outstanding Obligations in full.

(j) Prepayment Certificate . Concurrently with any prepayment of the Loans and/or reduction of the Revolving Commitments pursuant to Sections 2.13(a) through 2.13(e), Company shall deliver to Administrative Agent a certificate of an Authorized Officer demonstrating the calculation of the amount of the applicable net proceeds or Consolidated Excess Cash Flow and compensation owing to Lenders under Section 2.10(e), if any, as the case may be. In the event that Company shall subsequently determine that the actual amount received exceeded the amount set forth in such certificate, Company shall promptly make an additional prepayment of the Loans and/or the Revolving Commitments shall be permanently reduced in an amount equal to such excess, and Company shall concurrently therewith deliver to Administrative Agent a certificate of an Authorized Officer demonstrating the derivation of such excess.

 

Credit and Guaranty Agreement

 

53


2.14. Application of Prepayments/Reductions.

(a) Application of Voluntary Prepayments of Revolving Loans . Any prepayment of any Revolving Loan pursuant to Section 2.12 shall be applied as follows:

first , to the payment of all fees, and all expenses specified in Section 10.2, to the full extent thereof;

second , to the payment of any accrued but unpaid interest with respect to Protective Advances, if any, then due and payable to the full extent thereof;

third , to prepay the Protective Advances, if any, then due and payable to the full extent thereof;

fourth , to the payment of any accrued but unpaid interest at the Default Rate, if any, then due and payable to the full extent thereof;

fifth , to the payment of any accrued but unpaid interest (other than Default Rate interest and interest on Protective Advances, if any) then due and payable to the full extent thereof;

sixth, to the payment of the amounts payable pursuant to Section 2.10(e), if any, on any Loan; and

seventh , to repay outstanding Revolving Loans to the full extent thereof (without a reduction in the Revolving Commitments).

(b) Application of Prepayments by Type of Loans . Any voluntary prepayments of Term Loans pursuant to Section 2.12 and any mandatory prepayment of any Loan pursuant to Section 2.13 shall be applied as follows:

first, to the payment of all fees, and all expenses specified in Section 10.2, to the full extent thereof;

second , to the payment of any accrued but unpaid interest with respect to Protective Advances, if any, then due and payable to the full extent thereof;

third , to prepay the Protective Advances, if any, then due and payable to the full extent thereof;

fourth , to the payment of any accrued but unpaid interest at the Default Rate, if any, then due and payable to the full extent thereof;

fifth , to the payment of any accrued but unpaid interest (other than Default Rate interest and interest on Protective Advances, if any) then due and payable to the full extent thereof;

 

Credit and Guaranty Agreement

 

54


sixth, to the payment of the amounts payable pursuant to Section 2.10(e), if any, on any Loan;

seventh , except in connection with any Waivable Mandatory Prepayment in Section 2.14(c), to prepay Term Loans on a pro rata basis (in accordance with the respective outstanding principal amounts thereof) to reduce the remaining scheduled Installments of principal on such Terms Loans to the full extent thereof;

eighth , to prepay the Revolving Loans (without a reduction in the Revolving Commitments) to the full extent thereof;

ninth , to permanently reduce the Revolving Commitments to the full extent thereof; provided , that any permanent reduction of the Revolving Commitments shall be a non-payment event in which the Revolving Commitments shall be reduced on a dollar-for-dollar basis with respect to any amounts not previously applied in this Section 2.14(b) above, but such amounts not previously applied shall be applied in accordance with the following clauses of this Section 2.14(b); and

tenth , to any remaining Obligations then due and payable to any Agent, any Lender or any Lender Counterparty under the Credit Documents.

(c) Waivable Mandatory Prepayment . Anything contained herein to the contrary notwithstanding, in the event Company is required to make any mandatory prepayment (a “Waivable Mandatory Prepayment ) of the Term Loans, not less than three (3) Business Days prior to the date (the “Required Prepayment Date ) on which Company is required to make such Waivable Mandatory Prepayment, Company shall notify Administrative Agent of the amount of such prepayment, and Administrative Agent will promptly thereafter notify each Lender holding an outstanding Term Loan of the amount of such Lender’s Pro Rata Share of such Waivable Mandatory Prepayment and such Lender’s option to refuse such amount. Each such Lender may exercise such option by giving written notice to Company and Administrative Agent of its election to do so on or before the first Business Day prior to the Required Prepayment Date (it being understood that any Lender which does not notify Company and Administrative Agent of its election to exercise such option on or before the first Business Day prior to the Required Prepayment Date shall be deemed to have elected, as of such date, not to exercise such option). On the Required Prepayment Date, Company shall pay to Administrative Agent the amount of the Waivable Mandatory Prepayment, which amount shall be applied (i) in an amount equal to that portion of the Waivable Mandatory Prepayment payable to those Lenders that have elected not to exercise such option, to prepay the Term Loans of such Lenders (which prepayment shall be applied to the scheduled Installments in accordance with Section 2.14(b)), and (ii) to the extent of any excess, to Company for working capital and general corporate purposes.

(d) Application of Prepayments of Loans to Base Rate Loans and LIBOR Rate Loans . Considering each Class of Loans being prepaid separately, any prepayment thereof shall be applied first to Base Rate Loans to the full extent thereof before application to LIBOR Rate Loans, in each case in a manner which minimizes the amount of any payments required to be made by Company pursuant to Section 2.17(c).

 

Credit and Guaranty Agreement

 

55


2.15. General Provisions Regarding Payments.

(a) All payments by Company of principal, interest, fees and other Obligations shall be made in Dollars in immediately available funds, without defense, recoupment, setoff or counterclaim, free of any restriction or condition, and delivered to Administrative Agent, for the account of Lenders, not later than 2:00 p.m. (New York City time) on the date due at 200 West Street, New York, New York, 10282 or via wire transfer of immediately available funds to account number 30627664 maintained by Administrative Agent with Citibank, N.A. (ABA No. 021000089) in New York City (or at such other location or bank account within the City and State of New York as may be designated by Administrative Agent from time to time); funds received by Administrative Agent after that time on such due date shall be deemed to have been paid by Company on the next Business Day.

(b) All payments in respect of the principal amount of any Loan (other than voluntary prepayments of Revolving Loans) shall be accompanied by payment of accrued interest on the principal amount being repaid or prepaid.

(c) Administrative Agent shall promptly distribute to each Lender at such address as such Lender shall indicate in writing, such Lender’s applicable Pro Rata Share of all payments and prepayments of principal and interest due hereunder, together with all other amounts due with respect thereto, including, without limitation, all fees payable with respect thereto, to the extent received by Administrative Agent.

(d) Notwithstanding the foregoing provisions hereof, if any Conversion/Continuation Notice is withdrawn as to any Affected Lender or if any Affected Lender makes Base Rate Loans in lieu of its Pro Rata Share of any LIBOR Rate Loans, Administrative Agent shall give effect thereto in apportioning payments received thereafter.

(e) Subject to the provisos set forth in the definition of “Interest Period,” whenever any payment to be made hereunder shall be stated to be due on a day that is not a Business Day, such payment shall be made on the next succeeding Business Day and such extension of time shall be included in the computation of the payment of interest hereunder or of the commitment fees hereunder.

(f) [Intentionally Reserved.]

(g) Administrative Agent shall deem any payment by or on behalf of Company hereunder that is not made in same day funds prior to 2:00 p.m. (New York City time) to be a non-conforming payment. Any such payment shall not be deemed to have been received by Administrative Agent until the later of (i) the time such funds become available funds, and (ii) the applicable next Business Day. Administrative Agent shall give prompt telephonic notice to Company and each applicable Lender (confirmed in writing) if any payment is non-conforming. Any non-conforming payment may constitute or become a Default or Event of Default in accordance with the terms of Section 8.1(a). Interest shall continue to accrue on any principal as to which a non-conforming payment is made until such funds become available funds (but in no event less than the period from the date of such payment to the next succeeding applicable Business Day) at the Default Rate determined pursuant to Section 2.9 from the date such amount was due and payable until the date such amount is paid in full.

 

Credit and Guaranty Agreement

 

56


(h) If an Event of Default shall have occurred and not otherwise been waived, and the maturity of the Obligations shall have been accelerated pursuant to Section 8.1, all payments or proceeds received by any Agent hereunder or under any Collateral Document in respect of any of the Obligations (including, but not limited to, Obligations arising under any Interest Rate Agreement or Currency Agreement that are owing to any Lender or Lender Counterparty), including, but not limited to all proceeds received by any Agent in respect of any sale, any collection from, or other realization upon all or any part of the Collateral, shall be applied in full or in part as follows: first , to the payment of all costs and expenses of such sale, collection or other realization, including reasonable compensation to each Agent and its agents and counsel, and all other expenses, liabilities and advances made or incurred by any Agent in connection therewith, and all amounts for which any Agent is entitled to indemnification hereunder or under any Collateral Document (in its capacity as an Agent and not as a Lender) and all advances made by any Agent under any Collateral Document for the account of the applicable Grantor, and to the payment of all costs and expenses paid or incurred by any Agent in connection with the exercise of any right or remedy hereunder or under any Collateral Document, all in accordance with the terms hereof or thereof; second , to the extent of any excess of such proceeds, to the payment of all other Obligations for the ratable benefit of the Lenders and the Lender Counterparties; and third , to the extent of any excess of such proceeds, to the payment to or upon the order of such Grantor or to whosoever may be lawfully entitled to receive the same or as a court of competent jurisdiction may direct.

2.16. Ratable Sharing. Lenders hereby agree among themselves that, except as otherwise provided in the Collateral Documents with respect to amounts realized from the exercise of rights with respect to Liens on the Collateral or as otherwise provided in the Fee Letter, if any of them shall, whether by voluntary payment (other than as a result of Section 2.14(c) or a voluntary prepayment of Loans made and applied in accordance with the terms hereof), through the exercise of any right of set-off or banker’s lien, by counterclaim or cross action or by the enforcement of any right under the Credit Documents or otherwise, or as adequate protection of a deposit treated as cash collateral under the Bankruptcy Code, receive payment or reduction of a proportion of the aggregate amount of principal, interest, amounts payable in respect of Letters of Credit, fees and other amounts then due and owing to such Lender hereunder or under the other Credit Documents (collectively, the “Aggregate Amounts Due” to such Lender) which is greater than the proportion received by any other Lender in respect of the Aggregate Amounts Due to such other Lender, then the Lender receiving such proportionately greater payment shall (a) notify Administrative Agent and each other Lender of the receipt of such payment and (b) apply a portion of such payment to purchase participations (which it shall be deemed to have purchased from each seller of a participation simultaneously upon the receipt by such seller of its portion of such payment) in the Aggregate Amounts Due to the other Lenders so that all such recoveries of Aggregate Amounts Due shall be shared by all Lenders in proportion to the Aggregate Amounts Due to them; provided , if all or part of such proportionately greater payment received by such purchasing Lender is thereafter recovered from such Lender upon the bankruptcy or reorganization of Company or otherwise, those purchases shall be rescinded and the purchase prices paid for such participations shall be returned to such purchasing Lender ratably to the extent of such recovery, but without interest. Company expressly consents to the foregoing arrangement and agrees that any holder of a participation so purchased may exercise any and all rights of banker’s lien, set-off or counterclaim with respect to any and all monies owing by Company to that holder with respect thereto as fully as if that holder were owed the amount of the participation held by that holder.

 

Credit and Guaranty Agreement

 

57


2.17. Making or Maintaining LIBOR Rate Loans.

(a) Inability to Determine Applicable Interest Rate . In the event that Administrative Agent shall have determined (which determination shall be final and conclusive and binding upon all parties hereto), on any Interest Rate Determination Date with respect to any LIBOR Rate Loans, that by reason of circumstances affecting the London interbank market adequate and fair means do not exist for ascertaining the interest rate applicable to such LIBOR Rate Loans on the basis provided for in the definition of Adjusted LIBOR Rate, Administrative Agent shall on such date give notice (by telefacsimile or by telephone confirmed in writing) to Company and each Lender of such determination, whereupon (i) no Loans may be made as, or converted to, LIBOR Rate Loans until such time as Administrative Agent notifies Company and Lenders that the circumstances giving rise to such notice no longer exist, and (ii) any Funding Notice or Conversion/Continuation Notice given by Company with respect to the Loans in respect of which such determination was made shall be deemed to be rescinded by Company.

(b) Illegality or Impracticability of LIBOR Rate Loans . In the event that on any date any Lender shall have determined (which determination shall be final and conclusive and binding upon all parties hereto but shall be made only after consultation with Company and Administrative Agent) that the making, maintaining or continuation of its LIBOR Rate Loans (i) has become unlawful as a result of compliance by such Lender in good faith with any law, treaty, governmental rule, regulation, guideline or order (or would conflict with any such treaty, governmental rule, regulation, guideline or order not having the force of law even though the failure to comply therewith would not be unlawful), or (ii) has become impracticable, as a result of contingencies occurring after the date hereof which materially and adversely affect the London interbank market or the position of such Lender in that market, then, and in any such event, such Lender shall be an “Affected Lender” and it shall on that day give notice (by telefacsimile or by telephone confirmed in writing) to Company and Administrative Agent of such determination (which notice Administrative Agent shall promptly transmit to each other Lender). For purposes of this Agreement, including, without limitation, this Section 2.17, the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, guidelines and directions in connection therewith (the “ Dodd-Frank Act ”) are deemed to be adopted and gone into effect after the date hereof. Thereafter (1) the obligation of the Affected Lender to make Loans as, or to convert Loans to, LIBOR Rate Loans shall be suspended until such notice shall be withdrawn by the Affected Lender, (2) to the extent such determination by the Affected Lender relates to a LIBOR Rate Loan then being requested by Company pursuant to a Funding Notice or a Conversion/Continuation Notice, the Affected Lender shall make such Loan as (or continue such Loan as or convert such Loan to, as the case may be) a Base Rate Loan, (3) the Affected Lender’s obligation to maintain its outstanding LIBOR Rate Loans (the “Affected Loans” ) shall be terminated at the earlier to occur of the expiration of the Interest Period then in effect with respect to the Affected Loans or when required by law, and (4) the Affected Loans shall automatically convert into Base Rate Loans on the date of such termination. Notwithstanding the foregoing, to the extent a determination by an Affected Lender as described

 

Credit and Guaranty Agreement

 

58


above relates to a LIBOR Rate Loan then being requested by Company pursuant to a Funding Notice or a Conversion/Continuation Notice, Company shall have the option, subject to the provisions of Section 2.17(c), to rescind such Funding Notice or Conversion/Continuation Notice as to all Lenders by giving notice (by telefacsimile or by telephone confirmed in writing) to Administrative Agent of such rescission on the date on which the Affected Lender gives notice of its determination as described above (which notice of rescission Administrative Agent shall promptly transmit to each other Lender). Except as provided in the immediately preceding sentence, nothing in this Section 2.17(b) shall affect the obligation of any Lender other than an Affected Lender to make or maintain Loans as, or to convert Loans to, LIBOR Rate Loans in accordance with the terms hereof.

(c) Compensation for Breakage or Non-Commencement of Interest Periods . Company shall compensate each Lender, upon written request by such Lender (which request shall set forth the basis for requesting such amounts), for all reasonable losses, expenses and liabilities (including any interest paid or calculated to be due and payable by such Lender to lenders of funds borrowed by it to make or carry its LIBOR Rate Loans and any loss, expense or liability sustained by such Lender in connection with the liquidation or re-employment of such funds but excluding loss of anticipated profits) which such Lender may sustain: (i) if for any reason (other than a default by such Lender) a borrowing of any LIBOR Rate Loan does not occur on a date specified therefor in a Funding Notice or a telephonic request for borrowing, or a conversion to or continuation of any LIBOR Rate Loan does not occur on a date specified therefor in a Conversion/Continuation Notice or a telephonic request for conversion or continuation; (ii) if any prepayment or other principal payment of, or any conversion of, any of its LIBOR Rate Loans occurs on any day other than the last day of an Interest Period applicable to that Loan (whether voluntary, mandatory, automatic, by reason of acceleration, or otherwise); or (iii) if any prepayment of any of its LIBOR Rate Loans is not made on any date specified in a notice of prepayment given by Company.

(d) Booking of LIBOR Rate Loans . Any Lender may make, carry or transfer LIBOR Rate Loans at, to, or for the account of any of its branch offices or the office of an Affiliate of such Lender.

(e) [Intentionally Reserved.]

2.18. Increased Costs; Capital Adequacy.

(a) Compensation For Increased Costs and Taxes . Subject to the provisions of Section 2.19 (which shall be controlling with respect to the matters covered thereby), in the event that any Lender (which term shall include Issuing Bank for purposes of this Section 2.18(a)) shall determine (which determination shall, absent manifest error, be final and conclusive and binding upon all parties hereto) that any law, treaty or governmental rule, regulation or order, or any change therein or in the interpretation, administration or application thereof (including the introduction of any new law, treaty or governmental rule, regulation or order), or any determination of a court or governmental authority, in each case that becomes effective after the date hereof, or compliance by such Lender with any guideline, request or directive issued or made after the date hereof by any central bank or other governmental or quasi-governmental authority (whether or not having the force of law): (i) subjects such Lender

 

Credit and Guaranty Agreement

 

59


(or its applicable lending office) to any additional Tax (other than any Tax on the overall net income of such Lender) with respect to this Agreement or any of the other Credit Documents or any of its obligations hereunder or thereunder or any payments to such Lender (or its applicable lending office) of principal, interest, fees or any other amount payable hereunder; (ii) imposes, modifies or holds applicable any reserve (including any marginal, emergency, supplemental, special or other reserve), special deposit, compulsory loan, Federal Deposit Insurance Corporation (FDIC) insurance or similar requirement against assets held by, or deposits or other liabilities in or for the account of, or advances or loans by, or other credit extended by, or any other acquisition of funds by, any office of such Lender (other than any such reserve or other requirements with respect to LIBOR Rate Loans that are reflected in the definition of Adjusted LIBOR Rate); or (iii) imposes any other condition (other than with respect to a Tax matter) on or affecting such Lender (or its applicable lending office) or its obligations hereunder or the London interbank market; and the result of any of the foregoing is to increase the cost to such Lender of agreeing to make, making or maintaining Loans hereunder or to reduce any amount received or receivable by such Lender (or its applicable lending office) with respect thereto; then, in any such case, Company shall promptly pay to such Lender, upon receipt of the statement referred to in the next sentence, such additional amount or amounts (in the form of an increased rate of, or a different method of calculating, interest or otherwise as such Lender in its sole discretion shall determine) as may be necessary to compensate such Lender for any such increased cost or reduction in amounts received or receivable hereunder. For purposes of this Agreement, including, without limitation, this Section 2.18, the Dodd-Frank Act is deemed to have been adopted and gone into effect after the date hereof. Such Lender shall deliver to Company (with a copy to Administrative Agent) a written statement, setting forth in reasonable detail the basis for calculating the additional amounts owed to such Lender under this Section 2.18(a), which statement shall be conclusive and binding upon all parties hereto absent manifest error.

(b) Capital Adequacy Adjustment . In the event that any Lender (which term shall include Issuing Bank for purposes of this Section 2.18(b)) shall have determined that the adoption, effectiveness, phase-in or applicability after the Closing Date of any law, rule or regulation (or any provision thereof) regarding capital adequacy, or any change therein or in the interpretation or administration thereof by any Governmental Authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Lender (or its applicable lending office) with any guideline, request or directive regarding capital adequacy (whether or not having the force of law) of any such Governmental Authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on the capital of such Lender or any corporation controlling such Lender as a consequence of, or with reference to, such Lender’s Loans or Revolving Commitments or Letters of Credit, or participations therein or other obligations hereunder with respect to the Loans or the Letters of Credit to a level below that which such Lender or such controlling corporation could have achieved but for such adoption, effectiveness, phase-in, applicability, change or compliance (taking into consideration the policies of such Lender or such controlling corporation with regard to capital adequacy), then from time to time, within five (5) Business Days after receipt by Company from such Lender of the statement referred to in the next sentence, Company shall pay to such Lender such additional amount or amounts as will compensate such Lender or such controlling corporation on an after-tax basis for such reduction. Such Lender shall deliver to Company (with a copy to Administrative Agent) a written statement, setting forth in reasonable detail the basis for calculating the additional amounts owed to Lender under this Section 2.18(b), which statement shall be conclusive and binding upon all parties hereto absent manifest error.

 

Credit and Guaranty Agreement

 

60


(c) Delay in Requests . Failure or delay on the part of any Lender to demand compensation pursuant to this Section 2.18 shall not constitute a waiver of such Lender’s right to demand such compensation; provided that Company shall not be required to compensate a Lender pursuant to this Section 2.18 for any increased costs incurred or reductions suffered more than 180 days prior to the date such Lender notifies Company of the change in law giving rise to such increased costs or reductions and such Lender’s intention to claim compensation therefor (except that, if the change in law giving rise to such increased costs or reductions is retroactive, then the 180 day period referred to above shall be extended to include the period of retroactive effect thereof).

2.19. Taxes; Withholding, etc.

(a) Payments to Be Free and Clear . All sums payable by any Credit Party hereunder and under the other Credit Documents shall (except to the extent required by law) be paid free and clear of, and without any deduction or withholding on account of, any Tax (other than a Tax on the overall net income of any Lender) imposed, levied, collected, withheld or assessed by or within the United States of America or any political subdivision in or of the United States of America or any other jurisdiction from or to which a payment is made by or on behalf of any Credit Party or by any federation or organization of which the United States of America or any such jurisdiction is a member at the time of payment.

(b) Withholding of Taxes . If any Credit Party or any other Person is required by law to make any deduction or withholding on account of any such Tax from any sum paid or payable by any Credit Party to Administrative Agent or any Lender (which term shall include Issuing Bank for purposes of this Section 2.19(b)) under any of the Credit Documents: (i)Company shall notify Administrative Agent of any such requirement or any change in any such requirement as soon as Company becomes aware of it; (ii) Company shall pay any such Tax before the date on which penalties attach thereto, such payment to be made (if the liability to pay is imposed on any Credit Party) for its own account or (if that liability is imposed on Administrative Agent or such Lender, as the case may be) on behalf of and in the name of Administrative Agent or such Lender; (iii) the sum payable by such Credit Party in respect of which the relevant deduction, withholding or payment is required shall be increased to the extent necessary to ensure that, after the making of that deduction, withholding or payment, Administrative Agent or such Lender, as the case may be, receives on the due date a net sum equal to what it would have received had no such deduction, withholding or payment been required or made; and (iv) within thirty (30) days after paying any sum from which it is required by law to make any deduction or withholding, and within thirty (30) days after the due date of payment of any Tax which it is required by clause (ii) above to pay, Company shall deliver to Administrative Agent evidence satisfactory to the other affected parties of such deduction, withholding or payment and of the remittance thereof to the relevant taxing or other authority; provided , no such additional amount shall be required to be paid to any Lender under clause (iii) above except to the extent that any change after the date hereof (in the case of each Lender listed on the signature pages hereof on the Closing Date) or after the effective date of the Assignment Agreement pursuant to which such Lender became a Lender (in the case of each other Lender) in

 

Credit and Guaranty Agreement

 

61


any such requirement for a deduction, withholding or payment as is mentioned therein shall result in an increase in the rate of such deduction, withholding or payment from that in effect at the date hereof or at the date of such Assignment Agreement, in respect of payments to such Lender.

(c) Evidence of Exemption From U.S. Withholding Tax . Each Lender that is not a United States Person (as such term is defined in Section 7701(a)(30) of the Internal Revenue Code) for U.S. federal income tax purposes (a “Non-US Lender” ) shall deliver to Administrative Agent for transmission to Company, on or prior to the Closing Date (in the case of each Lender listed on the signature pages hereof on the Closing Date) or on or prior to the date of the Assignment Agreement pursuant to which it becomes a Lender (in the case of each other Lender), and at such other times as may be necessary in the determination of Company or Administrative Agent (each in the reasonable exercise of its discretion), (i) two original copies of Internal Revenue Service Form W-8BEN, W-81MY or W-8ECI (or any successor forms), properly completed and duly executed by such Lender, and such other documentation required under the Internal Revenue Code and reasonably requested by Company to establish that such Lender is not subject to deduction or withholding of United States federal income tax with respect to any payments to such Lender of principal, interest, fees or other amounts payable under any of the Credit Documents, or (ii) if such Lender is not a “bank” or other Person described in Section 881(c)(3) of the Internal Revenue Code and cannot deliver Internal Revenue Service Form W-8ECI pursuant to clause (i) above, a Certificate Regarding Non-Bank Status together with two original copies of Internal Revenue Service Form W-8BEN (or any successor form), properly completed and duly executed by such Lender, and such other documentation required under the Internal Revenue Code and reasonably requested by Company to establish that such Lender is not subject to deduction or withholding of United States federal income tax with respect to any payments to such Lender of interest payable under any of the Credit Documents. Each Lender required to deliver any forms, certificates or other evidence with respect to United States federal income tax withholding matters pursuant to this Section 2.19(c) hereby agrees, from time to time after the initial delivery by such Lender of such forms, certificates or other evidence, whenever a lapse in time or change in circumstances renders such forms, certificates or other evidence obsolete or inaccurate in any material respect, that such Lender shall promptly deliver to Administrative Agent for transmission to Company two new original copies of Internal Revenue Service Form W-8BEN or W-8ECI, or a Certificate Regarding Non-Bank Status and two original copies of Internal Revenue Service Form W-8BEN (or any successor form), as the case may be, properly completed and duly executed by such Lender, and such other documentation required under the Internal Revenue Code and reasonably requested by Company to confirm or establish that such Lender is not subject to deduction or withholding of United States federal income tax with respect to payments to such Lender under the Credit Documents, or notify Administrative Agent and Company of its inability to deliver any such forms, certificates or other evidence. Company shall not be required to pay any additional amount to any Non-US Lender under Section 2.19(b)(iii) if such Lender shall have failed (1) to deliver the forms, certificates or other evidence referred to in the second sentence of this Section 2.19(c), or (2) to notify Administrative Agent and Company of its inability to deliver any such forms, certificates or other evidence, as the case may be; provided , if such Lender shall have satisfied the requirements of the first sentence of this Section 2.19(c) on the Closing Date or on the date of the Assignment Agreement pursuant to which it became a Lender, as applicable, nothing in this last sentence of Section 2.19(c) shall relieve Company of its obligation to pay any

 

Credit and Guaranty Agreement

 

62


additional amounts pursuant this Section 2.19 in the event that, as a result of any change in any applicable law, treaty or governmental rule, regulation or order, or any change in the interpretation, administration or application thereof, such Lender is no longer properly entitled to deliver forms, certificates or other evidence at a subsequent date establishing the fact that such Lender is not subject to withholding as described herein. For purposes of this Agreement, including, without limitation, this Section 2.19, the Dodd-Frank Act is deemed to have been adopted and gone into effect after the date hereof.

2.20. Obligation to Mitigate . Each Lender (which term shall include Issuing Bank for purposes of this Section 2.20) agrees that, as promptly as practicable after the officer of such Lender responsible for administering its Loans or Letters of Credit, as the case may be, becomes aware of the occurrence of an event or the existence of a condition that would cause such Lender to become an Affected Lender or that would entitle such Lender to receive payments under Section 2.17, 2.18 or 2.19, it will, to the extent not inconsistent with the internal policies of such Lender and any applicable legal or regulatory restrictions, use reasonable efforts to (a) make, issue, fund or maintain its Credit Extensions, including any Affected Loans, through another office of such Lender, or (b) take such other measures as such Lender may deem reasonable, if as a result thereof the circumstances which would cause such Lender to be an Affected Lender would cease to exist or the additional amounts which would otherwise be required to be paid to such Lender pursuant to Section 2.17, 2.18 or 2.19 would be materially reduced and if, as determined by such Lender in its sole discretion, the making, issuing, funding or maintaining of such Revolving Commitments, Loans or Letters of Credit through such other office or in accordance with such other measures, as the case may be, would not otherwise adversely affect such Revolving Commitments, Loans or Letters of Credit or the interests of such Lender; provided , such Lender will not be obligated to utilize such other office pursuant to this Section 2.20 unless Company agrees to pay all incremental expenses incurred by such Lender as a result of utilizing such other office as described above. A certificate as to the amount of any such expenses payable by Company pursuant to this Section 2.20 (setting forth in reasonable detail the basis for requesting such amount) submitted by such Lender to Company (with a copy to Administrative Agent) shall be conclusive absent manifest error.

2.21. Defaulting Lenders. Anything contained herein to the contrary notwithstanding, in the event that any Lender violates any provision of Section 9.5(c), or, other than at the direction or request of any regulatory agency or authority, defaults (in each case, a “Defaulting Lender ”) in its obligation to fund (a “Funding Default” ) any Revolving Loan or its portion of any unreimbursed payment under Section 2.3(e) (in each case, a “Defaulted Loan” ), then (a) during any Default Period with respect to such Defaulting Lender, such Defaulting Lender shall be deemed not to be a “Lender” for purposes of voting on any matters (including the granting of any consents or waivers) with respect to any of the Credit Documents; (b) to the extent permitted by applicable law, until such time as the Default Excess, if any, with respect to such Defaulting Lender shall have been reduced to zero, (i) any voluntary prepayment of the Revolving Loans shall, if Administrative Agent so directs at the time of making such voluntary prepayment, be applied to the Revolving Loans of other Lenders as if such Defaulting Lender had no Revolving Loans outstanding and the Revolving Exposure of such Defaulting Lender were zero, and (ii) any mandatory prepayment of the Revolving Loans shall, if Administrative Agent so directs at the time of making such mandatory prepayment, be applied to the Revolving Loans of other Lenders (but not to the Revolving Loans of such Defaulting Lender) as if such

 

Credit and Guaranty Agreement

 

63


Defaulting Lender had funded all Defaulted Loans of such Defaulting Lender, it being understood and agreed that Company shall be entitled to retain any portion of any mandatory prepayment of the Revolving Loans that is not paid to such Defaulting Lender solely as a result of the operation of the provisions of this clause (b); (c) such Defaulting Lender’s Revolving Commitment and outstanding Revolving Loans and such Defaulting Lender’s Pro Rata Share of the Letter of Credit Usage shall be excluded for purposes of calculating the Revolving Commitment fee payable to Lenders in respect of any day during any Default Period with respect to such Defaulting Lender, and such Defaulting Lender shall not be entitled to receive any Revolving Commitment fee pursuant to Section 2.10 with respect to such Defaulting Lender’s Revolving Commitment in respect of any Default Period with respect to such Defaulting Lender; and (d) the Total Utilization of Revolving Commitments as at any date of determination shall be calculated as if such Defaulting Lender had funded all Defaulted Loans of such Defaulting Lender. No Revolving Commitment of any Lender shall be increased or otherwise affected, and, except as otherwise expressly provided in this Section 2.21, performance by Company of its obligations hereunder and the other Credit Documents shall not be excused or otherwise modified as a result of any Funding Default or the operation of this Section 2.21. The rights and remedies against a Defaulting Lender under this Section 2.21 are in addition to other rights and remedies which Company may have against such Defaulting Lender with respect to any Funding Default and which Administrative Agent or any Lender may have against such Defaulting Lender with respect to any Funding Default or violation of Section 9.5(c).

2.22. Removal or Replacement of a Lender. Anything contained herein to the contrary notwithstanding, in the event that: (a) (i) any Lender (an “Increased-Cost Lender” ) shall give notice to Company that such Lender is an Affected Lender or that such Lender is entitled to receive payments under Section 2.17(b), 2.18, 2.19 or 2.20, (ii) the circumstances which have caused such Lender to be an Affected Lender or which entitle such Lender to receive such payments shall remain in effect, and (iii) such Lender shall fail to withdraw such notice within five (5) Business Days after Company’s request for such withdrawal; or (b) (i) any Lender shall become a Defaulting Lender, (ii) the Default Period for such Defaulting Lender shall remain in effect, and (iii) such Defaulting Lender shall fail to cure the default as a result of which it has become a Defaulting Lender within five Business Days after Company’s request that it cure such default; or (c) in connection with any proposed amendment, modification, termination, waiver or consent with respect to any of the provisions hereof as contemplated by Section 10.5(b), the consent of Requisite Lenders shall have been obtained but the consent of one or more of such other Lenders (each a “Non-Consenting Lender” ) whose consent is required shall not have been obtained; then, with respect to each such Increased-Cost Lender, Defaulting Lender or Non-Consenting Lender (the “Terminated Lender” ), the Company by giving written notice to Administrative Agent and such Terminated Lender of its election to do so, may elect to cause such Terminated Lender (and such Terminated Lender hereby irrevocably agrees) to assign its outstanding Loans and its Revolving Commitments, if any, in full to one or more Eligible Assignees (each a “Replacement Lender” ) in accordance with the provisions of Section 10.6 and Terminated Lender shall pay any fees payable thereunder in connection with such assignment; provided , (1) on the date of such assignment, the Replacement Lender shall pay to Terminated Lender an amount equal to the sum of (A) an amount equal to the principal of, and all accrued interest on, all outstanding Loans of the Terminated Lender, (B) an amount equal to all unreimbursed drawings that have been funded by such Terminated Lender, together with all then unpaid interest with respect thereto at such time and (C) an amount equal to all accrued, but

 

Credit and Guaranty Agreement

 

64


theretofore unpaid fees owing to such Terminated Lender pursuant to Section 2.10(a) or (b); (2) on the date of such assignment, Company shall pay any amounts payable to such Terminated Lender pursuant to Section 2.18 or 2.19; and (3) in the event such Terminated Lender is a Non-Consenting Lender, each Replacement Lender shall consent, at the time of such assignment, to each matter in respect of which such Terminated Lender was a Non-Consenting Lender; provided , Administrative Agent may not make such election with respect to any Terminated Lender that is also an Issuing Bank unless, prior to the effectiveness of such election, Administrative Agent shall have caused each outstanding Letter of Credit issued thereby to be cancelled. Upon the prepayment of all amounts owing to any Terminated Lender and the termination of such Terminated Lender’s Revolving Commitments, if any, such Terminated Lender shall no longer constitute a “Lender” for purposes hereof; provided , any rights of such Terminated Lender to indemnification hereunder shall survive as to such Terminated Lender.

SECTION 3. CONDITIONS PRECEDENT

3.1. Closing Date . The obligation of each Lender or Issuing Bank, as applicable, to make a Credit Extension on the Closing Date is subject to the satisfaction, or waiver in accordance with Section 10.5, of the following conditions on or before the Closing Date:

(a) Credit Documents . Administrative Agent shall have received sufficient copies of each Credit Document originally executed and delivered by each applicable Credit Party for each Lender.

(b) Organizational Documents; Incumbency . Administrative Agent shall have received (i) sufficient copies of each Organizational Document executed and delivered by each Credit Party, as applicable, and, to the extent applicable, certified as of a recent date by the appropriate governmental official, for each Lender, each dated the Closing Date or a recent date prior thereto; (ii) signature and incumbency certificates of the officers of such Person executing the Credit Documents to which it is a party; (iii) resolutions of the Board of Directors or similar governing body of each Credit Party approving and authorizing the execution, delivery and performance of this Agreement and the other Credit Documents to which it is a party or by which it or its assets may be bound as of the Closing Date, certified as of the Closing Date by its secretary or an assistant secretary as being in full force and effect without modification or amendment; (iv) a good standing certificate from the applicable Governmental Authority of each Credit Party’s jurisdiction of incorporation, organization or formation and in each jurisdiction in which it is qualified as a foreign corporation or other entity to do business, each dated a recent date prior to the Closing Date; and (v) such other documents as Administrative Agent may reasonably request.

(c) Organizational and Capital Structure . The organizational structure and capital structure of Holdings and its Subsidiaries, shall be as set forth on Schedule 4.1.

 

Credit and Guaranty Agreement

 

65


(d) [ Intentionally Reserved ].

(e) [ Intentionally Reserved ].

(f) Existing Indebtedness . On the Closing Date, Holdings and its Subsidiaries shall have (i) repaid in full all Existing Indebtedness, (ii) terminated any commitments to lend or make other extensions of credit thereunder, (iii) delivered to Administrative Agent all documents or instruments necessary to release all Liens securing Existing Indebtedness or other obligations of Holdings and its Subsidiaries thereunder being repaid on the Closing Date, and (iv) made arrangements satisfactory to Administrative Agent with respect to the cancellation of any letters of credit outstanding thereunder or the issuance of Letters of Credit to support the obligations of Holdings and its Subsidiaries with respect thereto.

(g) Transaction Costs . On or prior to the Closing Date, Company shall have delivered to Administrative Agent Company’s reasonable best estimate of the Transactions Costs (other than fees payable to any Agent).

(h) Governmental Authorizations and Consents . Each Credit Party shall have obtained all Governmental Authorizations and all consents of other Persons, in each case that are necessary or advisable in connection with the transactions contemplated by the Credit Documents and each of the foregoing shall be in full force and effect and in form and substance reasonably satisfactory to Administrative Agent.

(i) Real Estate Assets . In order to create in favor of Collateral Agent, for the benefit of Secured Parties, a valid and, subject to any filing and/or recording referred to herein, perfected First Priority security interest in certain Real Estate Assets, Administrative Agent and Collateral Agent shall have received from Company and each applicable Guarantor:

(i) fully executed and notarized Mortgages, in proper form for recording in all appropriate places in all applicable jurisdictions, encumbering each Real Estate Asset listed in Schedule 3.1(i) (each, a “ Closing Date Mortgaged Property ”);

(ii) [intentionally reserved];

(iii) in the case of each Leasehold Property that is a Closing Date Mortgaged Property, the Credit Parties shall use their respective commercially reasonable efforts to deliver a Landlord Personal Property Collateral Access Agreement; provided , however , the failure of the Credit Parties to deliver such Landlord Personal Property Collateral Access Agreements shall not be a condition to Closing;

(iv) [intentionally reserved];

(v) evidence of flood insurance with respect to each Flood Hazard Property that is located in a community that participates in the National Flood Insurance Program, in each case in compliance with any applicable regulations of the Board of Governors of the Federal Reserve System, in form and substance reasonably satisfactory to Collateral Agent; and

 

Credit and Guaranty Agreement

 

66


(vi) to the extent in the possession of any Credit Party, ALTA surveys of each Closing Date Mortgaged Properties, if any.

(j) Personal Property Collateral . In order to create in favor of Collateral Agent, for the benefit of Secured Parties, a valid, perfected First Priority security interest in the personal property Collateral, Collateral Agent shall have received:

(i) evidence satisfactory to Collateral Agent of the compliance by each Credit Party of their obligations under the Pledge and Security Agreement and the other Collateral Documents (including, without limitation, their obligations to authorize or execute, as the case may be, and deliver UCC financing statements, originals of securities, instruments and chattel paper and any agreements governing deposit and/or securities accounts as provided therein);

(ii) A completed Collateral Questionnaire dated the Closing Date and executed by an Authorized Officer of each Credit Party, together with all attachments contemplated thereby, including (A) the results of a recent search, by a Person satisfactory to Collateral Agent, of all effective UCC financing statements (or equivalent filings) made with respect to any personal or mixed property of any Credit Party in the jurisdictions specified in the Collateral Questionnaire, together with copies of all such filings disclosed by such search, and (B) UCC termination statements (or similar documents) duly executed by all applicable Persons for filing in all applicable jurisdictions as may be necessary to terminate any effective UCC financing statements (or equivalent filings) disclosed in such search (other than any such financing statements in respect of Permitted Liens);

(iii) opinion of counsel (which counsel shall be reasonably satisfactory to Collateral Agent) with respect to the creation and perfection of the security interests in favor of Collateral Agent in such Collateral and such other matters governed by the laws of each jurisdiction in which any Credit Party or any personal property Collateral is located as Collateral Agent may reasonably request, in each case in form and substance reasonably satisfactory to Collateral Agent; provided , that such opinion may be given solely in reliance upon the opining party’s review of the Uniform Commercial Code Reporting Service; and

(iv) evidence that each Credit Party shall have taken or caused to be taken any other action, executed and delivered or caused to be executed and delivered any other agreement, document and instrument and made or caused to be made any other filing and recording (other than as set forth herein) reasonably required by Collateral Agent.

(k) Environmental Reports . To the extent in the possession of any Credit Party, Administrative Agent shall have received a Phase I Report for each Closing Date Mortgaged Property.

 

Credit and Guaranty Agreement

 

67


(l) Financial Statements; Projections . Lenders shall have received from Holdings (i) the Historical Financial Statements, (ii) a pro forma consolidated balance sheet of Holdings and its Subsidiaries as at the Closing Date, and reflecting the consummation of the related financings and the other transactions contemplated by the Credit Documents to occur on or prior to the Closing Date, which pro forma financial statements shall be in form and substance satisfactory to Administrative Agent, and (iii) the Projections.

(m) Evidence of Insurance . Collateral Agent shall have received a certificate from Company’s insurance broker or other evidence satisfactory to it that all insurance required to be maintained pursuant to Section 5.5 is in full force and effect, together with endorsements naming the Collateral Agent, for the benefit of Secured Parties, as additional insured and loss payee thereunder to the extent required under Section 5.5.

(n) Opinion Letter of Counsel to Credit Parties . Lenders and their respective counsel shall have received originally executed copies of the favorable written opinion letter of Miller, Egan, Molter & Nelson LLP, counsel for Credit Parties and as to such other matters as Administrative Agent may reasonably request, dated as of the Closing Date and otherwise in form and substance reasonably satisfactory to Administrative Agent (and each Credit Party hereby instructs such counsel to deliver such opinion letter to Agents and Lenders).

(o) [ Intentionally Reserved ].

(p) Fees . Company shall have paid to Administrative Agent, the fees payable on the Closing Date referred to in Section 2.10(e).

(q) Solvency Certificate . On the Closing Date, Administrative Agent shall have received a Solvency Certificate from Company dated as of the Closing Date and addressed to Administrative Agent and Lenders, and in form, scope and substance satisfactory to Administrative Agent, with appropriate attachments and demonstrating that after giving effect to the making of the Loans on the Closing Date, Company and its Subsidiaries are and will be Solvent.

(r) Closing Date Certificate . Holdings and Company shall have delivered to Administrative Agent an originally executed Closing Date Certificate, together with all attachments thereto.

(s) [ Intentionally Reserved ].

(t) No Litigation . There shall not exist any action, suit, investigation, litigation or proceeding or other legal or regulatory developments, pending or threatened in any court or before any arbitrator or Governmental Authority that, in the reasonable discretion of Administrative Agent, singly or in the aggregate, materially impairs the transactions contemplated by the Credit Documents or that could have a Material Adverse Effect.

(u) Due Diligence . Other than changes occurring in the ordinary course of business, no information or materials are or should have been available to Holdings and its Subsidiaries as of the Closing Date that are materially inconsistent with the material previously provided to Administrative Agent for its due diligence review of Holdings and its Subsidiaries.

(v) [ Intentionally Reserved ].

 

Credit and Guaranty Agreement

 

68


(w) Consolidated Liquidity . The pro forma balance sheet delivered pursuant to Section 3.1(l) shall demonstrate in form and substance reasonably satisfactory to Administrative Agent that on the Closing Date and immediately after giving effect to any Credit Extensions to be made on the Closing Date, including the payment of all Transaction Costs required to be paid in Cash, the Company shall have Consolidated Liquidity equal to or greater than $10,000,000.

(x) Minimum Consolidated Adjusted EBITDA . The pro forma income statement delivered pursuant to Section 3.1(l) shall demonstrate in form and substance reasonably satisfactory to Administrative Agent that during the twelve (12) Fiscal Month period ending on June 14, 2011, the Company shall have Consolidated Adjusted EBITDA of at least $30,000,000.

(y) Maximum Senior Leverage Ratio . The pro forma balance sheet delivered pursuant to Section 3.1(l) shall demonstrate in form and substance reasonably satisfactory to Administrative Agent that on the Closing Date and immediately after giving effect to any Credit Extensions to be made on the Closing Date, including the payment of all Transaction Costs required to be paid in Cash, the Senior Leverage Ratio as of such Date shall not be greater than 2.50:1.00.

(z) No Material Adverse Change . Since December 28, 2010, no event, circumstance or change shall have occurred that has caused or evidences, either in any case or in the aggregate, a Material Adverse Effect.

(aa) Completion of Proceedings . All partnership, corporate and other proceedings taken or to be taken in connection with the transactions contemplated hereby and all documents incidental thereto not previously found acceptable by Administrative Agent and its counsel shall be satisfactory in form and substance to Administrative Agent and such counsel, and Administrative Agent, and such counsel shall have received all such counterpart originals or certified copies of such documents as Administrative Agent may reasonably request.

Each Lender, by delivering its signature page to this Agreement and funding a Loan on the Closing Date, shall be deemed to have acknowledged receipt of, and consented to and approved, each Credit Document and each other document required to be approved by any Agent, Requisite Lenders or Lenders, as applicable on the Closing Date.

3.2. Conditions to Each Credit Extension.

(a) Conditions Precedent . The obligation of each Lender to make any Loan, or Issuing Bank to issue any Letter of Credit, on any Credit Date, including the Closing Date, are subject to the satisfaction, or waiver in accordance with Section 10.5, of the following conditions precedent:

(i) Administrative Agent shall have received a fully executed and delivered Funding Notice or Issuance Notice, as the case may be;

 

Credit and Guaranty Agreement

 

69


(ii) after making the Credit Extensions requested on such Credit Date, (x) the Total Utilization of Revolving Commitments shall not exceed the Revolving Commitments then in effect and (y) Availability would be $0 or greater;

(iii) as of such Credit Date, the representations and warranties contained herein and in the other Credit Documents shall be true and correct in all material respects on and as of that Credit Date to the same extent as though made on and as of that date, except to the extent such representations and warranties specifically relate to an earlier date, in which case such representations and warranties shall have been true and correct in all material respects on and as of such earlier date;

(iv) as of such Credit Date, no event shall have occurred and be continuing or would result from the consummation of the applicable Credit Extension that would constitute an Event of Default or a Default;

(v) on or before the date of issuance of any Letter of Credit during the LC Availability Period, Administrative Agent shall have received all other information required by the applicable Issuance Notice, and such other documents or information as Issuing Bank may reasonably require in connection with the issuance of such Letter of Credit;

(vi) [Intentionally Reserved.]

(vii) as of such Credit Date, the Senior Leverage Ratio determined as of such date after giving effect to the contemplated Credit Extension shall not exceed the maximum Leverage Ratio permitted as of the last day of the immediately preceding Fiscal Quarter pursuant to Section 6.8; and

(viii) [Intentionally Reserved.]

Administrative Agent or Requisite Lenders shall be entitled, but not obligated to, request and receive, prior to the making of any Credit Extension, additional information reasonably satisfactory to the requesting party confirming the satisfaction of any of the foregoing if, in the good faith judgment of such Agent or Requisite Lender such request is warranted under the circumstances.

(b) Notices . Any Notice shall be executed by an Authorized Officer in a writing delivered to Administrative Agent. In lieu of delivering a Notice, Company may give Administrative Agent telephonic notice by the required time of any proposed borrowing, conversion/continuation or issuance of a Letter of Credit, as the case may be; provided each such notice shall be promptly confirmed in writing by delivery of the applicable Notice to Administrative Agent on or before the applicable date of borrowing, continuation/conversion or issuance. Neither Administrative Agent nor any Lender shall incur any liability to Company in acting upon any telephonic notice referred to above that Administrative Agent believes in good faith to have been given by a duly authorized officer or other person authorized on behalf of Company or for otherwise acting in good faith.

 

Credit and Guaranty Agreement

 

70


3.3. Conditions Subsequent to the Closing Date. Company shall fulfill, on or before the date applicable thereto (which date can be extended in writing by the Administrative Agent in its sole discretion), each of the conditions subsequent specified in Section 5.15.

SECTION 4. REPRESENTATIONS AND WARRANTIES

In order to induce Agents and Lenders and Issuing Bank to enter into this Agreement and to make each Credit Extension to be made thereby, each Credit Party represents and warrants to each Agent and Lender and Issuing Bank, on the Closing Date and on each Credit Date, that the following statements are true and correct :

4.1. Organization; Requisite Power and Authority; Qualification. Each of Holdings and its Subsidiaries (a) is, except for CCM as set forth in Schedule 5.15, duly organized, validly existing and in good standing under the laws of its jurisdiction of organization as identified in Schedule 4.1, (b) has all requisite power and authority to own and operate its properties, to carry on its business as now conducted and as proposed to be conducted, to enter into the Credit Documents to which it is a party and to carry out the transactions contemplated thereby, and (c) is qualified to do business and in good standing in every jurisdiction where its assets are located and wherever necessary to carry out its business and operations, except in jurisdictions where the failure to be so qualified or in good standing has not had, and could not be reasonably expected to have, a Material Adverse Effect.

4.2. Capital Stock and Ownership. The Capital Stock of each of Holdings and its Subsidiaries has been duly authorized and validly issued and is fully paid and non-assessable. Except as set forth on Schedule 4.2, as of the date hereof, there is no existing option, warrant, call, right, commitment or other agreement to which Holdings or any of its Subsidiaries is a party requiring, and there is no membership interest or other Capital Stock of Holdings or any of its Subsidiaries outstanding which upon conversion or exchange would require, the issuance by Holdings or any of its Subsidiaries of any additional membership interests or other Capital Stock of Holdings or any of its Subsidiaries or other Securities convertible into, exchangeable for or evidencing the right to subscribe for or purchase, a membership interest or other Capital Stock of Holdings or any of its Subsidiaries. Schedule 4.2 correctly sets forth the ownership interest of Holdings and each of its Subsidiaries in their respective Subsidiaries as of the Closing Date.

4.3. Due Authorization. The execution, delivery and performance of the Credit Documents have been duly authorized by all necessary action on the part of each Credit Party that is a party thereto.

4.4. No Conflict. The execution, delivery and performance by Credit Parties of the Credit Documents to which they are parties and the consummation of the transactions contemplated by the Credit Documents do not and will not (a) violate any provision of any law or any governmental rule or regulation applicable to Holdings or any of its Subsidiaries, any of the Organizational Documents of Holdings or any of its Subsidiaries, or any order, judgment or decree of any court or other agency of government binding on Holdings or any of its Subsidiaries; (b) conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any Contractual Obligation of Holdings or any of its Subsidiaries; (c)

 

Credit and Guaranty Agreement

 

71


result in or require the creation or imposition of any Lien upon any of the properties or assets of Holdings or any of its Subsidiaries (other than any Liens created under any of the Credit Documents in favor of Collateral Agent, on behalf of Secured Parties); or (d) require any approval of stockholders, members or partners or any approval or consent of any Person under any Contractual Obligation of Holdings or any of its Subsidiaries, except for such approvals or consents which will be obtained on or before the Closing Date and disclosed in writing to Lenders.

4.5. Governmental Consents. The execution, delivery and performance by Credit Parties of the Credit Documents to which they are parties and the consummation of the transactions contemplated by the Credit Documents do not and will not require any registration with, consent or approval of, or notice to, or other action to, with or by, any Governmental Authority except for filings and recordings with respect to the Collateral to be made, or otherwise delivered to Collateral Agent for filing and/or recordation, as of the Closing Date.

4.6. Binding Obligation. Each Credit Document has been duly executed and delivered by each Credit Party that is a party thereto and is the legally valid and binding obligation of such Credit Party, enforceable against such Credit Party in accordance with its respective terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors’ rights generally or by equitable principles relating to enforceability, or as may result from CCM’s failure to be validly existing and in good standing in its jurisdiction of organization as of the Closing Date as set forth in Schedule 5.15.

4.7. Historical Financial Statements. The Historical Financial Statements were prepared in conformity with GAAP and fairly present, in all material respects, the financial position, on a consolidated basis, of the Persons described in such financial statements as at the respective dates thereof and the results of operations and cash flows, on a consolidated basis, of the entities described therein for each of the periods then ended, subject, in the case of any such unaudited financial statements, to changes resulting from audit and normal year-end adjustments and the absence of footnotes. As of the Closing Date, neither Holdings nor any of its Subsidiaries has any contingent liability or liability for taxes, long-term lease or unusual forward or long-term commitment that is not reflected in the Historical Financial Statements or the notes thereto and which in any such case is material in relation to the business, operations, properties, assets, condition (financial or otherwise) or prospects of Holdings and any of its Subsidiaries taken as a whole.

4.8. Projections. On and as of the Closing Date, the Projections of Holdings and its Subsidiaries for the period of Fiscal Year 2011 through and including Fiscal Year 2015 (which Projections shall include in the case of Fiscal Years 2011 and 2012 projections for each Fiscal Quarter during such Fiscal Years and annually for periods thereafter) (the “Projections” ) are based on good faith estimates and assumptions made by the management of Holdings; provided , the Projections are not to be viewed as facts and that actual results during the period or periods covered by the Projections may differ from such Projections and that the differences may be material; provided further, as of the Closing Date, management of Holdings believed in good faith that the Projections were reasonable and attainable.

 

Credit and Guaranty Agreement

 

72


4.9. No Material Adverse Change. Since December 28, 2010, no event, circumstance or change has occurred that has caused or evidences, either in any case or in the aggregate, a Material Adverse Effect.

4.10. No Restricted Junior Payments. Since December 28, 2010, neither Holdings nor any of its Subsidiaries has directly or indirectly declared, ordered, paid or made, or set apart any sum or property for, any Restricted Junior Payment or agreed to do so except as permitted pursuant to Section 6.5.

4.11. Adverse Proceedings, etc. There are no Adverse Proceedings, individually or in the aggregate, that could reasonably be expected to have a Material Adverse Effect. Neither Holdings nor any of its Subsidiaries (a) is in violation of any applicable laws (excluding Environmental Laws, which are specifically addressed in Section 4.14) that, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect, or (b) is subject to or in default with respect to any final judgments, writs, injunctions, decrees, rules or regulations of any court or any federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, that, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect.

4.12. Payment of Taxes. Except as otherwise permitted under Section 5.3, all tax returns and reports of Holdings and its Subsidiaries required to be filed by any of them have been timely filed, and all taxes shown on such tax returns to be due and payable and all assessments, fees and other governmental charges upon Holdings and its Subsidiaries and upon their respective properties, assets, income, businesses and franchises which are due and payable have been paid when due and payable. Holdings knows of no proposed tax assessment against Holdings or any of its Subsidiaries which could reasonably be expected to have a Material Adverse Effect or which is not being actively contested by Holdings or such Subsidiary in good faith and by appropriate proceedings; provided , such reserves or other appropriate provisions, if any, as shall be required in conformity with GAAP shall have been made or provided therefor.

4.13. Properties.

(a) Title . Each of Holdings and its Subsidiaries has (i) good, sufficient and legal title to (in the case of fee interests in real property), (ii) valid leasehold interests in (in the case of leasehold interests in real or personal property), and (iii) good title to (in the case of all other personal property), all of their respective material properties and assets reflected in their respective Historical Financial Statements referred to in Section 4.5 and in the most recent financial statements delivered pursuant to Section 5.1, in each case except for assets disposed of since the date of such financial statements in the ordinary course of business or as otherwise permitted under Section 6.9. Except as permitted by this Agreement, all such properties and assets are free and clear of Liens.

(b) Real Estate . As of the Closing Date, Schedule 4.13 contains a true, accurate and complete list of all Real Estate Assets. As of the Closing Date, each lease or sublease relating to such Real Estate Asset is in full force and effect and Holdings does not have knowledge of any default that has occurred and is continuing thereunder which could reasonably be expected to have a Material Adverse Effect, and each such agreement constitutes the legally

 

Credit and Guaranty Agreement

 

73


valid and binding obligation of each applicable Credit Party, enforceable against such Credit Party in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors’ rights generally or by equitable principles.

4.14. Environmental Matters. Neither Holdings nor any of its Subsidiaries nor any of their respective Facilities or operations are subject to any outstanding written order, consent decree or settlement agreement with any Person relating to any Environmental Law, any Environmental Claim, or any Hazardous Materials Activity that, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. Neither Holdings nor any of its Subsidiaries has received any letter or written request for information under Section 104 of the Comprehensive Environmental Response, Compensation, and Liability Act (42 U.S.C. § 9604) or any comparable state law. There are and, to each of Holdings’ and its Subsidiaries’ knowledge, have been, no conditions, occurrences, or Hazardous Materials Activities which could reasonably be expected to form the basis of an Environmental Claim against Holdings or any of its Subsidiaries that, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. Neither Holdings nor any of its Subsidiaries nor, to any Credit Party’s knowledge, any predecessor of Holdings or any of its Subsidiaries has filed any notice under any Environmental Law indicating past or present treatment of Hazardous Materials at any Facility, and none of Holdings’ or any of its Subsidiaries’ operations involves the generation, transportation, treatment, storage or disposal of hazardous waste, as defined under 40 C.F.R. Parts 260-270 or any state equivalent, in violation of applicable Environmental Laws. Compliance with all current or reasonably foreseeable future requirements pursuant to or under Environmental Laws could not be reasonably expected to have, individually or in the aggregate, a Material Adverse Effect. No event or condition has occurred or is occurring with respect to Holdings or any of its Subsidiaries relating to any Environmental Law, any Release of Hazardous Materials, or any Hazardous Materials Activity which individually or in the aggregate has had, or could reasonably be expected to have, a Material Adverse Effect.

4.15. No Defaults. Neither Holdings nor any of its Subsidiaries is in default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any of its Contractual Obligations, and no condition exists which, with the giving of notice or the lapse of time or both, could constitute such a default, except, with respect to any of the foregoing, where the consequences, direct or indirect, of such default or defaults, if any, could not reasonably be expected to have a Material Adverse Effect.

4.16. Material Contracts. Schedule 4.16 contains a true, correct and complete list of all the Material Contracts in effect on the Closing Date. The Material Contracts described in Schedule 4.16, together with any updates provided pursuant to Section 5.1(l), are in full force and effect and no defaults currently exist thereunder (other than as described in Schedule 4.16 or in such updates), except as could not reasonably be expected to have a Material Adverse Effect.

4.17. Governmental Regulation. Neither Holdings nor any of its Subsidiaries is subject to regulation under the Public Utility Holding Company Act of 2005, the Federal Power Act or the Investment Company Act of 1940 or under any other federal or state statute or regulation which may limit its ability to incur Indebtedness or which may otherwise render all or any portion of the Obligations unenforceable. Neither Holdings nor any of its Subsidiaries is a “registered investment company” or a company “controlled” by a “registered investment company” or a “principal underwriter” of a “registered investment company” as such terms are defined in the Investment Company Act of 1940.

 

Credit and Guaranty Agreement

 

74


4.18. Margin Stock. Neither Holdings nor any of its Subsidiaries is engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying any Margin Stock. No part of the proceeds of the Loans made to such Credit Party will be used to purchase or carry any such Margin Stock or to extend credit to others for the purpose of purchasing or carrying any such Margin Stock or for any purpose that violates, or is inconsistent with, the provisions of Regulation T, U or X of the Board of Governors of the Federal Reserve System.

4.19. Employee Matters. Neither Holdings nor any of its Subsidiaries is engaged in any unfair labor practice that could reasonably be expected to have a Material Adverse Effect. There is (a) no unfair labor practice complaint pending against Holdings or any of its Subsidiaries, or to the best knowledge of Holdings and Company, threatened against any of them before the National Labor Relations Board and no grievance or arbitration proceeding arising out of or under any collective bargaining agreement that is so pending against Holdings or any of its Subsidiaries or to the best knowledge of Holdings and Company, threatened against any of them, (b) no strike or work stoppage in existence or threatened involving Holdings or any of its Subsidiaries, and (c) to the best knowledge of Holdings and Company, no union representation question existing with respect to the employees of Holdings or any of its Subsidiaries and, to the best knowledge of Holdings and Company, no union organization activity that is taking place, except (with respect to any matter specified in clause (a), (b) or (c) above, either individually or in the aggregate) such as could not reasonably be expected to have a Material Adverse Effect.

4.20. Employee Benefit Plans. Holdings, each of its Subsidiaries and each of their respective ERISA Affiliates are in compliance with all applicable provisions and requirements of ERISA and the Internal Revenue Code and the regulations and published interpretations thereunder with respect to each Employee Benefit Plan, and have performed all their obligations under each Employee Benefit Plan, except as could not reasonably be expected to have a Material Adverse Effect. Each Employee Benefit Plan which is intended to qualify under Section 401(a) of the Internal Revenue Code has received a favorable determination letter from the Internal Revenue Service indicating that such Employee Benefit Plan is so qualified and nothing has occurred subsequent to the issuance of such determination letter which would cause such Employee Benefit Plan to lose its qualified status. No liability to the PBGC (other than required premium payments), the Internal Revenue Service, any Employee Benefit Plan or any trust established under Title IV of ERISA has been or is expected to be incurred by Holdings, any of its Subsidiaries or any of their ERISA Affiliates, except as could not reasonably be expected to have a Material Adverse Effect. No ERISA Event has occurred or is reasonably expected to occur, except as could not reasonably be expected to have a Material Adverse Effect. Holdings, each of its Subsidiaries and each of their ERISA Affiliates have complied with the requirements of Section 515 of ERISA with respect to each Multiemployer Plan and are not in material “default” (as defined in Section 4219(c)(5) of ERISA) with respect to payments to a Multiemployer Plan, except as could not reasonably be expected to have a Material Adverse Effect.

 

Credit and Guaranty Agreement

 

75


4.21. Certain Fees. No broker’s or finder’s fee or commission claimed by any Person by, through or under any Credit Party will be payable with respect hereto or any of the transactions contemplated hereby.

4.22. Solvency. Each Credit Party is and, upon the incurrence of any Credit Extension by such Credit Party on any date on which this representation and warranty is made, will be, Solvent.

4.23. [Intentionally Reserved].

4.24. Compliance with Statutes, etc.

(a) Each of the material licenses or permits required by any applicable federal, state or local law, rule or regulation for the operation of the respective businesses of each of Holdings and its Subsidiaries is valid and in effect, except as, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. Each of Holdings and its Subsidiaries is in compliance with all applicable statutes, regulations and orders of, and all applicable restrictions imposed by, all Governmental Authorities, in respect of the conduct of its business and the ownership of its property (including compliance with all applicable Environmental Laws with respect to any Real Estate Asset or governing its business and the requirements of any permits issued under such Environmental Laws with respect to any such Real Estate Asset or the operations of Holdings or any of its Subsidiaries), except such non-compliance that, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect.

(b) The Company and each applicable Subsidiary has the requisite authority for the continued operation of all restaurants owned by the applicable Credit Party with full food and liquor service in accordance with Applicable Laws, except where the failure to have such authority, either individually or in aggregate, could not reasonably be expected to result in a Material Adverse Effect.

4.25. Disclosure. No representation or warranty of any Credit Party contained in any Credit Document or in any other documents, certificates or written statements furnished to Lenders by or on behalf of Holdings or any of its Subsidiaries for use in connection with the transactions contemplated hereby contains any untrue statement of a material fact or omits to state a material fact (known to Holdings or Company, in the case of any document not furnished by either of them) necessary in order to make the statements contained herein or therein not misleading in light of the circumstances in which the same were made. Any projections and pro forma financial information contained in such materials are based upon good faith estimates and assumptions believed by Holdings or Company to be reasonable at the time made, it being recognized by Lenders that such projections as to future events are not to be viewed as facts and that actual results during the period or periods covered by any such projections may differ from the projected results. There are no facts known to Holdings or Company (other than matters of a general economic or industry nature) that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect and that have not been disclosed herein or in such other documents, certificates and statements furnished to Lenders for use in connection with the transactions contemplated hereby.

 

Credit and Guaranty Agreement

 

76


4.26. Patriot Act. To the extent applicable, each Credit Party is in compliance, in all material respects, with the (i) Trading with the Enemy Act, as amended, and each of the foreign assets control regulations of the United States Treasury Department (31 C.F.R., Subtitle B, Chapter V, as amended) and any other enabling legislation or executive order relating thereto, and (ii) Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA Patriot Act of 2001) (the “Act” ). No part of the proceeds of the Loans will be used, directly or indirectly, for any payments to any governmental official or employee, political party, official of a political party, candidate for political office, or anyone else acting in an official capacity, in order to obtain, retain or direct business or obtain any improper advantage, in violation of the United States Foreign Corrupt Practices Act of 1977, as amended.

4.27. Non-Credit Party Lease Guaranties.

(a) Schedule 4.27 contains a true, accurate and complete list of all Non-Credit Party Lease Guaranties in effect on the Closing Date and sets forth (i) the name of the tenant under the relevant lease, (ii) the name of the Credit Party party to the Non-Credit Party Lease Guaranty provided in respect of each such lease, (iii) the monthly base rents currently payable under each such lease, (iv) the expiration date of each such lease, (v) the date of the expiration of any other guaranty of such lease (to the extent different than the expiration date of such Non-Credit Party Lease Guaranty), and (vi) a description of any scheduled increases to the monthly base rents, if any, of each such lease. Except as set forth in Schedule 4.27, on the Closing Date, each such lease is in full force and effect and no default by any tenant (and to each of Holdings’ and its Subsidiaries’ knowledge, no defaults by any other party) exist under any such lease.

(b) In the case of each lease in respect of which a Non-Credit Party Lease Guaranty has been provided, there are no material obligations of any Credit Party under such lease other than the obligations of the Credit Party identified as a guarantor thereof as a guarantor of rental payments under such lease.

4.28. Inactive Subsidiaries . Schedule 4.28 contains a true, correct, and complete list of Inactive Subsidiaries existing as of the Closing Date.

SECTION 5. AFFIRMATIVE COVENANTS

Each Credit Party covenants and agrees that so long as any Commitment is in effect and until payment in full of all Obligations and cancellation or expiration of all Letters of Credit, each Credit Party shall perform, and shall cause each of its Subsidiaries to perform, all covenants in this Section 5.

5.1. Financial Statements and Other Reports. Unless otherwise provided below, Holdings will deliver to Administrative Agent and Lenders:

(a) Monthly Reports . As soon as available, and in any event within 35 days after the end of each Fiscal Month (including Fiscal Months which began prior to the Closing Date), the consolidated balance sheet of Holdings and its Subsidiaries as at the end of such Fiscal Month and the related consolidated statements of income and cash flows of Holdings and its

 

Credit and Guaranty Agreement

 

77


Subsidiaries for such Fiscal Month and for the period from the beginning of the then current Fiscal Year to the end of such Fiscal Month, setting forth in the case of the statement of income in comparative form the corresponding figures for the corresponding periods of the previous Fiscal Year and the corresponding figures from the Financial Plan for the current Fiscal Year, all in reasonable detail, together with a Financial Officer Certification with respect thereto;

(b) Quarterly Financial Statements . As soon as available, and in any event within 45 days after the end of each Fiscal Quarter of each Fiscal Year (including the fourth Fiscal Quarter), the consolidated balance sheet of Holdings and its Subsidiaries as at the end of such Fiscal Quarter and the related consolidated statements of income and cash flows of Holdings and its Subsidiaries for such Fiscal Quarter and for the period from the beginning of the then current Fiscal Year to the end of such Fiscal Quarter, setting forth in the case of the statement of income in comparative form the corresponding figures for the corresponding periods of the previous Fiscal Year, all in reasonable detail, together with a Financial Officer Certification and a Narrative Report with respect thereto;

(c) Annual Financial Statements . As soon as available, and in any event within 120 days after the end of each Fiscal Year, (i) the consolidated balance sheet of Holdings and its Subsidiaries as at the end of such Fiscal Year and the related consolidated statements of income and cash flows of Holdings and its Subsidiaries for such Fiscal Year, setting forth in each case in comparative form the corresponding figures for the previous Fiscal Year, in reasonable detail, together with a Financial Officer Certification and a Narrative Report with respect thereto; and (ii) with respect to such consolidated financial statements a report thereon of Ernst & Young LLP or other independent certified public accountants of recognized national standing selected by Holdings, and reasonably satisfactory to Administrative Agent (which report shall be unqualified as to going concern and scope of audit, and shall state that such consolidated financial statements fairly present, in all material respects, the consolidated financial position of Holdings and its Subsidiaries as at the dates indicated and the results of their operations and their cash flows for the periods indicated in conformity with GAAP applied on a basis consistent with prior years (except as otherwise disclosed in such financial statements) and that the examination by such accountants in connection with such consolidated financial statements has been made in accordance with generally accepted auditing standards);

(d) Compliance Certificate . Together with each delivery of financial statements of Holdings and its Subsidiaries pursuant to Sections 5.1(b) and 5.1(c), a duly executed and completed Compliance Certificate;

(e) [Intentionally Reserved.]

(f) Notice of Default . Promptly upon any officer of Holdings or Company obtaining knowledge (i) of any condition or event that constitutes a Default or an Event of Default or that notice has been given to Holdings or Company with respect thereto; (ii) that any Person has given any notice to Holdings or any of its Subsidiaries or taken any other action with respect to any event or condition set forth in Section 8.1(b); or (iii) of the occurrence of any event or change that has caused or evidences, either in any case or in the aggregate, a Material Adverse Effect, a certificate of its Authorized Officers specifying the nature and period of existence of such condition, event or change, or specifying the notice given and action taken by any such Person and the nature of such claimed Event of Default, Default, default, event or condition, and what action Company has taken, is taking and proposes to take with respect thereto;

 

Credit and Guaranty Agreement

 

78


(g) Notice of Litigation . Promptly upon any officer of Holdings or Company obtaining knowledge of (i) the institution of, or non-frivolous written threat of, any Adverse Proceeding not previously disclosed in writing by Company to Lenders, or (ii) any material development in any Adverse Proceeding that, in the case of either clause (i) or (ii) if adversely determined, could be reasonably expected to have a Material Adverse Effect, or seeks to enjoin or otherwise prevent the consummation of, or to recover any damages or obtain relief as a result of, the transactions contemplated hereby, written notice thereof together with such other non-privileged information as may be reasonably available to Holdings or Company to enable Lenders and their counsel to evaluate such matters;

(h) ERISA . (i) Promptly upon becoming aware of the occurrence of or forthcoming occurrence of any ERISA Event that could reasonably be expected to result in a material liability to Holdings or any of its Subsidiaries, a written notice specifying the nature thereof, what action Holdings, any of its Subsidiaries or any of their respective ERISA Affiliates has taken, is taking or proposes to take with respect thereto and, when known, any action taken or threatened by the Internal Revenue Service, the Department of Labor or the PBGC with respect thereto; and (ii) with reasonable promptness, upon any request of Administrative Agent, copies of (1) each Schedule B (Actuarial Information) to the annual report (Form 5500 Series) filed by Holdings, any of its Subsidiaries or any of their respective ERISA Affiliates with the Internal Revenue Service with respect to each Pension Plan; (2) all notices received by Holdings, any of its Subsidiaries or any of their respective ERISA Affiliates from a Multiemployer Plan sponsor concerning an ERISA Event; and (3) copies of such other documents or governmental reports or filings relating to any Employee Benefit Plan as Administrative Agent shall reasonably request;

(i) Financial Plan . As soon as practicable and in any event no later than 30 days following the beginning of each Fiscal Year, a consolidated plan and financial forecast for such Fiscal Year and each Fiscal Year (or portion thereof) through the final maturity date of the Loans (a “Financial Plan” ), including (i) a forecasted consolidated balance sheet and forecasted consolidated statements of income and cash flows of Holdings and its Subsidiaries for each such Fiscal Year, together with an explanation of the assumptions on which such forecasts are based, (ii) forecasted consolidated statements of income and cash flows of Holdings and its Subsidiaries for each month of each such Fiscal Year, (iii) forecasts demonstrating projected compliance with the requirements of Section 6.8 through the final maturity date of the Loans, and (iv) forecasts demonstrating adequate liquidity through the final maturity date of the Loans, together, in each case, with an explanation of the assumptions on which such forecasts are based all in form and substance reasonably satisfactory to Agents;

(j) Insurance Report . As soon as practicable and in any event by the last day of each Fiscal Year, a report in form and substance satisfactory to Administrative Agent outlining all material insurance coverage maintained as of the date of such report by Holdings and its Subsidiaries and all material insurance coverage planned to be maintained by Holdings and its Subsidiaries in the immediately succeeding Fiscal Year;

 

Credit and Guaranty Agreement

 

79


(k) Notice Regarding Non-Credit Party Lease Guaranties . Promptly, and in any event within ten (10) days after receipt of any notice asserting any non-contingent liability of any Credit Party with respect to any obligations under a Non-Credit Party Lease Guaranty, written notice thereof together with such other information with respect thereto as may be reasonably requested by Administrative Agent;

(l) Notice Regarding Material Contracts . Promptly, and in any event within ten (10) Business Days (i) after any Material Contract of Holdings or any of its Subsidiaries is terminated or amended in a manner that is materially adverse to Holdings or such Subsidiary, as the case may be (including an explanation of any actions being taken with respect thereto), or (ii) any new Material Contract is entered into, a written statement describing such event, with copies of such material amendments or new contracts, delivered to Administrative Agent (to the extent such delivery is permitted by the terms of any such Material Contract; provided , no such prohibition on delivery shall be effective if it were bargained for by Holdings or its applicable Subsidiary with the intent of avoiding compliance with this Section 5.1(l));

(m) Environmental Reports and Audits . As soon as practicable following receipt thereof, copies of all environmental audits and reports with respect to environmental matters relating to any Facility or which relate to any environmental liabilities of Holdings or its Subsidiaries which, in any such case, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect;

(n) Information Regarding Collateral . (a) Company will furnish to Collateral Agent prior written notice of any change (i) in any Credit Party’s organizational name, (ii) in any Credit Party’s identity or organizational structure, or (iii) in any Credit Party’s Federal Taxpayer Identification Number. Company also agrees promptly to notify Collateral Agent if any material portion of the Collateral is damaged or destroyed;

(o) Annual Collateral Verification . Each year, at the time of delivery of annual financial statements with respect to the preceding Fiscal Year pursuant to Section 5.1(c), Company shall deliver to Collateral Agent an Officer’s Certificate (i) either confirming that there has been no change in such information since the date of the Collateral Questionnaire delivered on the Closing Date or the date of the most recent certificate delivered pursuant to this Section and/or identifying such changes, or (ii) certifying that all UCC financing statements (including fixtures filings, as applicable) or other appropriate filings, recordings or registrations, have been filed of record in each governmental, municipal or other appropriate office in each jurisdiction identified in the Collateral Questionnaire or pursuant to clause (i) above to the extent necessary to protect and perfect the security interests under the Collateral Documents for a period of not less than 18 months after the date of such certificate (except as noted therein with respect to any continuation statements to be filed within such period);

(p) [Intentionally Reserved];

(q) [Intentionally Reserved]; and

 

Credit and Guaranty Agreement

 

80


(r) Other Information . (A) Promptly upon their becoming available, copies of (i) all financial statements, reports, notices and proxy statements sent or made available generally by Holdings to its security holders acting in such capacity or by any Subsidiary of Holdings to its security holders other than Holdings or another Subsidiary of Holdings, (ii) all press releases and other statements made available generally by Holdings or any of its Subsidiaries to the public concerning material developments in the business of Holdings or any of its Subsidiaries, and (B) such other information and data with respect to Holdings or any of its Subsidiaries as from time to time may be reasonably requested by Administrative Agent.

5.2. Existence. Except as otherwise permitted under Section 6.9 or, with respect to CCM, as set forth in Schedule 5.15, each Credit Party will, and will cause each of its Subsidiaries to, at all times preserve and keep in full force and effect its existence and all rights and franchises, licenses and permits material to its business; provided , except as otherwise provided in Section 8.1, no Credit Party or any of its Subsidiaries shall be required to preserve any such existence, right or franchise, licenses and permits if such Person’s board of directors (or similar governing body) shall determine that the preservation thereof is no longer desirable in the conduct of the business of such Person, and that the loss thereof, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect.

5.3. Payment of Taxes and Claims. Each Credit Party will, and will cause each of its Subsidiaries to, pay all material Taxes imposed upon it or any of its properties or assets or in respect of any of its income, businesses or franchises before any penalty or fine accrues thereon, and all claims (including claims for labor, services, materials and supplies) for sums that have become due and payable and that by law have or may become a Lien upon any of its properties or assets, prior to the time when any penalty or fine shall be incurred with respect thereto; provided , no such Tax or claim need be paid if it is being contested in good faith by appropriate proceedings promptly instituted and diligently conducted, so long as (a) adequate reserve or other appropriate provision, as shall be required in conformity with GAAP shall have been made therefor, and (b) in the case of a Tax or claim which has or may become a Lien against any of the Collateral, such contest proceedings conclusively operate to stay the sale of any portion of the Collateral to satisfy such Tax or claim. No Credit Party will, nor will it permit any of its Subsidiaries to, file or consent to the filing of any consolidated income tax return with any Person (other than Holdings or any of its Subsidiaries). In addition, Company agrees to pay to the relevant Governmental Authority in accordance with applicable law any current or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies (excluding mortgage recording taxes, transfer taxes and similar fees directly related to the perfection of any Lien obtained in favor of Collateral Agent on any Mortgaged Properties) imposed by any Governmental Authority that arise from any payment made hereunder or from the execution, delivery or registration of, or otherwise with respect to, this Agreement, except where the failure to pay such amounts would not be materially adverse to any Agent, any Lender or any Credit Party.

5.4. Maintenance of Properties. Each Credit Party will, and will cause each of its Subsidiaries to, maintain or cause to be maintained in good repair, working order and condition, ordinary wear and tear excepted, all material properties used or useful in the business of Holdings and its Subsidiaries and from time to time will make or cause to be made all appropriate repairs, renewals and replacements thereof.

 

Credit and Guaranty Agreement

 

81


5.5. Insurance. Holdings will maintain or cause to be maintained, with financially sound and reputable insurers, (i) business interruption insurance reasonably satisfactory to Administrative Agent, and (ii) casualty insurance, such public liability insurance, third party property damage insurance with respect to liabilities, losses or damage in respect of the assets, properties and businesses of Holdings and its Subsidiaries as may customarily be carried or maintained under similar circumstances by Persons of established reputation engaged in similar businesses, in each case in such amounts (giving effect to self-insurance), with such deductibles, covering such risks and otherwise on such terms and conditions as shall be customary for such Persons. Without limiting the generality of the foregoing, Holdings will maintain or cause to be maintained (a) flood insurance with respect to each Flood Hazard Property that is located in a community that participates in the National Flood Insurance Program, in each case in compliance with any applicable regulations of the Board of Governors of the Federal Reserve System, and (b) replacement value casualty insurance on the Collateral under such policies of insurance, with such insurance companies, in such amounts, with such deductibles, and covering such risks as are at all times carried or maintained under similar circumstances by Persons of established reputation engaged in similar businesses. Each such policy of insurance shall (i) name Collateral Agent, on behalf of Lenders as an additional insured thereunder as its interests may appear, and (ii) in the case of each casualty insurance policy, contain a loss payable clause or endorsement, satisfactory in form and substance to Collateral Agent, that names Collateral Agent, on behalf of Secured Parties as the loss payee thereunder and provides for at least thirty days’ prior written notice to Collateral Agent of any modification or cancellation of such policy.

5.6. Inspections. Each Credit Party will, and will cause each of its Subsidiaries to, permit any authorized representatives designated by any Agent or any Lender to visit and inspect any of the properties of any Credit Party and any of its respective Subsidiaries, to inspect, copy and take extracts from its and their financial and accounting records, and to discuss its and their affairs, finances and accounts with its and their officers and, from and after the occurrence and during the continuation of an Event of Default, independent public accountants, all upon reasonable notice and at such reasonable times during normal business hours and as often as may reasonably be requested; provided , that Agents and the Lenders shall use reasonable efforts to coordinate any such visits and inspections.

5.7. Lenders Meetings. Holdings and Company will, upon the request of Administrative Agent or Requisite Lenders, participate in a meeting of Administrative Agent and Lenders once during each Fiscal Year to be held at Holdings’ corporate offices (or at such other location as may be agreed to by Holdings and Administrative Agent) at such time as may be agreed to by Company and Administrative Agent.

5.8. Compliance with Laws. Each Credit Party will comply, and shall cause each of its Subsidiaries and all other Persons, if any, on or occupying any Facilities to comply, with the requirements of all applicable laws, rules, regulations and orders of any Governmental Authority (including all Environmental Laws), noncompliance with which could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.

 

Credit and Guaranty Agreement

 

82


5.9. Environmental.

(a) Environmental Disclosure . Holdings will deliver to Administrative Agent and Lenders:

(i) as soon as practicable following receipt thereof, copies of all environmental audits, investigations, analyses and reports of any kind or character, whether prepared by personnel of Holdings or any of its Subsidiaries or by independent consultants, Governmental Authorities or any other Persons, with respect to significant environmental matters at any Facility or with respect to any Environmental Claims, in each case which could reasonably be expected to have a Material Adverse Effect;

(ii) promptly upon the occurrence thereof, written notice describing in reasonable detail (1) any Release required to be reported to any federal, state or local governmental or regulatory agency under any applicable Environmental Laws which could reasonably be expected to have a Material Adverse Effect, or (2) any remedial action taken by Holdings or any other Person in response to (A) any Hazardous Materials Activities the existence of which has a reasonable possibility of resulting in one or more Environmental Claims having, individually or in the aggregate, a Material Adverse Effect, or (B) any Environmental Claims that, individually or in the aggregate, have a reasonable possibility of resulting in a Material Adverse Effect;

(iii) as soon as practicable following the sending or receipt thereof by Holdings or any of its Subsidiaries, a copy of any and all written communications with respect to (1) any Environmental Claims that, individually or in the aggregate, have a reasonable possibility of giving rise to a Material Adverse Effect, (2) any Release required to be reported to any Governmental Authority which could reasonably be expected to have a Material Adverse Effect, and (3) any request for information from any Governmental Authority that suggests such agency is investigating whether Holdings or any of its Subsidiaries may be potentially responsible for any Hazardous Materials Activity that could reasonably be expected to have a Material Adverse Effect;

(iv) prompt written notice describing in reasonable detail (1) any proposed acquisition of stock, assets, or property by Holdings or any of its Subsidiaries that could reasonably be expected to (A) expose Holdings or any of its Subsidiaries to, or result in, Environmental Claims that could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect or (B) affect the ability of Holdings or any of its Subsidiaries to maintain in full force and effect all material Governmental Authorizations required under any Environmental Laws for their respective operations and (2) any proposed action to be taken by Holdings or any of its Subsidiaries to modify current operations in a manner that could reasonably be expected to subject Holdings or any of its Subsidiaries to any additional material obligations or requirements under any Environmental Laws; and

(v) with reasonable promptness, such other documents and information as from time to time may be reasonably requested by Administrative Agent in relation to any matters disclosed pursuant to this Section 5.9(a).

 

Credit and Guaranty Agreement

 

83


(b) Hazardous Materials Activities, Etc . Each Credit Party shall promptly take, and shall cause each of its Subsidiaries promptly to take, any and all actions necessary to (i) cure any violation of applicable Environmental Laws by such Credit Party or its Subsidiaries that could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect, and (ii) make an appropriate response to any Environmental Claim against such Credit Party or any of its Subsidiaries and discharge any obligations it may have to any Person thereunder where failure to do so could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.

5.10. Subsidiaries. In the event that any Person (other than an Inactive Subsidiary) becomes a Domestic Subsidiary of Company, Company shall (a) concurrently with such Person becoming a Domestic Subsidiary cause such Domestic Subsidiary to become a Guarantor hereunder and a Grantor under the Pledge and Security Agreement by executing and delivering to Administrative Agent and Collateral Agent a Counterpart Agreement, and (b) take all such actions and execute and deliver, or cause to be executed and delivered, all such documents, instruments, agreements, and certificates as are similar to those described in Sections 3.1(b), 3.1(i) (in the case of delivery of Mortgages, solely to the extent such Subsidiary has fee interests in any Material Real Estate Assets), 3.1(j), 3.1(k), and 3.1(m). In the event that any Person (other than an Inactive Subsidiary) becomes a Foreign Subsidiary of Company, and the ownership interests of such Foreign Subsidiary are directly owned by Company or by any Domestic Subsidiary thereof, Company shall, or shall cause such Domestic Subsidiary to, concurrently deliver, all such documents, instruments, agreements, and certificates as are similar to those described in Section 3.1(b), and Company shall take, or shall cause such Domestic Subsidiary to take, all of the actions referred to in Section 3.1(j)(i) necessary to grant and to perfect a First Priority Lien in favor of Collateral Agent, for the benefit of Secured Parties, under the Pledge and Security Agreement in sixty-five percent (65%) of the voting ownership interests in a first-tier Foreign Subsidiary and one hundred percent (100%) of the non-voting ownership interests in a first-tier Foreign Subsidiary. With respect to each such Subsidiary, Company shall promptly send to Administrative Agent written notice setting forth with respect to such Person (i) the date on which such Person became a Subsidiary of Company, and (ii) all of the data required to be set forth in Schedules 4.1 and 4.2 with respect to all Subsidiaries of Company; provided , such written notice shall be deemed to supplement Schedule 4.1 and 4.2 for all purposes hereof.

5.11. Additional Material Real Estate Assets. In the event that any Credit Party acquires a Material Real Estate Asset (other than a Leasehold Property), then such Credit Party, contemporaneously with acquiring such Material Real Estate Asset or promptly after a Real Estate Asset owned or leased on the Closing Date becomes a Material Real Estate Asset (or, in either case, such longer period to which Administrative Agent may agree), shall take all such actions and execute and deliver, or cause to be executed and delivered, all such mortgages, documents, instruments, agreements, opinions and certificates similar to those described in Sections 3.1(i), 3.1(j) and 3.1(k) with respect to each such Material Real Estate Asset that Collateral Agent shall reasonably request to create in favor of Collateral Agent, for the benefit of Secured Parties, a valid and, subject to any filing and/or recording referred to herein, perfected First Priority security interest in such Material Real Estate Assets. In the event that any Credit Party acquires a Material Real Estate Asset which is a Leasehold Property, then such Credit Party, contemporaneously with acquiring such Material Real Estate Asset and/or for a

 

Credit and Guaranty Agreement

 

84


commercially reasonable period thereafter, shall use commercially reasonable efforts to obtain a Landlord Personal Property Collateral Access Agreement with respect thereto. In addition to the foregoing, Company shall, at the request of Requisite Lenders, deliver, from time to time, to Administrative Agent such appraisals as are required by law or regulation of Real Estate Assets with respect to which Collateral Agent has been granted a Lien.

5.12. [Intentionally Reserved].

5.13. Further Assurances. At any time or from time to time upon the reasonable request of Administrative Agent, each Credit Party will, at its expense, promptly execute, acknowledge and deliver such further documents and do such other acts and things as Administrative Agent or Collateral Agent may reasonably request in order to effect fully the purposes of the Credit Documents, including providing Lenders with any information reasonably requested pursuant to Section 10.21. In furtherance and not in limitation of the foregoing, each Credit Party shall take such actions as Administrative Agent or Collateral Agent may reasonably request from time to time to ensure that the Obligations are guaranteed by the Guarantors and are secured by substantially all of the assets of Holdings and its Domestic Subsidiaries and all of the outstanding Capital Stock of Company and its Domestic Subsidiaries and sixty-five percent (65%) of the voting ownership interests in their respective first-tier Foreign Subsidiaries and one hundred percent (100%) of the non-voting ownership interests in their respective first-tier Foreign Subsidiaries.

5.14. Miscellaneous Business Covenants. Unless otherwise consented to by Agents and Requisite Lenders:

(a) Non-Consolidation . Holdings will and will cause each of its Subsidiaries to: (i) maintain entity records and books of account separate from those of any other entity which is an Affiliate of such entity and not a Credit Party; (ii) not commingle its funds or assets with those of any other entity which is an Affiliate of such entity and not a Credit Party; and (iii) provide that its board of directors or other analogous governing body will hold all appropriate meetings to authorize and approve such entity’s actions, which meetings will be separate from those of other entities.

(b) Cash Management Systems . Holdings and its Subsidiaries shall establish and maintain cash management systems reasonably acceptable to Administrative Agent, including, without limitation, with respect to blocked account arrangements.

(c) [Intentionally Reserved.]

(d) Activities of Management . The Chief Executive Officer (if any), Chief Financial Officer (if any),and Chief Operating Officer (if any) of each Credit Party shall devote all or substantially all of his or her professional working time, attention, and energies to the management of the businesses of the Credit Parties.

5.15. Post Closing Matters. Company shall, and shall cause each of the Credit Parties to, satisfy the requirements set forth on Schedule 5.15 on or before the date specified for such requirement or such later date to be determined by the Agent.

 

Credit and Guaranty Agreement

 

85


SECTION 6. NEGATIVE COVENANTS

Each Credit Party covenants and agrees that, so long as any Commitment is in effect and until payment in full of all Obligations and cancellation or expiration of all Letters of Credit, such Credit Party shall perform, and shall cause each of its Subsidiaries to perform, all covenants in this Section 6.

6.1. Indebtedness. No Credit Party shall, nor shall it permit any of its Subsidiaries to, directly or indirectly, create, incur, assume or guaranty, or otherwise become or remain directly or indirectly liable with respect to any Indebtedness, except:

(a) the Obligations;

(b) Indebtedness of any Guarantor Subsidiary to Company or to any other Guarantor Subsidiary, or of Company to any Guarantor Subsidiary (other than, in each case, to a Permitted Joint Venture); provided , (i) all such Indebtedness shall be evidenced by promissory notes and all such notes shall be subject to a First Priority Lien pursuant to the Pledge and Security Agreement, (ii) all such Indebtedness shall be unsecured and subordinated in right of payment to the payment in full of the Obligations pursuant to the terms of the applicable promissory notes or an intercompany subordination agreement that in any such case, is reasonably satisfactory to Administrative Agent, and (iii) any payment by any such Guarantor Subsidiary under any guaranty of the Obligations shall result in a pro tanto reduction of the amount of any Indebtedness owed by such Subsidiary to Company or to any of its Subsidiaries for whose benefit such payment is made;

(c) Subordinated Indebtedness (including any such Subordinated Indebtedness acquired in connection with any Permitted Acquisition) in an aggregate principal amount not to exceed (i) $10,000,000 if (I) the Senior Leverage Ratio covenant required by Section 6.8(c) as of the last day of the Fiscal Quarter in which such Subordinated Indebtedness is incurred is greater than 2.50 to 1.00 and (II) after giving effect to the incurrence of such Subordinated Indebtedness, Company would be in compliance with such Senior Leverage Ratio covenant, and (ii) $15,000,000 if (I) the Senior Leverage Ratio covenant required by Section 6.8(c) as of the last day of such Fiscal Quarter in which such Subordinated Indebtedness is incurred is less than or equal to 2.50 to 1.00 and (II) after giving effect to the incurrence of such Subordinated Indebtedness, Company would be in compliance with such Senior Leverage Ratio covenant;

(d) Indebtedness incurred by Holdings or any of its Subsidiaries arising from agreements providing for indemnification, or from guaranties or letters of credit, surety bonds or performance bonds securing the performance of Company or any such Subsidiary pursuant to such agreements, in connection with Permitted Acquisitions or permitted dispositions of any business, assets or Subsidiary of Holdings or any of its Subsidiaries;

(e) Indebtedness which may be deemed to exist pursuant to any guaranties, performance, surety, statutory, or appeal bonds or similar obligations incurred in the ordinary course of business;

 

Credit and Guaranty Agreement

 

86


(f) Indebtedness in respect of netting services, overdraft protections and otherwise in connection with deposit accounts;

(g) guaranties in the ordinary course of business of the obligations of suppliers, customers, franchisees and licensees of Holdings and its Subsidiaries;

(h) guaranties by Company of Indebtedness of a Guarantor Subsidiary or guaranties by a Subsidiary of Company of Indebtedness of Company or a Guarantor Subsidiary with respect, in each case, to Indebtedness otherwise permitted to be incurred pursuant to this Section 6.1 or other obligations of Credit Parties to the extent not prohibited by this Agreement or the other Credit Documents;

(i) Indebtedness described in Schedule 6.1, but not any extensions, renewals or replacements of such Indebtedness except (i) renewals and extensions expressly provided for in the agreements evidencing any such Indebtedness as the same are in effect on the date of this Agreement, and (ii) refinancings and extensions of any such Indebtedness if the terms and conditions thereof are not less favorable to the obligor thereon or to the Lenders than the Indebtedness being refinanced or extended, and the average life to maturity thereof is greater than or equal to that of the Indebtedness being refinanced or extended; provided , such Indebtedness permitted under the immediately preceding clause (i) or (ii) above shall not (A) include Indebtedness of an obligor that was not an obligor with respect to the Indebtedness being extended, renewed or refinanced, or (B) exceed in a principal amount the Indebtedness being renewed, extended or refinanced (except by an amount equal to the accrued but unpaid interest on such Indebtedness, and customary and reasonable prepayments premiums or penalties and fees and expenses incurred in connection with the renewal, extension or refinancing);

(j) Indebtedness (including any such Indebtedness acquired in connection with Permitted Acquisitions) in an aggregate amount not to exceed at any time $8,500,000 with respect to (x) Capital Leases and (y) purchase money Indebtedness; provided , in the case of clause (x), that any such Indebtedness shall be secured only by the asset subject to such Capital Lease, and, in the case of clause (y), that any such Indebtedness shall (i) be secured only by the asset acquired in connection with the incurrence of such Indebtedness and (ii) constitute not less than 90% of the aggregate consideration paid with respect to such asset;

(k) Indebtedness of Holdings or Company in respect of (i) Non-Credit Party Lease Guaranties, as in effect on the Closing Date and without amendment, expansion or extension thereof, or (ii) Guaranteed Leases;

(l) Indebtedness consisting of letters of credit (other than Letters of Credit issued pursuant to this Agreement) issued for the benefit of Company or any Domestic Subsidiary in the ordinary course of business and for purposes not prohibited by this Agreement or the other Credit Documents, to the extent such letters of credit are fully cash collateralized and the aggregate face amount of all such letters of credit does not exceed (i) at times other than during the LC Availability Period, $3,000,000 or (ii) $0 during the LC Availability Period; provided , however , notwithstanding the foregoing, any letters of credit outstanding as of the commencement of the LC Availability Period (“ Grandfathered LCs ”) may remain outstanding for the stated term thereof (without extension or renewal);

 

Credit and Guaranty Agreement

 

87


(m) Indebtedness arising under Interest Rate Agreements and Currency Agreements;

(n) Indebtedness of Foreign Subsidiaries in an aggregate principal amount at any time outstanding not to exceed $5,000,000;

(o) Indebtedness arising under forward commodities agreements for the purchase of meat entered into in the ordinary course of business in order to manage existing or anticipated commodities price and supply risks and not for speculative purposes;

(p) Indebtedness of any Credit Party under insurance premium financings entered into in the ordinary course of business;

(q) Indebtedness of the Credit Parties secured solely by fee owned Real Estate Assets that does not exceed $5,000,000 in an aggregate principal amount at any time; provided , such Indebtedness is non-recourse to any Credit Party;

(r) Indebtedness arising from (i) any customer reward program or (ii) gift cards issued by any Credit Party, in each case, in the ordinary course of business;

(s) other unsecured Indebtedness not described in clauses (a) through (r) above in an aggregate principal amount not to exceed at any time $3,500,000.

6.2. Liens. No Credit Party shall, nor shall it permit any of its Subsidiaries to, directly or indirectly, create, incur, assume or permit to exist any Lien on or with respect to any property or asset of any kind (including any document or instrument in respect of goods or accounts receivable) of Holdings or any of its Subsidiaries, whether now owned or hereafter acquired, or any income or profits therefrom, or file or permit the filing of, or permit to remain in effect, any financing statement or other similar notice of any Lien with respect to any such property, asset, income or profits under the UCC of any State or under any similar recording or notice statute, except:

(a) Liens in favor of Collateral Agent for the benefit of Secured Parties granted pursuant to any Credit Document;

(b) Liens for Taxes if obligations with respect to such Taxes are not yet due or are being contested in good faith by appropriate proceedings promptly instituted and diligently conducted so long as the aggregate amount of such Taxes does not exceed $2,500,000;

(c) statutory Liens of landlords, banks (and rights of set-off), carriers, warehousemen, mechanics, repairmen, workmen and materialmen, and other Liens imposed by law (other than any such Lien imposed pursuant to Section 401 (a)(29) or 412(n) of the Internal Revenue Code or by ERISA), in each case incurred in the ordinary course of business (i) for amounts not yet overdue, or (ii) for amounts that are overdue and that (in the case of any such amounts overdue for a period in excess of ten (10) days) are being contested in good faith by appropriate proceedings, so long as such reserves or other appropriate provisions, if any, as shall be required by GAAP shall have been made for any such contested amounts;

 

Credit and Guaranty Agreement

 

88


(d) Liens incurred in the ordinary course of business in connection with workers’ compensation, unemployment insurance and other types of social security, or to secure the performance of tenders, statutory obligations, surety and appeal bonds, bids, leases, government contracts, trade contracts, performance and return-of-money bonds and other similar obligations (exclusive of obligations for the payment of borrowed money or other Indebtedness), so long as no foreclosure, sale or similar proceedings have been commenced with respect to any portion of the Collateral on account thereof;

(e) easements, rights-of-way, restrictions, encroachments, and other minor defects or irregularities in title, in each case which do not and will not interfere in any material respect with the ordinary conduct of the business of Holdings or any of its Subsidiaries;

(f) any interest or title of a lessor or sublessor under any lease of real estate permitted hereunder;

(g) Liens solely on any cash earnest money deposits made by Holdings or any of its Subsidiaries in connection with any letter of intent or purchase agreement permitted hereunder;

(h) purported Liens evidenced by the filing of precautionary UCC financing statements relating solely to operating leases of personal property entered into in the ordinary course of business;

(i) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods;

(j) any zoning or similar law or right reserved to or vested in any governmental office or agency to control or regulate the use of any real property;

(k) licenses of patents, trademarks and other intellectual property rights granted by Holdings or any of its Subsidiaries in the ordinary course of business and not interfering in any respect with the ordinary conduct of the business of Company or such Subsidiary;

(l) Liens described in Schedule 6.2 or on a title report delivered pursuant to Section 3.1(i)(iv), and any extension, renewal or replacement (or successive extensions, renewals or replacements), in whole or in part, of any such Lien;  provided  that such extension, renewal or replacement Lien shall be limited to all or a part of the property which was subject to the Lien so extended, renewed or replaced; provided , that no such Lien shall at any time be extended to cover property or assets other than the property or assets subject thereto on the Closing Date;

(m) Liens securing purchase money Indebtedness permitted pursuant to Section 6.1(j); provided , any such Lien shall encumber only the asset acquired with the proceeds of such Indebtedness;

(n) Liens in favor of any Lender or Lender Counterparty party to an Interest Rate Agreement or Currency Agreement;

 

Credit and Guaranty Agreement

 

89


(o) Liens arising out of judgments, attachments or awards not resulting in an Event of Default and in respect of which the relevant Credit Party shall in good faith be prosecuting an appeal or proceedings for review in respect of which there shall be secured a subsisting stay of execution pending such appeal or proceedings;

(p) normal and customary Liens, rights of setoff and recoupment rights upon deposits of cash in favor of banks or other depository institutions relating to due and unpaid bank fees, bank charges, returned checks and chargebacks, and other normal and customary obligations associated with the maintenance of deposit accounts by such banks or other depository institutions, in each case, other than in connection with the borrowing of money;

(q) Liens on real estate securing Indebtedness permitted pursuant to Section 6.1(q);

(r) Liens on Cash or Cash Equivalents held by the issuer of letters of credit incurred in accordance with Section 6.1(l); and

(s) other Liens not described in clauses (a) through (r) above, so long as the aggregate principal amount of Indebtedness secured thereby does not in the aggregate exceed $3,500,000 at any time.

6.3. Equitable Lien. If any Credit Party or any of its Subsidiaries shall create or assume any Lien upon any of its properties or assets, whether now owned or hereafter acquired, other than Permitted Liens, it shall make or cause to be made effective provisions whereby the Obligations will be secured by such Lien equally and ratably with any and all other Indebtedness secured thereby as long as any such Indebtedness shall be so secured; provided , notwithstanding the foregoing, this covenant shall not be construed as a consent by Requisite Lenders to the creation or assumption of any such Lien not otherwise permitted hereby.

6.4. No Further Negative Pledges. Except with respect to (a) specific property encumbered by a Lien permitted by Section 6.2 to secure payment of particular Indebtedness or to be sold pursuant to an executed agreement with respect to a permitted Asset Sale, (b) restrictions by reason of customary provisions restricting assignments, subletting or other transfers contained in leases, licenses and similar agreements entered into in the ordinary course of business (provided that such restrictions are limited to the property or assets secured by such Liens or the property or assets subject to such leases, licenses or similar agreements, as the case may be), and (c) restrictions in other Indebtedness incurred in compliance with Section 6.1 in respect of Liens in favor of parties other than the Secured Parties; provided that such restrictions, taken as a whole, are, in the good faith judgment of Company’s board of directors, no more materially restrictive with respect to such encumbrances and restrictions than those contained in this Agreement, no Credit Party nor any of its Subsidiaries shall enter into any agreement prohibiting the creation or assumption of any Lien upon any of its properties or assets, whether now owned or hereafter acquired.

6.5. Restricted Junior Payments. No Credit Party shall, nor shall it permit any of its Subsidiaries or Affiliates through any manner or means or through any other Person to, directly or indirectly, declare, order, pay, make or set apart, or agree to declare, order, pay, make or set apart, any sum for any Restricted Junior Payment except that:

 

Credit and Guaranty Agreement

 

90


(a) Company and any other first-tier Subsidiary of Holdings may make Restricted Junior Payments to Holdings in an aggregate amount not in excess of $500,000 in any Fiscal Year for general corporate purposes (other than for purposes which are restricted under clause (b), clause (c) and/or clause (d) of this Section 6.5) of Holdings consistent with the past practices of Holdings, including, for purpose of (i) paying general administrative costs and other costs and expenses incurred in the ordinary course of business, (ii) discharging the consolidated tax liabilities of Holdings and its Subsidiaries, (iii) consummating Permitted Acquisitions and (iv) making capital contributions to its Subsidiaries, in each case, to the extent permitted by this Agreement and so long as Holdings applies the full amount of any such Restricted Junior Payment for such purpose and contributes any excess amount to the Company;

(b) so long as no Default or Event of Default shall have occurred and be continuing or shall be caused thereby, Holdings may repurchase Capital Stock of Holdings from officers, directors and employees of Holdings or any Subsidiary in an aggregate amount not to exceed (i) $2,000,000 in any consecutive four-Fiscal Quarter period or (ii) $10,000,000 during the term of this Agreement, in each case, so long as Holdings applies the full amount of any such Restricted Junior Payment for such purpose and contributes any excess amount to the Company;

(c) Holdings may (i) repurchase Capital Stock to the extent such repurchase is deemed to occur upon the exercise of options, warrants or other convertible securities to the extent such Capital Stock represent a portion of the exercise price of those options, warrants or other convertible securities and (ii) make cash payments in lieu of the issuance of fractional shares in connection with the exercise of options, warrants, or other convertible securities in an aggregate amount not to exceed $100,000 in any consecutive four-Fiscal Quarter period;

(d) so long as no Default or Event of Default shall have occurred and be continuing or shall be caused thereby, Company may make (i) Permitted Management Fee Payments, (ii) Permitted Non-Credit Party Guaranty Payments, and (iii) Permitted Minority Interest Distributions; and

(e) the Credit Parties may make payments with respect to any Subordinated Indebtedness solely to the extent expressly permitted by the subordination agreement applicable thereto.

6.6. Restrictions on Subsidiary Distributions. Except as provided herein, no Credit Party shall, nor shall it permit any of its Subsidiaries to, create or otherwise cause or suffer to exist or become effective any consensual encumbrance or restriction of any kind on the ability of any Subsidiary of Company to (a) pay dividends or make any other distributions on any of such Subsidiary’s Capital Stock owned by Company or any other Subsidiary of Company, (b) repay or prepay any Indebtedness owed by such Subsidiary to Company or any other Subsidiary of Company, (c) make loans or advances to Company or any other Subsidiary of Company, or (d) transfer any of its property or assets to Company or any other Subsidiary of Company other than restrictions (i) in agreements evidencing purchase money Indebtedness permitted by Section 6.1(j) that impose restrictions on the property so acquired, (ii) by reason of customary provisions

 

Credit and Guaranty Agreement

 

91


restricting assignments, subletting or other transfers contained in leases, licenses, joint venture agreements and similar agreements entered into in the ordinary course of business, (iii) that are or were created by virtue of any transfer of, agreement to transfer or option or right with respect to any property, assets or Capital Stock not otherwise prohibited under this Agreement, (iv) any Permitted Lien or any document or instrument governing any Permitted Lien;  provided  that any such restriction contained therein relates only to the asset or assets subject to such Permitted Lien, and (v) restrictions in other Indebtedness incurred in compliance with Section 6.1 which restrictions do not restrict the ability of any Subsidiary to make any dividend or distribution or repayment required by this Agreement or which could not otherwise reasonably be expected to cause or result in a Default or an Event of Default under this Agreement;  provided  that such restrictions, taken as a whole, are, in the good faith judgment of Holdings’ board of directors, no more materially restrictive with respect to such encumbrances and restrictions than those contained in this Agreement.

6.7. Investments. No Credit Party shall, nor shall it permit any of its Subsidiaries to, directly or indirectly, make or own any Investment in any Person, including without limitation any Joint Venture, except:

(a) Investments in Cash and Cash Equivalents;

(b) equity Investments owned as of the Closing Date in any Subsidiary and Investments made after the Closing Date in any wholly-owned Guarantor Subsidiaries of Company;

(c) Investments (i) in any Securities received in satisfaction or partial satisfaction thereof from financially troubled account debtors, and (ii) consisting of deposits, prepayments and other credits to suppliers made in the ordinary course of business consistent with the past practices of Holdings and its Subsidiaries;

(d) intercompany loans to the extent permitted under Section 6.1(b);

(e) Consolidated Capital Expenditures;

(f) loans and advances to employees of Holdings and its Subsidiaries (i) made in the ordinary course of business and described on Schedule 6.7, and (ii) any refinancings of such loans after the Closing Date in an aggregate amount not to exceed $1,000,000;

(g) [intentionally reserved];

(h) Investments described in Schedule 6.7;

(i) Permitted Acquisitions (including Permitted Joint Ventures acquired in connection therewith);

(j) Interest Rate Agreements and Currency Agreements;

(k) non-cash consideration received from any Asset Sales to the extent permitted by Section 6.9;

 

Credit and Guaranty Agreement

 

92


(l) Investments in Foreign Subsidiaries in aggregate amount not to exceed $2,000,000; and

(m) other Investments not described in clauses (a) through (l) above and not otherwise prohibited by this Agreement in an aggregate amount outstanding not to exceed $2,500,000 at any time.

Notwithstanding the foregoing, in no event shall any Credit Party make any Investment which results in or facilitates in any manner any Restricted Junior Payment not otherwise permitted under the terms of Section 6.5.

6.8. Financial Covenants.

(a) [Intentionally Reserved] .

(b) Fixed Charge Coverage Ratio . Holdings shall not permit the Fixed Charge Coverage Ratio as of the last day of any Fiscal Quarter, beginning with the third Fiscal Quarter of 2011, to be less than the correlative ratio indicated:

 

Fiscal Quarter

   Fixed Charge Coverage
Ratio

the third Fiscal Quarter of 2011

   0.75:1.00

the fourth Fiscal Quarter of 2011

   1.50:1.00

the first, second, third and fourth Fiscal Quarters of 2012

   1.75:1.00

the first Fiscal Quarter of 2013 and each Fiscal Quarter ending thereafter

   2.00:1.00

(c) Senior Leverage Ratio . Holdings shall not permit the Senior Leverage Ratio as of the last day of any Fiscal Quarter, beginning with the third Fiscal Quarter of 2011, to exceed the correlative ratio indicated:

 

Fiscal Quarter

   Leverage
Ratio
 

the third Fiscal Quarter of 2011

     3.50:1.00   

the fourth Fiscal Quarter of 2011 and the first Fiscal Quarter of 2012

     3.25:1.00   

the second Fiscal Quarter of 2012

     3.00:1.00   

the third and fourth Fiscal Quarters of 2012

     2.75:1.00   

the first and second Fiscal Quarters of 2013

     2.50:1.00   

the third and fourth Fiscal Quarters of 2013 and the first Fiscal Quarter of 2014

     2.25:1.00   

the second Fiscal Quarter of 2014 and each Fiscal Quarter ending thereafter

     2.00:1.00   

 

Credit and Guaranty Agreement

 

93


(d) Consolidated Adjusted Store-Level EBITDA . Holdings shall not permit Consolidated Adjusted Store-Level EBITDA as at the end of any Fiscal Quarter, beginning with the third Fiscal Quarter of 2011, for the four Fiscal Quarter period then ended to be less than $29,500,000.

(e) [Intentionally Reserved] .

(f) [Intentionally Reserved] .

(g) [Intentionally Reserved] .

(h) Minimum Consolidated Liquidity . Holdings shall not permit Consolidated Liquidity to be less than $3,000,000 at any time.

(i) [Intentionally Reserved] .

6.9. Fundamental Changes; Disposition of Assets; Acquisitions. No Credit Party shall, nor shall it permit any of its Subsidiaries to, enter into any transaction of merger or consolidation, or liquidate, wind-up or dissolve itself (or suffer any liquidation or dissolution), or convey, sell, lease or sub-lease (as lessor or sublessor), exchange, transfer or otherwise dispose of, in one transaction or a series of transactions, all or any part of its business, assets or property of any kind whatsoever, whether real, personal or mixed and whether tangible or intangible, whether now owned or hereafter acquired, or acquire by purchase or otherwise (other than purchases or other acquisitions of inventory, materials and equipment and Capital Expenditures in the ordinary course of business) the business, property or fixed assets of, or stock or other evidence of beneficial ownership of, any Person or any division or line of business or other business unit of any Person, except:

(a) any Subsidiary of Holdings may be merged with or into Company or any Subsidiary, or be liquidated, wound up or dissolved, or all or any part of its business, property or assets may be conveyed, sold, leased, transferred or otherwise disposed of, in one transaction or a series of transactions, to Company or any Subsidiary; provided , (i) in the case of any of the foregoing transactions involving Company or any Guarantor Subsidiary, Company or (if Company is not involved) such Guarantor Subsidiary shall be the continuing or surviving Person or the transferee of the business, property or assets, and (ii) in the case of any of the foregoing transactions involving a Permitted Joint Venture and any other Credit Party, such other Credit Party shall be the continuing or surviving Person or the transferee of the business, property or assets;

 

Credit and Guaranty Agreement

 

94


(b) sales or other dispositions of assets that do not constitute Asset Sales;

(c) Asset Sales, the proceeds of which when aggregated with the proceeds of all other Asset Sales made during such Fiscal Quarter and the three most recently ended Fiscal Quarters are less than $5,000,000; provided (i) the consideration received for such assets shall be in an amount at least equal to the fair market value thereof (determined in good faith by the board of directors of Company (or similar governing body)), (ii) no less than 75% thereof shall be paid in Cash, and (iii) the Net Asset Sale Proceeds thereof shall be applied as required by Section 2.13(a);

(d) disposals of obsolete or worn out property;

(e) Permitted Dallas Dispositions; and

(f) Investments made in accordance with Section 6.7.

6.10. Disposal of Subsidiary Interests. Except for any sale of all of its interests in the Capital Stock of any of its Subsidiaries in compliance with the provisions of Section 6.9, no Credit Party shall, nor shall it permit any of its Subsidiaries to, (a) directly or indirectly sell, assign, pledge or otherwise encumber or dispose of any Capital Stock of any of its Subsidiaries, except to qualify directors if required by applicable law; or (b) permit any of its Subsidiaries directly or indirectly to sell, assign, pledge or otherwise encumber or dispose of any Capital Stock of any of its Subsidiaries, except to another Credit Party (subject to the restrictions on such disposition otherwise imposed hereunder), or to qualify directors if required by applicable law.

6.11. Sales and Lease-Backs. Other than in connection with a Permitted Dallas Disposition, no Credit Party shall, nor shall it permit any of its Subsidiaries to, directly or indirectly, become or remain liable as lessee or as a guarantor or other surety with respect to any lease of any property (whether real, personal or mixed), whether now owned or hereafter acquired, which such Credit Party (a) has sold or transferred or is to sell or to transfer to any other Person (other than Holdings or any of its Subsidiaries), or (b) intends to use for substantially the same purpose as any other property which has been or is to be sold or transferred by such Credit Party to any Person (other than Holdings or any of its Subsidiaries) in connection with such lease, except for any such transaction if, after giving effect thereto, the Credit Parties shall be in compliance with Section 6.1, 6.2 and 6.9.

6.12. Transactions with Affiliates. No Credit Party shall, nor shall it permit any of its Subsidiaries to, directly or indirectly, enter into or permit to exist any transaction (including the purchase, sale, lease or exchange of any property or the rendering of any service) with any Affiliate; provided , however , that the Credit Parties and their Subsidiaries may enter into or permit to exist any such transaction if both (i) to the extent the value of such transaction (or series of related transactions) exceeds $250,000 in the aggregate, the Administrative Agent has consented thereto in writing prior to the consummation thereof and (ii) the terms of such transaction are not less favorable to such Credit Party or Subsidiary, as the case may be, than

 

Credit and Guaranty Agreement

 

95


those that might be obtained at the time from a Person who is not such a holder or Affiliate; provided , further , that the foregoing restrictions shall not apply to (a) any transaction between Company and any Guarantor Subsidiary; (b) reasonable and customary fees paid to members of the board of directors (or similar governing body) of Holdings and its Subsidiaries; (c) compensation arrangements for officers and other employees of Holdings and its Subsidiaries entered into in the ordinary course of business (including, without limitation, employment agreements, agreements and similar agreements with senior management); (d) transactions described in Schedule 6.12; (e) any transaction between Company and/or any Guarantor Subsidiary, on the one hand, and any Permitted Joint Venture, on the other hand; and (f) Restricted Junior Payments permitted by Section 6.5. Company shall promptly disclose in writing each transaction with any Affiliate of Holdings to Administrative Agent.

6.13. Conduct of Business. From and after the Closing Date, no Credit Party shall, nor shall it permit any of its Subsidiaries to, engage in any business other than (i) the businesses engaged in by such Credit Party on the Closing Date , and (ii) such other lines of business as may be reasonably related or complementary thereto.

6.14. Permitted Activities of Holdings. Holdings shall not (a) incur, directly or indirectly, any Indebtedness or any other obligation or liability whatsoever other than the Indebtedness and the obligations with respect to (i) Guaranteed Leases and (ii) Non-Credit Party Lease Guaranties, as such Non-Credit Party Lease Guaranties exist on the Closing Date without amendment, expansion or extension; (b) create or suffer to exist any Lien upon any property or assets now owned or hereafter acquired by it other than the Liens created under the Collateral Documents to which it is a party or permitted pursuant to Section 6.2; (c) engage in any business or activity or own any assets other than (i) holding 100% of the Capital Stock of Company; (ii) performing its obligations and activities incidental thereto under the Credit Documents, and obligations with respect to (A) Guaranteed Leases and (B) Non-Credit Party Lease Guaranties, as such Non-Credit Party Lease Guaranties exist on the Closing Date without amendment, expansion or extension; and (iii) making Restricted Junior Payments and Investments to the extent permitted by this Agreement; (d) consolidate with or merge with or into, or convey, transfer or lease all or substantially all its assets to, any Person; (e) sell or otherwise dispose of any Capital Stock of any of its Subsidiaries; (f) create or acquire any Subsidiary or make or own any Investment in any Person other than Company; (g) fail to hold itself out to the public as a legal entity separate and distinct from all other Persons, (h) holding certain liquor licenses outstanding on the Closing Date for the benefit of the Credit Parties and performing its obligations thereunder, or (i) other than with respect to (A) Guaranteed Leases and (B) Non-Credit Party Lease Guaranties, as such Non-Credit Party Lease Guaranties exist on the Closing Date without amendment, expansion or extension, directly or indirectly, create, incur, assume or guaranty, or otherwise become or remain directly or indirectly liable with respect to any obligations of any Person other than the Company and its Subsidiaries to the extent otherwise permitted by this Agreement and the other Credit Documents.

6.15. [Intentionally Reserved].

6.16. [Intentionally Reserved].

 

Credit and Guaranty Agreement

 

96


6.17. Fiscal Year. No Credit Party shall, nor shall it permit any of its Subsidiaries to change its Fiscal Year-end from the last Tuesday of each calendar year.

6.18. Deposit Accounts. No Credit Party shall establish or maintain a Deposit Account that is not a Controlled Account (other than Excluded Accounts) and no Credit Party will deposit proceeds in a Deposit Account which is not a Controlled Account (other than Excluded Accounts).

6.19. Amendments to Organizational Agreements; Non-Credit Party Lease Guaranties and Material Contracts. No Credit Party shall (a) amend or permit any amendments to any Credit Party’s Organizational Documents, if, in the case of this clause (a), such amendment would be adverse to Administrative Agent or the Lenders in any respect; (b) amend or permit any amendments to, or extend or permit the extension of, or waive any provision of, any Non-Credit Party Lease Guaranty if, in the case of this clause (b), such amendment, extension, or waiver would increase any obligation of Holdings with respect to the obligations thereunder, or (c) amend or permit any amendments to, or terminate or permit the termination of, or waive any provision of, any Material Contract if, in the case of this clause (c), such amendment, termination, or waiver would be adverse to Administrative Agent or the Lenders in any material respect.

6.20. Prepayments of Certain Indebtedness. No Credit Party shall, directly or indirectly, voluntarily purchase, redeem, defease or prepay any principal of, premium, if any, interest or other amount payable in respect of any Indebtedness prior to its scheduled maturity, other than (i) the Obligations, and (ii) Indebtedness secured by a Permitted Lien if the asset securing such Indebtedness has been sold or otherwise disposed of in accordance with Section 6.9.

6.21. Inactive Subsidiaries . No Credit Party shall permit any Inactive Subsidiary to (a) engage in any type of business activity (other than organizational or winding-up activities), (b) own or possess any assets having a fair market value in excess of $50,000 in the aggregate, including, without limitation, any Capital Stock of any Credit Party (other than certain licenses which are in the process of being terminated or transferred), (c) have any Indebtedness, or (d) become party to any lease or sublease of any real property.

SECTION 7. GUARANTY

7.1. Guaranty of the Obligations. Subject to the provisions of Section 7.2, Guarantors jointly and severally hereby irrevocably and unconditionally guaranty to Administrative Agent for the ratable benefit of the Beneficiaries the due and punctual payment in full of all Obligations when the same shall become due, whether at stated maturity, by required prepayment, declaration, acceleration, demand or otherwise (including amounts that would become due but for the operation of the automatic stay under Section 362(a) of the Bankruptcy Code, 11 U.S.C. § 362(a)) (collectively, the “Guaranteed Obligations” ).

 

Credit and Guaranty Agreement

 

97


7.2. Contribution by Guarantors. All Guarantors desire to allocate among themselves (collectively, the “Contributing Guarantors” ), in a fair and equitable manner, their obligations arising under this Guaranty. Accordingly, in the event any payment or distribution is made on any date by a Guarantor (a “Funding Guarantor” ) under this Guaranty such that its Aggregate Payments exceeds its Fair Share as of such date, such Funding Guarantor shall be entitled to a contribution from each of the other Contributing Guarantors in an amount sufficient to cause each Contributing Guarantor’s Aggregate Payments to equal its Fair Share as of such date. “Fair Share” means, with respect to a Contributing Guarantor as of any date of determination, an amount equal to (a) the ratio of (i) the Fair Share Contribution Amount with respect to such Contributing Guarantor, to (ii) the aggregate of the Fair Share Contribution Amounts with respect to all Contributing Guarantors multiplied by, (b) the aggregate amount paid or distributed on or before such date by all Funding Guarantors under this Guaranty in respect of the obligations Guaranteed. “Fair Share Contribution Amount” means, with respect to a Contributing Guarantor as of any date of determination, the maximum aggregate amount of the obligations of such Contributing Guarantor under this Guaranty that would not render its obligations hereunder subject to avoidance as a fraudulent transfer or conveyance under Section 548 of Title 11 of the United States Code or any comparable applicable provisions of state law; provided , solely for purposes of calculating the “Fair Share Contribution Amount” with respect to any Contributing Guarantor for purposes of this Section 7.2, any assets or liabilities of such Contributing Guarantor arising by virtue of any rights to subrogation, reimbursement or indemnification or any rights to or obligations of contribution hereunder shall not be considered as assets or liabilities of such Contributing Guarantor. “Aggregate Payments” means, with respect to a Contributing Guarantor as of any date of determination, an amount equal to (1) the aggregate amount of all payments and distributions made on or before such date by such Contributing Guarantor in respect of this Guaranty (including, without limitation, in respect of this Section 7.2), minus (2) the aggregate amount of all payments received on or before such date by such Contributing Guarantor from the other Contributing Guarantors as contributions under this Section 7.2. The amounts payable as contributions hereunder shall be determined as of the date on which the related payment or distribution is made by the applicable Funding Guarantor. The allocation among Contributing Guarantors of their obligations as set forth in this Section 7.2 shall not be construed in any way to limit the liability of any Contributing Guarantor hereunder. Each Guarantor is a third party beneficiary to the contribution agreement set forth in this Section 7.2.

7.3. Payment by Guarantors. Subject to Section 7.2, Guarantors hereby jointly and severally agree, in furtherance of the foregoing and not in limitation of any other right which any Beneficiary may have at law or in equity against any Guarantor by virtue hereof, that upon the failure of Company to pay any of the Guaranteed Obligations when and as the same shall become due, whether at stated maturity, by required prepayment, declaration, acceleration, demand or otherwise (including amounts that would become due but for the operation of the automatic stay under Section 362(a) of the Bankruptcy Code, 11 U.S.C. § 362(a)), Guarantors will upon demand pay, or cause to be paid, in Cash, to Administrative Agent for the ratable benefit of Beneficiaries, an amount equal to the sum of the unpaid principal amount of all Guaranteed Obligations then due as aforesaid, accrued and unpaid interest on such Guaranteed Obligations (including interest which, but for Company’s becoming the subject of a case under the Bankruptcy Code, would have accrued on such Guaranteed Obligations, whether or not a claim is allowed against Company for such interest in the related bankruptcy case) and all other Guaranteed Obligations then owed to Beneficiaries as aforesaid.

 

Credit and Guaranty Agreement

 

98


7.4. Liability of Guarantors Absolute. Each Guarantor agrees that its obligations hereunder are irrevocable, absolute, independent and unconditional and shall not be affected by any circumstance which constitutes a legal or equitable discharge of a guarantor or surety other than payment in full of the Guaranteed Obligations. In furtherance of the foregoing and without limiting the generality thereof, each Guarantor agrees as follows:

(a) this Guaranty is a guaranty of payment when due and not of collectability. This Guaranty is a primary obligation of each Guarantor and not merely a contract of surety;

(b) Administrative Agent may enforce this Guaranty upon the occurrence of an Event of Default notwithstanding the existence of any dispute between Company and any Beneficiary with respect to the existence of such Event of Default;

(c) the obligations of each Guarantor hereunder are independent of the obligations of Company and the obligations of any other guarantor (including any other Guarantor) of the obligations of Company, and a separate action or actions may be brought and prosecuted against such Guarantor whether or not any action is brought against Company or any of such other guarantors and whether or not Company is joined in any such action or actions;

(d) payment by any Guarantor of a portion, but not all, of the Guaranteed Obligations shall in no way limit, affect, modify or abridge any Guarantor’s liability for any portion of the Guaranteed Obligations which has not been paid. Without limiting the generality of the foregoing, if Administrative Agent is awarded a judgment in any suit brought to enforce any Guarantor’s covenant to pay a portion of the Guaranteed Obligations, such judgment shall not be deemed to release such Guarantor from its covenant to pay the portion of the Guaranteed Obligations that is not the subject of such suit, and such judgment shall not, except to the extent satisfied by such Guarantor, limit, affect, modify or abridge any other Guarantor’s liability hereunder in respect of the Guaranteed Obligations;

(e) any Beneficiary, upon such terms as it deems appropriate, without notice or demand and without affecting the validity or enforceability hereof or giving rise to any reduction, limitation, impairment, discharge or termination of any Guarantor’s liability hereunder, from time to time may (i) renew, extend, accelerate, increase the rate of interest on, or otherwise change the time, place, manner or terms of payment of the Guaranteed Obligations; (ii) settle, compromise, release or discharge, or accept or refuse any offer of performance with respect to, or substitutions for, the Guaranteed Obligations or any agreement relating thereto and/or subordinate the payment of the same to the payment of any other obligations; (iii) request and accept other guaranties of the Guaranteed Obligations and take and hold security for the payment hereof or the Guaranteed Obligations; (iv) release, surrender, exchange, substitute, compromise, settle, rescind, waive, alter, subordinate or modify, with or without consideration, any security for payment of the Guaranteed Obligations, any other guaranties of the Guaranteed Obligations, or any other obligation of any Person (including any other Guarantor) with respect to the Guaranteed Obligations; (v) enforce and apply any security now or hereafter held by or for the benefit of such Beneficiary in respect hereof or the Guaranteed Obligations and direct the order or manner of sale thereof, or exercise any other right or remedy that such Beneficiary may have against any such security, in each case as such Beneficiary in its discretion may determine consistent herewith or the applicable Interest Rate Agreement and any applicable security

 

Credit and Guaranty Agreement

 

99


agreement, including foreclosure on any such security pursuant to one or more judicial or nonjudicial sales, whether or not every aspect of any such sale is commercially reasonable, and even though such action operates to impair or extinguish any right of reimbursement or subrogation or other right or remedy of any Guarantor against Company or any security for the Guaranteed Obligations; and (vi) exercise any other rights available to it under the Credit Documents, Interest Rate Agreements or Currency Agreements; and

(f) this Guaranty and the obligations of Guarantors hereunder shall be valid and enforceable and shall not be subject to any reduction, limitation, impairment, discharge or termination for any reason (other than payment in full of the Guaranteed Obligations), including the occurrence of any of the following, whether or not any Guarantor shall have had notice or knowledge of any of them: (i) any failure or omission to assert or enforce, or agreement or election not to assert or enforce, or the stay or enjoining, by order of court, by operation of law or otherwise, of the exercise or enforcement of, any claim or demand or any right, power or remedy (whether arising under the Credit Documents, any Interest Rate Agreement or Currency Agreement, at law, in equity or otherwise) with respect to the Guaranteed Obligations or any agreement relating thereto, or with respect to any other guaranty of or security for the payment of the Guaranteed Obligations; (ii) any rescission, waiver, amendment or modification of, or any consent to departure from, any of the terms or provisions (including provisions relating to events of default) hereof, any of the other Credit Documents, any of the Interest Rate Agreements or Currency Agreements or any agreement or instrument executed pursuant thereto, or of any other guaranty or security for the Guaranteed Obligations, in each case whether or not in accordance with the terms hereof or such Credit Document, such Interest Rate Agreement or Currency Agreement or any agreement relating to such other guaranty or security; (iii) the Guaranteed Obligations, or any agreement relating thereto, at any time being found to be illegal, invalid or unenforceable in any respect; (iv) the application of payments received from any source (other than payments received pursuant to the other Credit Documents or any of the Interest Rate Agreements or Currency Agreements or from the proceeds of any security for the Guaranteed Obligations, except to the extent such security also serves as collateral for indebtedness other than the Guaranteed Obligations) to the payment of indebtedness other than the Guaranteed Obligations, even though any Beneficiary might have elected to apply such payment to any part or all of the Guaranteed Obligations; (v) any Beneficiary’s consent to the change, reorganization or termination of the corporate structure or existence of Holdings or any of its Subsidiaries and to any corresponding restructuring of the Guaranteed Obligations; (vi) any failure to perfect or continue perfection of a security interest in any collateral which secures any of the Guaranteed Obligations; (vii) any defenses, set-offs or counterclaims which Company may allege or assert against any Beneficiary in respect of the Guaranteed Obligations, including failure of consideration, breach of warranty, payment, statute of frauds, statute of limitations, accord and satisfaction and usury; and (viii) any other act or thing or omission, or delay to do any other act or thing, which may or might in any manner or to any extent vary the risk of any Guarantor as an obligor in respect of the Guaranteed Obligations.

7.5. Waivers by Guarantors. Each Guarantor hereby waives, for the benefit of Beneficiaries: (a) any right to require any Beneficiary, as a condition of payment or performance by such Guarantor, to (i) proceed against Company, any other guarantor (including any other Guarantor) of the Guaranteed Obligations or any other Person, (ii) proceed against or exhaust any security held from Company, any such other guarantor or any other Person, (iii) proceed

 

Credit and Guaranty Agreement

 

100


against or have resort to any balance of any Deposit Account or credit on the books of any Beneficiary in favor of Company or any other Person, or (iv) pursue any other remedy in the power of any Beneficiary whatsoever; (b) any defense arising by reason of the incapacity, lack of authority or any disability or other defense of Company or any other Guarantor including any defense based on or arising out of the lack of validity or the unenforceability of the Guaranteed Obligations or any agreement or instrument relating thereto or by reason of the cessation of the liability of Company or any other Guarantor from any cause other than payment in full of the Guaranteed Obligations; (c) any defense based upon any statute or rule of law which provides that the obligation of a surety must be neither larger in amount nor in other respects more burdensome than that of the principal; (d) any defense based upon any Beneficiary’s errors or omissions in the administration of the Guaranteed Obligations, except behavior which amounts to bad faith; (e) (i) any principles or provisions of law, statutory or otherwise, which are or might be in conflict with the terms hereof and any legal or equitable discharge of such Guarantor’s obligations hereunder, (ii) the benefit of any statute of limitations affecting such Guarantor’s liability hereunder or the enforcement hereof, (iii) any rights to set-offs, recoupments and counterclaims, and (iv) promptness, diligence and any requirement that any Beneficiary protect, secure, perfect or insure any security interest or lien or any property subject thereto; (f) notices, demands, presentments, protests, notices of protest, notices of dishonor and notices of any action or inaction, including acceptance hereof, notices of default hereunder, the Interest Rate Agreements or Currency Agreements or any agreement or instrument related thereto, notices of any renewal, extension or modification of the Guaranteed Obligations or any agreement related thereto, notices of any extension of credit to Company and notices of any of the matters referred to in Section 7.4 and any right to consent to any thereof; and (g) any defenses or benefits that may be derived from or afforded by law which limit the liability of or exonerate guarantors or sureties, or which may conflict with the terms hereof.

7.6. Guarantors’ Rights of Subrogation, Contribution, etc. Until the Guaranteed Obligations shall have been indefeasibly paid in full and the Revolving Commitments shall have terminated and all Letters of Credit shall have expired or been cancelled, each Guarantor hereby waives any claim, right or remedy, direct or indirect, that such Guarantor now has or may hereafter have against Company or any other Guarantor or any of its assets in connection with this Guaranty or the performance by such Guarantor of its obligations hereunder, in each case whether such claim, right or remedy arises in equity, under contract, by statute, under common law or otherwise and including without limitation (a) any right of subrogation, reimbursement or indemnification that such Guarantor now has or may hereafter have against Company with respect to the Guaranteed Obligations, (b) any right to enforce, or to participate in, any claim, right or remedy that any Beneficiary now has or may hereafter have against Company, and (c) any benefit of, and any right to participate in, any collateral or security now or hereafter held by any Beneficiary. In addition, until the Guaranteed Obligations shall have been indefeasibly paid in full and the Revolving Commitments shall have terminated and all Letters of Credit shall have expired or been cancelled, each Guarantor shall withhold exercise of any right of contribution such Guarantor may have against any other guarantor (including any other Guarantor) of the Guaranteed Obligations, including, without limitation, any such right of contribution as contemplated by Section 7.2. Each Guarantor further agrees that, to the extent the waiver or agreement to withhold the exercise of its rights of subrogation, reimbursement, indemnification and contribution as set forth herein is found by a court of competent jurisdiction to be void or voidable for any reason, any rights of subrogation, reimbursement or indemnification such

 

Credit and Guaranty Agreement

 

101


Guarantor may have against Company or against any collateral or security, and any rights of contribution such Guarantor may have against any such other guarantor, shall be junior and subordinate to any rights any Beneficiary may have against Company, to all right, title and interest any Beneficiary may have in any such collateral or security, and to any right any Beneficiary may have against such other guarantor. If any amount shall be paid to any Guarantor on account of any such subrogation, reimbursement, indemnification or contribution rights at any time when all Guaranteed Obligations shall not have been finally and indefeasibly paid in full, such amount shall be held in trust for Administrative Agent on behalf of Beneficiaries and shall forthwith be paid over to Administrative Agent for the benefit of Beneficiaries to be credited and applied against the Guaranteed Obligations, whether matured or unmatured, in accordance with the terms hereof.

7.7. Subordination of Other Obligations. Any Indebtedness of Company or any Guarantor now or hereafter held by any Guarantor (the “Obligee Guarantor” ) is hereby subordinated in right of payment to the Guaranteed Obligations, and any such indebtedness collected or received by the Obligee Guarantor after an Event of Default has occurred and is continuing shall be held in trust for Administrative Agent on behalf of Beneficiaries and shall forthwith be paid over to Administrative Agent for the benefit of Beneficiaries to be credited and applied against the Guaranteed Obligations but without affecting, impairing or limiting in any manner the liability of the Obligee Guarantor under any other provision hereof.

7.8. Continuing Guaranty. This Guaranty is a continuing guaranty and shall remain in effect until all of the Guaranteed Obligations shall have been indefeasibly paid in full and the Revolving Commitments shall have terminated and all Letters of Credit shall have expired or been cancelled. Each Guarantor hereby irrevocably waives any right to revoke this Guaranty as to future transactions giving rise to any Guaranteed Obligations.

7.9. Authority of Guarantors or Company. It is not necessary for any Beneficiary to inquire into the capacity or powers of any Guarantor or Company or the officers, directors or any agents acting or purporting to act on behalf of any of them.

7.10. Financial Condition of Company. Any Credit Extension may be made to Company or continued from time to time, and any Interest Rate Agreements or Currency Agreements may be entered into from time to time, in each case without notice to or authorization from any Guarantor regardless of the financial or other condition of Company at the time of any such grant or continuation or at the time such Interest Rate Agreement is entered into, as the case may be. No Beneficiary shall have any obligation to disclose or discuss with any Guarantor its assessment, or any Guarantor’s assessment, of the financial condition of Company. Each Guarantor has adequate means to obtain information from Company on a continuing basis concerning the financial condition of Company and its ability to perform its obligations under the Credit Documents, the Interest Rate Agreements and Currency Agreements, and each Guarantor assumes the responsibility for being and keeping informed of the financial condition of Company and of all circumstances bearing upon the risk of nonpayment of the Guaranteed Obligations. Each Guarantor hereby waives and relinquishes any duty on the part of any Beneficiary to disclose any matter, fact or thing relating to the business, operations or conditions of Company now known or hereafter known by any Beneficiary.

 

Credit and Guaranty Agreement

 

102


7.11. Bankruptcy, etc.

(a) So long as any Guaranteed Obligations remain outstanding, no Guarantor shall, without the prior written consent of Administrative Agent acting pursuant to the instructions of Requisite Lenders, commence or join with any other Person in commencing any bankruptcy, reorganization or insolvency case or proceeding of or against Company or any other Guarantor. The obligations of Guarantors hereunder shall not be reduced, limited, impaired, discharged, deferred, suspended or terminated by any case or proceeding, voluntary or involuntary, involving the bankruptcy, insolvency, receivership, reorganization, liquidation or arrangement of Company or any other Guarantor or by any defense which Company or any other Guarantor may have by reason of the order, decree or decision of any court or administrative body resulting from any such proceeding.

(b) Each Guarantor acknowledges and agrees that any interest on any portion of the Guaranteed Obligations which accrues after the commencement of any case or proceeding referred to in clause (a) above (or, if interest on any portion of the Guaranteed Obligations ceases to accrue by operation of law by reason of the commencement of such case or proceeding, such interest as would have accrued on such portion of the Guaranteed Obligations if such case or proceeding had not been commenced) shall be included in the Guaranteed Obligations because it is the intention of Guarantors and Beneficiaries that the Guaranteed Obligations which are guaranteed by Guarantors pursuant hereto should be determined without regard to any rule of law or order which may relieve Company of any portion of such Guaranteed Obligations. Guarantors will permit any trustee in bankruptcy, receiver, debtor in possession, assignee for the benefit of creditors or similar person to pay Administrative Agent, or allow the claim of Administrative Agent in respect of, any such interest accruing after the date on which such case or proceeding is commenced.

(c) In the event that all or any portion of the Guaranteed Obligations are paid by Company, the obligations of Guarantors hereunder shall continue and remain in full force and effect or be reinstated, as the case may be, in the event that all or any part of such payment(s) are rescinded or recovered directly or indirectly from any Beneficiary as a preference, fraudulent transfer or otherwise, and any such payments which are so rescinded or recovered shall constitute Guaranteed Obligations for all purposes hereunder.

7.12. Discharge of Guaranty Upon Sale of Guarantor. If all of the Capital Stock of any Guarantor or any of its successors in interest hereunder shall be sold or otherwise disposed of (including by merger or consolidation) in accordance with the terms and conditions hereof, the Guaranty of such Guarantor or such successor in interest, as the case may be, hereunder shall automatically be discharged and released without any further action by any Beneficiary or any other Person effective as of the time of such Asset Sale.

 

Credit and Guaranty Agreement

 

103


SECTION 8. EVENTS OF DEFAULT

8.1. Events of Default. If any one or more of the following conditions or events shall occur:

(a) Failure to Make Payments When Due . Failure by Company to pay (i) the principal of and premium, if any, on any Loan whether at stated maturity, by acceleration or otherwise; (ii) when due any installment of principal of any Loan, by mandatory prepayment or otherwise; (iii) when due any amount payable to Issuing Bank in reimbursement of any drawing under a Letter of Credit; or (iv) within three (3) Business Days of when due any interest on any Loan or any fee or any other amount due hereunder.

(b) Default in Other Agreements . (i) Failure of any Credit Party or any of their respective Subsidiaries to pay when due any principal of or interest on or any other amount payable in respect of one or more items of Indebtedness (other than Indebtedness referred to in Section 8.1(a)) in an aggregate principal amount of $2,000,000 or more, in each case beyond the grace period, if any, provided therefor; or (ii) breach or default by any Credit Party with respect to any other material term of (1) one or more items of Indebtedness in the individual or aggregate principal amounts referred to in clause (i) above, or (2) any loan agreement, mortgage, indenture or other agreement relating to such item(s) of Indebtedness, in each case beyond the grace period, if any, provided therefor, if the effect of such breach or default is to cause, or to permit the holder or holders of that Indebtedness (or a trustee on behalf of such holder or holders), to cause, that Indebtedness to become or be declared due and payable (or subject to a compulsory repurchase or redeemable) prior to its stated maturity or the stated maturity of any underlying obligation, as the case may be; or

(c) Breach of Certain Covenants . Failure of any Credit Party to perform or comply with any term or condition contained in Section 2.5, Section 5.1 (other than Sections 5.1(k), 5.1(j), 5.1(l), 5.1(m), 5.1(o) and 5.1(p)), Section 5.2, Section 5.3, Section 5.5, Section 5.6, Section 5.7, Section 5.8, Section 5.9, Section 5.11, Section 5.14, or Section 6; or

(d) Breach of Representations, etc. Any representation, warranty, certification or other statement made or deemed made by any Credit Party in any Credit Document or in any statement or certificate at any time given by any Credit Party or any of its Subsidiaries in writing pursuant hereto or thereto or in connection herewith or therewith shall be false in any material respect as of the date made or deemed made; or

(e) Other Defaults Under Credit Documents . Any Credit Party shall default in the performance of or compliance with any term contained herein or any of the other Credit Documents, other than any such term referred to in any other Section of this Section 8.1, and such default shall not have been remedied or waived within thirty (30) days after the earlier of (i) an officer of such Credit Party becoming aware of such default, or (ii) receipt by Company of notice from Administrative Agent or any Lender of such default; or

(f) Involuntary Bankruptcy; Appointment of Receiver, etc. (i) A court of competent jurisdiction shall enter a decree or order for relief in respect of Holdings or any of its Subsidiaries in an involuntary case under the Bankruptcy Code or under any other applicable

 

Credit and Guaranty Agreement

 

104


bankruptcy, insolvency or similar law now or hereafter in effect, which decree or order is not stayed; or any other similar relief shall be granted under any applicable federal or state law; or (ii) an involuntary case shall be commenced against Holdings or any of its Subsidiaries under the Bankruptcy Code or under any other applicable bankruptcy, insolvency or similar law now or hereafter in effect; or a decree or order of a court having jurisdiction in the premises for the appointment of a receiver, liquidator, sequestrator, trustee, custodian or other officer having similar powers over Holdings or any of its Subsidiaries, or over all or a substantial part of its property, shall have been entered; or there shall have occurred the involuntary appointment of an interim receiver, trustee or other custodian of Holdings or any of its Subsidiaries for all or a substantial part of its property; or a warrant of attachment, execution or similar process shall have been issued against any substantial part of the property of Holdings or any of its Subsidiaries, and any such event described in this clause (ii) shall continue for sixty (60) days without having been dismissed, bonded or discharged; or

(g) Voluntary Bankruptcy; Appointment of Receiver, etc . (i) Holdings or any of its Subsidiaries shall have an order for relief entered with respect to it or shall commence a voluntary case under the Bankruptcy Code or under any other applicable bankruptcy, insolvency or similar law now or hereafter in effect, or shall consent to the entry of an order for relief in an involuntary case, or to the conversion of an involuntary case to a voluntary case, under any such law, or shall consent to the appointment of or taking possession by a receiver, trustee or other custodian for all or a substantial part of its property; or Holdings or any of its Subsidiaries shall make any assignment for the benefit of creditors; or (ii) Holdings or any of its Subsidiaries shall be unable, or shall fail generally, or shall admit in writing its inability, to pay its debts as such debts become due; or the board of directors (or similar governing body) of Holdings or any of its Subsidiaries (or any committee thereof) shall adopt any resolution or otherwise authorize any action to approve any of the actions referred to herein or in Section 8.1(f); or

(h) Judgments and Attachments . Any money judgment, writ or warrant of attachment or similar process involving (i) in any individual case an amount in excess of $2,500,000 and (ii) in the aggregate at any time an amount in excess of $3,500,000 (in either case to the extent not adequately covered by insurance as to which a solvent and unaffiliated insurance company has acknowledged coverage) shall be entered or filed against Holdings or any of its Subsidiaries or any of their respective assets and shall remain undischarged, unvacated, unbonded or unstayed for a period of sixty (60) days (or in any event later than five (5) days prior to the date of any proposed sale thereunder); or

(i) Dissolution . Any order, judgment or decree shall be entered against any Credit Party decreeing the dissolution or split up of such Credit Party and such order shall remain undischarged or unstayed for a period in excess of thirty (30) days; or

(j) Employee Benefit Plans . (i) There shall occur one or more ERISA Events which individually or in the aggregate results in or might reasonably be expected to result in liability of Holdings, any of its Subsidiaries or any of their respective ERISA Affiliates in excess of $1,000,000 during the term hereof; or (ii) there exists any fact or circumstance that reasonably could be expected to result in the imposition of a Lien or security interest under Section 430(k) of the Internal Revenue Code or under Section 303(k) of ERISA; or

 

Credit and Guaranty Agreement

 

105


(k) [Intentionally Reserved.]

(l) Guaranties, Collateral Documents and other Credit Documents . At any time after the execution and delivery thereof, (i) the Guaranty for any reason, other than the satisfaction in full of all Obligations, shall cease to be in full force and effect (other than in accordance with its terms) or shall be declared to be null and void or any Guarantor shall repudiate its obligations thereunder, (ii) this Agreement or any Collateral Document ceases to be in full force and effect (other than by reason of a release of Collateral in accordance with the terms hereof or thereof or the satisfaction in full of the Obligations in accordance with the terms hereof) or shall be declared null and void, or Collateral Agent shall not have or shall cease to have a valid and perfected Lien in any Collateral purported to be covered by the Collateral Documents with the priority required by the relevant Collateral Document, in each case for any reason other than the failure of Collateral Agent or any Secured Party to take any action within its control, or (iii) any Credit Party shall contest the validity or enforceability of any Credit Document in writing or deny in writing that it has any further liability, including with respect to future advances by Lenders, under any Credit Document to which it is a party;

THEN , (1) upon the occurrence of any Event of Default described in Section 8.1(f) or 8.1(g), automatically, and (2) upon the occurrence of any other Event of Default, at the request of (or with the consent of) Requisite Lenders, upon notice to Company by Administrative Agent, (A) the Commitments, if any, of each Lender having such Commitments and the obligation of Issuing Bank to issue any Letter of Credit shall immediately terminate; (B) each of the following shall immediately become due and payable, in each case without presentment, demand, protest or other requirements of any kind, all of which are hereby expressly waived by each Credit Party: (I) the unpaid principal amount of and accrued interest on the Loans, (II) an amount equal to the maximum amount that may at any time be drawn under all Letters of Credit then outstanding (regardless of whether any beneficiary under any such Letter of Credit shall have presented, or shall be entitled at such time to present, the drafts or other documents or certificates required to draw under such Letters of Credit), and (III) all other Obligations; provided , the foregoing shall not affect in any way the obligations of Lenders under Section 2.3(e); (C) Administrative Agent may cause Collateral Agent to enforce any and all Liens and security interests created pursuant to Collateral Documents; and (D) Administrative Agent shall direct Company to pay (and Company hereby agrees upon receipt of such notice, or upon the occurrence of any Event of Default specified in Sections 8.1(f) and (g) to pay) to Administrative Agent such additional amounts of cash, to be held as security for Company’s reimbursement Obligations in respect of Letters of Credit then outstanding under arrangements acceptable to Administrative Agent, equal to the Letter of Credit Usage at such time. Without limiting any other rights and remedies of Agents and Lenders, upon the occurrence of any Event of Default, upon the request of Administrative Agent, the Credit Parties shall promptly provide to Administrative Agent a list (and/or copy) of each of the material licenses or permits required by any applicable federal, state or local law, rule or regulation for the operation of their business, the name of the party holding such license or permit, the location to which it relates and the expiration date thereof (if any).

Notwithstanding the foregoing, a Liquidation Event shall not constitute an Event of Default solely by reason of any event described in Section 8.1(b), (f), (g) or (h), as the case may be, so long as (a) no more than three Liquidation Events affecting operating Subsidiaries shall occur in any Fiscal Year of Holdings; (b) the obligations of each such Subsidiary shall be non-recourse to

 

Credit and Guaranty Agreement

 

106


Holdings or any other Credit Party (other than limited guaranties by Holdings of remaining lease rental payment obligations, so long as Holdings fulfills its obligations under any such limited guaranty); (c) not later than five (5) Business Days’ after the occurrence of any Liquidation Event, Company shall provide notice to Administrative Agent of such Liquidation Event; and (d) the Credit Parties shall be in pro forma compliance with the financial covenants set forth in Section 6.8, after giving effect to such Liquidation Event, as of the last day of the Fiscal Quarter most recently ended.

SECTION 9. AGENTS

9.1. Appointment of Agents. GS Bank is hereby appointed Administrative Agent and Collateral Agent hereunder and under the other Credit Documents and each Lender hereby authorizes GS Bank, in such capacity, to act as its agent in accordance with the terms hereof and the other Credit Documents. Each Agent hereby agrees to act upon the express conditions contained herein and the other Credit Documents, as applicable. The provisions of this Section 9 are solely for the benefit of Agents and Lenders and no Credit Party shall have any rights as a third party beneficiary of any of the provisions thereof. In performing its functions and duties hereunder, each Agent shall act solely as an agent of Lenders and does not assume and shall not be deemed to have assumed any obligation towards or relationship of agency or trust with or for Holdings or any of its Subsidiaries.

9.2. Powers and Duties. Each Lender irrevocably authorizes each Agent to take such action on such Lender’s behalf and to exercise such powers, rights and remedies hereunder and under the other Credit Documents as are specifically delegated or granted to such Agent by the terms hereof and thereof, together with such powers, rights and remedies as are reasonably incidental thereto. Each Agent shall have only those duties and responsibilities that are expressly specified herein and the other Credit Documents. Each Agent may exercise such powers, rights and remedies and perform such duties by or through its agents or employees. No Agent shall have, by reason hereof or any of the other Credit Documents, a fiduciary relationship in respect of any Lender; and nothing herein or any of the other Credit Documents, expressed or implied, is intended to or shall be so construed as to impose upon any Agent any obligations in respect hereof or any of the other Credit Documents except as expressly set forth herein or therein.

9.3. General Immunity.

(a) No Responsibility for Certain Matters . No Agent shall be responsible to any Lender for the execution, effectiveness, genuineness, validity, enforceability, collectability or sufficiency hereof or any other Credit Document or for any representations, warranties, recitals or statements made herein or therein or made in any written or oral statements or in any financial or other statements, instruments, reports or certificates or any other documents furnished or made by any Agent to Lenders or by or on behalf of any Credit Party to any Agent or any Lender in connection with the Credit Documents and the transactions contemplated thereby or for the financial condition or business affairs of any Credit Party or any other Person liable for the payment of any Obligations, nor shall any Agent be required to ascertain or inquire as to the performance or observance of any of the terms, conditions, provisions, covenants or agreements contained in any of the Credit Documents or as to the use of the proceeds of the

 

Credit and Guaranty Agreement

 

107


Loans or as to the existence or possible existence of any Event of Default or Default or to make any disclosures with respect to the foregoing. Anything contained herein to the contrary notwithstanding, Administrative Agent shall not have any liability arising from confirmations of the amount of outstanding Loans or the Letter of Credit Usage or the component amounts thereof.

(b) Exculpatory Provisions. No Agent nor any of its officers, partners, directors, employees or agents shall be liable to Lenders for any action taken or omitted by any Agent under or in connection with any of the Credit Documents except to the extent caused by such Agent’s gross negligence or willful misconduct, as determined by a court of competent jurisdiction in a final, non-appealable order. Each Agent shall be entitled to refrain from any act or the taking of any action (including the failure to take an action) in connection herewith or any of the other Credit Documents or from the exercise of any power, discretion or authority vested in it hereunder or thereunder unless and until such Agent shall have received instructions in respect thereof from Requisite Lenders (or such other Lenders as may be required to give such instructions under Section 10.5) and, upon receipt of such instructions from Requisite Lenders (or such other Lenders, as the case may be), such Agent shall be entitled to act or (where so instructed) refrain from acting, or to exercise such power, discretion or authority, in accordance with such instructions. Without prejudice to the generality of the foregoing, (i) each Agent shall be entitled to rely, and shall be fully protected in relying, upon any communication, instrument or document believed by it to be genuine and correct and to have been signed or sent by the proper Person or Persons, and shall be entitled to rely and shall be protected in relying on opinions and judgments of attorneys (who may be attorneys for Holdings and its Subsidiaries), accountants, experts and other professional advisors selected by it; and (ii) no Lender shall have any right of action whatsoever against any Agent as a result of such Agent acting or (where so instructed) refraining from acting hereunder or any of the other Credit Documents in accordance with the instructions of Requisite Lenders (or such other Lenders as may be required to give such instructions under Section 10.5).

9.4. Agents Entitled to Act as Lender. The agency hereby created shall in no way impair or affect any of the rights and powers of, or impose any duties or obligations upon, any Agent in its individual capacity as a Lender hereunder. With respect to its participation in the Loans and the Letters of Credit, each Agent shall have the same rights and powers hereunder as any other Lender and may exercise the same as if it were not performing the duties and functions delegated to it hereunder, and the term “Lender” shall, unless the context clearly otherwise indicates, include each Agent in its individual capacity. Any Agent and its Affiliates may accept deposits from, lend money to, own securities of, and generally engage in any kind of banking, trust, financial advisory or other business with Holdings or any of its Affiliates as if it were not performing the duties specified herein, and may accept fees and other consideration from Company for services in connection herewith and otherwise without having to account for the same to Lenders.

9.5. Lenders’ Representations, Warranties and Acknowledgment.

(a) Each Lender represents and warrants that it has made its own independent investigation of the financial condition and affairs of Holdings and its Subsidiaries in connection with Credit Extensions hereunder and that it has made and shall continue to make its own

 

Credit and Guaranty Agreement

 

108


appraisal of the creditworthiness of Holdings and its Subsidiaries. No Agent shall have any duty or responsibility, either initially or on a continuing basis, to make any such investigation or any such appraisal on behalf of Lenders or to provide any Lender with any credit or other information with respect thereto, whether coming into its possession before the making of the Loans or at any time or times thereafter, and no Agent shall have any responsibility with respect to the accuracy of or the completeness of any information provided to Lenders.

(b) Each Lender, by delivering its signature page to this Agreement and funding its Term Loan and/or Revolving Loans on the Closing Date, shall be deemed to have acknowledged receipt of, and consented to and approved, each Credit Document and each other document required to be approved by any Agent, Requisite Lenders or Lenders, as applicable on the Closing Date.

(c) Each Lender (i) represents and warrants that as of the Closing Date neither such Lender nor its Affiliates or Related Funds owns or controls, or owns or controls any Person owning or controlling, any trade debt or Indebtedness of any Credit Party other than the Obligations or any Capital Stock of any Credit Party and (ii) covenants and agrees that from and after the Closing Date neither such Lender nor its Affiliates and Related Funds shall purchase any trade debt or Indebtedness of any Credit Party other than the Obligations or Capital Stock described in clause (i) above without the prior written consent of the Administrative Agent.

9.6. Right to Indemnity. Each Lender, in proportion to its Pro Rata Share, severally agrees to indemnify each Agent, their Affiliates and their respective officers, partners, directors, trustees, employees and agents of each Agent (each, an “Indemnitee Agent Party” ), to the extent that such Indemnitee Agent Party shall not have been reimbursed by any Credit Party, for and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses (including counsel fees and disbursements) or disbursements of any kind or nature whatsoever which may be imposed on, incurred by or asserted against such Indemnitee Agent Party in exercising its powers, rights and remedies or performing its duties hereunder or under the other Credit Documents or otherwise in its capacity as such Indemnitee Agent Party in any way relating to or arising out of this Agreement or the other Credit Documents, IN ALL CASES, WHETHER OR NOT CAUSED BY OR ARISING, IN WHOLE OR IN PART, OUT OF THE COMPARATIVE, CONTRIBUTORY, OR SOLE NEGLIGENCE OF SUCH INDEMNITEE AGENT PARTY ; provided , no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from such Indemnitee Agent Party’s gross negligence or willful misconduct, as determined by a court of competent jurisdiction in a final, non-appealable order. If any indemnity furnished to any Indemnitee Agent Party for any purpose shall, in the opinion of such Indemnitee Agent Party, be insufficient or become impaired, such Indemnitee Agent Party may call for additional indemnity and cease, or not commence, to do the acts indemnified against until such additional indemnity is furnished; provided , in no event shall this sentence require any Lender to indemnify any Indemnitee Agent Party against any liability, obligation, loss, damage, penalty, action, judgment, suit, cost, expense or disbursement in excess of such Lender’s Pro Rata Share thereof; and provided further, this sentence shall not be deemed to require any Lender to indemnify any Indemnitee Agent Party against any liability, obligation, loss, damage, penalty, action, judgment, suit, cost, expense or disbursement described in the proviso in the immediately preceding sentence.

 

Credit and Guaranty Agreement

 

109


9.7. Successor Administrative Agent and Collateral Agent.

(a) Administrative Agent and Collateral Agent may resign at any time by giving thirty (30) days’ prior written notice thereof to Lenders and Company. Upon any such notice of resignation, Requisite Lenders shall have the right, upon (5) five Business Days’ notice to and consent of Company (such consent not to be (x) unreasonably withheld, delayed or conditioned, or (y) required during the continuation of an Event of Default) to appoint a successor Administrative Agent and Collateral Agent. Upon the acceptance of any appointment as Administrative Agent and Collateral Agent hereunder by a successor Administrative Agent and Collateral Agent, that successor Administrative Agent and Collateral Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent and Collateral Agent and the retiring Administrative Agent and Collateral Agent shall promptly (i) transfer to such successor Administrative Agent and Collateral Agent all sums, Securities and other items of Collateral held under the Collateral Documents, together with all records and other documents necessary or appropriate in connection with the performance of the duties of the successor Administrative Agent and Collateral Agent under the Credit Documents, and (ii) execute and deliver to such successor Administrative Agent and Collateral Agent such amendments to financing statements, and take such other actions, as may be necessary or appropriate in connection with the assignment to such successor Administrative Agent and Collateral Agent of the security interests created under the Collateral Documents, whereupon such retiring Administrative Agent and Collateral Agent shall be discharged from its duties and obligations hereunder. After any retiring Administrative Agent’s and Collateral Agent’s resignation hereunder as Administrative Agent and Collateral Agent, the provisions of this Section 9 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent and Collateral Agent hereunder.

(b) Notwithstanding anything herein to the contrary, Administrative Agent and Collateral Agent may assign their rights and duties as Administrative Agent and Collateral Agent hereunder to an Affiliate of GS Bank without the prior written consent of, or prior written notice to, Company or the Lenders; provided that Company and the Lenders may deem and treat such assigning Administrative Agent and Collateral Agent as the Administrative Agent and Collateral Agent for all purposes hereof, unless and until such assigning Administrative Agent or Collateral Agent, as the case may be, provides written notice to Company and the Lenders of such assignment. Upon such assignment such Affiliate shall succeed to and become vested with all rights, powers, privileges and duties as Administrative Agent and Collateral Agent hereunder and under the other Credit Documents.

9.8. Collateral Documents and Guaranty.

(a) Agents under Collateral Documents and Guaranty . Each Lender hereby further authorizes Administrative Agent or Collateral Agent, as applicable, on behalf of and for the benefit of Lenders, to be the agent for and representative of Lenders with respect to the Guaranty, the Collateral and the Collateral Documents. Subject to Section 10.5, without further written consent or authorization from Lenders, Administrative Agent or Collateral Agent, as applicable may execute any documents or instruments necessary to (i) release any Lien encumbering any item of Collateral that is the subject of a sale or other disposition of assets permitted hereby or to which Requisite Lenders (or such other Lenders as may be required to

 

Credit and Guaranty Agreement

 

110


give such consent under Section 10.5) have otherwise consented, or (ii) release any Guarantor from the Guaranty pursuant to Section 7.12 or with respect to which Requisite Lenders (or such other Lenders as may be required to give such consent under Section 10.5) have otherwise consented.

(b) Right to Realize on Collateral and Enforce Guaranty . Anything contained in any of the Credit Documents to the contrary notwithstanding, Company, Administrative Agent, Collateral Agent and each Lender hereby agree that (i) no Lender shall have any right individually to realize upon any of the Collateral or to enforce the Guaranty, it being understood and agreed that all powers, rights and remedies hereunder may be exercised solely by Administrative Agent, on behalf of Lenders in accordance with the terms hereof and all powers, rights and remedies under the Collateral Documents may be exercised solely by Collateral Agent, and (ii) in the event of a foreclosure by Collateral Agent on any of the Collateral pursuant to a public or private sale, Collateral Agent or any Lender may be the purchaser of any or all of such Collateral at any such sale and Collateral Agent, as agent for and representative of Secured Parties (but not any Lender or Lenders in its or their respective individual capacities unless Requisite Lenders shall otherwise agree in writing) shall be entitled, for the purpose of bidding and making settlement or payment of the purchase price for all or any portion of the Collateral sold at any such public sale, to use and apply any of the Obligations as a credit on account of the purchase price for any collateral payable by Collateral Agent at such sale.

SECTION 10. MISCELLANEOUS

10.1. Notices. Unless otherwise specifically provided herein, any notice or other communication herein required or permitted to be given to a Credit Party, Collateral Agent, Administrative Agent or Issuing Bank, shall be sent to such Person’s address as set forth on Appendix B or in the other relevant Credit Document, and in the case of any Lender, the address as indicated on Appendix B or otherwise indicated to Administrative Agent in writing. Each notice hereunder shall be in writing and may be personally served, telexed or sent by telefacsimile or United States mail or courier service and shall be deemed to have been given when delivered in person or by courier service and signed for against receipt thereof, upon receipt of telefacsimile or telex, or three (3) Business Days after depositing it in the United States mail with postage prepaid and properly addressed; provided , no notice to any Agent shall be effective until received by such Agent.

10.2. Expenses. Whether or not the transactions contemplated hereby shall be consummated, Company agrees to pay promptly (a) all the Administrative Agent’s actual and reasonable costs and expenses of preparation of the Credit Documents and any consents, amendments, waivers or other modifications thereto; (b) all the reasonable fees, expenses and disbursements of counsel to Agents in connection with the negotiation, preparation, execution and administration of the Credit Documents and any consents, amendments, waivers or other modifications thereto and any other documents or matters requested by Company (provided, however, in the case of any fees, costs or expenses relating to matters in respect of due diligence of the Real Estate Assets as of the Closing Date, the Company’s obligations with respect thereto shall not exceed $17,500); (c) all the actual costs and reasonable expenses of creating and perfecting Liens in favor of Collateral Agent, for the benefit of Secured Parties, including filing

 

Credit and Guaranty Agreement

 

111


and recording fees, expenses and taxes, stamp or documentary taxes, search fees, title insurance premiums and reasonable fees, expenses and disbursements of counsel to each Agent and of counsel providing any opinions that any Agent or Requisite Lenders may request in respect of the Collateral or the Liens created pursuant to the Collateral Documents; (d) all the Administrative Agent’s actual costs and reasonable fees, expenses for, and disbursements of any of Administrative Agent’s, auditors, accountants, consultants or appraisers, and all reasonable attorneys’ fees, expenses and disbursements of outside counsel incurred by Administrative Agent; (e) all the actual costs and reasonable expenses (including the reasonable fees, expenses and disbursements of any appraisers, consultants, advisors and agents employed or retained by Collateral Agent and its counsel) in connection with the custody or preservation of any of the Collateral; (f) all other actual and reasonable costs and expenses incurred by each Agent in connection with the syndication of the Loans and Commitments and the negotiation, preparation and execution of the Credit Documents and any consents, amendments, waivers or other modifications thereto and the transactions contemplated thereby; and (g) after the occurrence of a Default or an Event of Default, all costs and expenses, including reasonable attorneys’ fees and costs of settlement, incurred by any Agent and Lenders in enforcing any Obligations of or in collecting any payments due from any Credit Party hereunder or under the other Credit Documents by reason of such Default or Event of Default (including in connection with the sale of, collection from, or other realization upon any of the Collateral or the enforcement of the Guaranty) or in connection with any refinancing or restructuring of the credit arrangements provided hereunder in the nature of a “work-out” or pursuant to any insolvency or bankruptcy cases or proceedings. Notwithstanding the foregoing, all mortgage recording taxes, transfer taxes, local counsel legal fees, recording costs and similar fees directly related to the perfection of any Lien obtained in favor of Collateral Agent on the Mortgaged Properties will be paid by Administrative Agent and not by any Credit Party.

10.3. Indemnity .

(a) In addition to the payment of expenses pursuant to Section 10.2, whether or not the transactions contemplated hereby shall be consummated, each Credit Party agrees to defend (subject to Indemnitees’ selection of counsel), indemnify, pay and hold harmless, each Agent and Lender, their Affiliates and their respective officers, partners, directors, trustees, employees and agents of each Agent and each Lender (each, an “Indemnitee” ), from and against any and all Indemnified Liabilities, IN ALL CASES, WHETHER OR NOT CAUSED BY OR ARISING, IN WHOLE OR IN PART, OUT OF THE COMPARATIVE, CONTRIBUTORY, OR SOLE NEGLIGENCE OF SUCH INDEMNITEE ; provided , no Credit Party shall have any obligation to any Indemnitee hereunder with respect to any Indemnified Liabilities to the extent such Indemnified Liabilities arise from the gross negligence or willful misconduct, as determined by a court of competent jurisdiction in a final, non-appealable order, of that Indemnitee. To the extent that the undertakings to defend, indemnify, pay and hold harmless set forth in this Section 10.3 may be unenforceable in whole or in part because they are violative of any law or public policy, the applicable Credit Party shall contribute the maximum portion that it is permitted to pay and satisfy under applicable law to the payment and satisfaction of all Indemnified Liabilities incurred by Indemnitees or any of them.

 

Credit and Guaranty Agreement

 

112


(b) To the extent permitted by applicable law, no Credit Party shall assert, and each Credit Party hereby waives, any claim against Lenders, Agents and their respective Affiliates, directors, employees, attorneys or agents, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) (whether or not the claim therefor is based on contract, tort or duty imposed by any applicable legal requirement) arising out of, in connection with, as a result of, or in any way related to, this Agreement or any Credit Document or any agreement or instrument contemplated hereby or thereby or referred to herein or therein, the transactions contemplated hereby or thereby, any Loan or the use of the proceeds thereof or any act or omission or event occurring in connection therewith, and Holdings and Company hereby waives, releases and agrees not to sue upon any such claim or any such damages, whether or not accrued and whether or not known or suspected to exist in its favor.

10.4. Set-Off. In addition to any rights now or hereafter granted under applicable law and not by way of limitation of any such rights, upon the occurrence of any Event of Default each Lender, Issuing Bank, and their respective Affiliates each of is hereby authorized by each Credit Party at any time or from time to time subject to the consent of Administrative Agent (such consent not to be unreasonably withheld or delayed), without notice to any Credit Party or to any other Person (other than Administrative Agent), any such notice being hereby expressly waived, to set off and to appropriate and to apply any and all deposits (general or special, including Indebtedness evidenced by certificates of deposit, whether matured or unmatured, but not including trust accounts (in whatever currency)) and any other Indebtedness at any time held or owing by such Lender to or for the credit or the account of any Credit Party (in whatever currency) against and on account of the obligations and liabilities of any Credit Party to such Lender or Issuing Bank hereunder, the Letters of Credit and participations therein and under the other Credit Documents, including all claims of any nature or description arising out of or connected hereto, the Letters of Credit and participations therein or with any other Credit Document, irrespective of whether or not (a) such Lender shall have made any demand hereunder, (b) the principal of or the interest on the Loans or any amounts in respect of the Letters of Credit or any other amounts due hereunder shall have become due and payable pursuant to Section 2 and although such obligations and liabilities, or any of them, may be contingent or unmatured or (c) such obligation or liability is owed to a branch or office of such Lender or Issuing Bank different from the branch or office holding such deposit or obligation or such Indebtedness.

10.5. Amendments and Waivers.

(a) Requisite Lenders’ Consent . Subject to Sections 10.5(b) and 10.5(c), no amendment, modification, termination or waiver of any provision of the Credit Documents, or consent to any departure by any Credit Party therefrom, shall in any event be effective without the written concurrence of the Requisite Lenders.

(b) Affected Lenders’ Consent . Without the written consent of each Lender (other than a Defaulting Lender) that would be affected thereby, no amendment, modification, termination, or consent shall be effective if the effect thereof would:

(i) extend the scheduled final maturity of any Loan or Note;

 

Credit and Guaranty Agreement

 

113


(ii) waive, reduce or postpone any scheduled repayment (but not prepayment);

(iii) extend the stated expiration date of any Letter of Credit beyond the Revolving Commitment Termination Date;

(iv) reduce the rate of interest on any Loan (other than any waiver of any increase in the interest rate applicable to any Loan pursuant to Section 2.9) or any fee payable hereunder;

(v) extend the time for payment of any such interest or fees;

(vi) reduce the principal amount of any Loan or any reimbursement obligation in respect of any Letter of Credit;

(vii) amend, modify, terminate or waive any provision of this Section 10.5(b) or Section 10.5(c);

(viii) amend the definition of “Requisite Lenders” or “Pro Rata Share”; provided , with the consent of Administrative Agent and the Requisite Lenders, additional extensions of credit pursuant hereto may be included in the determination of “Requisite Lenders” or “Pro Rata Share” on substantially the same basis as the Term Loan Commitments, the Term Loans, the Revolving Commitments and the Revolving Loans are included on the Closing Date;

(ix) release all or substantially all of the Collateral or all or substantially all of the Guarantors from the Guaranty except as expressly provided in the Credit Documents; or

(x) consent to the assignment or transfer by any Credit Party of any of its rights and obligations under any Credit Document.

(c) Other Consents . No amendment, modification, termination or waiver of any provision of the Credit Documents, or consent to any departure by any Credit Party therefrom, shall:

(i) increase any Revolving Commitment of any Lender over the amount thereof then in effect without the consent of such Lender; provided , no amendment, modification or waiver of any condition precedent, covenant, Default or Event of Default shall constitute an increase in any Revolving Commitment of any Lender;

(ii) [intentionally reserved];

(iii) [intentionally reserved];

(iv) [intentionally reserved];

 

Credit and Guaranty Agreement

 

114


(v) amend, modify, terminate or waive any obligation of Lenders relating to the purchase of participations in Letters of Credit as provided in Section 2.3(e) without the written consent of Administrative Agent and of Issuing Bank; or

(vi) amend, modify, terminate or waive any provision of Section 9 as the same applies to any Agent, or any other provision hereof as the same applies to the rights or obligations of any Agent, in each case without the consent of such Agent.

(d) Execution of Amendments, etc. Administrative Agent may, but shall have no obligation to, with the concurrence of any Lender, execute amendments, modifications, waivers or consents on behalf of such Lender. Any waiver or consent shall be effective only in the specific instance and for the specific purpose for which it was given. No notice to or demand on any Credit Party in any case shall entitle any Credit Party to any other or further notice or demand in similar or other circumstances. Any amendment, modification, termination, waiver or consent effected in accordance with this Section 10.5 shall be binding upon each Lender at the time outstanding, each future Lender and, if signed by a Credit Party, on such Credit Party.

10.6. Successors and Assigns; Participations.

(a) Generally . This Agreement shall be binding upon the parties hereto and their respective successors and assigns and shall inure to the benefit of the parties hereto and the successors and assigns of Lenders. No Credit Party’s rights or obligations hereunder nor any interest therein may be assigned or delegated by any Credit Party without the prior written consent of all Lenders. Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, Indemnitee Agent Parties under Section 9.6, Indemnitees under Section 10.3, their respective successors and assigns permitted hereby and, to the extent expressly contemplated hereby, Affiliates of each of the Agents and Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement.

(b) Register . Company, Administrative Agent and Lenders shall deem and treat the Persons listed as Lenders in the Register as the holders and owners of the corresponding Commitments and Loans listed therein for all purposes hereof, and no assignment or transfer of any such Commitment or Loan shall be effective, in each case, unless and until an Assignment Agreement effecting the assignment or transfer thereof shall have been delivered to and accepted by Administrative Agent and recorded in the Register as provided in Section 10.6(e). Prior to such recordation, all amounts owed with respect to the applicable Commitment or Loan shall be owed to the Lender listed in the Register as the owner thereof, and any request, authority or consent of any Person who, at the time of making such request or giving such authority or consent, is listed in the Register as a Lender shall be conclusive and binding on any subsequent holder, assignee or transferee of the corresponding Commitments or Loans.

(c) Right to Assign . Each Lender shall have the right at any time to sell, assign or transfer all or a portion of its rights and obligations under this Agreement, including, without limitation, all or a portion of its Commitment or Loans owing to it or other Obligations ( provided , however , that each such assignment shall be of a uniform, and not varying, percentage of all rights and obligations under and in respect of any Loan and any related Commitments):

 

Credit and Guaranty Agreement

 

115


(i) to any Affiliate of such Lender and/or, in the case of Term Loans, any Related Fund, upon the giving of notice to Company and Administrative Agent; and

(ii) to any Person otherwise constituting an Eligible Assignee with the prior written consent of (x) Company, so long as no Event of Default has occurred and is continuing ( provided , that Company’s consent shall not be required for any such assignment by GS Bank and/or its Affiliates to TPG Specialty Lending, Inc. and/or its Affiliates), and (y) Administrative Agent; provided , each such assignment pursuant to this Section 10.6(c)(ii) shall be in an aggregate amount of not less than (A) $2,000,000 (or such lesser amount as may be agreed to by Company and Administrative Agent or as shall constitute the aggregate amount of the Revolving Commitments and Revolving Loans of the assigning Lender) with respect to the assignment of the Revolving Commitments and Revolving Loans and (B) $10,000,000 (or such lesser amount as may be agreed to by Company and Administrative Agent or as shall constitute the aggregate amount of the Term Loan of the assigning Lender) with respect to the assignment of Term Loans.

(d) Mechanics . The assigning Lender and the assignee thereof shall execute and deliver to Administrative Agent an Assignment Agreement, together with such forms, certificates or other evidence, if any, with respect to United States federal income tax withholding matters as the assignee under such Assignment Agreement may be required to deliver to Administrative Agent pursuant to Section 2.19(c).

(e) Notice of Assignment . Upon its receipt and acceptance of a duly executed and completed Assignment Agreement, any forms, certificates or other evidence required by this Agreement in connection therewith, Administrative Agent shall record the information contained in such Assignment Agreement in the Register, shall give prompt notice thereof to Company and shall maintain a copy of such Assignment Agreement.

(f) Representations and Warranties of Assignee . Each Lender, upon execution and delivery hereof or upon executing and delivering an Assignment Agreement, as the case may be, represents and warrants as of the Closing Date or as of the applicable Effective Date (as defined in the applicable Assignment Agreement) that (i) it is an Eligible Assignee; (ii) it has experience and expertise in the making of or investing in commitments or loans such as the applicable Commitments or Loans, as the case may be; (iii) it will make or invest in, as the case may be, its Commitments or Loans for its own account in the ordinary course of its business and without a view to distribution of such Commitments or Loans within the meaning of the Securities Act or the Exchange Act or other federal securities laws (it being understood that, subject to the provisions of this Section 10.6, the disposition of such Revolving Commitments or Loans or any interests therein shall at all times remain within its exclusive control); and (iv) such Lender does not own or control, or own or control any Person owning or controlling, any trade debt or Indebtedness of any Credit Party other than the Obligations or any Capital Stock of any Credit Party.

(g) Effect of Assignment . Subject to the terms and conditions of this Section 10.6, as of the “Effective Date” specified in the applicable Assignment Agreement: (i) the assignee thereunder shall have the rights and obligations of a “Lender” hereunder to the extent

 

Credit and Guaranty Agreement

 

116


such rights and obligations hereunder have been assigned to it pursuant to such Assignment Agreement and shall thereafter be a party hereto and a “Lender” for all purposes hereof; (ii) the assigning Lender thereunder shall, to the extent that rights and obligations hereunder have been assigned thereby pursuant to such Assignment Agreement, relinquish its rights (other than any rights which survive the termination hereof under Section 10.8) and be released from its obligations hereunder (and, in the case of an Assignment Agreement covering all or the remaining portion of an assigning Lender’s rights and obligations hereunder, such Lender shall cease to be a party hereto; provided , anything contained in any of the Credit Documents to the contrary notwithstanding, (y) Issuing Bank shall continue to have all rights and obligations thereof with respect to such Letters of Credit until the cancellation or expiration of such Letters of Credit and the reimbursement of any amounts drawn thereunder, and (z) such assigning Lender shall continue to be entitled to the benefit of all indemnities hereunder as specified herein with respect to matters arising out of the prior involvement of such assigning Lender as a Lender hereunder); (iii) the Commitments shall be modified to reflect the Commitment of such assignee and any Commitment of such assigning Lender, if any; and (iv) if any such assignment occurs after the issuance of any Note hereunder, the assigning Lender shall, upon the effectiveness of such assignment or as promptly thereafter as practicable, surrender its applicable Notes to Administrative Agent for cancellation, and thereupon Company shall issue and deliver new Notes, if so requested by the assignee and/or assigning Lender, to such assignee and/or to such assigning Lender, with appropriate insertions, to reflect the new Commitments and/or outstanding Loans of the assignee and/or the assigning Lender.

(h) Participations . Each Lender shall have the right at any time to sell one or more participations to any Person (other than Holdings, any of its Subsidiaries or any of its Affiliates) in all or any part of its Commitments, Loans or in any other Obligation. The holder of any such participation, other than an Affiliate of the Lender granting such participation, shall not be entitled to require such Lender to take or omit to take any action hereunder except with respect to any amendment, modification or waiver that would (i) extend the final scheduled maturity of any Loan, Note or Letter of Credit (unless such Letter of Credit is not extended beyond the Revolving Commitment Termination Date) in which such participant is participating, or reduce the rate or extend the time of payment of interest or fees thereon (except in connection with a waiver of applicability of any post-default increase in interest rates) or reduce the principal amount thereof, or increase the amount of the participant’s participation over the amount thereof then in effect (it being understood that a waiver of any Default or Event of Default or of a mandatory reduction in the Commitment shall not constitute a change in the terms of such participation, and that an increase in any Commitment or Loan shall be permitted without the consent of any participant if the participant’s participation is not increased as a result thereof), (ii) consent to the assignment or transfer by any Credit Party of any of its rights and obligations under this Agreement, or (iii) release all or substantially all of the Collateral under the Collateral Documents or all or substantially all of the Guarantors from the Guaranty (in each case, except as expressly provided in the Credit Documents) supporting the Loans hereunder in which such participant is participating. Company agrees that each participant shall be entitled to the benefits of Sections 2.17(c), 2.18 and 2.19 to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to clause (c) of this Section; provided , (i) a participant shall not be entitled to receive any greater payment under Section 2.18 or 2.19 than the applicable Lender would have been entitled to receive with respect to the participation sold to such participant, unless the sale of the participation to such participant is made with Company’s

 

Credit and Guaranty Agreement

 

117


prior written consent, and (ii) a participant that would be a Non-US Lender if it were a Lender shall not be entitled to the benefits of Section 2.19 unless Company is notified of the participation sold to such participant and such participant agrees, for the benefit of Company, to comply with Section 2.19 as though it were a Lender. To the extent permitted by law, each participant also shall be entitled to the benefits of Section 10.4 as though it were a Lender, provided such Participant agrees to be subject to Section 2.16 as though it were a Lender. In the event that any Lender sells participations in its Commitments and Loans (a  “Registered Loan” ), such Lender, as a non-fiduciary agent of Company, shall maintain a register on which it enters the name of all participants in the Registered Loans held by it and the principal amount (and stated interest thereon) of the portion of the Registered Loan which is the subject of the participation (the  “Participant Register” ). A Registered Loan may be participated in whole or in part only by registration of such participation on the Participant Register. Any participation of such Registered Loan may be effected only by the registration of such participation on the Participant Register. The Participant Register shall be available for inspection by the Company at any reasonable time and from time to time upon reasonable prior notice.

(i) Certain Other Assignments . In addition to any other assignment permitted pursuant to this Section 10.6, any Lender may assign, pledge and/or grant a security interest in, all or any portion of its Loans, the other Obligations owed by or to such Lender, and its Notes, if any, to secure obligations of such Lender including, without limitation, any Federal Reserve Bank as collateral security pursuant to Regulation A of the Board of Governors of the Federal Reserve System and any operating circular issued by such Federal Reserve Bank; provided , no Lender, as between Company and such Lender, shall be relieved of any of its obligations hereunder as a result of any such assignment and pledge, and provided further, in no event shall the applicable Federal Reserve Bank, pledgee or trustee be considered to be a “Lender” or be entitled to require the assigning Lender to take or omit to take any action hereunder.

10.7. Independence of Covenants. All covenants hereunder shall be given independent effect so that if a particular action or condition is not permitted by any of such covenants, the fact that it would be permitted by an exception to, or would otherwise be within the limitations of, another covenant shall not avoid the occurrence of a Default or an Event of Default if such action is taken or condition exists.

10.8. Survival of Representations, Warranties and Agreements. All representations, warranties and agreements made herein shall survive the execution and delivery hereof and the making of any Credit Extension. Notwithstanding anything herein or implied by law to the contrary, the agreements of each Credit Party set forth in Sections 2.17(c), 2.18, 2.19, 10.2, 10.3, 10.4, and 10.10 and the agreements of Lenders set forth in Sections 2.16, 9.3(b) and 9.6 shall survive the payment of the Loans, the cancellation or expiration of the Letters of Credit and the reimbursement of any amounts drawn thereunder, and the termination hereof.

10.9. No Waiver; Remedies Cumulative. No failure or delay on the part of any Agent or any Lender in the exercise of any power, right or privilege hereunder or under any other Credit Document shall impair such power, right or privilege or be construed to be a waiver of any default or acquiescence therein, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other power, right or privilege. The rights, powers and remedies given to each Agent and each Lender hereby are

 

Credit and Guaranty Agreement

 

118


cumulative and shall be in addition to and independent of all rights, powers and remedies existing by virtue of any statute or rule of law or in any of the other Credit Documents or any of the Interest Rate Agreements or Currency Agreements. Any forbearance or failure to exercise, and any delay in exercising, any right, power or remedy hereunder shall not impair any such right, power or remedy or be construed to be a waiver thereof, nor shall it preclude the further exercise of any such right, power or remedy.

10.10. Marshalling; Payments Set Aside. Neither any Agent nor any Lender shall be under any obligation to marshal any assets in favor of any Credit Party or any other Person or against or in payment of any or all of the Obligations. To the extent that any Credit Party makes a payment or payments to Administrative Agent, Issuing Bank, or Lenders (or to Administrative Agent, on behalf of Lenders or Issuing Bank), or Administrative Agent, Collateral Agent, Issuing Bank or Lenders enforce any security interests or exercise their rights of setoff, and such payment or payments or the proceeds of such enforcement or setoff or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside and/or required to be repaid to a trustee, receiver or any other party under any bankruptcy law, any other state or federal law, common law or any equitable cause, then, to the extent of such recovery, the obligation or part thereof originally intended to be satisfied, and all Liens, rights and remedies therefor or related thereto, shall be revived and continued in full force and effect as if such payment or payments had not been made or such enforcement or setoff had not occurred.

10.11. Severability. In case any provision in or obligation hereunder or any Note or other Credit Document shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby.

10.12. Obligations Several; Actions in Concert. The obligations of Lenders hereunder are several and no Lender shall be responsible for the obligations or Commitment of any other Lender hereunder. Nothing contained herein or in any other Credit Document, and no action taken by Lenders pursuant hereto or thereto, shall be deemed to constitute Lenders as a partnership, an association, a joint venture or any other kind of entity. Anything in this Agreement or any other Credit Document to the contrary notwithstanding, each Lender hereby agrees with each other Lender that no Lender shall take any action to protect or enforce its rights arising out of this Agreement or any Note or otherwise with respect to the Obligations without first obtaining the prior written consent of Agent or Requisite Lenders (as applicable), it being the intent of Lenders that any such action to protect or enforce rights under this Agreement and any Note or otherwise with respect to the Obligations shall be taken in concert and at the direction or with the consent of Agent or Requisite Lenders (as applicable).

10.13. Headings. Section headings herein are included herein for convenience of reference only and shall not constitute a part hereof for any other purpose or be given any substantive effect.

10.14. APPLICABLE LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES (OTHER THAN SECTIONS 5-1401 AND 5-1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW) THEREOF.

 

Credit and Guaranty Agreement

 

119


10.15. CONSENT TO JURISDICTION.

(a) ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST ANY CREDIT PARTY ARISING OUT OF OR RELATING HERETO OR ANY OTHER CREDIT DOCUMENT, OR ANY OF THE OBLIGATIONS, MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE, COUNTY AND CITY OF NEW YORK. BY EXECUTING AND DELIVERING THIS AGREEMENT, EACH CREDIT PARTY, FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, IRREVOCABLY (a) ACCEPTS GENERALLY AND UNCONDITIONALLY THE NONEXCLUSIVE JURISDICTION AND VENUE OF SUCH COURTS; (b) WAIVES ANY DEFENSE OF FORUM NON CONVENIENS; (c) AGREES THAT SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING IN ANY SUCH COURT MAY BE MADE BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO THE APPLICABLE CREDIT PARTY AT ITS ADDRESS PROVIDED IN ACCORDANCE WITH SECTION 10.1 IS SUFFICIENT TO CONFER PERSONAL JURISDICTION OVER THE APPLICABLE CREDIT PARTY IN ANY SUCH PROCEEDING IN ANY SUCH COURT, AND OTHERWISE CONSTITUTES EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT; AND (d) AGREES THAT AGENTS AND LENDERS RETAIN THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO BRING PROCEEDINGS AGAINST ANY CREDIT PARTY IN THE COURTS OF ANY OTHER JURISDICTION.

(b) EACH CREDIT PARTY HEREBY AGREES THAT PROCESS MAY BE SERVED ON IT BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO THE ADDRESSES PERTAINING TO IT AS SPECIFIED IN SECTION 10.1. ANY AND ALL SERVICE OF PROCESS AND ANY OTHER NOTICE IN ANY SUCH ACTION, SUIT OR PROCEEDING SHALL BE EFFECTIVE AGAINST ANY CREDIT PARTY IF GIVEN BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED, OR BY ANY OTHER MEANS OR MAIL WHICH REQUIRES A SIGNED RECEIPT, POSTAGE PREPAID, MAILED AS PROVIDED ABOVE.

10.16. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY AGREES TO WAIVE ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING HEREUNDER OR UNDER ANY OF THE OTHER CREDIT DOCUMENTS OR ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS LOAN TRANSACTION OR THE LENDER/BORROWER RELATIONSHIP THAT IS BEING ESTABLISHED. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS TRANSACTION, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. EACH PARTY HERETO ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH HAS

 

Credit and Guaranty Agreement

 

120


ALREADY RELIED ON THIS WAIVER IN ENTERING INTO THIS AGREEMENT, AND THAT EACH WILL CONTINUE TO RELY ON THIS WAIVER IN ITS RELATED FUTURE DEALINGS. EACH PARTY HERETO FURTHER WARRANTS AND REPRESENTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING (OTHER THAN BY A MUTUAL WRITTEN WAIVER SPECIFICALLY REFERRING TO THIS SECTION 10.16 AND EXECUTED BY EACH OF THE PARTIES HERETO), AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS HERETO OR ANY OF THE OTHER CREDIT DOCUMENTS OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE LOANS MADE HEREUNDER. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.

10.17. Confidentiality. Each Lender shall hold all non-public information regarding Company and its Subsidiaries and their businesses identified as such by Company and obtained by such Lender pursuant to the requirements hereof in accordance with such Lender’s customary procedures for handling confidential information of such nature, it being understood and agreed by Company that, in any event, a Lender may make (i) disclosures of such information to Affiliates of such Lender and to their agents and advisors (and to other persons authorized by a Lender or Agent to organize, present or disseminate such information in connection with disclosures otherwise made in accordance with this Section 10.17), (ii) disclosures of such information reasonably required by any bona fide or potential assignee, transferee or participant in connection with the contemplated assignment, transfer or participation by such Lender of any Loans or any participations therein or by any direct or indirect contractual counterparties (or the professional advisors thereto) in Interest Rate Agreements or Currency Agreements ( provided , such counterparties and advisors are advised of and agree to be bound by the provisions of this Section 10.17), (iii) disclosure to any rating agency when required by it, provided that, prior to any disclosure, such rating agency shall undertake in writing to preserve the confidentiality of any confidential information relating to the Credit Parties received by it from any of the Agents or any Lender, (iv) disclosure to any Lender’s financing sources, provided that prior to any disclosure, such financing source is informed of the confidential nature of the information, and (v) disclosures required or requested by any Governmental Authority or representative thereof or by the NAIC or pursuant to legal or judicial process or other legal proceeding; provided , unless specifically prohibited by applicable law or court order, each Lender shall make reasonable efforts to notify Company of any request by any Governmental Authority or representative thereof (other than any such request in connection with any examination of the financial condition or other routine examination of such Lender by such Governmental Authority) for disclosure of any such non-public information prior to disclosure of such information. Notwithstanding the foregoing, on or after the Closing Date, Administrative Agent may, with the prior written approval of Company (which approval shall not be unreasonably withheld, conditioned or delayed) and at Administrative Agent’s expense, issue news releases and publish “tombstone” advertisements and other announcements relating to this transaction in newspapers, trade journals and other appropriate media (which may include use of logos of one or more of the Credit Parties) (collectively, “ Trade Announcements ”). No Credit Party shall issue any Trade Announcement except (i) disclosures required by applicable law, regulation, legal process or the rules of the Securities and Exchange Commission or (ii) with the prior approval of Administrative Agent.

 

Credit and Guaranty Agreement

 

121


10.18. Usury Savings Clause. Notwithstanding any other provision herein, the aggregate interest rate charged or agreed to be paid with respect to any of the Obligations, including all charges or fees in connection therewith deemed in the nature of interest under applicable law shall not exceed the Highest Lawful Rate. If the rate of interest (determined without regard to the preceding sentence) under this Agreement at any time exceeds the Highest Lawful Rate, the outstanding amount of the Loans made hereunder shall bear interest at the Highest Lawful Rate until the total amount of interest due hereunder equals the amount of interest which would have been due hereunder if the stated rates of interest set forth in this Agreement had at all times been in effect. In addition, if when the Loans made hereunder are repaid in full the total interest due hereunder (taking into account the increase provided for above) is less than the total amount of interest which would have been due hereunder if the stated rates of interest set forth in this Agreement had at all times been in effect, then to the extent permitted by law, Company shall pay to Administrative Agent an amount equal to the difference between the amount of interest paid and the amount of interest which would have been paid if the Highest Lawful Rate had at all times been in effect. Notwithstanding the foregoing, it is the intention of Lenders and Company to conform strictly to any applicable usury laws. Accordingly, if any Lender contracts for, charges, or receives any consideration which constitutes interest in excess of the Highest Lawful Rate, then any such excess shall be cancelled automatically and, if previously paid, shall at such Lender’s option be applied to the outstanding amount of the Loans made hereunder or be refunded to Company. In determining whether the interest contracted for, charged, or received by Administrative Agent or a Lender exceeds the Highest Lawful Rate, such Person may, to the extent permitted by applicable law, (a) characterize any payment that is not principal as an expense, fee, or premium rather than interest, (b) exclude voluntary prepayments and the effects thereof, and (c) amortize, prorate, allocate, and spread in equal or unequal parts the total amount of interest, throughout the contemplated term of the Obligations hereunder.

10.19. Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. Delivery of an executed counterpart of a signature page of this Agreement by facsimile or other electronic transmission shall be as effective as delivery of an original manual executed counterpart of this Agreement.

10.20. Effectiveness. This Agreement shall become effective upon the execution of a counterpart hereof by each of the parties hereto and receipt by Company and Administrative Agent of written or telephonic notification of such execution and authorization of delivery thereof.

10.21. Patriot Act. Each Lender and Administrative Agent (for itself and not on behalf of any Lender) hereby notifies Company that pursuant to the requirements of the Act, it is required to obtain, verify and record information that identifies Company, which information includes the name and address of Company and other information that will allow such Lender or Administrative Agent, as applicable, to identify Company in accordance with the Act.

 

Credit and Guaranty Agreement

 

122


10.22. No Advisory or Fiduciary Relationship . In connection with all aspects of each transaction contemplated hereby (including in connection with any amendment, waiver or other modification hereof or of any Credit Document), each Credit Party acknowledges and agrees that: (a)(i) the arranging and other services regarding this Agreement provided by Administrative Agent are arm’s-length commercial transactions between the Credit Parties, on the one hand, and Administrative Agent on the other hand, (ii) each Credit Party has consulted its own legal, accounting, regulatory and tax advisors to the extent it has deemed appropriate, and (iii) each Credit Party is capable of evaluating, and understands and accepts, the terms, risks and conditions of the transactions contemplated hereby and by the other Credit Documents; (b)(i) each of Administrative Agent and the Lenders is and has been acting solely as a principal and, except as expressly agreed in writing by the relevant parties, has not been, is not, and will not be acting as an advisor, agent or fiduciary for any Credit Party or any other Person and (ii) none of Administrative Agent or any Lender has any obligation to any Credit Party or any of their respective Affiliates with respect to the transactions contemplated hereby except those obligations expressly set forth herein and in the other Credit Documents; and (c) Administrative Agent and the Lenders may be engaged in a broad range of transactions that involve interests that differ from those of the Credit Parties and their respective Affiliates, and neither Administrative Agent nor any Lender has any obligation to disclose any of such interests to the any Credit Party or any of their respective Affiliates. To the fullest extent permitted by law, each Credit Party hereby waives and releases any claims that it may have against each of Administrative Agent and the Lenders with respect to any breach or alleged breach of agency or fiduciary duty in connection with any aspect of any transaction contemplated hereby.

[Remainder of page intentionally left blank]

Credit and Guaranty Agreement

 

123


IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first written above.

 

COMPANY :

 

CENTER CUT HOSPITALITY, INC.

By:   /s/ Marc L. Lipshy
Name:   Marc L. Lipshy
Title:   President

 

GUARANTORS :

 

DEL FRISCO’S RESTAURANT GROUP, LLC

By:   /s/ Marc L. Lipshy
Name:   Marc L. Lipshy
Title:   Vice President

 

ROMO HOLDING, LLC
By:   /s/ Marc L. Lipshy
Name:   Marc L. Lipshy
Title:   President

 

DEL FRISCO – DALLAS, L.P.

DEL FRISCO – FORT WORTH, L.P.

SULLIVAN’S – AUSTIN, L.P.

 

By:   ROMO HOLDING, LLC,
  Its General Partner

 

By:   /s/ Marc L. Lipshy
Name:   Marc L. Lipshy
Title:   President

 

Credit and Guaranty Agreement

 

S-1


GUARANTORS (CONTINUED) :

CALIFORNIA SULLIVAN’S, INC.

CBG DELAWARE, INC.

CENTER CUT MARKETING, LLC

DEL FRISCO’S GRILL OF NEW YORK, LLC

COLORADO SULLIVAN’S, INC.

DEL FRISCO’S GRILLE OF DALLAS, LLC

CWA DELAWARE, INC.

DEL FRISCO’S OF BOSTON, LLC

DEL FRISCO’S OF COLORADO, INC.

LONE STAR FINANCE, LLC

LOUISIANA STEAKHOUSE, INC.

DEL FRISCO’S OF NEVADA, INC.

DEL FRISCO’S OF NORTH CAROLINA, INC.

NORTH PHILADELPHIA SULLIVAN’S, INC.

DEL FRISCO’S OF PHILADELPHIA, INC.

DEL FRISCO’S OF NEW YORK, LLC

STEAK CONCEPTS DELAWARE, INC.

SULLIVAN’S OF ILLINOIS, INC.

SULLIVAN’S OF INDIANA, INC.

SULLIVAN’S OF ALASKA, INC.

SULLIVAN’S OF KANSAS, INC.

SULLIVAN’S OF ARIZONA, INC.

SULLIVAN’S OF BALTIMORE, INC.

SULLIVAN’S OF DELAWARE, INC.

SULLIVAN’S OF NORTH CAROLINA, INC.

SULLIVAN’S RESTAURANTS OF NEBRASKA, INC.

CROCKETT BEVERAGE CORPORATION

POST OAK BEVERAGE CORP.

TRAVIS BEVERAGE CORPORATION

SULLIVAN’S OF WASHINGTON, LLC

WESTHEIMER BEVERAGE CORPORATION

IRWIN J. GROSSNERR FOUNDATION, INC.

TOLLWAY BEVERAGE CORPORATION

By: /s/ Mark S. Mednansky                                              

Name: Mark S. Mednansky

Title: President

 

Credit and Guaranty Agreement

 

S-2


GOLDMAN SACHS BANK USA,

as Administrative Agent, Lead Arranger and Collateral Agent

By:   /s/ Stephen W. Hipp
Name:   Stephen W. Hipp
Title:   Senior Vice President

 

GOLDMAN SACHS BANK USA,

as a Lender

By:   /s/ Stephen W. Hipp
Name:   Stephen W. Hipp
Title:   Senior Vice President

 

Credit and Guaranty Agreement

 

S-3


APPENDIX A-1

TO CREDIT AND GUARANTY AGREEMENT

Term Loan Commitments

 

Lender

   Term Loan Commitment      Pro
Rata Share
 

Goldman Sachs Bank USA

   $ 70,000,000.00         100
  

 

 

    

 

 

 

Total

   $ 70,000,000.00         100
  

 

 

    

 

 

 

 

Credit and Guaranty Agreement

 

APPENDIX A-1


APPENDIX A-2

TO CREDIT AND GUARANTY AGREEMENT

Revolving Commitments

 

Lender

   Revolving Commitment      Pro Rata Share  

Goldman Sachs Bank USA

   $ 10,000,000.00         100
  

 

 

    

 

 

 

Total

   $ 10,000,000.00         100
  

 

 

    

 

 

 

 

Credit and Guaranty Agreement

 

APPENDIX A-2


APPENDIX B

TO CREDIT AND GUARANTY AGREEMENT

Notice Addresses

Holdings or Company :

Del Frisco’s Restaurant Group, LLC or

Center Cut Hospitality, Inc. (as applicable)

930 South Kimball Avenue, Suite 100

Southlake, Texas 76092

Attention: Chief Financial Officer and Controller

Telecopier: 817-601-3438

All Other Credit Parties :

c/o Del Frisco’s Restaurant Group, LLC

930 South Kimball Avenue, Suite 100

Southlake, Texas 76092

Attention: Chief Financial Officer and Controller

Telecopier: 817-601-3438

in each case, with copies to:

Hudson Advisors, LLC

2711 N. Haskell Avenue, Suite 1800

Dallas, Texas 75204

Attention: Director, Capital Markets

Telecopier: 214-515-6924

Hudson Advisors, LLC

2711 N. Haskell Avenue, Suite 1800

Dallas, Texas 75204

Attention: Legal Department

Telecopier: 214-515-6924

Miller, Egan, Molter & Nelson LLP

4514 Cole Avenue, Suite 1200

Dallas, Texas 75205

Attention: Peter B. Dewar

Telecopier: (214) 628-9505

 

Credit and Guaranty Agreement

 

APPENDIX B-1


Agents and Lenders :

GOLDMAN SACHS BANK USA

as Administrative Agent, Collateral Agent,

Lead Arranger, and a Lender

Goldman Sachs Bank USA

6011 Connection Drive

Irving, Texas 75039

Attention: Del Frisco’s Account Manager

Telecopier: (972) 368-5099

Goldman Sachs Bank USA

6011 Connection Drive

Irving, Texas 75039

Attention: GS Bank In-House Counsel

Telecopier: (972) 368-5099

in each case with a copy to:

Hunton & Williams LLP

600 Peachtree St., NE

Suite 4100

Atlanta, GA 30308

Attention: John R. Schneider, Esq.

Telecopier: (404) 602-8669

 

Credit and Guaranty Agreement

 

APPENDIX B-2


Schedule 3.1(i)

CLOSING DATE MORTGAGED PROPERTIES

 

(1) Sullivan’s Restaurant (including building and tract of real property) located at 17795 Dallas Parkway, Dallas, Texas 75287.

 

(2) Del Frisco’s Restaurant (including building and tract of real property) located at 5251 Spring Valley Road, Dallas, Texas 75254.


Schedule 4.1

ORGANIZATION, ETC.

 

NAME OF CREDIT PARTY

  

JURISDICTION

DEL FRISCO’S RESTAURANT GROUP, LLC

   DELAWARE

CENTER CUT HOSPITALITY, INC.

   DELAWARE

SULLIVAN’S OF ALABAMA, INC.

   ALABAMA

SULLIVAN’S OF ALASKA, INC.

   ALASKA

SULLIVAN’S OF ARIZONA, INC.

   ARIZONA

DEL FRISCO’S OF ARIZONA, INC.

   ARIZONA

SULLIVAN’S OF ARKANSAS, INC.

   ARKANSAS

CALIFORNIA SULLIVAN’S, INC.

   CALIFORNIA

COLORADO SULLIVAN’S, INC.

   COLORADO

DEL FRISCO’S OF COLORADO, INC.

   COLORADO

DEL FRISCO’S GRILLE OF DALLAS, LLC

   DELAWARE

LONE STAR FINANCE, LLC

   DELAWARE

SULLIVAN’S OF DELAWARE, INC.

   DELAWARE

ROMO HOLDING, LLC

   DELAWARE

CBG DELAWARE, INC.

   DELAWARE

CWA DELAWARE, INC.

   DELAWARE

STEAK CONCEPTS DELAWARE, INC.

   DELAWARE

DEL FRISCO’S OF WASHINGTON D.C., INC.

   D.C.

SULLIVAN’S OF MIAMI, LLC

   FLORIDA

SULLIVAN’S OF GEORGIA, INC.

   GEORGIA

SULLIVAN’S OF ILLINOIS, INC.

   ILLINOIS

DEL FRISCO’S OF ILLINOIS, INC.

   ILLINOIS

SULLIVAN’S OF INDIANA, INC.

   INDIANA

CENTER CUT MARKETING, LLC LIMITED LIABILITY COMPANY

   INDIANA
SULLIVAN’S OF KANSAS, INC.    KANSAS
LOUISIANA STEAKHOUSE, INC.    LOUISIANA
SULLIVAN’S OF BALTIMORE, INC.    MARYLAND
MASSACHUSETTS SULLIVAN’S, INC.    MASSACHUSETTS
DEL FRISCO’S OF BOSTON, LLC    MASSACHUSETTS
SULLIVAN’S OF MICHIGAN, INC.    MICHIGAN
SULLIVAN’S OF MISSOURI, INC.    MISSOURI


NAME OF CREDIT PARTY

  

JURISDICTION

SULLIVAN’S RESTAURANTS OF NEBRASKA, INC.    NEBRASKA
DEL FRISCO’S OF NEVADA, INC.    NEVADA
SULLIVAN’S OF NEW YORK, INC.    NEW YORK
DEL FRISCO’S OF NEW YORK, LLC    NEW YORK
DEL FRISCO’S GRILLE OF NEW YORK, LLC    NEW YORK
SULLIVAN’S OF NORTH CAROLINA, INC.    NORTH CAROLINA
DEL FRISCO’S OF NORTH CAROLINA, INC.    NORTH CAROLINA
SULLIVAN’S OF OHIO, INC.    OHIO
NORTH PHILADELPHIA SULLIVAN’S, INC.    PENNSYLVANIA
DEL FRISCO’S OF PHILADELPHIA, INC.    PENNSYLVANIA
SULLIVAN’S OF TENNESSEE, INC.    TENNESSEE
CROCKETT BEVERAGE CORPORATION    TEXAS
VILLAGE BEVERAGE CORPORATION    TEXAS
TRAVIS BEVERAGE CORPORATION    TEXAS
WESTHEIMER BEVERAGE CORPORATION    TEXAS
POST OAK BEVERAGE CORPORATION    TEXAS
IRWIN J. GROSSNERR FOUNDATION, INC.    TEXAS
TOLLWAY BEVERAGE CORPORATION    TEXAS
SULLIVAN’S—AUSTIN, L.P.    TEXAS
DEL FRISCO—DALLAS, L.P.    TEXAS
DEL FRISCO—FORT WORTH, L.P.    TEXAS
SULLIVAN’S OF VIRGINIA, INC.    VIRGINIA
SULLIVAN’S OF WASHINGTON, LLC    WASHINGTON


Schedule 4.2

CAPITAL STOCK AND OWNERSHIP

There is no existing option, warrant, call, right, commitment or other agreement to which Holdings or any of its Subsidiaries is a party requiring, and there is no membership interest or other Capital Stock of Holdings or any of its Subsidiaries outstanding which upon conversion or exchange would require, the issuance by Holdings or any of its Subsidiaries of any additional membership interests or other Capital Stock of Holdings or any of its Subsidiaries or other Securities convertible into, exchangeable for or evidencing the right to subscribe for or purchase, a membership interest or other Capital Stock of Holdings or any of its Subsidiaries.

 

OWNER

  

ISSUER

   TYPE & JURISDICTION
OF ORGANIZATION
  

# OF

SHARES/

% OF

EQUITY
INTEREST
OWNED

  

TOTAL

SHARES
OUTSTANDING

  

%

  

CERT.

NO.

  

PAR
VALUE

LSF5 WAGON

INVESTMENTS, LLC

  

DEL FRISCO’S RESTAURANT GROUP, LLC

(f/k/a LSF5 Wagon Investments, LLC)

   DELAWARE LIMITED
LIABILITY COMPANY
   100% interest    N/A    N/A    N/A    N/A

DEL FRISCO’S

RESTAURANT GROUP, LLC

   CENTER CUT HOSPITALITY, INC.    DELAWARE CORPORATION    1,000    1,000    100%    3    $0.01

CENTER CUT

HOSPITALITY, INC.

   LONE STAR FINANCE, LLC    DELAWARE LIMITED
LIABILITY COMPANY
   100% interest    N/A    N/A    N/A    N/A

CENTER CUT

HOSPITALITY, INC.

   ROMO HOLDING, LLC    DELAWARE LIMITED
LIABILITY COMPANY
   1,000    1,000    100%    2    $0.01

CENTER CUT

HOSPITALITY, INC.

   CBG DELAWARE, INC.    DELAWARE CORPORATION    100    100    100%    2    None

CENTER CUT

HOSPITALITY, INC.

   CWA DELAWARE, INC.    DELAWARE CORPORATION    100    100    100%    2    None

CENTER CUT

HOSPITALITY, INC.

  

STEAK CONCEPTS

DELAWARE, INC.

   DELAWARE CORPORATION    100    100    100%    2    None

CENTER CUT

HOSPITALITY, INC.

   CROCKETT BEVERAGE CORPORATION    TEXAS CORPORATION    1,000    1,000    100%    2    $0.01


OWNER

  

ISSUER

  

TYPE & JURISDICTION

OF ORGANIZATION

  

# OF

SHARES/

% OF

EQUITY
INTEREST
OWNED

  

TOTAL

SHARES
OUTSTANDING

  

%

  

CERT.

NO.

  

PAR
VALUE

CENTER CUT

HOSPITALITY, INC.

   VILLAGE BEVERAGE CORPORATION    TEXAS CORPORATION    1,000    1,000    100%    3    $0.01

CENTER CUT

HOSPITALITY, INC.

   TRAVIS BEVERAGE CORPORATION    TEXAS CORPORATION    1,000    1,000    100%    2    $0.01

CENTER CUT

HOSPITALITY, INC.

  

WESTHEIMER BEVERAGE

CORPORATION

   TEXAS CORPORATION    1,000    1,000    100%    2    $0.01

CENTER CUT

HOSPITALITY, INC.

   POST OAK BEVERAGE CORP.    TEXAS CORPORATION    100    100    100%    2    $0.01
N/A   

IRWIN J. GROSSNERR

FOUNDATION, INC.

  

TEXAS NONPROFIT

CORPORATION

  

100% interest

by Membership

   N/A    N/A    N/A    N/A
N/A    TOLLWAY BEVERAGE CORPORATION   

TEXAS NONPROFIT

CORPORATION

  

100% interest by

Membership

   N/A    N/A    N/A    N/A

STEAK CONCEPTS

DELAWARE, INC.

   SULLIVAN’S - AUSTIN, L.P.    TEXAS LIMITED PARTNERSHIP   

1% GP –Romo

Holding, LLC;

99% LP –Steak

Concepts

Delaware, Inc.

   N/A    N/A    N/A    N/A
CBG DELAWARE, INC.    DEL FRISCO - DALLAS, L.P.    TEXAS LIMITED PARTNERSHIP   

1% GP –

Romo Holding, LLC; 99% LP –CBG Delaware, Inc.

   N/A    N/A    N/A    N/A
CWA DELAWARE, INC.    DEL FRISCO - FORT WORTH, L.P.    TEXAS LIMITED PARTNERSHIP   

1% GP – Romo Holding, LLC;

99% LP –CWA

Delaware, Inc.

   N/A    N/A    N/A    N/A
LONE STAR FINANCE, LLC    SULLIVAN’S OF ALABAMA, INC.    ALABAMA CORPORATION    100    100    100%    2    None
LONE STAR FINANCE, LLC    SULLIVAN’S OF ALASKA, INC.    ALASKA CORPORATION    100    100    100%    2    None
LONE STAR FINANCE, LLC    SULLIVAN’S OF ARIZONA, INC.    ARIZONA CORPORATION    100    100    100%    2    None
LONE STAR FINANCE, LLC    DEL FRISCO’S OF ARIZONA, INC.    ARIZONA CORPORATION    100    100    100%    2    None
LONE STAR FINANCE, LLC   

SULLIVAN’S OF

ARKANSAS, INC.

   ARKANSAS CORPORATION    100    100    100%    2    None
LONE STAR FINANCE, LLC    CALIFORNIA SULLIVAN’S, INC.    CALIFORNIA CORPORATION    100    100    100%    2    None
LONE STAR FINANCE, LLC    COLORADO SULLIVAN’S, INC.    COLORADO CORPORATION    100    100    100%    2    None
LONE STAR FINANCE, LLC   

DEL FRISCO’S OF

COLORADO, INC.

   COLORADO CORPORATION    100    100    100%    3    None


OWNER

 

ISSUER

 

TYPE & JURISDICTION

OF

ORGANIZATION

 

# OF

SHARES/

% OF

EQUITY
INTEREST
OWNED

 

TOTAL

SHARES
OUTSTANDING

 

%

 

CERT.

NO.

 

PAR
VALUE

LONE STAR FINANCE, LLC   DEL FRISCO’S GRILLE OF DALLAS, LLC   DELAWARE LIMITED LIABILITY COMPANY   100% interest   N/A   N/A   N/A   N/A
LONE STAR FINANCE, LLC   SULLIVAN’S OF DELAWARE, INC.  

DELAWARE

CORPORATION

  100   100   100%   2   None
LONE STAR FINANCE, LLC  

DEL FRISCO’S OF

WASHINGTON, D.C., INC.

  DC CORPORATION   100   100   100%   2   None
LONE STAR FINANCE, LLC   SULLIVAN’S OF MIAMI, LLC   FLORIDA LIMITED LIABILITY COMPANY   100% interest   N/A   N/A   N/A   N/A
LONE STAR FINANCE, LLC   SULLIVAN’S OF GEORGIA, INC.   GEORGIA CORPORATION   100       100       100%   2   None
LONE STAR FINANCE, LLC   SULLIVAN’S OF ILLINOIS, INC.   ILLINOIS CORPORATION   100   100   100%   2   None
LONE STAR FINANCE, LLC   DEL FRISCO’S OF ILLINOIS, INC.   ILLINOIS CORPORATION   100   100   100%   2   None
LONE STAR FINANCE, LLC   SULLIVAN’S OF INDIANA, INC.   INDIANA CORPORATION   100   100   100%   3   None
SULLIVAN’S OF INDIANA, INC.   CENTER CUT MARKETING, LLC LIMITED LIABILITY COMPANY   INDIANA LIMITED LIABILITY COMPANY   100% interest   N/A   N/A   N/A   N/A
LONE STAR FINANCE, LLC   SULLIVAN’S OF KANSAS, INC.   KANSAS CORPORATION   100   100   100%   2   None
LONE STAR FINANCE, LLC   LOUISIANA STEAKHOUSE, INC.   LOUISIANA CORPORATION   100   100   100%   2   None
LONE STAR FINANCE, LLC  

SULLIVAN’S OF

BALTIMORE, INC.

  MARYLAND   100   100   100%   2   None
LONE STAR FINANCE, LLC  

MASSACHUSETTS

SULLIVAN’S, INC.

  MASSACHUSETTS   100   100   100%   2   None
LONE STAR FINANCE, LLC   DEL FRISCO’S OF BOSTON, LLC   MASSACHUSETTS LIMITED LIABILITY COMPANY   100% interest   N/A   N/A   N/A   N/A
LONE STAR FINANCE, LLC   SULLIVAN’S OF MICHIGAN, INC.   MICHIGAN CORPORATION   100   100   100%   2   None
LONE STAR FINANCE, LLC   SULLIVAN’S OF MISSOURI, INC.   MISSOURI CORPORATION   100   100   100%   2   None
LONE STAR FINANCE, LLC   SULLIVAN’S RESTAURANTS OF NEBRASKA, INC.   NEBRASKA CORPORATION   100   100   100%   2   None
LONE STAR FINANCE, LLC   DEL FRISCO’S OF NEVADA, INC.   NEVADA CORPORATION   100   100   100%   2   None
LONE STAR FINANCE, LLC   SULLIVAN’S OF NEW YORK, INC.   NEW YORK CORPORATION   100   100   100%   2   None


OWNER

  

ISSUER

  

TYPE & JURISDICTION

OF

ORGANIZATION

  

# OF

SHARES/

% OF

EQUITY
INTEREST
OWNED

  

TOTAL

SHARES
OUTSTANDING

  

%

  

CERT.

NO.

  

PAR
VALUE

LONE STAR FINANCE, LLC    DEL FRISCO’S OF NEW YORK, LLC       100% interest    N/A    N/A    N/A    N/A
LONE STAR FINANCE, LLC    DEL FRISCO’S GRILLE OF NEW YORK, LLC    NEW YORK LIMITED LIABILITY COMPANY    100% interest    N/A    N/A    N/A    N/A
LONE STAR FINANCE, LLC    SULLIVAN’S OF NORTH CAROLINA, INC.   

NORTH CAROLINA

CORPORATION

   100        100        100%    2    None
LONE STAR FINANCE, LLC    DEL FRISCO’S OF NORTH CAROLINA, INC.   

NORTH CAROLINA

CORPORATION

   100    100    100%    2    None
LONE STAR FINANCE, LLC    SULLIVAN’S OF OHIO, INC.    OHIO CORPORATION    100    100    100%    2    None
LONE STAR FINANCE, LLC    NORTH PHILADELPHIA SULLIVAN’S, INC.    PENNSYLVANIA    100    100    100%    2    None
LONE STAR FINANCE, LLC    DEL FRISCO’S OF PHILADELPHIA, INC.    PENNSYLVANIA CORPORATION    100    100    100%    2    None
LONE STAR FINANCE, LLC    SULLIVAN’S OF TENNESSEE, INC.    TENNESSEE CORPORATION    100    100    100%    2    None
LONE STAR FINANCE, LLC    SULLIVAN’S OF VIRGINIA, INC.    VIRGINIA CORPORATION    100    100    100%    2    None
LONE STAR FINANCE, LLC    SULLIVAN’S OF WASHINGTON, LLC    WASHINGTON LIMITED LIABILITY COMPANY    100% interest    N/A    N/A    N/A    N/A


Schedule 4.13

Part “A”

FEE OWNED REAL ESTATE ASSETS

 

(1) Sullivan’s Restaurant (including building and tract of real property) located at 17795 Dallas Parkway, Dallas, Texas 75287.

 

(2) Del Frisco’s Restaurant (including building and tract of real property) located at 5251 Spring Valley Road, Dallas, Texas 75254.

Part “B”

LEASEHOLD PROPERTIES

 

(1) Sullivan’s Restaurant (including building and tract of real property) located at Fifth Avenue Mall—Room C01, 320 W. 5th Ave., Anchorage, Alaska99501.

 

(2) Sullivan’s Restaurant (including building and tract of real property) located at 1785 E. River Road, Tucson, Arizona85718-7631.

 

(3) Sullivan’s Restaurant (including building and tract of real property) located at 73505 El Paseo Suite 2600, Palm Desert, California92260-4343.

 

(4) Sullivan’s Restaurant (including building and tract of real property) located at 1745-61 Wazee Street, Denver, Colorado80202-1231.

 

(5) Sullivan’s Restaurant (including building and tract of real property) located at 5525 Concord Pike, Wilmington, Delaware19803-1429.

 

(6) Sullivan’s Restaurant (including building and tract of real property) located at 415 N. Dearborn, Chicago, Illinois60654.

 

(7) Sullivan’s Restaurant (including building and tract of real property) located at 244 S. Main Street, Naperville, Illinois60540-5350.

 

(8) Sullivan’s Restaurant (including building and tract of real property) located at 250 Marriot Drive, Lincolnshire, Illinois60069

 

(9)

Sullivan’s Restaurant (including building and tract of real property) located at 3316 E. 86 th , Indianapolis, Indiana46240-2429.

 

(10) Sullivan’s Restaurant (including building and tract of real property) located at One East Pratt Street Ste., 102, Baltimore, Maryland21202.

 

(11) Sullivan’s Restaurant (including building and tract of real property) located at 4501 West 119th St., Leawood, Kansas66209.

 

(12) Sullivan’s Restaurant (including building and tract of real property) located at 5252 Corporate Blvd., Baton Rouge, Louisiana 70808-2503.

 

(13) Sullivan’s Restaurant (including building and tract of real property) located at 1928 South End Steelyard, Suite 200, Charlotte, North Carolina28203-4785.


(14) Sullivan’s Restaurant (including building and tract of real property) located at 414 Glenwood Avenue, Suite 103, Raleigh, North Carolina27603-1220.

 

(15) Sullivan’s Restaurant (including building and tract of real property) located at 222 S. 15th Street, Omaha, Nebraska68102.

 

(16) Sullivan’s Restaurant (including building and tract of real property) located at 700 W. Dekalb Pike, King of Prussia, Pennsylvania19406-3006.

 

(17) Sullivan’s Restaurant (including building and tract of real property) located at 300 Colorado Street, Suite 200, Austin, Texas78701-3925.

 

(18) Sullivan’s Restaurant (including building and tract of real property) located at 4608 Westheimer, Houston, Texas77027-4716.

 

(19) Sullivan’s Restaurant (including building and tract of real property) located at 621 Union Street, Seattle, Washington98101.

 

(20) Del Frisco’s Restaurant (including building and tract of real property) located at 8100 E. Orchard Road, Greenwood Village, Colorado80111-5013.

 

(21) Del Frisco’s Restaurant (including building and tract of real property) located at 4725 Piedmont Row Dr., Suite 170, Charlotte, North Carolina28210.

 

(22) Del Frisco’s Restaurant (including building and tract of real property) located at 5061 Westheimer Rd., Suite 8060, Houston, Texas77056.

 

(23) Del Frisco’s Restaurant (including building and tract of real property) located at 3925 Paradise Road, Las Vegas, Nevada89109-4607.

 

(24) Del Frisco’s Restaurant (including building and tract of real property) located at Rockefeller Center, 1221 Ave. of the Americas, New York City, New York10020-1001.

 

(25) Del Frisco’s Restaurant (including building and tract of real property) located at 812 Main Street, Ft. Worth, Texas76102-6247.

 

(26) Del Frisco’s Restaurant (including building and tract of real property) located at 1426-1428 Chestnut St., Philadelphia, Pennsylvania19102-8680.

 

(27) Del Frisco’s Restaurant (including building and tract of real property) located at 250 Northern Ave., S. 200, Boston, Massachusetts02210.

 

(28) Del Frisco’s Grille Restaurant (including building and tract of real property) located at 50 Rockefeller Plaza, Suite H, New York City, New York10020-1001.

 

(29) Del Frisco’s Grille Restaurant (including building and tract of real property) located at 3232 McKinney Ave., Suite 175, Dallas, Texas 75201.

 

(30) Del Frisco’s Restaurant Group corporate office (including building and tract of real property) located at 930 South Kimball Ave., Suite 100, Southlake, Texas 76092.


Schedule 4.16

MATERIAL CONTRACTS

 

1. Management Agreement

 

2. Each Non-Credit Party Lease Guaranty


Schedule 4.27

NON-CREDIT PARTY LEASE GUARANTIES

 

  (1) Guaranty dated as of January 28, 2005 in favor of Wake Forest/Granite, LLC made by Center Cut Hospitality, Inc., as successor to Lone Star Steakhouse & Saloon, Inc. (monthly base rent is $7,919.67 increasing to $8,708.33 effective November 1, 2011 and both lease and guaranty expire on October 31, 2016)

 

  (2) Guaranty dated as of April 19, 2005 in favor of Crown/Monroe, LLC made by Center Cut Hospitality, Inc., as successor to Lone Star Steakhouse & Saloon, Inc. (monthly base rent is $8,708.33 and both lease and guaranty expire on May 31, 2016)

 

  (3) Guaranty dated as of September 30, 2004 in favor of Crown/Burlington, LLC made by Center Cut Hospitality, Inc., as successor to Lone Star Steakhouse & Saloon, Inc. (monthly base rent is $6,666.67 increasing to $7,500 effective October 1, 2011 and both lease and guaranty expire on September 30, 2016)

 

  (4) Guaranty dated as of May 27, 2005 in favor of Crown/Statesville, LLC made by Center Cut Hospitality, Inc., as successor to Lone Star Steakhouse & Saloon, Inc. (monthly base rent is $6,250; lease expires on October 31, 2016 and guaranty expires on July 31, 2011)

 

  (5) Guaranty dated as of January 28, 2005 in favor of SF Crossing Investors, Ltd. made by Center Cut Hospitality, Inc., as successor to Lone Star Steakhouse & Saloon, Inc. (monthly base rent is $7,291.67; lease expires on July 31, 2016 and guaranty expires on July 31, 2011)

 

  (6) Guaranty dated as of November 21, 2005 in favor of Harvest/Harbor Point made by Center Cut Hospitality, Inc., as successor to Lone Star Steakhouse & Saloon, Inc. (monthly base rent is $9,166.67 increasing to $10,833.33 effective January 1, 2012 and both lease and guaranty expire on December 31, 2016)

 

  (7) Guaranty dated as of February 11, 2005 in favor of Crown/Mooresville, LLC made by Center Cut Hospitality, Inc., as successor to Lone Star Steakhouse & Saloon, Inc. (monthly base rent is $11,000 and both lease and guaranty expire on February 29, 2016)

The tenant under each relevant lease is Lone Star Steaks, Inc.; provided, however, the tenant in respect of Guaranty No. 5 is Lone Star Steakhouse & Saloon of Oklahoma, Inc. and the tenant in respect of Guaranty No. 6 is TX. C.C., Inc.


Schedule 4.28

INACTIVE SUBSIDIARIES

 

SULLIVAN’S OF ALABAMA, INC.
DEL FRISCO’S OF ARIZONA, INC.
SULLIVAN’S OF ARKANSAS, INC.
DEL FRISCO’S OF WASHINGTON D.C., INC.
SULLIVAN’S OF MIAMI, LLC

SULLIVAN’S OF GEORGIA, INC.

DEL FRISCO’S OF ILLINOIS, INC.

MASSACHUSETTS SULLIVAN’S, INC.
SULLIVAN’S OF MICHIGAN, INC.
SULLIVAN’S OF MISSOURI, INC.
SULLIVAN’S OF NEW YORK, INC.
SULLIVAN’S OF OHIO, INC.
SULLIVAN’S OF TENNESSEE, INC.
VILLAGE BEVERAGE CORPORATION
SULLIVAN’S OF VIRGINIA, INC.


Schedule 6.1

INDEBTEDNESS

Indebtedness owing to IKON with respect to photocopier leased to Center Cut Hospitality, Inc.

Indebtedness owing to Illy Caffe North America with respect to coffee machine leased to Center Cut Hospitality, Inc.


Schedule 6.2

LIENS

Lien in favor of IKON relating to Indebtedness owing to IKON with respect to photocopier leased to Center Cut Hospitality, Inc.

Lien in favor of Illy Caffe North America relating to Indebtedness owing to Illy Caffe North America with respect to coffee machine leased to Center Cut Hospitality, Inc.


Schedule 6.7

INVESTMENTS

None


Schedule 6.12

TRANSACTIONS WITH AFFILIATES

 

1. Management Agreement and transactions occurring thereunder


EXHIBIT A-1 TO

CREDIT AND GUARANTY AGREEMENT

FUNDING NOTICE

Reference is made to the Credit and Guaranty Agreement, dated as of July 29, 2011 (as amended, restated, replaced, supplemented or otherwise modified from time to time, the “Credit Agreement” ; the terms defined therein and not otherwise defined herein being used herein as therein defined), by and among CENTER CUT HOSPITALITY, INC., a Delaware corporation ( “Company” ), DEL FRISCO’S RESTAURANT GROUP, LLC, a Delaware limited liability company ( “Holdings” ), as a Guarantor, the other Credit Parties party thereto from time to time, the Lenders party thereto from time to time, and GOLDMAN SACHS BANK USA, as Administrative Agent, Collateral Agent and Lead Arranger.

1. Pursuant to Sections 2.1 and  2.2 of the Credit Agreement, Company requests that Lenders make the following Loans to Company in accordance with the applicable terms and conditions of the Credit Agreement on             , 201  (the “ Credit Date ”):

 

(a)    Term Loans: 1

  

¨        Base Rate Loans:

   $                

¨        LIBOR Rate Loans, with an initial Interest Period of:

  

        ____    one (1) month

        ____    two (2) months

        ____    three (3) months

        ____    six (6) months

        ____    nine (9) months*

        ____    twelve (12) months*

   $                

(b)    Revolving Loans:

  

¨        Base Rate Loans:

   $                

¨        LIBOR Rate Loans, with an initial Interest Period of:

  

        ____    one (1) month

        ____    two (2) months

        ____    three (3) months

        ____    six (6) months

        ____    nine (9) months*

        ____    twelve (12) months*

   $                

 

1  

To be made on the Closing Date only.

* Available only if all Lenders of the relevant Class approve.

 

 

DFRG—Form of Funding Notice


2. Company hereby authorizes and directs Administrative Agent to disburse the proceeds of the Loans requested hereby to the account number(s) in the amount(s) specified on Exhibit A hereto.

3. Company hereby certifies that:

(i) after giving effect to the making of any Revolving Loan requested hereby, (a) the Total Utilization of Revolving Commitments shall not exceed the Revolving Commitments then in effect, and (b) Availability is $0 or greater, as calculated on Exhibit B hereto;

(ii) after giving effect to the borrowing contemplated hereby, the Senior Leverage Ratio determined as of the Credit Date will not exceed the maximum Leverage Ratio permitted as of the last day of the immediately preceding Fiscal Quarter pursuant to Section 6.8 of the Credit Agreement, as calculated on Exhibit B hereto;

(iii) as of the Credit Date, the representations and warranties contained in the Credit Agreement and in the other Credit Documents shall be true and correct in all material respects on and as of such Credit Date to the same extent as though made on and as of that date, except to the extent such representations and warranties specifically relate to an earlier date, in which case such representations and warranties shall have been true and correct in all material respects on and as of such earlier date; and

(iv) as of the Credit Date, no event has occurred and is continuing or would result from the consummation of the borrowing contemplated hereby that would constitute a Default or an Event of Default.

[Signature Page Follows]

 

DFRG—Form of Funding Notice

 

2


IN WITNESS WHEREOF, Company has caused this Funding Notice to be executed and delivered by its duly authorized representative as of the date set forth below.

 

    CENTER CUT HOSPITALITY, INC.
    By:    
    Name:  
    Title:  
    Date:             , 201            

DFRG—Form of Funding Notice

Signature Page


Exhibit A

Disbursement of Proceeds

DFRG—Form of Funding Notice

Exhibit A


Exhibit B

Calculation of Availability and Senior Leverage Ratio

 

Availability 1 : (i) - (ii) =

  

Actual:     

Required: > $0

(i)     (A) the sum of the trailing twelve months Consolidated Adjusted EBITDA of Holdings and its Subsidiaries as of the last day of the most recently ended Fiscal Month for which financial statements have been delivered pursuant to Section 5.1(a) of the Credit Agreement:

   $[    ,    ,    ]

multiplied by

  

         (B) the then in effect maximum Senior Leverage Ratio permitted as of the last day of the immediately preceding Fiscal Quarter pursuant to Section 6.8(c) of the Credit Agreement:

   [    ]

Total of (i)(A) multiplied by (i)(B):

   $[    ,    ,    ]

(ii)      (A) the aggregate outstanding principal balance of the Loans as of such date:

   $[    ,    ,    ]

plus

  

         (B) all other Consolidated Total Debt as of such date:

   $[    ,    ,    ]

plus

  

         (C) the amount of any reserves against Availability pursuant to Sections 2.13(a) or 2.13(b) of the Credit Agreement:

   $[    ,    ,    ]

plus

  

(D) Letterof Credit Usage:

   $[    ,    ,    ]

plus

  

         (E) the aggregate principal amount of all Revolving Loans requested pursuant to Section 2.2(b)(ii) of the Credit Agreement but not yet funded as of such date

   $[    ,    ,    ]

Total of (ii)(A) + (ii)(B) + (ii)(C) + (ii)(D) + (ii)(E):

   $[    ,    ,    ]

 

 

1  

Availability shall be computed on a pro forma basis.

DFRG—Form of Funding Notice

Exhibit B


Senior Leverage Ratio: (i)/(ii) =

  

Actual:     .    :1.00

Required:     .    :1.00

(i)       Consolidated Total Debt (excluding any Subordinated Indebtedness) on such date of determination minus Unrestricted Cash of the Credit Parties in excess of $1,000,000 as of such day:

   $[    ,    ,    ]

(ii)      (a) Consolidated Adjusted EBITDA for the four-Fiscal Quarter period ending on such date 1 :

   $[    ,    ,    ]

(b)the dollar amount, if any, by which Consolidated Adjusted Store-Level EBITDA generated by the New York Location during such period exceeds thirty-five percent (35%) of the Consolidated Adjusted Store-Level EBITDA for such period 2 :

   $[    ,    ,    ]

Total of (ii)(a) minus (ii)(b):

   $[    ,    ,    ]

 

 

1  

Or if such date of determination is not the last day of a Fiscal Quarter, for the four-Fiscal Quarter period ending as of the most recently concluded Fiscal Quarter.

2  

Or if such date of determination is not the last day of a Fiscal Quarter, for the four-Fiscal Quarter period ending as of the most recently concluded Fiscal Quarter.

 

DFRG—Form of Funding Notice

 

2


EXHIBIT A-2 TO

CREDIT AND GUARANTY AGREEMENT

CONVERSION/CONTINUATION NOTICE

Reference is made to the Credit and Guaranty Agreement, dated as of July 29, 2011 (as amended, restated, replaced, supplemented or otherwise modified from time to time, the “Credit Agreement” ; the terms defined therein and not otherwise defined herein being used herein as therein defined), by and among CENTER CUT HOSPITALITY, INC., a Delaware corporation ( “Company” ), DEL FRISCO’S RESTAURANT GROUP, LLC, a Delaware limited liability company ( “Holdings” ), as a Guarantor, the other Credit Parties party thereto from time to time, the Lenders party thereto from time to time, and GOLDMAN SACHS BANK USA, as Administrative Agent, Collateral Agent and Lead Arranger.

1. Pursuant to Section 2.8 of the Credit Agreement, Company requests the conversion and/or continuation of the following Loans, each such conversion and/or continuation to be effective as of             , 201    :

      (a) Term Loans:

 

    $[    ,    ,    ]

  

LIBOR Rate Loans to be continued with an Interest Period of:

 

___ one (1) month

___ two (2) months

___ three (3) months

___ six (6) months

___ nine (9) months*

___ twelve (12) months*

    $ [    ,    ,    ]

  

Base Rate Loans to be converted to LIBOR Rate Loans with an Interest Period of:

 

___ one (1) month

___ two (2) months

___ three (3) months

___ six (6) months

___ nine (9) months*

___ twelve (12) months*

    $ [    ,    ,    ]

   LIBOR Rate Loans to be converted to Base Rate Loans

 

* Available only if all Lenders of the relevant Class approve.

 

Continuation/Conversion Notice


      (b) Revolving Loans:

 

    $[    ,    ,    ]

  

LIBOR Rate Loans to be continued with an Interest Period of:

 

___ one (1) month

___ two (2) months

___ three (3) months

___ six (6) months

___ nine (9) months*

___ twelve (12) months*

    $ [    ,    ,    ]

  

Base Rate Loans to be converted to LIBOR Rate Loans with an Interest Period of:

 

___ one (1) month

___ two (2) months

___ three (3) months

___ six (6) months

___ nine (9) months*

___ twelve (12) months*

    $ [    ,    ,    ]

   LIBOR Rate Loans to be converted to Base Rate Loans

2. Company hereby certifies that as of the date hereof, no event has occurred and is continuing or would result from the consummation of the conversion and/or continuation contemplated hereby that would constitute a Default or an Event of Default.

[Signature Page Follows]

 

* Available only if all Lenders approve.

Continuation/Conversion Notice

2


IN WITNESS WHEREOF, Company has caused this Conversion/Continuation Notice to be executed and delivered by its duly authorized representative as of the date set forth below.

 

    CENTER CUT HOSPITALITY, INC.
    By:    
    Name:  
    Title:  
    Date:             , 201            

Continuation/Conversion Notice

Signature Page


EXHIBIT A-3 TO

CREDIT AND GUARANTY AGREEMENT

ISSUANCE NOTICE

Reference is made to the Credit and Guaranty Agreement, dated as of July 29, 2011 (as amended, restated, replaced, supplemented or otherwise modified from time to time, the “Credit Agreement” ; the terms defined therein and not otherwise defined herein being used herein as therein defined), by and among CENTER CUT HOSPITALITY, INC., a Delaware corporation ( “Company” ), DEL FRISCO’S RESTAURANT GROUP, LLC, a Delaware limited liability company ( “Holdings” ), as a Guarantor, the other Credit Parties party thereto from time to time, the Lenders party thereto from time to time, and GOLDMAN SACHS BANK USA, as Administrative Agent, Collateral Agent and Lead Arranger.

1. Pursuant to Section 2.3 of the Credit Agreement, Company requests a Letter of Credit to be issued on             , 201    (the “Credit Date” ) in accordance with the terms and conditions of the Credit Agreement.

 

  2. Attached on Exhibit A hereto for each such Letter of Credit are the following:

 

  (a) the stated amount of such Letter of Credit;

 

  (b) the name and address of the beneficiary of such Letter of Credit;

 

  (c) the expiration date of such Letter of Credit; and

 

  (d) either (i) the verbatim text of such proposed Letter of Credit, or (ii) a description of the proposed terms and conditions of such Letter of Credit, including a precise description of any documents to be presented by the beneficiary which, if presented by the beneficiary prior to the expiration date of such Letter of Credit, would require the Issuing Bank to make payment under such Letter of Credit.

 

  3. Company hereby certifies to Administrative Agent, each Lender and Issuing Bank that:

 

  (a) after giving effect to the issuance of any Letter of Credit requested hereby, (i) the Total Utilization of Revolving Commitments shall not exceed the Revolving Commitments then in effect, (ii) Letter of Credit usage shall not exceed the Letter of Credit Sublimit then in effect; and (iii) Availability is $0 or greater;

 

  (b) after giving effect to the issuance of any Letter of Credit requested hereby, the Senior Leverage Ratio determined as of the Credit Date will not exceed the maximum Senior Leverage Ratio permitted as of the last day of the immediately preceding Fiscal Quarter pursuant to Section 6.8 of the Credit Agreement;

 

Issuance Notice


  (c) as of the Credit Date, the representations and warranties contained in each of the Credit Documents are true, correct and complete in all material respects on and as of such Credit Date to the same extent as though made on and as of such date, except to the extent such representations and warranties specifically relate to an earlier date, in which case such representations and warranties are true, correct and complete in all material respects on and as of such earlier date; and

 

  (d) as of such Credit Date, no event has occurred and is continuing or would result from the consummation of the issuance contemplated hereby that would constitute a Default or an Event of Default.

[Signature Page Follows]

 

Issuance Notice

 

2


IN WITNESS WHEREOF, Company has caused this Issuance Notice to be executed and delivered by its duly authorized representative as of the date set forth below.

 

    CENTER CUT HOSPITALITY, INC.
    By:    
    Name:  
    Title:  
    Date:             , 201            

Issuance Notice

Signature Page


Exhibit A

Proposed Terms of Letter of Credit

(a) the stated amount of such Letter of Credit: $            

(b) the name and address of the beneficiary of such Letter of Credit:

 

   Name of Beneficiary:      
   Address of Beneficiary:      
        
        

(c) the expiration date of such Letter of Credit:             , 20            

(d) set forth below is either (i) the verbatim text of such proposed Letter of Credit, or (ii) a description of the proposed terms and conditions of such Letter of Credit, including a precise description of any documents to be presented by the beneficiary which, if presented by the beneficiary prior to the expiration date of such Letter of Credit, would require the Issuing Bank to make payment under such Letter of Credit:

 

 

 

 

 

 

 

 

Issuance Notice

Exhibit A


EXHIBIT B-1 TO

CREDIT AND GUARANTY AGREEMENT

TERM LOAN NOTE

$                                                     , 20        
   New York, New York

FOR VALUE RECEIVED, CENTER CUT HOSPITALITY, INC., a Delaware corporation (“ Company ”), hereby promises to pay [NAME OF LENDER] or its registered assigns ( “Payee” ), on or before the Term Loan Maturity Date, the principal amount of                     DOLLARS ($                    ).

Company also hereby promises to pay interest on the unpaid principal amount hereof, from the date hereof until paid in full, at the rates and at the times which shall be determined in accordance with the provisions of that certain Credit and Guaranty Agreement, dated as of July 29, 2011 (as amended, restated, replaced, supplemented or otherwise modified from time to time, the “Credit Agreement” ; the terms defined therein and not otherwise defined herein being used herein as therein defined), by and among Company, DEL FRISCO’S RESTAURANT GROUP, LLC, a Delaware limited liability company ( “Holdings” ), as a Guarantor, the other Credit Parties party thereto from time to time, the Lenders party thereto from time to time, and GOLDMAN SACHS BANK USA, as Administrative Agent, Collateral Agent and Lead Arranger.

Company shall make scheduled principal payments on this Note as set forth in Section 2.11 of the Credit Agreement.

This Term Loan Note (this “Note” ) is one of the “Term Loan Notes” issued pursuant to and entitled to the benefits of the Credit Agreement, to which reference is hereby made for a more complete statement of the terms and conditions under which the Term Loan evidenced hereby was made and is to be repaid.

All payments of principal and interest in respect of this Note shall be made in lawful money of the United States of America in same day funds at the Principal Office of Administrative Agent or at such other place or account as shall be designated in writing for such purpose in accordance with the terms of the Credit Agreement. Unless and until an Assignment Agreement effecting the assignment or transfer of the obligations evidenced hereby shall have been accepted by Administrative Agent and recorded in the Register, Company, each Agent and Lenders shall be entitled to deem and treat Payee as the owner and holder of this Note and the obligations evidenced hereby. Payee hereby agrees, by its acceptance hereof, that before disposing of this Note or any part hereof it will make a notation hereon of all principal payments previously made hereunder and of the date on which interest hereon has been paid; provided , the failure to make a notation of any payment made on this Note shall not limit or otherwise affect the obligations of Company hereunder with respect to payments of principal of or interest on this Note.

 

Form of Term Loan Note


This Note is subject to mandatory prepayment and to prepayment at the option of Company, each as provided in the Credit Agreement.

THIS NOTE AND THE RIGHTS AND OBLIGATIONS OF COMPANY AND PAYEE HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES THEREOF (OTHER THAN SECTIONS 5-1401 AND 5-1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW).

Upon the occurrence and during the continuation of an Event of Default, the unpaid balance of the principal amount of this Note, together with all accrued and unpaid interest thereon, may become, or may be declared to be, due and payable in the manner, upon the conditions and with the effect provided in the Credit Agreement.

The terms of this Note are subject to amendment only in the manner provided in the Credit Agreement.

Company promises to pay all costs and expenses, including reasonable attorneys’ fees, all as provided in the Credit Agreement, incurred in the collection and enforcement of this Note. Company and any endorsers of this Note hereby consent to renewals and extensions of time at or after the maturity hereof, without notice, and hereby waive diligence, presentment, protest, demand notice of every kind and, to the full extent permitted by law, the right to plead any statute of limitations as a defense to any demand hereunder.

[Signature Page Follows]

 

Form of Term Loan Note

 

2


IN WITNESS WHEREOF , Company has caused this Note to be duly executed and delivered by its duly authorized representative as of the date and at the place first written above.

 

CENTER CUT HOSPITALITY, INC.
By:    
Name:  
Title:  

Form of Term Loan Note

Signature Page


EXHIBIT B-2 TO

CREDIT AND GUARANTY AGREEMENT

REVOLVING LOAN NOTE

$                                            , 20         
   New York, New York

FOR VALUE RECEIVED, CENTER CUT HOSPITALITY, INC., a Delaware corporation (“ Company ”), hereby promises to pay [NAME OF LENDER] or its registered assigns ( “Payee” ), on or before the Revolving Commitment Termination Date, the lesser of (a)  [DOLLARS] ($                    ) and (b) the unpaid principal amount of all advances made by Payee to Company as Revolving Loans under the Credit Agreement referred to below.

Company also hereby promises to pay interest on the unpaid principal amount hereof, from the date hereof until paid in full, at the rates and at the times which shall be determined in accordance with the provisions of that certain Credit and Guaranty Agreement, dated as of July 29, 2011 (as amended, restated, replaced, supplemented or otherwise modified from time to time, the “Credit Agreement” ; the terms defined therein and not otherwise defined herein being used herein as therein defined), by and among Company, DEL FRISCO’S RESTAURANT GROUP, LLC, a Delaware limited liability company ( “Holdings” ), as a Guarantor, the other Credit Parties party thereto from time to time, the Lenders party thereto from time to time, and GOLDMAN SACHS BANK USA, as Administrative Agent, Collateral Agent and Lead Arranger.

This Revolving Loan Note (this “Note” ) is one of the “Revolving Loan Notes” issued pursuant to and entitled to the benefits of the Credit Agreement, to which reference is hereby made for a more complete statement of the terms and conditions under which the Revolving Loans evidenced hereby were made and are to be repaid.

All payments of principal and interest in respect of this Note shall be made in lawful money of the United States of America in same day funds at the Principal Office of Administrative Agent or at such other place or account as shall be designated in writing for such purpose in accordance with the terms of the Credit Agreement. Unless and until an Assignment Agreement effecting the assignment or transfer of the obligations evidenced hereby shall have been accepted by Administrative Agent and recorded in the Register, Company, each Agent and Lenders shall be entitled to deem and treat Payee as the owner and holder of this Note and the obligations evidenced hereby. Payee hereby agrees, by its acceptance hereof, that before disposing of this Note or any part hereof it will make a notation hereon of all principal payments previously made hereunder and of the date on which interest hereon has been paid; provided , the failure to make a notation of any payment made on this Note shall not limit or otherwise affect the obligations of Company hereunder with respect to payments of principal of or interest on this Note.

This Note is subject to mandatory prepayment and to prepayment at the option of Company, each as provided in the Credit Agreement.

 

Form of Revolving Loan Note


THIS NOTE AND THE RIGHTS AND OBLIGATIONS OF COMPANY AND PAYEE HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES THEREOF (OTHER THAN SECTIONS 5-1401 AND 5-1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW).

Upon the occurrence and during the continuation of an Event of Default, the unpaid balance of the principal amount of this Note, together with all accrued and unpaid interest thereon, may become, or may be declared to be, due and payable in the manner, upon the conditions and with the effect provided in the Credit Agreement.

The terms of this Note are subject to amendment only in the manner provided in the Credit Agreement.

Company promises to pay all costs and expenses, including reasonable attorneys’ fees, all as provided in the Credit Agreement, incurred in the collection and enforcement of this Note. Company and any endorsers of this Note hereby consent to renewals and extensions of time at or after the maturity hereof, without notice, and hereby waive diligence, presentment, protest, demand notice of every kind and, to the full extent permitted by law, the right to plead any statute of limitations as a defense to any demand hereunder.

[Signature Page Follows]

 

Form of Revolving Loan Note

 

2


IN WITNESS WHEREOF , Company has caused this Note to be duly executed and delivered by its duly authorized representative as of the date and at the place first written above.

 

CENTER CUT HOSPITALITY, INC.
By:    
Name:  
Title:  

 

Form of Revolving Loan Note


EXHIBIT C TO

CREDIT AND GUARANTY AGREEMENT

COMPLIANCE CERTIFICATE

Each of the undersigned hereby certifies, in his or her official capacity on behalf of the applicable named Credit Party and not in his or her individual capacity, as follows:

1. I am the  [Chief Financial Officer] [or to the extent no Person holds such position at such time, the Chief Executive Officer/Controller] of each of CENTER CUT HOSPITALITY, INC., a Delaware corporation (“Company”), and DEL FRISCO’S RESTAURANT GROUP, LLC, a Delaware limited liability company (“Holdings”).

2. I have reviewed the terms of that certain Credit and Guaranty Agreement, dated as of July 29, 2011 (as amended, restated, replaced, supplemented or otherwise modified from time to time, the “Credit Agreement” ; the terms defined therein and not otherwise defined herein being used herein as therein defined), by and among Company, Holdings, the other Credit Parties party thereto from time to time, the Lenders party thereto from time to time, and GOLDMAN SACHS BANK USA, as Administrative Agent, Collateral Agent and Lead Arranger, and I have made, or have caused to be made under my supervision, a review in reasonable detail of the transactions and condition of Holdings and its Subsidiaries during the accounting period covered by the attached financial statements.

3. The examination described in paragraph 2 above did not disclose, and I have no knowledge of, the existence of any condition or event which constitutes a Default or an Event of Default during or at the end of the accounting period covered by the attached financial statements or as of the date of this Compliance Certificate, except as set forth in a separate attachment, if any, to this Compliance Certificate, describing in detail, the nature of the condition or event, the period during which it has existed and the action which Company has taken, is taking, or proposes to take with respect to each such condition or event.

4. The financial statements attached hereto fairly present, in all material respects, the financial condition of Holdings and its Subsidiaries as at the dates indicated and the results of their operations and their cash flows from the periods indicated, subject, in the case of any unaudited financial statements, to changes resulting from audit and normal year-end adjustments.

The foregoing certifications, together with the computations set forth in the Annex A hereto and the financial statements delivered with this Certificate in support hereof, are made and delivered [mm/dd/yy] pursuant to Section 5.1(d) of the Credit Agreement.

[Signature Page Follows]

 

Compliance Certificate


IN WITNESS WHEREOF, Company and Holdings have each caused this Certificate to be executed and delivered by its duly authorized representative as of the date and at the place first written above.

CENTER CUT HOSPITALITY, INC.
By:    
Name:  
Title:  

 

DEL FRISCO’S RESTAURANT GROUP, LLC
By:    
Name:  
Title:  

 

Compliance Certificate


ANNEX A TO

COMPLIANCE CERTIFICATE

FOR THE FISCAL [QUARTER] [YEAR] ENDING [mm/dd/yy].

 

1. Consolidated Adjusted EBITDA : (i) - (ii) =

   $ [        ,        ,        

(i) (a) Consolidated Net Income:

   $ [        ,        ,        

(b) Consolidated Interest Expense:

   $ [        ,        ,        

(c) provisions for taxes based on income:

   $ [        ,        ,        

(d) total depreciation expense:

   $ [        ,        ,        

(e) total amortization expense:

   $ [        ,        ,        

(f) other non-Cash items reducing Consolidated Net Income 1 :

   $ [        ,        ,        

(g) Pre-Opening Costs:

   $ [        ,        ,        

(h) management or similar fees paid during such period pursuant to the Management Agreement to the extent permitted by the Credit Agreement and the Management Fee Subordination Agreement:

   $ [        ,        ,        

(i) non-Cash compensation expenses arising from the issuance of stock, options to purchase stock and stock appreciation rights to the management of Holdings or Company:

   $ [        ,        ,        

(j) extraordinary charges to the extent approved by Administrative Agent:

   $ [        ,        ,        

Total of (i)(a) through (j):

   $ [        ,        ,        

(ii) (a) other non-Cash items increasing Consolidated Net Income 2 :

   $ [        ,        ,        

(b) interest income:

   $ [        ,        ,        

 

 

1  

Excluding any such non-Cash item to the extent that it represents an accrual or reserve for potential Cash items in any future period or amortization of a prepaid Cash item that was paid in a prior period.

2  

Excluding any such non-Cash item to the extent it represents the reversal of an accrual or reserve for potential Cash item in any prior period.

 

Compliance Certificate

 

Annex A-1


(c) other income:

   $ [        ,        ,        

(d) with respect to Permitted Joint Ventures, the income of which has been included in Consolidated Net Income, the amount of all Permitted Minority Interest Distributions actually paid:

   $ [        ,        ,        

Total of (ii)(a) through (d):

   $ [        ,        ,        

2. Consolidated Adjusted FCCR EBITDA : (i) - (ii) =

   $ [        ,        ,        

(i) Consolidated Adjusted EBITDA:

   $ [        ,        ,        

(ii) aggregate of all amounts added back to Consolidated Adjusted EBITDA pursuant to clauses (i)(g) and (i)(h) of the definition thereof:

   $ [        ,        ,        

3. Consolidated Adjusted Store-Level EBITDA : (i) + (ii) =

   $ [        ,        ,        

(i) Consolidated Adjusted EBITDA:

   $ [        ,        ,        

(ii) Consolidated Corporate Overhead:

   $ [        ,        ,        

4. Consolidated Capital Expenditures :

   $ [        ,        ,        

5. Consolidated Cash Interest Expense :

   $ [        ,        ,        

6. Consolidated Corporate Overhead :

   $ [        ,        ,        

7. Consolidated Current Assets :

   $ [        ,        ,        

8. Consolidated Current Liabilities :

   $ [        ,        ,        

9. Consolidated Excess Cash Flow : (i) - (ii) =

   $ [        ,        ,        

(i) (a) Consolidated Adjusted EBITDA:

   $ [        ,        ,        

(b) interest income:

   $ [        ,        ,        

(c) other non-ordinary course income (excluding any gains or losses attributable to Asset Sales):

   $ [        ,        ,        

(d) Consolidated Working Capital Adjustment:

   $ [        ,        ,        

Total of (i)(a) through (d):

   $ [        ,        ,        

 

Compliance Certificate

 

Annex A-2


(ii) (a) voluntary and scheduled repayments of Consolidated Total Debt 3 :

   $ [        ,        ,        

(b) Consolidated Capital Expenditures 4 :

   $ [        ,        ,        

(c) Consolidated Cash Interest Expense:

   $ [        ,        ,        

(d) provisions for current taxes based on income of Holdings and its Subsidiaries and payable in cash with respect to such period:

   $ [        ,        ,        

(e) aggregate of all amounts deducted from Consolidated Adjusted EBITDA pursuant to clauses (i)(g) and (i)(h) of the definition thereof during such period:

   $ [        ,        ,        

(f) cash amounts paid to purchase or redeem Capital Stock in accordance with Section 6.5(b) of the Credit Agreement:

   $ [        ,        ,        

(g) cash amounts paid in connection with Permitted Acquisitions (to the extent such amounts are not financed):

   $ [        ,        ,        

(h) the aggregate of all extraordinary charges paid in cash and added back to Consolidated Adjusted EBITDA pursuant to clause (i)(j) of the definition thereof:

   $ [        ,        ,        

Total of (ii)(a) through (h):

   $ [        ,        ,        

10. Consolidated Fixed Charges : (i) + (ii) + (iii) + (iv) + (v) =

   $ [        ,        ,        

(i) Consolidated Cash Interest Expense:

   $ [        ,        ,        

(ii) scheduled payments of principal on Consolidated Total Debt:

   $ [        ,        ,        

(iii) Consolidated Maintenance Capital Expenditures:

   $ [        ,        ,        

 

3  

Excluding repayments of Revolving Loans except to the extent the Revolving Commitments are permanently reduced in connection with such repayments.

4  

Net of any proceeds of (x) Net Asset Sale Proceeds to the extent reinvested in accordance with Section 2.13(a) of the Credit Agreement; (y) Net Insurance/Condemnation Proceeds to the extent reinvested in accordance with Section 2.13(b) of the Credit Agreement; and (z) proceeds of related financings with respect to such expenditures.

 

Compliance Certificate

 

Annex A-3


(iv) the current portion of taxes provided for with respect to such period in accordance with GAAP:

   $ [        ,        ,        

(v) all amounts paid pursuant to any Non-Credit Party Guaranty Agreement:

   $ [        ,        ,        

11. Consolidated Growth Capital Expenditures :

   $ [        ,        ,        

12. Consolidated Interest Expense :

   $ [        ,        ,        

13. Consolidated Liquidity : (i) + (lesser of (ii) or (iii)) =

   $ [        ,        ,        

(i) Unrestricted Cash-on-hand of Holdings and its Subsidiaries:

   $ [        ,        ,        

(ii) (a) aggregate Revolving Commitments in effect at such time:

   $ [        ,        ,        

(b) Total Utilization of the Revolving Commitments at such time:

   $ [        ,        ,        

Total of (ii)(a) minus (ii)(b):

   $ [        ,        ,        

(iii) Availability at such time:

   $ [        ,        ,        

14. Consolidated Maintenance Capital Expenditures : (i)—(ii) =

   $ [        ,        ,        

(i) Consolidated Capital Expenditures:

   $ [        ,        ,        

(ii) Consolidated Growth Capital Expenditures:

   $ [        ,        ,        

15. Consolidated Net Income : (i) - (ii) =

   $ [        ,        ,        

(i) the net income (or loss) of Holdings and its Subsidiaries on a consolidated basis for such period taken as a single accounting period determined in conformity with GAAP 5 :

   $ [        ,        ,        

(ii) (a) other than with respect to any Permitted Joint Venture, the income (or loss) of any Person (other than a Subsidiary of Holdings) in which any other Person (other than Holdings or any of its Subsidiaries) has a joint interest:

   $ [        ,        ,        

 

5  

Excluding, without duplication, extraordinary and non-recurring items, impairment charges related to goodwill, property, plant and equipment, and any other assets, and currency translation charges.

 

Compliance Certificate

 

Annex A-4


(b) the income (or loss) of any Person accrued prior to the date it becomes a Subsidiary of Holdings or is merged into or consolidated with Holdings or any of its Subsidiaries or that Person’s assets are acquired by Holdings or any of its Subsidiaries:

  $ [        ,        ,        

(c) the income of any Subsidiary of Holdings to the extent that the declaration or payment of dividends or similar distributions by that Subsidiary of that income is not at the time permitted by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Subsidiary:

  $ [        ,        ,        

(d) any gains or losses attributable to Asset Sales or returned surplus assets of any Pension Plan:

  $ [        ,        ,        

(e) to the extent not included in clauses (ii)(a) through (d)  above, any net extraordinary gains or net extraordinary losses:

  $ [        ,        ,        

Total of (ii)(a) through (e):

  $ [        ,        ,        

16. Consolidated Total Debt :

  $ [        ,        ,        

17. Consolidated Working Capital : (i) - (ii) =

  $ [        ,        ,        

(i) Consolidated Current Assets:

  $ [        ,        ,        

(ii) Consolidated Current Liabilities:

  $ [        ,        ,        

18. Consolidated Working Capital Adjustment 6 : (i) - (ii) =

  $ [        ,        ,        

(i) Consolidated Working Capital as of the beginning of such period:

  $ [        ,        ,        

(ii) Consolidated Working Capital as of the end of such period:

  $ [        ,        ,        

19. Minimum Consolidated Liquidity :

 

Actual: $[        ,        ,        ]

 

Required: > = $3,000,000  

 

20. Minimum Consolidated Adjusted Store-Level EBITDA :

 

Actual: $[        ,        ,        ]

 

Required: >= $30,000,000  

 

 

6  

Excluding the effects of changes in current deferred tax assets and current deferred tax liabilities, to the extent such changes have no cash impact.

 

Compliance Certificate

 

Annex A-5


21. Senior Leverage Ratio: (i)/(ii) =

 

Actual:    

            .        :1.00   

Required:

            .        :1.00   

(i) Consolidated Total Debt (excluding any Subordinated Indebtedness) on such date of determination minus Unrestricted Cash of the Credit Parties in excess of $1,000,000 as of such day:

  $ [        ,        ,        

(ii) (a) Consolidated Adjusted EBITDA for the four-Fiscal Quarter period ending on such date 7 :

  $ [        ,        ,        

(b) the dollar amount, if any, by which Consolidated Adjusted Store-Level EBITDA generated by the New York Location during such period exceeds thirty-five percent (35%) of the Consolidated Adjusted Store-Level EBITDA for such period 8 :

  $ [        ,        ,        

Total of (ii)(a) minus (ii)(b):

  $ [        ,        ,        

22. Fixed Charge Coverage Ratio 9 : (i)/(ii) =

 

Actual:    

            .        :1.00   

Required:

            .        :1.00   

(i) Consolidated Adjusted FCCR EBITDA:

  $ [        ,        ,        

(ii) Consolidated Fixed Charges:

  $ [        ,        ,        

 

 

7

Or if such date of determination is not the last day of a Fiscal Quarter, for the four-Fiscal Quarter period ending as of the most recently concluded Fiscal Quarter.

8 Or if such date of determination is not the last day of a Fiscal Quarter, for the four-Fiscal Quarter period ending as of the most recently concluded Fiscal Quarter.
9 Calculated as the ratio as of the last day of (a) the first Fiscal Quarter ending after the Closing Date of (i) Consolidated Adjusted FCCR EBITDA for such Fiscal Quarter, to (ii) Consolidated Fixed Charges for such Fiscal Quarter, (b) the second Fiscal Quarter ending after the Closing Date of (i) Consolidated Adjusted FCCR EBITDA for the two Fiscal Quarters period ending on such date, to (ii) Consolidated Fixed Charges for such two Fiscal Quarters, (c) the third Fiscal Quarter ending after the Closing Date of (i) Consolidated Adjusted FCCR EBITDA for the three Fiscal Quarter period ending on such date, to (ii) Consolidated Fixed Charges for such three-Fiscal Quarter period, and (d) any other Fiscal Quarter of (i) Consolidated Adjusted FCCR EBITDA for the four-Fiscal Quarter period then ending, to (ii) Consolidated Fixed Charges for such four-Fiscal Quarter period.

 

Compliance Certificate

 

Annex A-6


EXHIBIT E TO

CREDIT AND GUARANTY AGREEMENT

ASSIGNMENT AND ASSUMPTION AGREEMENT

This Assignment and Assumption Agreement (the “Assignment” ) is dated as of the Effective Date set forth below and is entered into by and between [ Insert name of Assignor ] (the “Assignor” ) and [ Insert name of Assignee ] (the “Assignee” ). Capitalized terms used but not defined herein shall have the meanings given to them in the Credit Agreement identified below (as it may be amended, supplemented or otherwise modified from time to time, the “Credit Agreement” ), receipt of a copy of which is hereby acknowledged by the Assignee. The Standard Terms and Conditions set forth in Annex 1 attached hereto are hereby agreed to and incorporated herein by reference and made a part of this Assignment as if set forth herein in full.

For an agreed consideration, the Assignor hereby irrevocably sells and assigns to the Assignee, and the Assignee hereby irrevocably purchases and assumes from the Assignor, subject to and in accordance with the Standard Terms and Conditions and the Credit Agreement, as of the Effective Date inserted by the Administrative Agent as contemplated below, the interest in and to all of the Assignor’s rights and obligations under the Credit Agreement and any other documents or instruments delivered pursuant thereto that represents the amount and percentage interest identified below of all of the Assignor’s outstanding rights and obligations under the respective facilities identified below (including, to the extent included in any such facilities, Letters of Credit) (the “Assigned Interest” ). Such sale and assignment is without recourse to the Assignor and, except as expressly provided in this Assignment and the Credit Agreement, without representation or warranty by the Assignor.

 

1. Assignor:   
2. Assignee:   
3. Borrower:    Center Cut Hospitality, Inc., a Delaware corporation
4. Administrative Agent:    Goldman Sachs Bank USA, as the administrative agent under the Credit Agreement
5. Credit Agreement:    Credit and Guaranty Agreement, dated as of July 29, 2011, by and among Borrower, Del Frisco’s Restaurant Group, LLC, a Delaware limited liability company ( “Holdings” ), as a Guarantor, the other Credit Parties party thereto from time to time, the Lenders party thereto from time to time and Administrative Agent and the other Agents party thereto from time to time, as amended, amended and restated, supplemented or otherwise modified from time to time

 

Assignment and Assumption Agreement


6. Assigned Interest:

 

Facility Assigned

  

Aggregate Amount

of Commitment/

Loans for all

Lenders

   Amount of
Commitment/Loans
Assigned
     Percentage
Assigned of
Commitment/
Loans 1
 

             2

   $                  $                                 %   
   $                  $                                 %   
   $                  $                                 %   

Effective Date:                     , 201           [TO BE INSERTED BY ADMINISTRATIVE AGENT AND WHICH SHALL BE THE EFFECTIVE DATE OF RECORDATION OF TRANSFER IN THE REGISTER THEREFOR.]

7. Notice and Wire Instructions:

 

[NAME OF ASSIGNOR]      [NAME OF ASSIGNEE]

Notices :

       Notices :   
 

 

       

 

 

 

       

 

 

 

       

 

  Attention:         Attention:
  Telecopier:         Telecopier:
with a copy to:      with a copy to:
 

 

       

 

 

 

       

 

 

 

       

 

  Attention:         Attention:
  Telecopier:         Telecopier:
Wire Instructions :      Wire Instructions :

[Signature Page Follows]

 

 

1  

Set forth, to at least 9 decimals, as a percentage of the Commitment/Loans of all Lenders thereunder.

2  

Fill in the appropriate terminology for the types of facilities under the Credit Agreement that are being assigned under this Assignment (e.g. “Term Loan”, etc.)

 

Form of Assignment and Assumption Agreement

 

2


The terms set forth in this Assignment are hereby agreed to:

 

ASSIGNOR

[NAME OF ASSIGNOR]

By:    
Name:  
Title:  

 

ASSIGNEE

[NAME OF ASSIGNEE]

By:    
Name:  
Title:  

[Consented to and] 1 Accepted:

 

GOLDMAN SACHS BANK USA ,

as Administrative Agent

By:    
Name:  
Title:  

[Consented to and] 2 Accepted:

 

CENTER CUT HOSPITALITY, INC. ,

as Company

By:    
Name:  
Title:  

 

 

1  

To be added only if the consent of the Administrative Agent is required by the terms of the Credit Agreement.

2  

To be added only if the consent of Company is required by the terms of the Credit Agreement.

 

Assignment and Assumption Agreement

 

Signature Page


ANNEX 1

STANDARD TERMS AND CONDITIONS FOR ASSIGNMENT

AND ASSUMPTION AGREEMENT

1. Representations and Warranties .

1.1 Assignor . The Assignor (a) represents and warrants that (i) it is the legal and beneficial owner of the Assigned Interest, (ii) the Assigned Interest is free and clear of any lien, encumbrance or other adverse claim and (iii) it has full power and authority, and has taken all action necessary, to execute and deliver this Assignment and to consummate the transactions contemplated hereby; and (b) assumes no responsibility with respect to (i) any statements, warranties or representations made in or in connection with any Credit Document, (ii) the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Credit Agreement or any other instrument or document delivered pursuant thereto, other than this Assignment (herein collectively the “ Credit Documents ”), or any collateral thereunder, (iii) the financial condition of any Credit Party or any other Person obligated in respect of any Credit Document or (iv) the performance or observance by any Credit Party or any other Person of any of their respective obligations under any Credit Document.

1.2 Assignee . The Assignee (a) represents and warrants that (i) it has full power and authority, and has taken all action necessary, to execute and deliver this Assignment and to consummate the transactions contemplated hereby and to become a Lender under the Credit Agreement, (ii) it meets all requirements of an Eligible Assignee under the Credit Agreement, (iii) from and after the Effective Date, it shall be bound by the provisions of the Credit Agreement and, to the extent of the Assigned Interest, shall have the obligations of a Lender thereunder, (iv) it has received a copy of the Credit Agreement and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and to purchase the Assigned Interest on the basis of which it has made such analysis and decision, and (v) if it is a Non-US Lender, attached to the Assignment is any documentation required to be delivered by it pursuant to the terms of the Credit Agreement, duly completed and executed by the Assignee; and (b) agrees that (i) it will, independently and without reliance on the Administrative Agent, the Assignor or any other Lender, and based on such documents and information as it shall deem appropriate at that time, continue to make its own credit decisions in taking or not taking action under the Credit Documents, and (ii) it will perform in accordance with their terms all of the obligations which by the terms of the Credit Documents are required to be performed by it as a Lender.

2. Payments . From and after the Effective Date, Administrative Agent shall make all payments in respect of the Assigned Interest (including payments of principal, interest, fees and other amounts) to the Assignor for amounts which have accrued up to but excluding the Effective Date and to the Assignee for amounts which have accrued from and after the Effective Date.

3. General Provisions . This Assignment shall be binding upon, and inure to the benefit of, the parties hereto and their respective successors and assigns. This Assignment may be executed

 

Form of Assignment and Assumption Agreement

 

Annex 1 - 1


in any number of counterparts, which together shall constitute one instrument. Delivery of an executed counterpart of a signature page of this Assignment by telecopy or electronic mail in portable document format shall be effective as delivery of a manually executed counterpart of this Assignment. This Assignment shall be governed by, and construed in accordance with, the internal laws of the State of New York without regard to conflict of laws principles thereof (other than Section 5-1401 and 5-1402 of the New York General Obligations Law).

 

Form of Assignment and Assumption Agreement

 

Annex 1 - 2


EXHIBIT F TO

CREDIT AND GUARANTY AGREEMENT

CERTIFICATE REGARDING NON-BANK STATUS

Reference is made to the Credit and Guaranty Agreement, dated as of July 29, 2011 (as amended, restated, replaced, supplemented or otherwise modified from time to time, the “Credit Agreement” ; the terms defined therein and not otherwise defined herein being used herein as therein defined), by and among CENTER CUT HOSPITALITY, INC., a Delaware corporation ( “Company” ), DEL FRISCO’S RESTAURANT GROUP, LLC, a Delaware limited liability company ( “Holdings” ), as a Guarantor, the other Credit Parties party thereto from time to time, the Lenders party thereto from time to time, and GOLDMAN SACHS BANK USA, as Administrative Agent, Collateral Agent and Lead Arranger. Pursuant to Section 2.19(c) of the Credit Agreement, the undersigned hereby certifies that it is not a “bank” or other Person described in Section 881(c)(3) of the Internal Revenue Code of 1986, as amended.

 

[NAME OF LENDER]
By:    
Name:  
Title:  

 

Certificate Regarding Non-Bank Status


EXHIBIT G-1 TO

CREDIT AND GUARANTY AGREEMENT

CLOSING DATE CERTIFICATE

Each of the undersigned hereby certifies, in his or her official capacity on behalf of the applicable named Credit Party and not in his or her individual capacity, as follows:

1. Pursuant to that certain Credit and Guaranty Agreement, dated as of July 29, 2011 (as amended, restated, replaced, supplemented or otherwise modified from time to time, the “Credit Agreement” ; the terms defined therein and not otherwise defined herein being used herein as therein defined), by and among CENTER CUT HOSPITALITY, INC., a Delaware corporation ( “Company” ), DEL FRISCO’S RESTAURANT GROUP, LLC, a Delaware limited liability company ( “Holdings” ), certain Subsidiaries of Holdings, along with Holdings, as Guarantors, the Lenders party thereto from time to time, and GOLDMAN SACHS BANK USA, as Administrative Agent, Collateral Agent and Lead Arranger, Company hereby requests that Lenders make the Loans to Company requested in accordance with the terms of the initial Funding Notice, dated as of the Closing Date (the “Initial Funding Notice” ).

2. I have reviewed the terms of Sections 3 and 4 of the Credit Agreement and the definitions and provisions contained in such Credit Agreement relating thereto, and in my opinion I have made, or have caused to be made under my supervision, such examination or investigation as is necessary to enable me to express an informed opinion as to the matters referred to herein.

3. Based upon my review and examination described in paragraph 2 above, I certify, on behalf of Company or Holdings, as applicable, that as of the date hereof:

(i) the representations and warranties contained in each of the Credit Documents are true, correct and complete in all respects on and as of the Closing Date to the same extent as though made on and as of such date, except to the extent such representations and warranties specifically relate to an earlier date, in which case such representations and warranties are true, correct and complete in all respects on and as of such earlier date; and

(ii) no event has occurred and is continuing or would result from the consummation of the borrowing contemplated by the Initial Funding Notice that would constitute a Default or an Event of Default.

4. Company certifies that it has provided to Agent true and complete copies of each of the Material Contracts to which any Credit Party is party (including all amendments and modifications thereto) in effect on the Closing Date.

5. Each Credit Party has requested Miller, Egan, Molter & Nelson LLP to deliver to Agents and Lenders on the Closing Date favorable written opinions setting forth such matters as Administrative Agent may reasonably request.

6. Holdings has delivered to Administrative Agent true, complete and correct copies of (a) the Historical Financial Statements, (b) pro forma consolidated balance sheet of Holdings

 

Closing Date Certificate


and its Subsidiaries as at the Closing Date, and reflecting the consummation of the related financings and the other transactions contemplated by the Credit Documents, and (c) the Projections.

7. The pro forma balance sheet delivered pursuant to Section 3.1(l) of the Credit Agreement demonstrates that on the Closing Date and immediately after giving effect to any Credit Extensions to be made on the Closing Date, including the payment of all Transaction Costs required to be paid in Cash, the Consolidated Liquidity of the Company is at least $10,000,000.

8. The pro forma income statement delivered pursuant to Section 3.1(l) of the Credit Agreement demonstrates that during the twelve (12) Fiscal Month period ending on June 14, 2011, the Consolidated Adjusted EBITDA of the Company is at least $30,000,000.

9. The pro forma balance sheet delivered pursuant to Section 3.1(l) of the Credit Agreement demonstrates that on the Closing Date and immediately after giving effect to any Credit Extensions to be made on the Closing Date, including the payment of all Transaction Costs required to be paid in Cash, the Senior Leverage Ratio as of the Closing Date is less than 2.50:1.00.

10. Since December 28, 2010, no event, circumstance or change has occurred that has caused or evidences, either in any case or in the aggregate, a Material Adverse Effect.

[Signature Page Follows]

 

Closing Date Certificate

 

2


The foregoing certifications are made and delivered as of             , 2011.

 

CENTER CUT HOSPITALITY, INC.
By:    
Name:  
Title:  

 

DEL FRISCO’S RESTAURANT GROUP, LLC
By:    
Name:  
Title:  

 

Closing Date Certificate

 

Signature Page


EXHIBIT G-2 TO

CREDIT AND GUARANTY AGREEMENT

SOLVENCY CERTIFICATE

Each of the undersigned hereby certifies, in his or her official capacity on behalf of the applicable named Credit Party and not in his or her individual capacity, as follows:

1. The undersigned is the Chief Financial Officer, or to the extent no Person holds such position at such time, the Chief Executive Officer/Controller of each of CENTER CUT HOSPITALITY, INC., a Delaware corporation (“Company”), and DEL FRISCO’S RESTAURANT GROUP, LLC, a Delaware limited liability company (“Holdings”), and the undersigned is authorized to execute and deliver this Solvency Certificate for and on behalf of the foregoing.

2. Reference is made to that certain Credit and Guaranty Agreement, dated as of July 29, 2011 (as amended, restated, replaced, supplemented or otherwise modified from time to time, the “Credit Agreement” ; the terms defined therein and not otherwise defined herein being used herein as therein defined), by and among Company, Holdings, as a Guarantor, the other Credit Parties party thereto from time to time, the Lenders party thereto from time to time, and GOLDMAN SACHS BANK USA, as Administrative Agent, Collateral Agent and Lead Arranger.

3. The undersigned has reviewed the terms of Sections 3 and 4 of the Credit Agreement and the definitions and provisions contained in the Credit Agreement relating thereto, and, in the undersigned’s opinion, has made, or has caused to be made under the undersigned’s supervision, such examination or investigation as is necessary to enable the undersigned to express an informed opinion as to the matters referred to herein.

4. Based upon the undersigned’s review and examination described in paragraph 3 above, the undersigned certifies that, as of the Closing Date, after giving effect to the Loans to be made on the Closing Date, Company and its Subsidiaries are and will be Solvent.

The foregoing certifications are made and delivered as of the Closing Date.

[Signature Page Follows]

 

Solvency Certificate


IN WITNESS WHEREOF, Company and Holdings have caused this Solvency Certificate to be duly executed and delivered by their duly authorized representative as of the Closing Date.

 

CENTER CUT HOSPITALITY, INC.
By:    
Name:  
Title:  

 

DEL FRISCO’S RESTAURANT GROUP, LLC
By:    
Name:  
Title:  

Signature Page

 

Solvency Certificate


EXHIBIT H TO

CREDIT AND GUARANTY AGREEMENT

COUNTERPART AGREEMENT

This COUNTERPART AGREEMENT , dated                     , 201        (this “Counterpart Agreement” ) is delivered pursuant to that certain Credit and Guaranty Agreement, dated as of July 29, 2011 (as amended, restated, replaced, supplemented or otherwise modified from time to time, the “Credit Agreement” ; the terms defined therein and not otherwise defined herein being used herein as therein defined), by and among CENTER CUT HOSPITALITY, INC., a Delaware corporation ( “Company” ), DEL FRISCO’S RESTAURANT GROUP, LLC, a Delaware limited liability company ( “Holdings” ), as a Guarantor, the other Credit Parties party thereto from time to time, the Lenders party thereto from time to time, and GOLDMAN SACHS BANK USA, as Administrative Agent, Collateral Agent and Lead Arranger.

Section 1. Pursuant to Section 5.10 of the Credit Agreement and Section 5.3 of the Pledge and Security Agreement:

(a)                     ( “New Credit Party” ) agrees that this Counterpart Agreement may be attached to the Credit Agreement and that by the execution and delivery hereof, the New Credit Party becomes a Guarantor under the Credit Agreement and agrees to be bound by all of the terms thereof;

(b) each Credit Party (including New Credit Party) represents and warrants that each of the representations and warranties set forth in the Credit Agreement and each other Credit Document and applicable to it is true and correct in all material respects both before and after giving effect to this Counterpart Agreement, except to the extent that any such representation and warranty relates solely to any earlier date, in which case such representation and warranty was true and correct in all material respects as of such earlier date;

(c) each Credit Party (including New Credit Party) certifies that no event has occurred or is continuing as of the date hereof, or will result from the transactions contemplated hereby on the date hereof, that would constitute a Default or an Event of Default;

(d) New Credit Party agrees to irrevocably and unconditionally guaranty the due and punctual payment in full of all Obligations when the same shall become due, whether at stated maturity, by required prepayment, declaration, acceleration, demand or otherwise (including amounts that would become due but for the operation of the automatic stay under Section 362(a) of the Bankruptcy Code, 11 U.S.C. § 362(a)) all in accordance with Section 7 of the Credit Agreement;

(e) New Credit Party hereby (i) agrees that this Counterpart Agreement may be attached to the Pledge and Security Agreement, (ii) agrees that it will comply with all the terms and conditions of the Pledge and Security Agreement as if it were an original

 

Counterpart Agreement

 


signatory thereto, (iii) grants to Collateral Agent, for the benefit of each Secured Party (as such term is defined in the Pledge and Security Agreement) a security interest in all of its right, title and interest in and to all of its “Collateral” (as such term is defined in the Pledge and Security Agreement), in each case whether now or hereafter existing or in which it now has or hereafter acquires an interest and wherever the same may be located and (iv) delivers to Collateral Agent supplements to all schedules attached to the Pledge and Security Agreement. All such Collateral shall be deemed to be part of the “Collateral” and hereafter subject to each of the terms and conditions of the Pledge and Security Agreement;

(f) New Credit Party shall be and hereby agrees to be bound by [list applicable Credit Documents] by virtue of this Agreement as if a signatory to such Credit Document on the Closing Date (or any other date of execution), and New Credit Party shall comply with, and be subject to, all of the terms, conditions, covenants, agreements and obligations set forth in each such Credit Document, except to the extent that such terms, conditions, covenants, agreements and obligations relate solely to a date or period prior to the date hereof;

(g) New Credit Party acknowledges that it has received a copy of each Credit Document to which it is a party by virtue of this Agreement and that it has read and understands the terms thereof; and

(h) New Credit Party hereby agrees to provide all information and execute all documents, and hereby authorizes the filing of all financing statements, deemed reasonably necessary by Collateral Agent in connection with Collateral Agent’s perfection of the Lien created against the assets of New Credit Party, in each case, pursuant to the terms of the Credit Documents. In addition, on or before the date hereof, New Credit Party agrees to complete a Collateral Questionnaire and deliver the same to Collateral Agent.

Section 2 . New Credit Party agrees from time to time, upon request of Administrative Agent, to take such additional actions and to execute and deliver such additional documents and instruments as Administrative Agent or Collateral Agent may reasonably request to effect the transactions contemplated by, and to carry out the intent of, this Agreement. Neither this Agreement nor any term hereof may be changed, waived, discharged or terminated, except in accordance with Section 10.5 of the Credit Agreement. Any notice or other communication herein required or permitted to be given shall be given pursuant to Section 10.1 of the Credit Agreement, and all for purposes thereof, the notice address of New Credit Party shall be the address as set forth on the signature page hereof. In case any provision in or obligation under this Agreement shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby.

Section 3. THIS AGREEMENT SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES (OTHER THAN SECTIONS 5-1401 AND 5-1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW) THEREOF.

 

Counterpart Agreement

 

2


Section 4. This Agreement may be executed in multiple counterparts (any of which may be delivered via facsimile or via electronic mail in portable document format), each of which shall be deemed to be an original, but all of which shall constitute one and the same Agreement.

[Signature Pages Follow]

 

Counterpart Agreement

 

3


IN WITNESS WHEREOF , the undersigned have caused this Counterpart Agreement to be duly executed and delivered by their duly authorized representatives as of the date above first written.

 

[NAME OF SUBSIDIARY]
By:    
Name:  
Title:  

 

Address for Notices:
 

 

 

 

 

 

  Attention:
  Telecopier

 

with a copy to:
 

 

 

 

 

 

  Attention:
  Telecopier

ACKNOWLEDGED AND ACCEPTED,

as of the date above first written:

 

[ADD OTHER CREDIT PARTIES]
By:    
Name:  
Title:  

Signature Page

 

Counterpart Agreement

 


ACKNOWLEDGED AND ACCEPTED,

as of the date above first written:

 

GOLDMAN SACHS BANK USA,
as Administrative Agent
By:    
Name:  
Title:  

 

GOLDMAN SACHS BANK USA ,
as Collateral Agent
By:    
Name:  
Title:  

Signature Page

 

Counterpart Agreement

 


EXHIBIT I TO

CREDIT AND GUARANTY AGREEMENT

PLEDGE AND SECURITY AGREEMENT

dated as of July 29, 2011

by and among

EACH OF THE GRANTORS PARTY HERETO

and

GOLDMAN SACHS BANK USA,

as Collateral Agent

 

Pledge and Security Agreement


TABLE OF CONTENTS

 

         PAGE  

SECTION 1.

  DEFINITIONS      1   

1.1    

  General Definitions      1   

1.2    

  Definitions; Interpretation      7   

SECTION 2.

  GRANT OF SECURITY      8   

2.1    

  Grant of Security      8   

2.2    

  Certain Limited Exclusions      8   

SECTION 3.

  SECURITY FOR OBLIGATIONS; GRANTORS REMAIN LIABLE      9   

3.1    

  Security for Obligations      9   

3.2    

  Continuing Liability Under Collateral      9   

SECTION 4.

  REPRESENTATIONS AND WARRANTIES AND COVENANTS      10   

4.1    

  Generally      10   

4.2    

  Equipment and Inventory      13   

4.3    

  Receivables      14   

4.4    

  Investment Related Property      16   

4.5    

  Material Contracts      22   

4.6    

  Letter of Credit Rights      24   

4.7    

  Intellectual Property      25   

4.8    

  Commercial Tort Claims      28   

4.9    

  Insurance      28   

SECTION 5.

  ACCESS; RIGHT OF INSPECTION AND FURTHER ASSURANCES; ADDITIONAL GRANTORS      29   

5.1    

  Access; Right of Inspection      29   

5.2    

  Further Assurances      29   

5.3    

  Additional Grantors      30   

SECTION 6.

  COLLATERAL AGENT APPOINTED ATTORNEY-IN-FACT      30   

6.1    

  Power of Attorney      30   

6.2    

  No Duty on the Part of Collateral Agent or Secured Parties      31   

SECTION 7.

  REMEDIES      32   

7.1    

  Generally      32   

7.2    

  Application of Proceeds      33   

7.3    

  Sales on Credit      33   

7.4    

  Deposit Accounts      33   

7.5    

  Investment Related Property      34   

7.6    

  Intellectual Property      34   

7.7    

  Cash Proceeds      36   

 

Pledge and Security Agreement

i


SECTION 8.

  COLLATERAL AGENT      36   

SECTION 9.

  CONTINUING SECURITY INTEREST; TRANSFER OF LOANS      37   

SECTION 10.

  STANDARD OF CARE; COLLATERAL AGENT MAY PERFORM      37   

SECTION 11.

  REINSTATEMENT      38   

SECTION 12.

  MISCELLANEOUS      38   

 

Pledge and Security Agreement

ii


Schedules to Pledge and Security Agreement

SCHEDULE 4.1 — GENERAL INFORMATION

SCHEDULE 4.2 — LOCATION OF EQUIPMENT AND INVENTORY

SCHEDULE 4.4 — INVESTMENT RELATED PROPERTY

SCHEDULE 4.5 — MATERIAL CONTRACTS

SCHEDULE 4.6 — DESCRIPTION OF LETTERS OF CREDIT

SCHEDULE 4.7 — INTELLECTUAL PROPERTY

SCHEDULE 4.8 — COMMERCIAL TORT CLAIMS

Exhibits to Pledge and Security Agreement

EXHIBIT A — PLEDGE SUPPLEMENT

EXHIBIT B — UNCERTIFICATED SECURITIES CONTROL AGREEMENT

EXHIBIT C — SECURITIES ACCOUNT CONTROL AGREEMENT

EXHIBIT D — DEPOSIT ACCOUNT CONTROL AGREEMENT

 

Pledge and Security Agreement

iii


PLEDGE AND SECURITY AGREEMENT

This PLEDGE AND SECURITY AGREEMENT, dated as of July 29, 2011 (this “Agreement” ), by and among EACH OF THE UNDERSIGNED, whether as an original signatory hereto or as an Additional Grantor (as herein defined) (each, a “Grantor” and, collectively, “ Grantors ”), and GOLDMAN SACHS BANK USA ( “GSB” ), as collateral agent for the Secured Parties (as herein defined) (in such capacity as collateral agent, the “Collateral Agent” ).

RECITALS:

WHEREAS , reference is made to that certain Credit and Guaranty Agreement, dated as of the date hereof (as it may be amended, restated, supplemented or otherwise modified from time to time, the “ Credit Agreement ”), by and among CENTER CUT HOSPITALITY, INC., a Delaware corporation (“ Company ”), DEL FRISCO’S RESTAURANT GROUP, LLC, a Delaware limited liability company, as a Guarantor, the other Credit Parties party thereto from time to time, the lenders party thereto from time to time (the “ Lenders ”), and GSB as Administrative Agent, Collateral Agent and Lead Arranger;

WHEREAS, subject to the terms and conditions of the Credit Agreement, certain Grantors may enter into one or more Interest Rate Agreements or Currency Agreements with one or more Lender Counterparties;

WHEREAS , in consideration of the extensions of credit and other accommodations of Lenders and Lender Counterparties as set forth in the Credit Agreement, the Interest Rate Agreements and/or the Currency Agreements, respectively, each Grantor has agreed to secure such Grantor’s obligations under the Credit Documents, the Interest Rate Agreements and the Currency Agreements as set forth herein; and

NOW, THEREFORE , in consideration of the premises, agreements, provisions and covenants herein contained, and other good and valuable consideration, the receipt, sufficiency and adequacy of which are hereby acknowledged, each Grantor and Collateral Agent agree as follows:

SECTION 1. DEFINITIONS.

1.1 General Definitions. In this Agreement, the following terms shall have the following meanings:

“Account Debtor” shall mean each Person who is obligated on a Receivable or any Supporting Obligation related thereto.

“Accounts” shall mean all “accounts” as defined in Article 9 of the UCC, including Health-Care Insurance Receivables.

“Additional Grantors” shall have the meaning assigned in Section 5.3.

“Agreement” shall have the meaning set forth in the preamble.

 

Pledge and Security Agreement


“Assigned Agreements” shall mean all agreements and contracts to which any Grantor is a party as of the date hereof, or to which any Grantor becomes a party after the date hereof, including, without limitation, each Material Contract, as each such agreement may be amended, supplemented or otherwise modified from time to time.

“Cash Proceeds” shall have the meaning assigned in Section 7.7 .

“Chattel Paper” shall mean all “chattel paper” as defined in Article 9 of the UCC, including, without limitation, “electronic chattel paper” or “tangible chattel paper”, as each term is defined in Article 9 of the UCC.

“Collateral” shall have the meaning assigned in Section 2.1 .

“Collateral Account” shall mean any account of any Grantor designated by Collateral Agent as such from time to time, other than an Excluded Account.

“Collateral Agent” shall have the meaning set forth in the preamble.

“Collateral Records” shall mean books, records, ledger cards, files, correspondence, customer lists, blueprints, technical specifications, manuals, computer software, computer printouts, tapes, disks and related data processing software and similar items that at any time evidence or contain information relating to any of the Collateral or are otherwise necessary or helpful in the collection thereof or realization thereupon.

“Collateral Support” shall mean all property (real or personal) assigned, hypothecated or otherwise securing any Collateral and shall include any security agreement or other agreement granting a lien or security interest in such real or personal property.

“Commercial Tort Claims” shall mean all “commercial tort claims” as defined in Article 9 of the UCC, including, without limitation, all commercial tort claims listed on Schedule 4.8 (as such schedule may be amended or supplemented from time to time).

“Commodities Accounts” (i) shall mean all “commodity accounts” as defined in Article 9 of the UCC and (ii) shall include, without limitation, all of the accounts listed on Schedule 4.4 under the heading “Commodities Accounts” (as such schedule may be amended or supplemented from time to time).

“Copyright Licenses” shall mean any and all agreements providing for the granting of any right in or to Copyrights (whether any Grantor is licensee or licensor thereunder) including, without limitation, each agreement referred to in Schedule 4.7(B) (as such schedule may be amended or supplemented from time to time).

“Copyrights” shall mean all United States, and foreign copyrights (including Community designs), including but not limited to copyrights in software and databases, and all Mask Works (as defined under 17 U.S.C. 901 of the U.S. Copyright Act), whether registered or unregistered, and, with respect to any and all of the foregoing: (i) all registrations and applications therefor including, without limitation, the registrations and applications referred to in Schedule 4.7(A) (as such schedule may be amended or supplemented from time to time), (ii)

 

Pledge and Security Agreement

2


all extensions and renewals thereof, (iii) all rights corresponding thereto throughout the world, (iv) all rights to sue for past, present and future infringements thereof, and (v) all Proceeds of the foregoing, including, without limitation, licenses, royalties, income, payments, claims, damages and proceeds of suit.

“Credit Agreement” shall have the meaning set forth in the recitals.

“Deposit Accounts” (i) shall mean all “deposit accounts” as defined in Article 9 of the UCC and (ii) shall include, without limitation, all of the accounts listed on Schedule 4.4 under the heading “Deposit Accounts” (as such schedule may be amended or supplemented from time to time).

“Documents” shall mean all “documents” as defined in Article 9 of the UCC.

“Equipment” shall mean (i) all “equipment” as defined in Article 9 of the UCC, (ii) all machinery, manufacturing equipment, data processing equipment, computers, office equipment, furnishings, furniture, appliances, fixtures and tools (in each case, regardless of whether characterized as equipment under the UCC) and (iii) all accessions or additions thereto, all parts thereof, whether or not at any time of determination incorporated or installed therein or attached thereto, and all replacements therefor, wherever located, now or hereafter existing, including any fixtures.

“General Intangibles” (i) shall mean all “general intangibles” as defined in Article 9 of the UCC, including “payment intangibles” also as defined in Article 9 of the UCC and (ii) shall include, without limitation, all interest rate or currency protection or hedging arrangements, all tax refunds, all licenses, permits, concessions and authorizations, all Assigned Agreements and all Intellectual Property (in each case, regardless of whether characterized as general intangibles under the UCC).

“Goods” (i) shall mean all “goods” as defined in Article 9 of the UCC and (ii) shall include, without limitation, all Inventory and Equipment (in each case, regardless of whether characterized as goods under the UCC).

“Grantors” shall have the meaning set forth in the preamble.

“Health-Care Insurance Receivable” shall mean all “health care insurance receivables” as defined in Article 9 of the UCC.

“Instruments” shall mean all “instruments” as defined in Article 9 of the UCC.

“Insurance” shall mean (i) all insurance policies covering any or all of the Collateral (regardless of whether Collateral Agent is the loss payee thereof) and (ii) any key man life insurance policies.

“Intellectual Property” shall mean, collectively, the Copyrights, the Copyright Licenses, the Patents, the Patent Licenses, the Trademarks, the Trademark Licenses, the Trade Secrets, and the Trade Secret Licenses.

 

Pledge and Security Agreement

3


“Inventory” shall mean (i) all “inventory” as defined in Article 9 of the UCC; (ii) all goods held for sale or lease or to be furnished under contracts of service or so leased or furnished, all raw materials, work in process, finished goods, and materials used or consumed in the manufacture, packing, shipping, advertising, selling, leasing, furnishing or production of such inventory or otherwise used or consumed in any Grantor’s business; (iii) all goods in which any Grantor has an interest in mass or a joint or other interest or right of any kind; and (iv) all goods which are returned to or repossessed by any Grantor, all computer programs embedded in any goods and all accessions thereto and products thereof (in each case, regardless of whether characterized as inventory under the UCC).

“Investment Accounts” shall mean the Collateral Accounts, Securities Accounts, Commodities Accounts and Deposit Accounts.

“Investment Related Property” shall mean: (i) all “investment property” (as such term is defined in Article 9 of the UCC) and (ii) all of the following (regardless of whether classified as investment property under the UCC): all Pledged Equity Interests, Pledged Debt, the Investment Accounts and certificates of deposit.

“Lender” shall have the meaning set forth in the recitals.

“Letter of Credit Right” shall mean “letter-of-credit right” as defined in Article 9 of the UCC.

“Patent Licenses” shall mean all agreements providing for the granting of any right in or to Patents (whether any Grantor is licensee or licensor thereunder) including, without limitation, each agreement referred to in Schedule 4.7(D) (as such schedule may be amended or supplemented from time to time).

“Patents” shall mean all United States and foreign patents and certificates of invention, or similar industrial property rights, and applications for any of the foregoing, including, but not limited to: (i) each patent and patent application referred to in Schedule 4.7(C) hereto (as such schedule may be amended or supplemented from time to time), (ii) all reissues, divisions, continuations, continuations-in-part, extensions, renewals, and reexaminations thereof, (iii) all rights corresponding thereto throughout the world, (iv) all inventions and improvements described therein, (v) all rights to sue for past, present and future infringements thereof, (vi) all claims, damages, and proceeds of suit arising therefrom, and (vii) all Proceeds of the foregoing, including, without limitation, licenses, royalties, income, payments, claims, damages, and proceeds of suit.

“Payment Intangible” shall have the meaning specified in Article 9 of the UCC.

“Pledge Supplement” shall mean any supplement to this agreement in substantially the form of Exhibit A .

“Pledged Debt” shall mean all Indebtedness owed to any Grantor, including, without limitation, all Indebtedness described on Schedule 4.4(A) under the heading “Pledged Debt” (as such schedule may be amended or supplemented from time to time), issued by the

 

Pledge and Security Agreement

4


obligors named therein, the Instruments evidencing such Indebtedness, and all interest, cash, Instruments and other property or proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such Indebtedness.

“Pledged Equity Interests” shall mean all Pledged Stock, Pledged LLC Interests, Pledged Partnership Interests and Pledged Trust Interests.

“Pledged LLC Interests” shall mean all interests in any limited liability company owned by any Grantor including, without limitation, all limited liability company interests listed on Schedule 4.4(A) under the heading “Pledged LLC Interests” (as such schedule may be amended or supplemented from time to time) and the certificates, if any, representing such limited liability company interests and any interest of such Grantor on the books and records of such limited liability company or on the books and records of any securities intermediary pertaining to such interest and all dividends, distributions, cash, warrants, rights, options, instruments, securities and other property or proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such limited liability company interests.

“Pledged Partnership Interests” shall mean all interests in any general partnership, limited partnership, limited liability partnership or other partnership owned by any Grantor including, without limitation, all partnership interests listed on Schedule 4.4(A) under the heading “Pledged Partnership Interests” (as such schedule may be amended or supplemented from time to time) and the certificates, if any, representing such partnership interests and any interest of such Grantor on the books and records of such partnership or on the books and records of any securities intermediary pertaining to such interest and all dividends, distributions, cash, warrants, rights, options, instruments, securities and other property or proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such partnership interests.

“Pledged Stock” shall mean all shares of capital stock owned by any Grantor, including, without limitation, all shares of capital stock described on Schedule 4.4(A) under the heading “Pledged Stock” (as such schedule may be amended or supplemented from time to time), and the certificates, if any, representing such shares and any interest of such Grantor in the entries on the books of the issuer of such shares or on the books of any securities intermediary pertaining to such shares, and all dividends, distributions, cash, warrants, rights, options, instruments, securities and other property or proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such shares.

“Pledged Trust Interests” shall mean all interests in a Delaware business trust or other trust owned by any Grantor including, without limitation, all trust interests listed on Schedule 4.4(A) under the heading “Pledged Trust Interests” (as such schedule may be amended or supplemented from time to time) and the certificates, if any, representing such trust interests and any interest of such Grantor on the books and records of such trust or on the books and records of any securities intermediary pertaining to such interest and all dividends, distributions, cash, warrants, rights, options, instruments, securities and other property or proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such trust interests.

 

Pledge and Security Agreement

5


“Proceeds” shall mean: (i) all “proceeds” as defined in Article 9 of the UCC, (ii) payments or distributions made with respect to any Investment Related Property and (iii) whatever is receivable or received when Collateral or proceeds are sold, exchanged, collected or otherwise disposed of, whether such disposition is voluntary or involuntary.

“Receivables” shall mean all rights to payment, whether or not earned by performance, for goods or other property sold, leased, licensed, assigned or otherwise disposed of, or services rendered or to be rendered, including, without limitation, all such rights constituting or evidenced by any Account, Chattel Paper, Instrument, General Intangible or Investment Related Property, together with all of any Grantor’s rights, if any, in any goods or other property giving rise to such right to payment and all Collateral Support and Supporting Obligations related thereto and all Receivables Records.

“Receivables Records” shall mean (i) all original copies of all documents, instruments or other writings or electronic records or other Records evidencing the Receivables, (ii) all books, correspondence, credit or other files, Records, ledger sheets or cards, invoices, and other papers relating to Receivables, including, without limitation, all tapes, cards, computer tapes, computer discs, computer runs, record keeping systems and other papers and documents relating to the Receivables, whether in the possession or under the control of any Grantor or any computer bureau or agent from time to time acting for any Grantor or otherwise, (iii) all evidences of the filing of financing statements and the registration of other instruments in connection therewith, and amendments, supplements or other modifications thereto, notices to other creditors or secured parties, and certificates, acknowledgments, or other writings, including, without limitation, lien search reports, from filing or other registration officers, (iv) all credit information, reports and memoranda relating thereto and (v) all other written or nonwritten forms of information related in any way to the foregoing or any Receivable.

“Record” shall mean “record” as defined in Article 9 of the UCC.

“Secured Obligations” shall have the meaning assigned in Section 3.1 .

“Secured Parties” shall mean the Agents, Lenders and the Lender Counterparties and shall include, without limitation, all former Agents, Lenders and Lender Counterparties to the extent that any Obligations owing to such Persons were incurred while such Persons were Agents, Lenders or Lender Counterparties and such Obligations have not been paid or satisfied in full.

“Securities Accounts” (i) shall mean all “securities accounts” as defined in Article 8 of the UCC and (ii) shall include, without limitation, all of the accounts listed on Schedule 4.4(A) under the heading “Securities Accounts” (as such schedule may be amended or supplemented from time to time).

“Supporting Obligation” shall mean all “supporting obligations” as defined in Article 9 of the UCC.

“Trademark Licenses” shall mean any and all agreements providing for the granting of any right in or to Trademarks (whether any Grantor is licensee or licensor thereunder) including, without limitation, each agreement referred to in Schedule 4.7(F) (as such schedule may be amended or supplemented from time to time).

 

Pledge and Security Agreement

6


“Trademarks” shall mean all United States, state, territorial, provincial and foreign trademarks, trade names, corporate names, company names, business names, fictitious business names, internet domain names, trade styles, service marks, certification marks, collective marks, logos, other source or business identifiers, designs and general intangibles of a like nature, all registrations and applications for any of the foregoing including, but not limited to the registrations and applications referred to in Schedule 4.7(E) (as such schedule may be amended or supplemented from time to time), all extensions or renewals of any of the foregoing, all of the goodwill of the business connected with the use of and symbolized by the foregoing, the right to sue for past, present and future infringement or dilution of any of the foregoing or for any injury to goodwill, and all Proceeds of the foregoing, including, without limitation, licenses, royalties, income, payments, claims, damages, and proceeds of suit.

“Trade Secret Licenses” shall mean any and all agreements providing for the granting of any right in or to Trade Secrets (whether any Grantor is licensee or licensor thereunder) including, without limitation, each agreement referred to in Schedule 4.7(G) (as such schedule may be amended or supplemented from time to time).

“Trade Secrets” shall mean all trade secrets and all other confidential or proprietary information and know-how now or hereafter owned or used in, or contemplated at any time for use in, the business of any Grantor (all of the foregoing being collectively called a “Trade Secret” ), whether or not such Trade Secret has been reduced to a writing or other tangible form, including all documents and things embodying, incorporating, or referring in any way to such Trade Secret, the right to sue for past, present and future infringement of any Trade Secret, and all proceeds of the foregoing, including, without limitation, licenses, royalties, income, payments, claims, damages, and proceeds of suit.

“United States” shall mean the United States of America.

1.2 Definitions; Interpretation. All capitalized terms used herein (including the preamble and recitals hereto) but not otherwise defined herein shall have the respective meanings ascribed to such terms in the Credit Agreement or, if not defined therein, in the UCC. References to “Sections,” “Exhibits” and “Schedules” shall be to sections, exhibits and schedules, as the case may be, of this Agreement unless otherwise specifically provided. Section headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose or be given any substantive effect. Any of the terms defined herein may, unless the context otherwise requires, be used in the singular or the plural, depending on the reference. The use herein of the word “include” or “including”, when following any general statement, term or matter, shall not be construed to limit such statement, term or matter to the specific items or matters set forth immediately following such word or to similar items or matters, whether or not non-limiting language (such as “without limitation” or “but not limited to” or words of similar import) is used with reference thereto, but rather shall be deemed to refer to all other items or matters that fall within the broadest possible scope of such general statement, term or matter. If any conflict or inconsistency exists between this Agreement and the Credit Agreement, the Credit Agreement shall govern. All references herein to provisions of the UCC shall include all successor provisions under any subsequent version or amendment to any Article of the UCC.

 

Pledge and Security Agreement

7


SECTION 2. GRANT OF SECURITY.

2.1 Grant of Security. As security for the payment and performance in full of all of the Secured Obligations, each Grantor hereby grants to Collateral Agent, for the benefit of Secured Parties, a security interest and continuing lien on all of such Grantor’s right, title and interest in, to and under all personal property of such Grantor including, but not limited to the following, in each case whether now owned or existing or hereafter acquired or arising and wherever located (all of which are hereinafter collectively referred to as the “Collateral” ):

(a) Accounts;

(b) Chattel Paper;

(c) Documents;

(d) General Intangibles;

(e) Goods;

(f) Instruments;

(g) Insurance;

(h) Intellectual Property;

(i) Investment Related Property;

(j) Letter of Credit Rights;

(k) Money;

(l) Receivables and Receivable Records;

(m) Commercial Tort Claims;

(n) to the extent not otherwise included above, all Collateral Records, Collateral Support and Supporting Obligations relating to any of the foregoing; and

(o) to the extent not otherwise included above, all Proceeds, products, accessions, rents and profits of or in respect of any of the foregoing.

2.2 Certain Limited Exclusions. Notwithstanding anything herein to the contrary, in no event shall the security interest granted under Section 2.1 hereof attach to (a) any lease, license, contract, property rights or agreement to which any Grantor is a party or any of its rights or interests thereunder if and for so long as the grant of such security interest shall constitute or result in (i) the abandonment, invalidation or unenforceability of any right, title or interest of any

 

Pledge and Security Agreement

8


Grantor therein or (ii) a breach or termination pursuant to the terms of, or a default under, any such lease license, contract property rights or agreement (other than to the extent that any such term would be rendered ineffective pursuant to Sections 9-406, 9-407, 9-408 or 9-409 of the UCC (or any successor provision or provisions) of any relevant jurisdiction or any other applicable law (including the Bankruptcy Code) or principles of equity); provided , however , that such security interest shall attach immediately at such time as the condition causing such abandonment, invalidation or unenforceability shall be remedied and to the extent severable, shall attach immediately to any portion of such lease, license, contract, property rights or agreement that does not result in any of the consequences specified in (i) or (ii) above; or (b) any of the outstanding Capital Stock of a Foreign Subsidiary in excess of 65% of the voting power of all classes of Capital Stock of such Foreign Subsidiary entitled to vote; provided that immediately upon the amendment of the Internal Revenue Code to allow the pledge of a greater percentage of the voting power of Capital Stock in a Foreign Subsidiary without adverse tax consequences, the Collateral shall include, and the security interest granted by each Grantor shall attach to, such greater percentage of Capital Stock of each Foreign Subsidiary.

SECTION 3. SECURITY FOR OBLIGATIONS; GRANTORS REMAIN LIABLE.

3.1 Security for Obligations. This Agreement secures, and the Collateral is collateral security for, the prompt and complete payment or performance in full when due, whether at stated maturity, by required prepayment, declaration, acceleration, demand or otherwise (including the payment of amounts that would become due but for the operation of the automatic stay under Section 362(a) of the Bankruptcy Code, 11 U.S.C. § 362(a) (and any successor provision thereof)), of all Obligations with respect to every Grantor, including the Guaranteed Obligations of each Grantor that is a Guarantor (the “Secured Obligations” ).

3.2 Continuing Liability Under Collateral. Notwithstanding anything herein to the contrary, (i) each Grantor shall remain liable for all obligations under the Collateral and nothing contained herein is intended to or shall be a delegation of duties to Collateral Agent or any other Secured Party, (ii) each Grantor shall remain liable under each of the agreements included in the Collateral, including, without limitation, any agreements relating to Pledged Partnership Interests or Pledged LLC Interests, to perform all of the obligations undertaken by it thereunder all in accordance with and pursuant to the terms and provisions thereof and neither Collateral Agent nor any other Secured Party shall have any obligation or liability under any of such agreements by reason of or arising out of this Agreement or any other document related thereto nor shall Collateral Agent nor any other Secured Party have any obligation to make any inquiry as to the nature or sufficiency of any payment received by it or have any obligation to take any action to collect or enforce any rights under any agreement included in the Collateral, including, without limitation, any agreements relating to Pledged Partnership Interests or Pledged LLC Interests, and (iii) the exercise by Collateral Agent of any of its rights hereunder shall not release any Grantor from any of its duties or obligations under the contracts and agreements included in the Collateral.

 

Pledge and Security Agreement

9


SECTION 4. REPRESENTATIONS AND WARRANTIES AND COVENANTS.

4.1 Generally.

(a) Representations and Warranties . Each Grantor hereby represents and warrants to Collateral Agent and each other Secured Party, on the Closing Date and on each Credit Date, that:

(i) it owns the Collateral purported to be owned by it or otherwise has the rights it purports to have in each item of Collateral and, as to all Collateral whether now existing or hereafter acquired, will continue to own or have such rights in each item of the Collateral, in each case free and clear of any and all Liens, rights or claims of all other Persons (including, without limitation, liens arising as a result of such Grantor becoming bound (as a result of merger or otherwise) as debtor under a security agreement entered into by another Person), other than Permitted Liens;

(ii) it has indicated on Schedule 4.1(A) (as such schedule may be amended or supplemented from time to time): (w) the type of organization of such Grantor, (x) the jurisdiction of organization of such Grantor, (y) its organizational identification number, if any, and (z) the jurisdiction where the chief executive office or its sole place of business is, and for the one-year period preceding the date hereof has been, located.

(iii) the full legal name of such Grantor is as set forth on Schedule 4.1(A) and it has not done in the last five (5) years, and does not do, business under any other name (including any trade-name or fictitious business name) except for those names set forth on Schedule 4.1(B) (as such schedule may be amended or supplemented from time to time);

(iv) except as provided on Schedule 4.1(C) , it has not changed its legal name, jurisdiction of organization, chief executive office or sole place of business or its structure in any way (e.g., by merger, consolidation, change in form or otherwise) within the past five (5) years;

(v) it has not within the last five (5) years become bound (whether as a result of merger or otherwise) as debtor under a security agreement entered into by another Person, which has not heretofore been terminated other than the agreements identified on Schedule 4.1(D) hereof (as such schedule may be amended or supplemented from time to time);

(vi) with respect to each agreement identified on Schedule 4.1(D) , it has indicated on Schedule 4.1 (A)  and Schedule 4.1(B) the information required pursuant to Section 4.1(a)(ii) , (iii)  and (iv)  with respect to the debtor under each such agreement;

(vii) (u) upon the filing of all UCC financing statements naming each Grantor as “debtor” and Collateral Agent as “secured party” and describing the Collateral in the filing offices set forth opposite such Grantor’s name on Schedule 4.1(E) hereof (as such schedule may be amended or supplemented from time to time) and other filings

 

Pledge and Security Agreement

10


delivered by each Grantor, (v) upon delivery of all Instruments, Chattel Paper and certificated Pledged Equity Interests and Pledged Debt, (w) upon sufficient identification of Commercial Tort Claims, (x) upon execution of a control agreement establishing Collateral Agent’s “control” (within the meaning of Section 8-106, 9-106 or 9-104 of the UCC, as applicable) with respect to any Investment Account, (y) upon consent of the issuer with respect to Letter of Credit Rights, and (z) to the extent not subject to Article 9 of the UCC, upon recordation of the security interests granted hereunder in Patents, Trademarks and Copyrights in the applicable intellectual property registries, including but not limited to the United States Patent and Trademark Office and the United States Copyright Office, the security interests granted to Collateral Agent hereunder constitute valid and perfected First Priority Liens (subject in the case of priority only to Permitted Liens and to the rights of the United States government (including any agency or department thereof) with respect to United States government Receivables) on all of the Collateral that may be perfected by the foregoing methods;

(viii) [Intentionally Reserved]

(ix) other than the financing statements filed in favor of Collateral Agent, no effective UCC financing statement, fixture filing or other instrument similar in effect under any applicable law covering all or any part of the Collateral is on file in any filing or recording office except for (A) financing statements for which proper termination statements have been delivered to Collateral Agent for filing and (B) financing statements for which a pay-off letter reasonably acceptable to Collateral Agent authorizing the filing of termination statements upon payment of a specified amount has been delivered to Collateral Agent and (C) financing statements filed in connection with Permitted Liens;

(x) no authorization, approval or other action by, and no notice to or filing with, any Governmental Authority or other Person is required for either (i) the pledge or grant by any Grantor of the Liens purported to be created in favor of Collateral Agent hereunder or (ii) the exercise by Collateral Agent of any rights or remedies in respect of any Collateral (whether specifically granted or created hereunder or created or provided for by applicable law), except (A) for the filings contemplated by clause (vii)  above, (B) as may be required, in connection with the disposition of any Investment Related Property, by laws generally affecting the offering and sale of Securities and (C) those that have been obtained and delivered to Collateral Agent;

(xi) all information supplied by any Grantor with respect to any of the Collateral (in each case taken as a whole with respect to any particular Collateral) is accurate and complete in all material respects;

(xii) none of the Collateral constitutes, or is the Proceeds of, “farm products” (as defined in the UCC);

(xiii) it does not own any “as extracted collateral” (as defined in the UCC) or any timber to be cut; and

 

Pledge and Security Agreement

11


(xiv) it has been duly organized as an entity of the type as set forth opposite such Grantor’s name on Schedule 4.1(A) solely under the laws of the jurisdiction as set forth opposite such Grantor’s name on Schedule 4.1(A) and remains duly existing as such. Such Grantor has not filed any certificates of domestication, transfer or continuance in any other jurisdiction.

(b) Covenants and Agreements . Each Grantor hereby covenants and agrees with Collateral Agent and each other Secured Party that:

(i) except for the security interest created by this Agreement and the other Collateral Documents, it shall not create or suffer to exist any Lien upon or with respect to any of the Collateral, except Permitted Liens, and such Grantor shall defend the Collateral against all Persons at any time claiming any interest therein;

(ii) it shall not produce, use or permit any Collateral to be used unlawfully or in violation of any provision of this Agreement or any applicable statute, regulation or ordinance or any policy of insurance covering the Collateral;

(iii) it shall not change such Grantor’s legal name, identity, structure (e.g., by merger, consolidation, change in form or otherwise) sole place of business, chief executive office, type of organization or jurisdiction of organization or establish any trade names unless it shall have (A) notified Collateral Agent in writing, by executing and delivering to Collateral Agent a completed Pledge Supplement, together with all Supplements to Schedules thereto, at least thirty (30) days prior to any such change or establishment, identifying such new proposed name, identity, corporate structure, sole place of business, chief executive office, jurisdiction of organization or trade name and providing such other information in connection therewith as Collateral Agent may reasonably request and (B) taken all actions reasonably necessary or reasonably requested by Collateral Agent to maintain the continuous validity, perfection and the same or better priority of Collateral Agent’s security interest in Collateral intended to be granted and agreed to hereby;

(iv) if Collateral Agent or any other Secured Party gives value to enable any Grantor to acquire rights in or the use of any Collateral, it shall use such value for such purposes;

(v) it shall pay promptly when due all Taxes in accordance with Section 5.3 of the Credit Agreement;

(vi) upon such Grantor or any officer of such Grantor obtaining knowledge thereof, it shall promptly notify Collateral Agent in writing of any event that may have a material adverse effect on the value of the Collateral or any substantial portion thereof, the ability of any Grantor or Collateral Agent to dispose of the Collateral or any portion thereof, or the rights and remedies of Collateral Agent in relation thereto, including, without limitation, the levy of any legal process against the Collateral or any portion thereof;

 

Pledge and Security Agreement

12


(vii) it shall not take or permit any action which could impair in any material respect Collateral Agent’s rights in the Collateral; and

(viii) it shall not sell, transfer or assign (by operation of law or otherwise) any Collateral except to the extent expressly permitted by the Credit Agreement.

4.2 Equipment and Inventory.

(a) Representations and Warranties . Each Grantor hereby represents and warrants to Collateral Agent and each other Secured Party, on the Closing Date and on each Credit Date, that:

(i) all of the Equipment and Inventory included in the Collateral has been kept for the past five (5) years (or such lesser time as such Grantor has owned such Collateral) only at the locations specified in Schedule 4.2 (as such schedule may be amended or supplemented from time to time); and

(ii) [Intentionally Reserved]

(iii) none of the Inventory or Equipment is in the possession of an issuer of a negotiable document (as defined in Section 7-104 of the UCC) therefor or otherwise in the possession of a bailee or a warehouseman.

(b) Covenants and Agreements . Each Grantor hereby covenants and agrees with Collateral Agent and each other Secured Party that:

(i) it shall keep the Equipment, Inventory and any Documents evidencing any Equipment and Inventory in the locations specified on Schedule 4.2 (as such schedule may be amended or supplemented from time to time) unless it shall have (a) notified Collateral Agent in writing, by executing and delivering to Collateral Agent a completed Pledge Supplement, together with all Supplements to Schedules thereto, at least thirty (30) days prior to any change in locations, identifying such new locations and providing such other information in connection therewith as Collateral Agent may reasonably request and (b) taken all actions reasonably necessary or reasonably requested by Collateral Agent to maintain the continuous validity, perfection and the same or better priority of Collateral Agent’s security interest in the Collateral intended to be granted and agreed to hereby, or to enable Collateral Agent to exercise and enforce its rights and remedies hereunder, with respect to such Equipment and Inventory;

(ii) it shall keep correct and accurate records of the Inventory, as is customarily maintained under similar circumstances by Persons of established reputation engaged in similar business, and in any event in conformity with GAAP;

(iii) it shall not deliver any Document evidencing any Equipment and Inventory to any Person other than the issuer of such Document to claim the Goods evidenced therefor or Collateral Agent;

 

Pledge and Security Agreement

13


(iv) if any Equipment or Inventory is in possession or control of any third party, each Grantor shall join with Collateral Agent in notifying the third party of Collateral Agent’s security interest and using commercially reasonable efforts to obtain an acknowledgment from the third party that it is holding the Equipment and Inventory for the benefit of Collateral Agent; and

(v) with respect to any item of Equipment which is covered by a certificate of title under a statute of any jurisdiction under the law of which indication of a security interest on such certificate is required as a condition of perfection thereof, upon the reasonable request of Collateral Agent, (A) provide information with respect to any such Equipment, (B) execute and file with the registrar of motor vehicles or other appropriate authority in such jurisdiction an application or other document requesting the notation or other indication of the security interest created hereunder on such certificate of title, and (C) deliver to Collateral Agent copies of all such applications or other documents filed and copies of all such certificates of title issued indicating the security interest created hereunder in the items of Equipment covered thereby.

4.3 Receivables.

(a) Representations and Warranties . Each Grantor hereby represents and warrants to Collateral Agent and each other Secured Party, on the Closing Date and on each Credit Date, that:

(i) each Receivable (a) is and will be the legal, valid and binding obligation of the Account Debtor in respect thereof, representing an unsatisfied obligation of such Account Debtor, (b) is and will be enforceable in accordance with its terms, (c) is not and will not be subject to any setoffs, defenses, taxes, counterclaims (except with respect to refunds, returns and allowances in the ordinary course of business with respect to damaged merchandise) and (d) is and will be in compliance in all material respects with all applicable laws, whether federal, state, local or foreign;

(ii) [Intentionally Reserved]

(iii) no Receivable is evidenced by, or constitutes, an Instrument or Chattel Paper which has not been delivered to, or otherwise subjected to the control of, Collateral Agent to the extent required by, and in accordance with Section 4.3(c) ; and

(iv) each Grantor has delivered to Collateral Agent a complete and correct copy of each standard form of document under which a Receivable may arise.

(b) Covenants and Agreements : Each Grantor hereby covenants and agrees with Collateral Agent and each other Secured Party that:

(i) it shall keep and maintain at its own cost and expense reasonably satisfactory and complete records of the Receivables, including, but not limited to, the originals of all documentation with respect to all Receivables and records of all payments received and all credits granted on the Receivables, all merchandise returned and all other dealings therewith;

 

Pledge and Security Agreement

14


(ii) it shall mark conspicuously, in form and manner reasonably satisfactory to Collateral Agent, all Chattel Paper, Instruments and other evidence of Receivables (other than any delivered to Collateral Agent as provided herein), as well as the Receivables Records with an appropriate reference to the fact that Collateral Agent has a security interest therein;

(iii) it shall perform in all material respects all of its obligations with respect to the Receivables;

(iv) it shall not amend, modify, terminate or waive any provision of any Receivable in any manner which could reasonably be expected to have a material adverse effect on the value of such Receivable as Collateral. Other than in the ordinary course of business as generally conducted by it on and prior to the date hereof, and except as otherwise provided in subsection (v)  below, following the occurrence and during the continuation of an Event of Default, such Grantor shall not (w) grant any extension or renewal of the time of payment of any Receivable, (x) compromise or settle any dispute, claim or legal proceeding with respect to any Receivable for less than the total unpaid balance thereof, (y) release, wholly or partially, any Person liable for the payment thereof, or (z) allow any credit or discount thereon;

(v) except as otherwise provided in this subsection, each Grantor shall continue to collect all amounts due or to become due to such Grantor under the Receivables and any Supporting Obligation and diligently exercise each material right it may have under any Receivable, any Supporting Obligation or Collateral Support, in each case, at its own expense, and in connection with such collections and exercise, such Grantor shall take such action as such Grantor may deem necessary or advisable. Notwithstanding the foregoing, Collateral Agent shall have the right at any time to notify, or require any Grantor to notify, any Account Debtor of Collateral Agent’s security interest in the Receivables and any Supporting Obligation and, in addition, at any time following the occurrence and during the continuation of an Event of Default, Collateral Agent may: (1) direct the Account Debtors under any Receivables to make payment of all amounts due or to become due to such Grantor thereunder directly to Collateral Agent; (2) notify, or require any Grantor to notify, each Person maintaining a lockbox or similar arrangement to which Account Debtors under any Receivables have been directed to make payment to remit all amounts representing collections on checks and other payment items from time to time sent to or deposited in such lockbox or other arrangement directly to Collateral Agent; and (3) enforce, at the expense of such Grantor, collection of any such Receivables and to adjust, settle or compromise the amount or payment thereof, in the same manner and to the same extent as such Grantor might have done. If Collateral Agent notifies any Grantor that it has elected to collect the Receivables in accordance with the preceding sentence, any payments of Receivables received by such Grantor shall be forthwith (and in any event within two (2) Business Days) deposited by such Grantor in the exact form received, duly indorsed by such Grantor to Collateral Agent if required, in the Collateral Account maintained under the sole dominion and control of Collateral Agent, and until so turned over, all amounts and proceeds (including checks and other instruments) received by such Grantor in respect of the Receivables, any Supporting Obligation or Collateral Support shall be received in trust for the benefit of

 

Pledge and Security Agreement

15


Collateral Agent hereunder and shall be segregated from other funds of such Grantor and such Grantor shall not adjust, settle or compromise the amount or payment of any Receivable, or release wholly or partly any Account Debtor or obligor thereof, or allow any credit or discount thereon; and

(vi) it shall use commercially reasonable efforts to keep in full force and effect any Supporting Obligation or Collateral Support relating to any Receivable.

(c) Delivery and Control of Receivables . With respect to any Receivables that are evidenced by, or constitute, Chattel Paper or Instruments, each Grantor shall cause each originally executed copy thereof to be delivered to Collateral Agent (or its agent or designee) appropriately indorsed to Collateral Agent or indorsed in blank: (i) with respect to any such Receivables in existence on the date hereof, on or prior to the date hereof and (ii) with respect to any such Receivables hereafter arising, within ten (10) days of such Grantor acquiring rights therein. With respect to any Receivables which would constitute “electronic chattel paper” under Article 9 of the UCC, each Grantor shall take all steps necessary to give Collateral Agent control over such Receivables (within the meaning of Section 9-105 of the UCC): (i) with respect to any such Receivables in existence on the date hereof, on or prior to the date hereof and (ii) with respect to any such Receivables hereafter arising, within ten (10) days of such Grantor acquiring rights therein. Any Receivable not otherwise required to be delivered or subjected to the control of Collateral Agent in accordance with this subsection (c)  shall be delivered or subjected to such control upon request of Collateral Agent.

4.4 Investment Related Property.

4.4.1 Investment Related Property Generally

(a) Covenants and Agreements . Each Grantor hereby covenants and agrees with Collateral Agent and each other Secured Party that:

(i) in the event it acquires rights in any Investment Related Property after the date hereof, it shall deliver to Collateral Agent a completed Pledge Supplement, substantially in the form of Exhibit A attached hereto, together with all Supplements to Schedules thereto, reflecting such new Investment Related Property and all other Investment Related Property. Notwithstanding the foregoing, each Grantor agrees that the security interest of Collateral Agent shall attach to all Investment Related Property immediately upon any Grantor’s acquisition of rights therein and shall not be affected by the failure of any Grantor to deliver a supplement to Schedule 4.4 as required hereby;

(ii) except as provided in the next sentence, in the event such Grantor receives any dividends, interest or distributions on any Investment Related Property, or any Securities or other property upon the merger, consolidation, liquidation or dissolution of any issuer of any Investment Related Property, then (a) such dividends, interest or distributions and Securities or other property shall be included in the definition of Collateral without further action and (b) such Grantor shall immediately take all steps, if any, reasonably necessary or reasonably requested by Collateral Agent to ensure the validity, perfection, priority and, if applicable, control of Collateral Agent over such

 

Pledge and Security Agreement

16


Investment Related Property (including, without limitation, delivery thereof to Collateral Agent) and pending any such action such Grantor shall be deemed to hold such dividends, interest, distributions, Securities or other property in trust for the benefit of Collateral Agent and the same shall be segregated from all other property of such Grantor. Notwithstanding the foregoing, so long as no Event of Default shall have occurred and be continuing, Collateral Agent authorizes each Grantor to retain all ordinary cash dividends and distributions paid in the normal course of the business of the issuer and consistent with the past practice of the issuer and all scheduled payments of interest, in each case, to the extent that the same are expressly permitted by the Credit Agreement; and

(iii) each Grantor consents to the grant by each other Grantor of a security interest in all Investment Related Property to Collateral Agent.

(b) Delivery and Control . Each Grantor agrees that with respect to any Investment Related Property in which it currently has rights it shall comply with the provisions of this Section 4.4.1(b) on or before the Closing Date and with respect to any Investment Related Property hereafter acquired by such Grantor it shall comply with the provisions of this Section 4.4.1(b) immediately upon acquiring rights therein. With respect to any Investment Related Property that is represented by a certificate or that is an “instrument” (other than any Investment Related Property credited to a Securities Account) it shall cause such certificate or instrument to be delivered to Collateral Agent, indorsed in blank by an “effective indorsement” (as defined in Section 8-107 of the UCC), regardless of whether such certificate constitutes a “certificated security” for purposes of the UCC. With respect to any Investment Related Property that is an “uncertificated security” for purposes of the UCC (other than any “uncertificated securities” credited to a Securities Account), it shall cause the issuer of such uncertificated security to either (i) register Collateral Agent as the registered owner thereof on the books and records of the issuer or (ii) execute an agreement substantially in the form of Exhibit B hereto (with only such changes as may be approved by Collateral Agent), pursuant to which such issuer agrees to comply with Collateral Agent’s instructions with respect to such uncertificated security without further consent by such Grantor.

(c) Voting and Distributions .

(i) So long as no Event of Default shall have occurred and be continuing:

 

  (1)

except as otherwise provided under the covenants and agreements relating to Investment Related Property in this Agreement or elsewhere herein or in the Credit Agreement, each Grantor shall be entitled to exercise or refrain from exercising any and all voting and other consensual rights pertaining to the Investment Related Property or any part thereof for any purpose not inconsistent with the terms of this Agreement or the Credit Agreement; provided, no Grantor shall exercise or refrain from exercising any such right if Collateral Agent shall have notified such Grantor that, in Collateral Agent’s reasonable judgment, such action would have a material adverse effect on the value of the Investment Related Property or any part thereof;

 

Pledge and Security Agreement

17


  and provided further, such Grantor shall give Collateral Agent at least five (5) Business Days prior written notice of the manner in which it intends to exercise, or the reasons for refraining from exercising, any such right; it being understood, however, that neither the voting by such Grantor of any Pledged Equity Interests for, or such Grantor’s consent to, the election of directors (or similar governing body) at a regularly scheduled annual or other meeting of stockholders, members or partners or with respect to incidental matters at any such meeting, nor such Grantor’s consent to or approval of any action otherwise permitted under this Agreement and the Credit Agreement, shall be deemed inconsistent with the terms of this Agreement or the Credit Agreement within the meaning of this Section 4.4.1(c)(i)(1) , and no notice of any such voting or consent need be given to Collateral Agent; and

 

  (2) Collateral Agent shall promptly execute and deliver (or cause to be executed and delivered) to each Grantor all proxies, and other instruments as such Grantor may from time to time reasonably request for the purpose of enabling such Grantor to exercise the voting and other consensual rights when and to the extent which it is entitled to exercise pursuant to clause (1)  above.

(ii) Upon the occurrence and during the continuation of an Event of Default:

 

  (1) all rights of each Grantor to exercise or refrain from exercising the voting and other consensual rights which it would otherwise be entitled to exercise pursuant hereto shall cease and all such rights shall thereupon become vested in Collateral Agent who shall thereupon have the sole right to exercise such voting and other consensual rights; and

 

  (2) in order to permit Collateral Agent to exercise the voting and other consensual rights which it may be entitled to exercise pursuant hereto and to receive all dividends and other distributions which it may be entitled to receive hereunder: (A) each Grantor shall promptly execute and deliver (or cause to be executed and delivered) to Collateral Agent all proxies, dividend payment orders and other instruments as Collateral Agent may from time to time reasonably request and (B) each Grantor acknowledges that Collateral Agent may utilize the power of attorney set forth in Section 6.1 .

4.4.2 Pledged Equity Interests

(a) Representations and Warranties . Each Grantor hereby represents and warrants to Collateral Agent and each other Secured Party, on the Closing Date and on each Credit Date, that:

 

Pledge and Security Agreement

18


(i) Schedule 4.4(A) (as such schedule may be amended or supplemented from time to time) sets forth under the headings “Pledged Stock,” “Pledged LLC Interests,” “Pledged Partnership Interests” and “Pledged Trust Interests,” respectively, all of the Pledged Stock, Pledged LLC Interests, Pledged Partnership Interests and Pledged Trust Interests owned by any Grantor and such Pledged Equity Interests constitute the percentage of issued and outstanding shares of stock, percentage of membership interests, percentage of partnership interests or percentage of beneficial interest of the respective issuers thereof indicated on such Schedule;

(ii) except as set forth on Schedule 4.4(B) , it has not acquired any Capital Stock or Securities of another entity or all or substantially all the assets of another entity, or merged with another entity, within the past five (5) years;

(iii) it is the record and beneficial owner of the Pledged Equity Interests free of all Liens, rights or claims of other Persons other than Permitted Liens and there are no outstanding warrants, options or other rights to purchase, or shareholder, voting trust or similar agreements outstanding with respect to, or property that is convertible into, or that requires the issuance or sale of, any Pledged Equity Interests;

(iv) without limiting the generality of any of the foregoing, no consent of any Person including any other general or limited partner, any other member of a limited liability company, any other shareholder or any other trust beneficiary is necessary or desirable in connection with the creation, perfection or First Priority status of the security interest of Collateral Agent in any Pledged Equity Interests or the exercise by Collateral Agent of the voting or other rights provided for in this Agreement or the exercise of remedies in respect thereof; and

(v) none of the Pledged LLC Interests nor Pledged Partnership Interests are or represent interests in issuers that: (a) are registered as investment companies, (b) are dealt in or traded on securities exchanges or markets or (c) have opted to be treated as securities under the uniform commercial code of any jurisdiction.

(b) Covenants and Agreements . Each Grantor hereby covenants and agrees with Collateral Agent and each other Secured Party that:

(i) without the prior written consent of Collateral Agent, it shall not vote to enable or take any other action to: (a) amend or terminate any partnership agreement, limited liability company agreement, certificate of incorporation, by-laws or other Organizational Documents in any way that materially adversely changes the rights of such Grantor with respect to any Investment Related Property or adversely affects the validity, perfection or priority of Collateral Agent’s security interest, (b) if and to the extent prohibited under the Credit Agreement, permit any issuer of any Pledged Equity Interest to issue any additional stock, partnership interests, limited liability company interests or other Capital Stock or Securities of any nature or to issue securities convertible into or granting the right of purchase or exchange for any Capital Stock or Securities of any nature of such issuer, (c) other than as permitted under the Credit Agreement, permit any issuer of any Pledged Equity Interest to dispose of all or a material portion of their assets, (d) waive any default under or breach of any terms of any Organizational Document relating to the issuer of any Pledged Equity Interest or the

 

Pledge and Security Agreement

19


terms of any Pledged Debt, or (e) cause any issuer of any Pledged Partnership Interests or Pledged LLC Interests which are not securities (for purposes of the UCC) on the date hereof to elect or otherwise take any action to cause such Pledged Partnership Interests or Pledged LLC Interests to be treated as securities for purposes of the UCC; provided , however, notwithstanding the foregoing, if any issuer of any Pledged Partnership Interests or Pledged LLC Interests takes any such action in violation of the foregoing in this clause (e) , such Grantor shall promptly notify Collateral Agent in writing of any such election or action and, in such event, shall take all steps reasonably necessary to establish Collateral Agent’s “control” thereof;

(ii) it shall comply in all material respects with all of its obligations under any partnership agreement or limited liability company agreement relating to Pledged Partnership Interests or Pledged LLC Interests and shall enforce in all material respects all of its rights with respect to any Investment Related Property;

(iii) without the prior written consent of Collateral Agent, it shall not vote to enable or take any other action to permit any issuer of any Pledged Equity Interest to merge or consolidate unless (i) such issuer creates a security interest that is perfected by a filed financing statement (that is not effective solely under Section 9-508 of the UCC) in collateral in which such new debtor has or acquires rights, and (ii) all the outstanding Capital Stock or Securities of the surviving or resulting corporation, limited liability company, partnership or other Person is, upon such merger or consolidation, pledged hereunder and no cash, Securities or other property is distributed in respect of the outstanding equity interests of any other constituent Grantor, except as permitted under the Credit Agreement;

(iv) such Grantor consents to the grant by each other Grantor of a security interest in all Investment Related Property to Collateral Agent and, without limiting the foregoing, consents to the transfer of any Pledged Partnership Interest and any Pledged LLC Interest to Collateral Agent or its nominee upon the occurrence and during the continuation of an Event of Default and to the substitution of Collateral Agent or its nominee as a partner in any partnership or as a member in any limited liability company with all the rights and powers related thereto; and

(v) it shall promptly notify Collateral Agent of any default under any Pledged Equity Interests that has caused, either in any individual case or in the aggregate, a Material Adverse Effect.

4.4.3 Pledged Debt

(a) Representations and Warranties . Each Grantor hereby represents and warrants to Collateral Agent and each other Secured Party, on the Closing Date and each Credit Date, that Schedule 4.4 (as such schedule may be amended or supplemented from time to time) sets forth under the heading “Pledged Debt” all of the Pledged Debt owned by any Grantor and all of such Pledged Debt has been duly authorized, authenticated or issued, and delivered and is the legal, valid and binding obligation of the issuers thereof and is not in default and all such Pledged Debt, collectively, constitutes all of the issued and outstanding inter-company Indebtedness;

 

Pledge and Security Agreement

20


(b) Covenants and Agreements . Each Grantor hereby covenants and agrees with Collateral Agent and each other Secured Party that it shall promptly notify Collateral Agent of any default under any Pledged Debt that has caused, either in any individual case or in the aggregate, a Material Adverse Effect.

4.4.4 Investment Accounts

(a) Representations and Warranties . Each Grantor hereby represents and warrants to Collateral Agent and each other Secured Party, on the Closing Date and each Credit Date, that:

(i) Schedule 4.4 hereto (as such schedule may be amended or supplemented from time to time) sets forth under the headings “Securities Accounts” and “Commodities Accounts,” respectively, all of the Securities Accounts and Commodities Accounts in which each Grantor has an interest. Each Grantor is the sole entitlement holder of each such Securities Account and Commodity Account, and such Grantor has not consented to, and is not otherwise aware of, any Person (other than Collateral Agent pursuant hereto) having “control” (within the meanings of Sections 8-106 and 9-106 of the UCC) over, or any other interest in, any such Securities Account or Commodity Account or securities or other property credited thereto;

(ii) Schedule 4.4 hereto (as such schedule may be amended or supplemented from time to time) sets forth under the headings “Deposit Accounts” all of the Deposit Accounts in which each Grantor has an interest. Each Grantor is the sole account holder of each such Deposit Account and such Grantor has not consented to, and is not otherwise aware of, any Person (other than Collateral Agent pursuant hereto and the bank or other depository institution at which such Deposit Account is maintained) having either sole dominion and control (within the meaning of common law) or “control” (within the meanings of Section 9-104 of the UCC) over, or any other interest in, any such Deposit Account or any money or other property deposited therein; and

(iii) Each Grantor has taken all actions necessary or desirable, including those specified in Section 4.4.4(c) , to: (a) establish Collateral Agent’s “control” (within the meanings of Sections 8-106 and 9-106 of the UCC) over any portion of the Investment Related Property constituting Certificated Securities, Uncertificated Securities, Securities Accounts, Securities Entitlements or Commodities Accounts (each as defined in the UCC); (b) establish Collateral Agent’s “control” (within the meaning of Section 9-104 of the UCC) over all Deposit Accounts (other than Excluded Accounts); and (c) deliver all Instruments to Collateral Agent.

(b) Covenant and Agreement . Each Grantor hereby covenants and agrees with Collateral Agent and each other Secured Party that it shall not close or terminate any Investment Account (i) unless a successor or replacement account has been established with prior written notice to Collateral Agent and with respect to which successor or replacement account a control

 

Pledge and Security Agreement

21


agreement has been entered into by the appropriate Grantor, Collateral Agent and securities intermediary or depository institution at which such successor or replacement account is to be maintained in accordance with the provisions of Section 4.4.4(c) or (ii) if an Event of Default has occurred and is continuing.

(c) Delivery and Control

(i) With respect to any Investment Related Property consisting of Securities Accounts or Securities Entitlements, it shall cause the securities intermediary maintaining such Securities Account or Securities Entitlement to enter into an agreement substantially in the form of Exhibit C hereto (with only such changes as may be approved by Collateral Agent) pursuant to which it shall agree to comply with Collateral Agent’s “entitlement orders” without further consent by such Grantor. With respect to any Investment Related Property that is a “Deposit Account” (other than any Excluded Account), it shall cause the depositary institution maintaining such account to enter into a deposit account control agreement in the form of Exhibit D hereto (with only such changes as may be approved by Collateral Agent), pursuant to which Collateral Agent shall have both sole dominion and control over such Deposit Account (within the meaning of the common law) and “control” (within the meaning of Section 9-104 of the UCC) over such Deposit Account. Each Grantor shall have entered into such control agreement or agreements with respect to: (i) any Securities Accounts, Securities Entitlements or Deposit Accounts (other than any Excluded Account) that exist on the Closing Date, as of or prior to the Closing Date and (ii) any Securities Accounts, Securities Entitlements or Deposit Accounts (other than any Excluded Account) that are created or acquired after the Closing Date, as of or prior to the deposit or transfer of any such Securities Entitlements or funds, whether constituting moneys or investments, into such Securities Accounts or Deposit Accounts.

(ii) In addition to the foregoing, if any issuer of any Investment Related Property is located in a jurisdiction outside of the United States, each Grantor shall take such additional actions, including, without limitation, causing the issuer to register the pledge on its books and records or making such filings or recordings, in each case as may be necessary or advisable, under the laws of such issuer’s jurisdiction to insure the validity, perfection and priority of the security interest of Collateral Agent. Upon the occurrence and during the continuation of an Event of Default, Collateral Agent shall have the right, without notice to any Grantor, to transfer all or any portion of the Investment Related Property to its name or the name of its nominee or agent. In addition, upon the occurrence and during the continuation of an Event of Default, Collateral Agent shall have the right at any time, without notice to any Grantor, to exchange any certificates or instruments representing any Investment Related Property for certificates or instruments of smaller or larger denominations.

4.5 Material Contracts.

(a) Representations and Warranties . Each Grantor hereby represents and warrants to Collateral Agent and each other Secured Party, on the Closing Date and on each Credit Date, that:

 

Pledge and Security Agreement

22


(i) Schedule 4.5 (as such schedule may be amended or supplemented from time to time) sets forth all of the Material Contracts to which such Grantor has rights; and

(ii) the Material Contracts, true and complete copies (including any amendments or supplements thereof) of which have been furnished to Collateral Agent, have been duly authorized, executed and delivered by all parties thereto, are in full force and effect and are binding upon and enforceable against all parties thereto in accordance with their respective terms. There exists no default under any Material Contract by any party thereto and neither any Grantor, nor to its knowledge, any other Person party thereto is likely to become in default thereunder and neither any Grantor, nor to its knowledge, any other Person party thereto, has any defenses, counterclaims or right of set-off with respect to any Material Contract;

(iii) [Intentionally Reserved].

(b) Covenants and Agreements . Each Grantor hereby covenants and agrees with Collateral Agent and each other Secured Party that:

(i) in addition to any rights under the Section of this Agreement relating to Receivables, Collateral Agent may at any time notify, or require any Grantor to so notify, the counterparty on any Material Contract of the security interest of Collateral Agent therein. In addition, after the occurrence and during the continuance of an Event of Default, Collateral Agent may upon written notice to the applicable Grantor, notify, or require any Grantor to notify, the counterparty to make all payments under the Material Contracts directly to Collateral Agent;

(ii) it shall deliver promptly to Collateral Agent a copy of each material demand, notice or document received by it relating in any way to any Material Contract;

(iii) it shall deliver promptly to Collateral Agent, and in any event within ten (10) Business Days, after (1) any Material Contract of such Grantor is terminated or amended in a manner that is materially adverse to such Grantor or (2) any new Material Contract is entered into by such Grantor, a written statement describing such event, with copies of such material amendments or new contracts, delivered to Collateral Agent (to the extent such delivery is permitted by the terms of any such Material Contract, provided , no prohibition on delivery shall be effective if it were bargained for by such Grantor with the intent of avoiding compliance with this Section 4.5(b)(iii) ), and an explanation of any actions being taken with respect thereto;

(iv) it shall perform in all material respects all of its obligations with respect to the Material Contracts;

(v) it shall promptly and diligently exercise each material right (except the right of termination) it may have under any Material Contract, any Supporting Obligation or Collateral Support, in each case, at its own expense, and in connection with such collections and exercise, such Grantor shall take such action as such Grantor or Collateral Agent may deem necessary or advisable;

 

Pledge and Security Agreement

23


(vi) it shall use commercially reasonable efforts to keep in full force and effect any Supporting Obligation or Collateral Support relating to any Material Contract;

(vii) [Intentionally Reserved];

(viii) it shall use its commercially reasonable efforts to ensure that no Material Contract entered after the Closing Date shall contain a “change of control” provision;

(ix) it shall hereafter use commercially reasonable efforts so as not to permit the inclusion in any contract to which it hereafter becomes a party of any provision that would reasonably be expected to in any way materially impair or prevent the creation of a security interest in, or the assignment of, such Grantor’s rights and interests in any agreement, contract or license to which any Grantor is a party; and

(x) it shall promptly deposit or cause to be deposited into one or more Controlled Accounts all cash, checks, drafts or other items of payment received by it relating to or constituting payments made in respect of any Material Contract.

4.6 Letter of Credit Rights.

(a) Representations and Warranties . Each Grantor hereby represents and warrants to Collateral Agent and each other Secured Party, on the Closing Date and on each Credit Date, that:

(i) all material letters of credit to which such Grantor has rights are listed on Schedule 4.6 (as such schedule may be amended or supplemented from time to time) hereto; and

(ii) it has used commercially reasonable efforts to obtain the consent of each issuer of any material letter of credit to which such Grantor has rights (other than any such letter of credit constituting a Supporting Obligation, in which case, such Grantor has not consented to the assignment of the proceeds of such letter of credit to any other Person) to the assignment of the proceeds of the letter of credit to Collateral Agent.

(b) Covenants and Agreements . Each Grantor hereby covenants and agrees with Collateral Agent and each other Secured Party that, with respect to any material letter of credit hereafter arising to which such Grantor has rights, it shall use commercially reasonable efforts to obtain the consent of the issuer thereof to the assignment of the proceeds of such letter of credit (other than any such letter of credit constituting a Supporting Obligation, in which case, such Grantor shall not consent to the assignment of the proceeds of such letter of credit to any other Person) to Collateral Agent and shall promptly deliver to Collateral Agent a completed Pledge Supplement, substantially in the form of Exhibit A attached hereto, together with all Supplements to Schedules thereto.

 

Pledge and Security Agreement

24


4.7 Intellectual Property.

(a) Representations and Warranties . Except as disclosed in Schedule 4.7(H) (as such schedule may be amended or supplemented from time to time), each Grantor hereby represents and warrants to Collateral Agent and each other Secured Party, on the Closing Date and on each Credit Date, that:

(i) Schedule 4.7 (as such schedule may be amended or supplemented from time to time) sets forth a true and complete list of (i) all United States, state and foreign registrations of and applications for Patents, Trademarks, and Copyrights owned by each Grantor and (ii) all Patent Licenses, Trademark Licenses, Trade Secret Licenses and Copyright Licenses material to the business of such Grantor;

(ii) it is the sole and exclusive owner of the entire right, title, and interest in and to all Intellectual Property on Schedule 4.7 (as such schedule may be amended or supplemented from time to time), and owns or has the valid right to use all other Intellectual Property used in or necessary to conduct its business, free and clear of all Liens, claims, encumbrances and licenses, except for Permitted Liens and the licenses set forth on Schedule 4.7(B) , (D) , (F)  and (G)  (as each may be amended or supplemented from time to time);

(iii) all Intellectual Property is subsisting and has not been adjudged invalid or unenforceable, in whole or in part, and each Grantor has performed all acts and has paid all renewal, maintenance, and other fees and taxes required to maintain each and every registration and application of Copyrights, Patents and Trademarks in full force and effect;

(iv) all Intellectual Property is valid and enforceable; no holding, decision or judgment has been rendered in any action or proceeding before any court or administrative authority challenging the validity of, such Grantor’s right to register, or such Grantor’s rights to own or use, any Intellectual Property and no such action or proceeding is pending or, to such Grantor’s knowledge, threatened;

(v) all registrations and applications for Copyrights, Patents and Trademarks of any Grantor are standing in the name of such Grantor, and none of such Trademarks, Patents, Copyrights or Trade Secrets has been licensed by any Grantor to any Affiliate or third party, except as disclosed in Schedule 4.7(B) , (D) , (F) , or (G)  (as each may be amended or supplemented from time to time);

(vi) such Grantor has been using appropriate statutory notices or markings of registration in connection with its use of registered Trademarks, proper marking practices in connection with the use of Patents, and appropriate notice of copyright in connection with the publication of Copyrights, in each case, to the extent that the same is material to the business of such Grantor;

(vii) such Grantor uses adequate standards of quality in the manufacture, distribution, and sale of all products sold and in the provision of all services rendered under or in connection with all Trademarks and has taken all action necessary to insure that all licensees of the Trademarks owned by such Grantor use such adequate standards of quality, in each case, to the extent that the same is material to the business of such Grantor;

 

Pledge and Security Agreement

25


(viii) the conduct of such Grantor’s business does not infringe upon any Trademark, Patent, Copyright, Trade Secret or similar intellectual property right owned or controlled by a third party in any material respect; no claim has been made that the use of any Intellectual Property owned or used by Grantor (or any of its respective licensees) violates the asserted rights of any third party in any material respect;

(ix) to the best of such Grantor’s knowledge, no third party is infringing upon or otherwise violating any rights in any Intellectual Property owned or used by such Grantor, or any of its respective licensees, in each case in any material respect;

(x) no settlement or consents, covenants not to sue, nonassertion assurances, or releases have been entered into by Grantor or to which Grantor is bound that materially adversely affect Grantor’s rights to own or use any Intellectual Property; and

(xi) such Grantor has not made a previous assignment, sale, transfer or agreement constituting a present or future assignment, sale, transfer or agreement of any Intellectual Property that has not been terminated or released. There is no effective financing statement or other document or instrument now executed, or on file or recorded in any public office, granting a security interest in or otherwise encumbering any part of the Intellectual Property, other than in favor of Collateral Agent.

(b) Covenants and Agreements . Each Grantor hereby covenants and agrees with Collateral Agent and each other Secured Party that:

(i) it shall not do any act or omit to do any act whereby any of the Intellectual Property which is material to the business of such Grantor may lapse, or become abandoned, dedicated to the public, or unenforceable, or which would adversely affect the validity, grant, or enforceability of the security interest granted therein;

(ii) it shall not, with respect to any Trademarks which are material to the business of any Grantor, cease the use of any of such Trademarks or fail to maintain the level of the quality of products sold and services rendered under any of such Trademark at a level at least substantially consistent with the quality of such products and services as of the date hereof, and each Grantor shall take all steps necessary to insure that licensees of such Trademarks use such consistent standards of quality;

(iii) it shall, within thirty (30) days of the creation or acquisition of any copyrightable work which is material to the business of any Grantor, apply to register the Copyright in the United States Copyright Office;

(iv) it shall promptly notify Collateral Agent if it knows or has reason to know that any item of the Intellectual Property that is material to the business of any Grantor may become (a) abandoned or dedicated to the public or placed in the public

 

Pledge and Security Agreement

26


domain, (b) invalid or unenforceable, or (c) subject to any adverse determination or development (including the institution of proceedings) in any action or proceeding in the United States Patent and Trademark Office, the United States Copyright Office, any state registry, any foreign counterpart of the foregoing, or any court;

(v) it shall take all reasonable steps in the United States Patent and Trademark Office, the United States Copyright Office, any state registry or any foreign counterpart of the foregoing, to pursue any application and maintain any registration of each Trademark, Patent, and Copyright owned by any Grantor and material to its business which is now or shall become included in the Intellectual Property (except for such works with respect to which such Grantor has determined in the exercise of its commercially reasonable judgment that it shall not seek registration) including, but not limited to, those items on Schedule 4.7(A) , (C)  and (E)  (as each may be amended or supplemented from time to time);

(vi) in the event that any Intellectual Property owned by or exclusively licensed to any Grantor is infringed, misappropriated, or diluted by a third party in any material respect, such Grantor shall promptly take all reasonable actions to stop such infringement, misappropriation, or dilution and protect its rights in such Intellectual Property including, but not limited to, the initiation of a suit for injunctive relief and to recover damages;

(vii) it shall promptly (but in no event more than thirty (30) days after any Grantor obtains knowledge thereof) report to Collateral Agent (i) the filing of any application to register any Intellectual Property with the United States Patent and Trademark Office, the United States Copyright Office, or any state registry or foreign counterpart of the foregoing (whether such application is filed by such Grantor or through any agent, employee, licensee, or designee thereof) and (ii) the registration of any Intellectual Property by any such office, in each case by executing and delivering to Collateral Agent a completed Pledge Supplement, substantially in the form of Exhibit A attached hereto, together with all Supplements to Schedules thereto;

(viii) it shall, promptly upon the reasonable request of Collateral Agent, execute and deliver to Collateral Agent any document required to acknowledge, confirm, register, record, or perfect Collateral Agent’s interest in any part of the Intellectual Property, whether now owned or hereafter acquired;

(ix) except with the prior consent of Collateral Agent or as permitted under the Credit Agreement, each Grantor shall not execute, and there will not be on file in any public office, any financing statement or other document or instruments with respect to the Intellectual Property of any Grantor, except financing statements or other documents or instruments filed or to be filed in favor of Collateral Agent and each Grantor shall not sell, assign, transfer, license, grant any option, or create or suffer to exist any Lien upon or with respect to the Intellectual Property, except for the Lien created by and under this Agreement and the other Credit Documents;

 

Pledge and Security Agreement

27


(x) it shall hereafter use commercially reasonable efforts so as not to permit the inclusion in any contract to which it hereafter becomes a party of any provision that could or might in any way materially impair or prevent the creation of a security interest in, or the assignment of, such Grantor’s rights and interests in any property included within the definitions of any Intellectual Property acquired under such contracts;

(xi) it shall take all steps reasonably necessary to protect the secrecy of all Trade Secrets of any Grantor, including, without limitation, entering into confidentiality agreements with employees and labeling and restricting access to secret information and documents;

(xii) it shall use proper statutory notice or markings in connection with its use of any of the Intellectual Property; and

(xiii) it shall continue to collect, at its own expense, all amounts due or to become due to such Grantor in respect of the Intellectual Property or any portion thereof. Notwithstanding the foregoing, Collateral Agent shall have the right at any time, to notify, or require any Grantor to notify, any obligors with respect to any such amounts of the existence of the security interest created hereby.

4.8 Commercial Tort Claims.

(a) Representations and Warranties . Each Grantor hereby represents and warrants to Collateral Agent and each other Secured Party, on the Closing Date and on each Credit Date, that Schedule 4.8 (as such schedule may be amended or supplemented from time to time) sets forth all Commercial Tort Claims of each Grantor; and

(b) Covenants and Agreements . Each Grantor hereby covenants and agrees with Collateral Agent and each other Secured Party that with respect to any Commercial Tort Claim hereafter arising it shall deliver to Collateral Agent a completed Pledge Supplement, substantially in the form of Exhibit A attached hereto, together with all Supplements to Schedules thereto, identifying such new Commercial Tort Claims.

4.9 Insurance.

(a) Representations and Warranties . Each Grantor hereby represents and warrants to Collateral Agent and each other Secured Party, on the Closing Date, that such Grantor does not maintain any key-man life insurance policies; and

(b) Covenants and Agreements . Each Grantor hereby covenants and agrees that in the event that such Grantor obtains any key-man life insurance policy after the Closing Date, such Grantor shall promptly obtain a collateral assignment of such policy, in form and substance reasonably satisfactory to Collateral Agent, in favor of Collateral Agent, for itself and the benefit of each other Secured Party.

 

Pledge and Security Agreement

28


SECTION 5. ACCESS; RIGHT OF INSPECTION AND FURTHER ASSURANCES; ADDITIONAL GRANTORS.

5.1 Access; Right of Inspection. Each Grantor will, and will cause each of its Subsidiaries to, permit any authorized representatives designated by Collateral Agent or any Secured Party to visit and inspect any of the properties of any Grantor and any of its respective Subsidiaries, to inspect, copy and take extracts from its and their financial and accounting records, and to discuss its and their affairs, finances and accounts with its and their officers and, from and after the occurrence and during the continuation of an Event of Default, independent public accountants, all upon reasonable notice and at such reasonable times during normal business hours and as often as may reasonably be requested; provided , that Collateral Agent and Secured Parties shall use reasonable efforts to coordinate any such visits and inspections.

5.2 Further Assurances.

(a) Each Grantor agrees that from time to time, at the expense of such Grantor, it shall promptly execute and deliver all further instruments and documents, and take all further action, that may be reasonably necessary, or that Collateral Agent may reasonably request, in order to create and/or maintain the validity, perfection or priority of and protect any security interest granted or purported to be granted hereby or to enable Collateral Agent to exercise and enforce its rights and remedies hereunder with respect to any Collateral. Without limiting the generality of the foregoing, each Grantor shall:

(i) file or authorize the filing of such financing or continuation statements, or amendments thereto, and execute and deliver such other agreements, instruments, endorsements, powers of attorney or notices, as may be reasonably necessary, or as Collateral Agent may reasonably request, in order to perfect and preserve the security interests granted or purported to be granted hereby;

(ii) take all actions reasonably necessary to ensure the recordation of appropriate evidence of the liens and security interest granted hereunder in the Intellectual Property with any intellectual property registry in which said Intellectual Property is registered or in which an application for registration is pending including, without limitation, the United States Patent and Trademark Office, the United States Copyright Office, the various Secretaries of State, and the foreign counterparts of any of the foregoing;

(iii) upon the occurrence and during the continuance of any Event of Default, at any reasonable time, upon request by Collateral Agent, assemble the Collateral and allow inspection of the Collateral by Collateral Agent, or Persons designated by Collateral Agent; and

(iv) at Collateral Agent’s request, appear in and defend any action or proceeding that may materially adversely affect such Grantor’s title to or Collateral Agent’s security interest in all or any part of the Collateral.

 

Pledge and Security Agreement

29


(b) Each Grantor hereby authorizes Collateral Agent to file a Record or Records, including, without limitation, financing or continuation statements, and amendments thereto, in any jurisdictions and with any filing offices as Collateral Agent may determine, in its sole discretion, are necessary or advisable to perfect the security interest granted to Collateral Agent herein. Such financing statements may describe the Collateral in the same manner as described herein or may contain an indication or description of collateral that describes such property in any other manner as Collateral Agent may determine, in its sole discretion, is necessary, advisable or prudent to ensure the perfection of the security interest in the Collateral granted to Collateral Agent herein, including, without limitation, describing such property as “all assets” or “all personal property, whether now owned or hereafter acquired.” Each Grantor shall furnish to Collateral Agent from time to time statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral as Collateral Agent may reasonably request, all in reasonable detail.

(c) Each Grantor hereby authorizes Collateral Agent to amend Schedule 4.7 (as such schedule may be amended or supplemented from time to time) to include reference to any right, title or interest in any existing Intellectual Property or any Intellectual Property acquired or developed by any Grantor after the execution hereof or to delete any reference to any right, title or interest in any Intellectual Property in which any Grantor no longer has or claims any right, title or interest.

5.3 Additional Grantors. From time to time subsequent to the date hereof, additional Persons may become parties hereto as additional Grantors (each, an “Additional Grantor” ), by executing a Counterpart Agreement. Upon delivery of any such Counterpart Agreement to Collateral Agent, notice of which is hereby waived by Grantors, each Additional Grantor shall be a Grantor and shall be as fully a party hereto as if Additional Grantor were an original signatory hereto. Each Grantor expressly agrees that its obligations arising hereunder shall not be affected or diminished by the addition or release of any other Grantor hereunder, nor by any election of Collateral Agent not to cause any Subsidiary of any Grantor to become an Additional Grantor hereunder. This Agreement shall be fully effective as to any Grantor that is or becomes a party hereto regardless of whether any other Person becomes or fails to become or ceases to be a Grantor hereunder.

SECTION 6. COLLATERAL AGENT APPOINTED ATTORNEY-IN-FACT.

6.1 Power of Attorney. Each Grantor hereby irrevocably appoints Collateral Agent (such appointment being coupled with an interest) as such Grantor’s attorney-in-fact, with full authority in the place and stead of such Grantor and in the name of such Grantor, Collateral Agent or otherwise, upon the occurrence and during the continuance of any Event of Default, from time to time to take any action and to execute any instrument that Collateral Agent may deem reasonably necessary or advisable to accomplish the purposes of this Agreement, including, without limitation, the following:

(a) to obtain and adjust insurance required to be maintained by such Grantor or paid to Collateral Agent pursuant to the Credit Agreement;

(b) to ask for, demand, collect, sue for, recover, compound, receive and give acquittance and receipts for moneys due and to become due under or in respect of any of the Collateral;

 

Pledge and Security Agreement

30


(c) to receive, endorse and collect any drafts or other instruments, documents and chattel paper in connection with clause (b)  above;

(d) to file any claims or take any action or institute any proceedings that Collateral Agent may deem necessary or desirable for the collection of any of the Collateral or otherwise to enforce the rights of Collateral Agent with respect to any of the Collateral;

(e) [Intentionally Reserved.]

(f) [Intentionally Reserved.]

(g) to take or cause to be taken all actions necessary to perform or comply or cause performance or compliance with the terms of this Agreement, including, without limitation, access to pay or discharge taxes or Liens (other than Permitted Liens) levied or placed upon or threatened against the Collateral, the legality or validity thereof and the amounts necessary to discharge the same to be determined by Collateral Agent in its sole discretion, any such payments made by Collateral Agent to become obligations of such Grantor to Collateral Agent, due and payable immediately without demand; and

(h) generally to sell, transfer, pledge, make any agreement with respect to or otherwise deal with any of the Collateral as fully and completely as though Collateral Agent were the absolute owner thereof for all purposes, and to do, at Collateral Agent’s option and such Grantor’s expense, at any time or from time to time, all acts and things that Collateral Agent deems reasonably necessary to protect, preserve or realize upon the Collateral and Collateral Agent’s security interest therein in order to effect the intent of this Agreement, all as fully and effectively as such Grantor might do.

Each Grantor further hereby irrevocably authorizes Collateral Agent:

(a) to prepare and file any UCC financing and continuation statements, and any amendments thereto, against such Grantor as debtor; and

(b) to prepare, sign, and file for recordation in any intellectual property registry, appropriate evidence of the lien and security interest granted herein in the Intellectual Property in the name of such Grantor as assignor or debtor.

6.2 No Duty on the Part of Collateral Agent or Secured Parties. The powers conferred on Collateral Agent hereunder are solely to protect the interests of the Secured Parties in the Collateral and shall not impose any duty upon Collateral Agent or any other Secured Party to exercise any such powers. Collateral Agent and the Secured Parties shall be accountable only for amounts that they actually receive as a result of the exercise of such powers, and neither they nor any of their respective officers, directors, employees or agents shall be responsible to any Grantor for any act or failure to act hereunder, except for their own gross negligence or willful misconduct as determined by a final, non-appealable judgment of a court of competent jurisdiction.

 

Pledge and Security Agreement

31


SECTION 7. REMEDIES.

7.1 Generally.

(a) If any Event of Default shall have occurred and be continuing, Collateral Agent may exercise in respect of the Collateral, in addition to all other rights and remedies provided for herein or otherwise available to it at law or in equity, all the rights and remedies of Collateral Agent on default under the UCC (whether or not the UCC applies to the affected Collateral) to collect, enforce or satisfy any Secured Obligations then owing, whether by acceleration or otherwise, and also may pursue any of the following separately, successively or simultaneously:

(i) require any Grantor to, and each Grantor hereby agrees that it shall at its expense and promptly upon request of Collateral Agent forthwith, assemble all or part of the Collateral as directed by Collateral Agent and make it available to Collateral Agent at a place to be designated by Collateral Agent that is reasonably convenient to the parties hereto;

(ii) enter onto the property where any Collateral is located and take possession thereof with or without judicial process;

(iii) prior to the disposition of the Collateral, store, process, repair or recondition the Collateral or otherwise prepare the Collateral for disposition in any manner to the extent Collateral Agent deems appropriate; and

(iv) without notice except as specified below or under the UCC, sell, assign, lease, license (on an exclusive or nonexclusive basis) or otherwise dispose of the Collateral or any part thereof in one or more parcels at public or private sale, at any of Collateral Agent’s offices or elsewhere, for cash, on credit or for future delivery, at such time or times and at such price or prices and upon such other terms as Collateral Agent may deem commercially reasonable.

(b) Collateral Agent or any other Secured Party may be the purchaser of any or all of the Collateral at any public or private (to the extent that the portion of the Collateral being privately sold is of a kind that is customarily sold on a recognized market or the subject of widely distributed standard price quotations) sale in accordance with the UCC and Collateral Agent, as agent for and representative of the Secured Parties, shall be entitled, for the purpose of bidding and making settlement or payment of the purchase price for all or any portion of the Collateral sold at any such sale made in accordance with the UCC, to use and apply any of the Secured Obligations as a credit on account of the purchase price for any Collateral payable by Collateral Agent at such sale. Each purchaser at any such sale shall hold the property sold absolutely free from any claim or right on the part of any Grantor, and each Grantor hereby waives (to the extent permitted by applicable law) all rights of redemption, stay and/or appraisal which it now has or may at any time in the future have under any rule of law or statute now existing or hereafter enacted. Each Grantor agrees that, to the extent notice of sale shall be required by law, at least ten (10) days notice to such Grantor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification.

 

Pledge and Security Agreement

32


Collateral Agent shall not be obligated to make any sale of Collateral regardless of notice of sale having been given. Collateral Agent may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. Each Grantor agrees that it would not be commercially unreasonable for Collateral Agent to dispose of the Collateral or any portion thereof by using Internet sites that provide for the auction of assets of the types included in the Collateral or that have the reasonable capability of doing so, or that match buyers and sellers of assets. Each Grantor hereby waives any claims against Collateral Agent arising by reason of the fact that the price at which any Collateral may have been sold at such a private sale was less than the price which might have been obtained at a public sale, even if Collateral Agent accepts the first offer received and does not offer such Collateral to more than one offeree. If the proceeds of any sale or other disposition of the Collateral are insufficient to pay all the Secured Obligations, Grantors shall be liable for the deficiency and the fees of any attorneys employed by Collateral Agent to collect such deficiency. Each Grantor further agrees that a breach of any of the covenants contained in this Section will cause irreparable injury to Collateral Agent, that Collateral Agent has no adequate remedy at law in respect of such breach and, as a consequence, that each and every covenant contained in this Section shall be specifically enforceable against such Grantor, and such Grantor hereby waives and agrees not to assert any defenses against an action for specific performance of such covenants except for a defense that no default has occurred giving rise to the Secured Obligations becoming due and payable prior to their stated maturities. Nothing in this Section shall in any way alter the rights of Collateral Agent hereunder.

(c) Collateral Agent may sell the Collateral without giving any warranties as to the Collateral. Collateral Agent may specifically disclaim or modify any warranties of title or the like. The foregoing shall not be considered to adversely affect the commercial reasonableness of any sale of the Collateral.

(d) Collateral Agent shall have no obligation to marshal any of the Collateral.

7.2 Application of Proceeds. Except as expressly provided elsewhere in this Agreement, all proceeds received by Collateral Agent in respect of any sale, any collection from, or other realization upon all or any part of the Collateral shall be applied in full or in part by Collateral Agent against the Secured Obligations as provided in the Credit Agreement.

7.3 Sales on Credit. If Collateral Agent sells any of the Collateral upon credit, Grantors will be credited only with payments actually made by the purchaser thereof and received by Collateral Agent and applied to indebtedness of the purchaser thereof. In the event the purchaser fails to pay for the Collateral, Collateral Agent may resell the Collateral and Grantors shall be credited with proceeds of the sale.

7.4 Deposit Accounts. If any Event of Default shall have occurred and be continuing, Collateral Agent may apply the balance from any Deposit Account (other than any Excluded Account) or instruct the bank at which any Deposit Account (other than any Excluded Account) is maintained to pay the balance of such Deposit Account to or for the benefit of Collateral Agent.

 

Pledge and Security Agreement

33


7.5 Investment Related Property. Each Grantor recognizes that, by reason of certain prohibitions contained in the Securities Act and applicable state securities laws, Collateral Agent may be compelled, with respect to any sale of all or any part of the Investment Related Property conducted without prior registration or qualification of such Investment Related Property under the Securities Act and/or such state securities laws, to limit purchasers to those who will agree, among other things, to acquire the Investment Related Property for their own account, for investment and not with a view to the distribution or resale thereof. Each Grantor acknowledges that any such private sale may be at prices and on terms less favorable than those obtainable through a public sale without such restrictions (including a public offering made pursuant to a registration statement under the Securities Act) and, notwithstanding such circumstances, each Grantor agrees that any such private sale shall be deemed to have been made in a commercially reasonable manner and that Collateral Agent shall have no obligation to engage in public sales and no obligation to delay the sale of any Investment Related Property for the period of time necessary to permit the issuer thereof to register it for a form of public sale requiring registration under the Securities Act or under applicable state securities laws, even if such issuer would, or should, agree to so register it. If Collateral Agent determines to exercise its right to sell any or all of the Investment Related Property, upon written request, each Grantor shall and shall cause each issuer of any Pledged Equity Interests to be sold hereunder from time to time to furnish to Collateral Agent all such information as Collateral Agent may request in order to determine the number and nature of interest, shares or other instruments included in the Investment Related Property which may be sold by Collateral Agent in exempt transactions under the Securities Act and the rules and regulations of the Securities and Exchange Commission thereunder, as the same are from time to time in effect.

7.6 Intellectual Property.

(a) Anything contained herein to the contrary notwithstanding, upon the occurrence and during the continuation of an Event of Default:

(i) Collateral Agent shall have the right (but not the obligation) to bring suit or otherwise commence any action or proceeding in the name of any Grantor, Collateral Agent or otherwise, in Collateral Agent’s sole discretion, to enforce any Intellectual Property, in which event such Grantor shall, at the request of Collateral Agent, do any and all lawful acts and execute any and all documents required by Collateral Agent in aid of such enforcement and such Grantor shall promptly, upon demand, reimburse and indemnify Collateral Agent as provided in Sections 10.2 and 10.3 of the Credit Agreement in connection with the exercise of its rights under this Section, and, to the extent that Collateral Agent shall elect not to bring suit to enforce any Intellectual Property as provided in this Section, each Grantor agrees to use all reasonable measures, whether by action, suit, proceeding or otherwise, to prevent the infringement of other violation of any of such Grantor’s Intellectual Property by any other Person and for that purpose agrees to diligently maintain any action, suit or proceeding against any Person so infringing as shall be necessary to prevent such infringement or violation;

(ii) upon written demand from Collateral Agent, each Grantor shall grant, assign, convey or otherwise transfer to Collateral Agent or such Collateral Agent’s designee, all of such Grantor’s right, title and interest in and to the Intellectual Property and shall execute and deliver to Collateral Agent such documents as are necessary or appropriate to carry out the intent and purposes of this Agreement;

 

Pledge and Security Agreement

34


(iii) each Grantor agrees that such an assignment and/or recording shall be applied to reduce the Secured Obligations outstanding only to the extent that Collateral Agent (or any other Secured Party) receives cash proceeds in respect of the sale of, or other realization upon, the Intellectual Property;

(iv) within five (5) Business Days after written notice from Collateral Agent, each Grantor shall make available to Collateral Agent, to the extent within such Grantor’s power and authority, such personnel in such Grantor’s employ on the date of such Event of Default as Collateral Agent may reasonably designate, by name, title or job responsibility, to permit such Grantor to continue, directly or indirectly, to produce, advertise and sell the products and services sold or delivered by such Grantor under or in connection with the Trademarks and Trademark Licenses, such Persons to be available to perform their prior functions on Collateral Agent’s behalf and to be compensated by Collateral Agent at such Grantor’s expense on a per diem, pro-rata basis consistent with the salary and benefit structure applicable to each as of the date of such Event of Default; and

(v) Collateral Agent shall have the right to notify, or require each Grantor to notify, any obligors with respect to amounts due or to become due to such Grantor in respect of the Intellectual Property, of the existence of the security interest created herein, to direct such obligors to make payment of all such amounts directly to Collateral Agent, and, upon such notification and at the expense of such Grantor, to enforce collection of any such amounts and to adjust, settle or compromise the amount or payment thereof, in the same manner and to the same extent as such Grantor might have done;

 

  (1) all amounts and proceeds (including checks and other instruments) received by any Grantor in respect of amounts due to such Grantor in respect of the Collateral or any portion thereof shall be received in trust for the benefit of Collateral Agent hereunder, shall be segregated from other funds of such Grantor and shall be forthwith paid over or delivered to Collateral Agent in the same form as so received (with any necessary endorsement) to be held as cash Collateral and applied as provided by Section 7.7 hereof; and

 

  (2) each Grantor shall not adjust, settle or compromise the amount or payment of any such amount or release wholly or partly any obligor with respect thereto or allow any credit or discount thereon.

(b) If (i) an Event of Default shall have occurred and, by reason of cure, waiver, modification, amendment or otherwise, no longer be continuing, (ii) no other Event of Default shall have occurred and be continuing, (iii) an assignment or other transfer to Collateral Agent of any rights, title and interests in and to the Intellectual Property shall have been previously made and shall have become absolute and effective, and (iv) the Secured Obligations shall not have become immediately due and payable, upon the written request of any Grantor, Collateral Agent

 

Pledge and Security Agreement

35


shall promptly execute and deliver to such Grantor, at such Grantor’s sole cost and expense, such assignments or other transfer as may be necessary to reassign to such Grantor any and all such rights, title and interests as may have been assigned to Collateral Agent as aforesaid, subject to any disposition thereof that may have been made by Collateral Agent; provided, after giving effect to such reassignment, Collateral Agent’s security interest granted pursuant hereto, as well as all other rights and remedies of Collateral Agent granted hereunder, shall continue to be in full force and effect; and provided further, the rights, title and interests so reassigned shall be free and clear of any Liens granted by or on behalf of Collateral Agent and the Secured Parties except as set forth in the Credit Agreement.

(c) Solely for the purpose of enabling Collateral Agent to exercise rights and remedies under this Section 7 and at such time as Collateral Agent shall be lawfully entitled to exercise such rights and remedies, each Grantor hereby grants to Collateral Agent, to the extent it has the right to do so, an irrevocable, nonexclusive license (exercisable without payment of royalty or other compensation to such Grantor), subject, in the case of Trademarks, to sufficient rights to quality control and inspection in favor of such Grantor to avoid the risk of invalidation of said Trademarks, to use, operate under, license, or sublicense any Intellectual Property now owned or hereafter acquired by such Grantor, and wherever the same may be located.

7.7 Cash Proceeds. Subject to the rights of Collateral Agent specified in Section 4.3 with respect to payments of Receivables, except as otherwise set forth in the Credit Agreement, if an Event of Default has occurred and is continuing, all proceeds of any Collateral received by any Grantor consisting of cash, checks and other non-cash items (collectively, “Cash Proceeds” ) shall be held by such Grantor in trust for Collateral Agent, segregated from other funds of such Grantor, and shall, forthwith upon receipt by such Grantor, unless otherwise provided pursuant to Section 4.4(a)(ii) , be turned over to Collateral Agent in the exact form received by such Grantor (duly indorsed by such Grantor to Collateral Agent, if required) and held by Collateral Agent in the Collateral Account. Except as set forth in the Credit Agreement, upon the occurrence and during the continuation of an Event of Default, any Cash Proceeds received by Collateral Agent (whether from a Grantor or otherwise): may, in the sole discretion of Collateral Agent, (A) be held by Collateral Agent for the ratable benefit of the Secured Parties, as collateral security for the Secured Obligations (whether matured or unmatured) and/or (B) then or at any time thereafter may be applied by Collateral Agent against the Secured Obligations then due and owing.

SECTION 8. COLLATERAL AGENT.

Collateral Agent has been appointed to act as “Collateral Agent” hereunder by Lenders pursuant to the Credit Agreement and, by their acceptance of the benefits hereof, the other Secured Parties. Collateral Agent shall be obligated, and shall have the right hereunder, to make demands, to give notices, to exercise or refrain from exercising any rights, and to take or refrain from taking any action (including, without limitation, the release or substitution of Collateral), solely in accordance with this Agreement and the other Credit Documents. In furtherance of the foregoing provisions of this section, each Secured Party, by its acceptance of the benefits hereof, agrees that it shall have no right individually to realize upon any of the Collateral hereunder, it being understood and agreed by such Secured Party that all powers, rights and remedies

 

Pledge and Security Agreement

36


hereunder may be exercised solely by Collateral Agent for the benefit of Secured Parties in accordance with the terms of this section. Collateral Agent may resign at any time in accordance with the Credit Agreement. In the event of any such resignation, Requisite Lenders shall have the right to appoint a successor Collateral Agent in accordance with the Credit Agreement. Upon the acceptance of any appointment as Collateral Agent hereunder by a successor Collateral Agent, that successor Collateral Agent shall succeed to and become vested with all of the rights, powers, privileges and duties of the retiring or removed Collateral Agent under this Agreement. After any retiring or removed Collateral Agent’s resignation or removal hereunder as Collateral Agent, the provisions of this Agreement shall inure to its benefit as to any actions taken or omitted to be taken by it under this Agreement while it was Collateral Agent hereunder.

SECTION 9. CONTINUING SECURITY INTEREST; TRANSFER OF LOANS.

This Agreement shall create a continuing security interest in the Collateral and shall remain in full force and effect until the payment in full of all Secured Obligations, the cancellation or termination of the Commitments and the cancellation or expiration of all outstanding Letters of Credit, be binding upon each Grantor, its successors and assigns, and inure, together with the rights and remedies of Collateral Agent hereunder, to the benefit of Collateral Agent and its successors, transferees and assigns. Without limiting the generality of the foregoing, but subject to the terms of the Credit Agreement, any Lender may assign or otherwise transfer any Loans held by it to any other Person, and such other Person shall thereupon become vested with all the benefits in respect thereof granted to Lenders herein or otherwise. Upon the payment in full of all Secured Obligations, the cancellation or termination of the Commitments and the cancellation or expiration of all outstanding Letters of Credit, the security interest granted hereby shall automatically terminate hereunder and of record and all rights to the Collateral shall revert to Grantors. Upon any such termination, Collateral Agent shall, at Grantors’ expense, execute and deliver to Grantors or otherwise authorize the filing of such documents as Grantors shall reasonably request, including financing statement amendments, to evidence such termination.

SECTION 10. STANDARD OF CARE; COLLATERAL AGENT MAY PERFORM.

The powers conferred on Collateral Agent hereunder are solely to protect its interest in the Collateral and shall not impose any duty upon it to exercise any such powers. Except for the exercise of reasonable care in the custody of any Collateral in its possession and the accounting for moneys actually received by it hereunder, Collateral Agent shall have no duty as to any Collateral or as to the taking of any necessary steps to preserve rights against prior parties or any other rights pertaining to any Collateral. Collateral Agent shall be deemed to have exercised reasonable care in the custody and preservation of Collateral in its possession if such Collateral is accorded treatment substantially equal to that which Collateral Agent accords its own property. Neither Collateral Agent nor any of its directors, officers, employees or agents shall be liable for failure to demand, collect or realize upon all or any part of the Collateral or for any delay in doing so or shall be under any obligation to sell or otherwise dispose of any Collateral upon the request of any Grantor or otherwise. If any Grantor fails to perform any agreement contained herein, Collateral Agent may itself perform, or cause performance of, such agreement, and the expenses of Collateral Agent incurred in connection therewith shall be payable by each Grantor under Section 10.2 of the Credit Agreement.

 

Pledge and Security Agreement

37


SECTION 11. REINSTATEMENT.

This Agreement shall remain in full force and effect and continue to be effective should (a) any petition be filed by or against any Grantor for liquidation or reorganization, (b) any Grantor become insolvent or make an assignment for the benefit of any creditor or creditors, or (c) a receiver or trustee be appointed for all or any significant part of any Grantor’s assets, and shall continue to be effective or be reinstated, as the case may be, if at any time payment and performance of the Secured Obligations, or any part thereof, is, pursuant to applicable law, rescinded or reduced in amount, or must otherwise be restored or returned by any obligee of the Secured Obligations, whether as a “voidable preference,” “fraudulent conveyance,” or otherwise, all as though such payment or performance had not been made. In the event that any payment, or any part thereof, is rescinded, reduced, restored or returned, the Secured Obligations shall be reinstated and deemed reduced only by such amount paid and not so rescinded, reduced, restored or returned.

SECTION 12. MISCELLANEOUS.

Any notice required or permitted to be given under this Agreement shall be given in accordance with Section 10.1 of the Credit Agreement. No failure or delay on the part of Collateral Agent in the exercise of any power, right or privilege hereunder or under any other Credit Document shall impair such power, right or privilege or be construed to be a waiver of any default or acquiescence therein, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other power, right or privilege. All rights and remedies existing under this Agreement and the other Credit Documents are cumulative to, and not exclusive of, any rights or remedies otherwise available. In case any provision in or obligation under this Agreement shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby. All covenants hereunder shall be given independent effect so that if a particular action or condition is not permitted by any of such covenants, the fact that it would be permitted by an exception to, or would otherwise be within the limitations of, another covenant shall not avoid the occurrence of a Default or an Event of Default if such action is taken or condition exists. This Agreement shall be binding upon and inure to the benefit of Collateral Agent and Grantors and their respective successors and assigns. No Grantor shall, without the prior written consent of Collateral Agent given in accordance with the Credit Agreement, assign any right, duty or obligation hereunder. This Agreement and the other Credit Documents embody the entire agreement and understanding between Grantors and Collateral Agent and supersede all prior agreements and understandings between such parties relating to the subject matter hereof and thereof. Accordingly, the Credit Documents 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. This Agreement may be executed in one or more counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument; signature pages may be detached from multiple separate counterparts and attached to a single counterpart so that all signature pages are physically attached to the same document. Delivery of an executed counterpart of a signature page of this Agreement by facsimile or other electronic transmission shall be effective as a manually executed counterpart of this Agreement.

 

Pledge and Security Agreement

38


THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO ITS CONFLICTS OF LAW PROVISIONS (OTHER THAN SECTION 5-1401 AND SECTION 5-1402 OF THE NEW YORK GENERAL OBLIGATION LAWS), EXCEPT TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF THE SECURITY INTEREST OR THE REMEDIES HEREUNDER IN RESPECT OF ANY COLLATERAL ARE GOVERNED BY THE LAW OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK.

[Signature Page Follows]

 

Pledge and Security Agreement

39


IN WITNESS WHEREOF, each Grantor and Collateral Agent have caused this Agreement to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first written above.

 

    GRANTORS:
  CENTER CUT HOSPITALITY, INC.
    By:    
    Name: Marc L. Lipshy
    Title: President

 

    DEL FRISCO’S RESTAURANT GROUP, LLC
    By:    
    Name: Marc L. Lipshy
    Title: Vice President

 

    ROMO HOLDING, LLC
    By:    
    Name: Marc L. Lipshy
    Title: President

 

   

DEL FRISCO – DALLAS, L.P.

DEL FRISCO – FORT WORTH, L.P.

SULLIVAN’S – AUSTIN, L.P.

      By: ROMO HOLDING, LLC,
             Its General Partner
    By:    
    Name: Marc L. Lipshy
    Title: President

 

Pledge and Security Agreement

 


   

CALIFORNIA SULLIVAN’S, INC.

CBG DELAWARE, INC.

CENTER CUT MARKETING, LLC

DEL FRISCO’S GRILL OF NEW YORK, LLC

COLORADO SULLIVAN’S, INC.

DEL FRISCO’S GRILLE OF DALLAS, LLC

CWA DELAWARE, INC.

DEL FRISCO’S OF BOSTON, LLC

DEL FRISCO’S OF COLORADO, INC.

LONE STAR FINANCE, LLC

LOUISIANA STEAKHOUSE, INC.

DEL FRISCO’S OF NEVADA, INC.

DEL FRISCO’S OF NORTH CAROLINA, INC.

NORTH PHILADELPHIA SULLIVAN’S, INC.

DEL FRISCO’S OF PHILADELPHIA, INC.

DEL FRISCO’S OF NEW YORK, LLC

STEAK CONCEPTS DELAWARE, INC.

SULLIVAN’S OF ILLINOIS, INC.

SULLIVAN’S OF INDIANA, INC.

SULLIVAN’S OF ALASKA, INC.

SULLIVAN’S OF KANSAS, INC.

SULLIVAN’S OF ARIZONA, INC.

SULLIVAN’S OF BALTIMORE, INC.

SULLIVAN’S OF DELAWARE, INC.

SULLIVAN’S OF NORTH CAROLINA, INC.

SULLIVAN’S RESTAURANTS OF NEBRASKA, INC.

CROCKETT BEVERAGE CORPORATION

POST OAK BEVERAGE CORP.

TRAVIS BEVERAGE CORPORATION

SULLIVAN’S OF WASHINGTON, LLC

WESTHEIMER BEVERAGE CORPORATION

IRWIN J. GROSSNERR FOUNDATION, INC.

TOLLWAY BEVERAGE CORPORATION

    By:    
    Name: Mark S. Mednansky
    Title: President

 

Pledge and Security Agreement


    COLLATERAL AGENT:
  GOLDMAN SACHS BANK USA
    By:  

 

    Name:  
    Title:  

 

Pledge and Security Agreement


SCHEDULE 4.1

TO PLEDGE AND SECURITY AGREEMENT

GENERAL INFORMATION

 

(A) Full Legal Name, Type of Organization, Jurisdiction of Organization, Chief Executive Office/Sole Place of Business and Organizational Identification Number of each Grantor:

 

Full Legal

Name

   Type of
Organization
   Jurisdiction
of
Organization
   Chief Executive
Office/Sole
Place of
Business
   Organization
I.D.#

 

(B) Other Names (including any Trade-Name or Fictitious Business Name) under which each Grantor has conducted business for the past five (5) years:

 

Full Legal Name

   Trade Name or Fictitious Business
Name

 

(C) Changes in Name, Jurisdiction of Organization, Chief Executive Office or Sole Place of Business and Structure within past five (5) years:

 

Name of

Grantor

   Date of Change    Description of
Change

 

(D) Agreements pursuant to which any Grantor is bound as debtor within past five (5) years:

 

Name of Grantor

   Description of Agreement

 

Pledge and Security Agreement

SCHEDULE 4.1-1


(E) Financing Statements:

 

Name of Grantor

   Filing Jurisdiction(s)

 

Pledge and Security Agreement

SCHEDULE 4.1-2


SCHEDULE 4.2

TO PLEDGE AND SECURITY AGREEMENT

LOCATION OF EQUIPMENT AND INVENTORY

 

Name of Grantor

   Location of Equipment and Inventory

 

Pledge and Security Agreement

SCHEDULE 4.2-1


SCHEDULE 4.4

TO PLEDGE AND SECURITY AGREEMENT

INVESTMENT RELATED PROPERTY

 

(A) Pledged Stock:

 

Grantor

   Stock
Issuer
   Class of
Stock
   Certificated
(Y/N)
   Stock
Certificate
No.
   Par
Value
   No. of
Pledged
Stock
   % of
Outstanding
Stock of

the Stock
Issuer
                    

Pledged LLC Interests:

 

Grantor

   Limited
Liability
Company
   Certificated
(Y/N)
   Certificate
No. (if any)
   No. of
Pledged
Units
   % of
Outstanding
LLC
Interests of
the Limited
Liability
Company
              

Pledged Partnership Interests:

 

Grantor

   Partnership    Type of
Partnership
Interests
(e.g., general
or limited)
   Certificated
(Y/N)
   Certificate
No.
(if any)
   % of
Outstanding
Partnership
Interests of the
Partnership
              

 

Pledge and Security Agreement

SCHEDULE 4.4-1


Pledged Trust Interests:

 

Grantor

   Trust    Class of
Trust
Interests
   Certificated
(Y/N)
   Certificate No.
(if any)
   % of
Outstanding
Trust Interests
of the Trust
              

Pledged Debt:

 

Grantor

   Issuer    Original
Principal
Amount
   Outstanding
Principal
Balance
   Issue
Date
   Maturity
Date
              

Securities Account:

 

Grantor

   Share of
Securities
Intermediary
   Account Number    Account Name
        

Commodities Accounts:

 

Grantor

   Name of
Commodities
Intermediary
   Account Number    Account Name
        

Deposit Accounts:

 

Grantor

   Name of
Depositary
Bank
   Account Number    Account Name
        

 

Pledge and Security Agreement

SCHEDULE 4.4-2


(B)

 

Name of Grantor

   Date of Acquisition    Description of Acquisition
     

 

Pledge and Security Agreement

SCHEDULE 4.4-3


SCHEDULE 4.5

TO PLEDGE AND SECURITY AGREEMENT

MATERIAL CONTRACTS

 

Name of Grantor

   Description of Material Contract
  

 

Pledge and Security Agreement

SCHEDULE 4.5-1


SCHEDULE 4.6

TO PLEDGE AND SECURITY AGREEMENT

DESCRIPTION OF LETTERS OF CREDIT

 

Name of Grantor

   Description of Letters of Credit
  

 

Pledge and Security Agreement

SCHEDULE 4.6-1


SCHEDULE 4.7

TO PLEDGE AND SECURITY AGREEMENT

INTELLECTUAL PROPERTY

 

(A) Copyrights

 

(B) Copyright Licenses

 

(C) Patents

 

(D) Patent Licenses

 

(E) Trademarks

 

(F) Trademark Licenses

 

(G) Trade Secret Licenses

 

(H) Intellectual Property Matters

 

Pledge and Security Agreement

SCHEDULE 4.7-1


SCHEDULE 4.8

TO PLEDGE AND SECURITY AGREEMENT

COMMERCIAL TORT CLAIMS

 

Name of Grantor

   Commercial Tort Claims
  

 

Pledge and Security Agreement

Schedule 4.8-1


EXHIBIT A

TO PLEDGE AND SECURITY AGREEMENT

PLEDGE SUPPLEMENT

This PLEDGE SUPPLEMENT , dated                     ,             , is delivered pursuant to the Pledge and Security Agreement, dated as of July 29, 2011 (as it may be from time to time amended, restated, modified or supplemented, the “Security Agreement” ), among             ( “Grantor” ), the other Grantors named therein, and GOLDMAN SACHS BANK USA , as Collateral Agent. Capitalized terms used herein not otherwise defined herein shall have the meanings ascribed thereto in the Security Agreement.

Grantor hereby confirms the grant to Collateral Agent set forth in the Security Agreement of, and does hereby grant to Collateral Agent, a security interest in all of Grantor’s right, title and interest in and to all Collateral to secure the Secured Obligations, in each case whether now or hereafter existing or in which Grantor now has or hereafter acquires an interest and wherever the same may be located. Grantor represents and warrants to Collateral Agent and each other Secured Party that the attached Supplements to Schedules accurately and completely set forth all additional information required pursuant to the Security Agreement and hereby agrees that such Supplements to Schedules shall constitute part of the Schedules to the Security Agreement.

IN WITNESS WHEREOF, Grantor has caused this Pledge Supplement to be duly executed and delivered by its duly authorized officer as of             , 20            .

[NAME OF GRANTOR]

By:                                                                              

Name:

Title:

 

Pledge and Security Agreement

EXHIBIT A-1


SUPPLEMENT TO SCHEDULE 4.1

TO PLEDGE AND SECURITY AGREEMENT

Additional Information:

 

(A) Full Legal Name, Type of Organization, Jurisdiction of Organization, Chief Executive Office/Sole Place of Business and Organizational Identification Number of each Grantor:

 

Full Legal Name

   Type of
Organization
   Jurisdiction of
Organization
   Chief Executive
Office/Sole Place
of Business
   Organization
I.D.#

 

(B) Other Names (including any Trade-Name or Fictitious Business Name) under which each Grantor has conducted business for the past five (5) years:

 

Full Legal Name

   Trade Name or Fictitious Business Name

 

(C) Changes in Name, Jurisdiction of Organization, Chief Executive Office or Sole Place of Business and Structure within past five (5) years:

 

Name of Grantor

   Date of Change    Description of
Change

 

(D) Agreements pursuant to which any Grantor is bound as debtor within past five (5) years:

 

Name of Grantor

   Description of Agreement

 

(E) Financing Statements:

 

Name of Grantor

   Filing Jurisdiction(s)

 

Pledge and Security Agreement

EXHIBIT A-2


SUPPLEMENT TO SCHEDULE 4.2

TO PLEDGE AND SECURITY AGREEMENT

Additional Information:

 

Name of Grantor

   Location of Equipment and Inventory

 

Pledge and Security Agreement

EXHIBIT A-3


SUPPLEMENT TO SCHEDULE 4.4

TO PLEDGE AND SECURITY AGREEMENT

Additional Information:

(A)

Pledged Stock:

Pledged Partnership Interests:

Pledged LLC Interests:

Pledged Trust Interests:

Pledged Debt:

Securities Account:

Commodities Accounts:

Deposit Accounts:

(B)

 

Name of Grantor

   Date of Acquisition    Description of Acquisition

(C)

 

Name of Grantor

   Name of Issuer of Pledged LLC
Interest/Pledged Partnership Interest

 

Pledge and Security Agreement

EXHIBIT A-4


SUPPLEMENT TO SCHEDULE 4.5

TO PLEDGE AND SECURITY AGREEMENT

Additional Information:

 

Name of Grantor

   Description of Material Contract

 

Pledge and Security Agreement

EXHIBIT A-5


SUPPLEMENT TO SCHEDULE 4.6

TO PLEDGE AND SECURITY AGREEMENT

Additional Information:

 

Name of Grantor

   Description of Letters of Credit

 

Pledge and Security Agreement

EXHIBIT A-6


SUPPLEMENT TO SCHEDULE 4.7

TO PLEDGE AND SECURITY AGREEMENT

Additional Information:

 

(A) Copyrights

 

(B) Copyright Licenses

 

(C) Patents

 

(D) Patent Licenses

 

(E) Trademarks

 

(F) Trademark Licenses

 

(G) Trade Secret Licenses

 

(H) Intellectual Property Matters

 

Pledge and Security Agreement

EXHIBIT A-7


SUPPLEMENT TO SCHEDULE 4.8

TO PLEDGE AND SECURITY AGREEMENT

Additional Information:

 

Name of Grantor

   Commercial Tort Claims

 

Pledge and Security Agreement

EXHIBIT A-8


EXHIBIT B

TO PLEDGE AND SECURITY AGREEMENT

UNCERTIFICATED SECURITIES CONTROL AGREEMENT

This Uncertificated Securities Control Agreement dated as of             , 20            (this “Agreement” ) among             (the “Pledgor” ), GOLDMAN SACHS BANK USA, as collateral agent for the Secured Parties, (the “Collateral Agent” ) and             , a             corporation (the “Issuer” ). Capitalized terms used but not defined herein shall have the meaning assigned in the Pledge and Security Agreement dated July 29, 2011, among the Pledgor, the other Grantors party thereto and Collateral Agent (the “Security Agreement” ). All references herein to the “UCC” shall mean the Uniform Commercial Code as in effect in the State of New York.

Section 1. Registered Ownership of Shares. The Issuer hereby confirms and agrees that as of the date hereof the Pledgor is the registered owner of             [number of shares/units or percentage] of the Issuer’s [common/preferred stock/limited liability company interests] (the “Pledged Shares” ) and the Issuer shall not change the registered owner of the Pledged Shares without the prior written consent of Collateral Agent.

Section 2. Instructions. If at any time the Issuer shall receive instructions originated by Collateral Agent relating to the Pledged Shares, the Issuer shall comply with such instructions without further consent by the Pledgor or any other person.

Section 3. Additional Representations and Warranties of the Issuer. The Issuer hereby represents and warrants to Collateral Agent:

(a) It has not entered into, and until the termination of this agreement will not enter into, any agreement with any other person or entity relating the Pledged Shares pursuant to which it has agreed to comply with instructions issued by such other person or entity; and

(b) It has not entered into, and until the termination of this agreement will not enter into, any agreement with the Pledgor or Collateral Agent purporting to limit or condition the obligation of the Issuer to comply with Instructions as set forth in Section 2 hereof.

(c) Except for the claims and interest of Collateral Agent and of the Pledgor in the Pledged Shares, the Issuer does not know of any claim to, or interest in, the Pledged Shares. If any person or entity asserts any lien, encumbrance or adverse claim (including any writ, garnishment, judgment, warrant of attachment, execution or similar process) against the Pledged Shares, the Issuer will promptly notify Collateral Agent and the Pledgor thereof.

(d) This Uncertificated Securities Control Agreement is the valid and legally binding obligation of the Issuer.

Section 4. Choice of Law. This Agreement shall be governed by the laws of the State of [New York] .

 

Pledge and Security Agreement

EXHIBIT B-1


Section 5. Conflict with Other Agreements. In the event of any conflict between this Agreement (or any portion thereof) and any other agreement now existing or hereafter entered into, the terms of this Agreement shall prevail. No amendment or modification of this Agreement or waiver of any right hereunder shall be binding on any party hereto unless it is in writing and is signed by all of the parties hereto.

Section 6. Voting Rights. Until such time as Collateral Agent shall otherwise instruct the Issuer in writing, the Pledgor shall have the right to vote the Pledged Shares.

Section 7. Successors; Assignment. The terms of this Agreement shall be binding upon, and shall inure to the benefit of, the parties hereto and their respective corporate successors or heirs and personal representatives who obtain such rights solely by operation of law. Collateral Agent may assign its rights hereunder only with the express written consent of the Issuer and by sending written notice of such assignment to the Pledgor.

Section 8. Indemnification of Issuer. The Pledgor and Collateral Agent hereby agree that (a) the Issuer is released from any and all liabilities to the Pledgor and Collateral Agent arising from the terms of this Agreement and the compliance of the Issuer with the terms hereof, except to the extent that such liabilities arise from the Issuer’s negligence or willful misconduct and (b) the Pledgor, its successors and assigns shall at all times indemnify and save harmless the Issuer from and against any and all claims, actions and suits of others arising out of the terms of this Agreement or the compliance of the Issuer with the terms hereof, except to the extent that such arises from the Issuer’s negligence or willful misconduct, and from and against any and all liabilities, losses, damages, costs, charges, counsel fees and other expenses of every nature and character arising by reason of the same, until the termination of this Agreement.

Section 9. Notices. Any notice, request or other communication required or permitted to be given under this Agreement shall be in writing and deemed to have been properly given when delivered in person, or when sent by telecopy or other electronic means and electronic confirmation of error free receipt is received or two (2) days after being sent by certified or registered United States mail, return receipt requested, postage prepaid, addressed to the party at the address set forth below.

 

(a)     Pledgor:    
   
   
  Attention:    
  Telecopier:    

with a copy to:

   
   
   
  Attention:    
  Telecopier:    

 

Pledge and Security Agreement

EXHIBIT B-2


(b)     Collateral Agent:   Goldman Sachs Bank USA
  6011 Connection Drive
  Irving, Texas 75039
  Attention: Del Frisco’s Account Manager
  Telecopier: (972) 368-5099

with a copy to:

  Hunton & Williams LLP
  600 Peachtree Street, N.E.
  Suite 4100, Bank of America Plaza
  Atlanta, Georgia 30308
  Attention: John R. Schneider, Esq.
  Telecopier: 404-602-8669
(c)     Issuer:    
   
   
  Attention:    
  Telecopier:    

Any party may change its address for notices in the manner set forth above.

Section 10. Termination. The obligations of the Issuer to Collateral Agent pursuant to this Agreement shall continue in effect until the security interests of Collateral Agent in the Pledged Shares have been terminated pursuant to the terms of the Security Agreement and Collateral Agent has notified the Issuer of such termination in writing. Collateral Agent agrees to provide Notice of Termination in substantially the form of Exhibit A hereto to the Issuer upon the request of the Pledgor on or after the termination of Collateral Agent’s security interest in the Pledged Shares pursuant to the terms of the Security Agreement. The termination of this Agreement shall not terminate the Pledged Shares or alter the obligations of the Issuer to the Pledgor pursuant to any other agreement with respect to the Pledged Shares.

Section 11. Counterparts. This Agreement may be executed in any number of counterparts, all of which shall constitute one and the same instrument, and any party hereto may execute this Agreement by signing and delivering one or more counterparts.

Section 12. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY AGREES TO WAIVE ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING UNDER THIS AGREEMENT OR ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS AGREEMENT. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS TRANSACTION (INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS). EACH PARTY HERETO ACKNOWLEDGES THAT (A) THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, (B) IT HAS ALREADY RELIED ON

 

Pledge and Security Agreement

EXHIBIT B-3


THIS WAIVER IN ENTERING INTO THIS AGREEMENT, AND (C) IT WILL CONTINUE TO RELY ON THIS WAIVER IN ITS RELATED FUTURE DEALINGS. EACH PARTY HERETO FURTHER REPRESENTS AND WARRANTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.

[Signature Page Follows]

 

Pledge and Security Agreement

EXHIBIT B-4


IN WITNESS WHEREOF, Pledgor, Collateral Agent, and Issuer have caused this Agreement to be executed and delivered by their respective duly authorized representatives as of the date first above written.

 

[NAME OF PLEDGOR]
By:    
Name:  
Title:  

 

GOLDMAN SACHS BANK USA ,

as Collateral Agent

By:    
Name:  
Title:  

 

[NAME OF ISSUER]
By:    
Name:  
Title:  

 

Pledge and Security Agreement

EXHIBIT B-5


Exhibit A

[Letterhead of Collateral Agent]

[Date]

[Name and Address of Issuer]

Attention:

Re: Termination of Control Agreement

You are hereby notified that the Uncertificated Securities Control Agreement between you, [the Pledgor] and the undersigned (the “Control Agreement” ) is terminated and you have no further obligations to the undersigned pursuant to such Agreement. Notwithstanding any previous instructions to you, you are hereby instructed to accept all future directions with respect to Pledged Shares (as defined in the Uncertificated Control Agreement) from [the Pledgor] . This notice terminates any obligations you may have to the undersigned with respect to the Pledged Shares, however nothing contained in this notice shall alter any obligations which you may otherwise owe to [the Pledgor] pursuant to any other agreement.

You are instructed to deliver a copy of this notice by facsimile transmission to [insert name of Pledgor] .

 

Very truly yours,

GOLDMAN SACHS BANK USA, as Collateral

Agent

By:    
Name:  
Title:  

 

Pledge and Security Agreement

EXHIBIT B-A-1


EXHIBIT C

TO PLEDGE AND SECURITY AGREEMENT

SECURITIES ACCOUNT CONTROL AGREEMENT

This Securities Account Control Agreement dated as of             , 20            (this “Agreement” ) among             (the “Debtor” ), GOLDMAN SACHS BANK USA, as Collateral Agent for the Secured Parties (in such capacity, the “Collateral Agent” ) and             , in its capacity as a “securities intermediary” as defined in Section 8-102 of the UCC (in such capacity, the “Securities Intermediary” ). Capitalized terms used but not defined herein shall have the meaning assigned thereto in the Pledge and Security Agreement, dated July 29, 2011, among the Debtor, the other Grantors party thereto and Collateral Agent (as amended, restated, supplemented or otherwise modified from time to time, the “Security Agreement” ). All references herein to the “UCC” shall mean the Uniform Commercial Code as in effect in the State of New York.

Section 1. Establishment of Securities Account. The Securities Intermediary hereby confirms and agrees that:

(a) The Securities Intermediary has established account number [IDENTIFY ACCOUNT NUMBER] in the name “ [IDENTIFY EXACT TITLE OF ACCOUNT] ” (such account and any successor account, the “Securities Account” ) and the Securities Intermediary shall not change the name or account number of the Securities Account without the prior written consent of Collateral Agent;

(b) All securities or other property underlying any financial assets credited to the Securities Account shall be registered in the name of the Securities Intermediary, indorsed to the Securities Intermediary or in blank or credited to another securities account maintained in the name of the Securities Intermediary and in no case will any financial asset credited to the Securities Account be registered in the name of the Debtor, payable to the order of the Debtor or specially indorsed to the Debtor except to the extent the foregoing have been specially indorsed to the Securities Intermediary or in blank;

(c) All property delivered to the Securities Intermediary pursuant to the Security Agreement will be promptly credited to the Securities Account; and

(d) The Securities Account is a “securities account” within the meaning of Section 8-501 of the UCC.

Section 2. “Financial Assets” Election. The Securities Intermediary hereby agrees that each item of property (including, without limitation, any investment property, financial asset, security, instrument, general intangible or cash) credited to the Securities Account shall be treated as a “financial asset” within the meaning of Section 8-102(a)(9) of the UCC.

 

Pledge and Security Agreement

EXHIBIT C-1


Section 3. Control of the Securities Account. If at any time the Securities Intermediary shall receive any order from Collateral Agent directing transfer or redemption of any financial asset relating to the Securities Account, the Securities Intermediary shall comply with such entitlement order without further consent by the Debtor or any other Person. If the Debtor is otherwise entitled to issue entitlement orders and such orders conflict with any entitlement order issued by Collateral Agent, the Securities Intermediary shall follow the orders issued by Collateral Agent.

Section 4. Subordination of Lien; Waiver of Set-Off. In the event that the Securities Intermediary has or subsequently obtains by agreement, by operation of law or otherwise a security interest in the Securities Account or any security entitlement credited thereto, the Securities Intermediary hereby agrees that such security interest shall be subordinate to the security interest of Collateral Agent. The financial assets and other items deposited to the Securities Account will not be subject to deduction, set-off, banker’s lien, or any other right in favor of any Person other than Collateral Agent (except that the Securities Intermediary may set off (i) all amounts due to the Securities Intermediary in respect of customary fees and expenses for the routine maintenance and operation of the Securities Account and (ii) the face amount of any checks which have been credited to such Securities Account but are subsequently returned unpaid because of uncollected or insufficient funds).

Section 5. Choice of Law. This Agreement and the Securities Account shall each be governed by the laws of the State of New York. Regardless of any provision in any other agreement, for purposes of the UCC, New York shall be deemed to be the Securities Intermediary’s jurisdiction (within the meaning of Section 8-110 of the UCC) and the Securities Account (as well as the securities entitlements related thereto) shall be governed by the laws of the State of New York.

Section 6. Conflict with Other Agreements.

(a) In the event of any conflict between this Agreement (or any portion thereof) and any other agreement now existing or hereafter entered into, the terms of this Agreement shall prevail;

(b) No amendment or modification of this Agreement or waiver of any right hereunder shall be binding on any party hereto unless it is in writing and is signed by all of the parties hereto;

(c) The Securities Intermediary hereby confirms and agrees that:

(i) There are no other control agreements entered into between the Securities Intermediary and the Debtor with respect to the Securities Account;

(ii) It has not entered into, and until the termination of this Agreement, will not enter into, any agreement with any other Person relating to the Securities Account and/or any financial assets credited thereto pursuant to which it has agreed to comply with entitlement orders (as defined in Section 8-102(a)(8) of the UCC) of such other Person; and

 

Pledge and Security Agreement

EXHIBIT C-2


(iii) It has not entered into, and until the termination of this Agreement, will not enter into, any agreement with the Debtor or Collateral Agent purporting to limit or condition the obligation of the Securities Intermediary to comply with entitlement orders as set forth in Section 3 hereof.

Section 7. Adverse Claims. Except for the claims and interest of Collateral Agent and of the Debtor in the Securities Account, the Securities Intermediary does not know of any claim to, or interest in, the Securities Account or in any “financial asset” (as defined in Section 8-102(a) of the UCC) credited thereto. If any Person asserts any lien, encumbrance or adverse claim (including any writ, garnishment, judgment, warrant of attachment, execution or similar process) against the Securities Account or in any financial asset carried therein, the Securities Intermediary will promptly notify Collateral Agent and the Debtor thereof.

Section 8. Maintenance of Securities Account. In addition to, and not in lieu of, the obligation of the Securities Intermediary to honor entitlement orders as agreed in Section 3 hereof, the Securities Intermediary agrees to maintain the Securities Account as follows:

(a) Notice of Sole Control . If at any time Collateral Agent delivers to the Securities Intermediary a Notice of Sole Control in substantially the form set forth in Exhibit A hereto, the Securities Intermediary agrees that after receipt of such notice, it will take all instruction with respect to the Securities Account solely from Collateral Agent.

(b) Voting Rights . Until such time as the Securities Intermediary receives a Notice of Sole Control pursuant to subsection (a)  of this Section 8, the Debtor shall direct the Securities Intermediary with respect to the voting of any financial assets credited to the Securities Account.

(c) Permitted Investments . Until such time as the Securities Intermediary receives a Notice of Sole Control signed by Collateral Agent, the Debtor shall direct the Securities Intermediary with respect to the selection of investments to be made for the Securities Account; provided, however, that the Securities Intermediary shall not honor any instruction to purchase any investments other than investments of a type described on Exhibit B hereto.

(d) Statements and Confirmations . The Securities Intermediary will promptly send copies of all statements, confirmations and other correspondence concerning the Securities Account and/or any financial assets credited thereto simultaneously to each of the Debtor and Collateral Agent at the address for each set forth in Section 12 of this Agreement.

(e) Tax Reporting . All items of income, gain, expense and loss recognized in the Securities Account shall be reported to the Internal Revenue Service and all state and local taxing authorities under the name and taxpayer identification number of the Debtor.

Section 9. Representations, Warranties and Covenants of the Securities Intermediary. The Securities Intermediary hereby makes the following representations, warranties and covenants:

 

Pledge and Security Agreement

EXHIBIT C-3


(a) The Securities Account has been established as set forth in Section 1 above and such Securities Account will be maintained in the manner set forth herein until termination of this Agreement; and

(b) This Agreement is the valid and legally binding obligation of the Securities Intermediary.

Section 10 Indemnification of Securities Intermediary. The Debtor and Collateral Agent hereby agree that (a) the Securities Intermediary is released from any and all liabilities to the Debtor and Collateral Agent arising from the terms of this Agreement and the compliance of the Securities Intermediary with the terms hereof, except to the extent that such liabilities arise from the Securities Intermediary’s negligence or willful misconduct and (b) the Debtor, its successors and assigns shall at all times indemnify and save harmless the Securities Intermediary from and against any and all claims, actions and suits of others arising out of the terms of this Agreement or the compliance of the Securities Intermediary with the terms hereof, except to the extent that such arises from the Securities Intermediary’s negligence or willful misconduct, and from and against any and all liabilities, losses, damages, costs, charges, counsel fees and other expenses of every nature and character arising by reason of the same, until the termination of this Agreement.

Section 11. Successors; Assignment. The terms of this Agreement shall be binding upon, and shall inure to the benefit of, the parties hereto and their respective corporate successors or heirs and personal representatives who obtain such rights solely by operation of law. Collateral Agent may assign its rights hereunder only with the express written consent of the Securities Intermediary and by sending written notice of such assignment to the Debtor.

Section 12. Notices. Any notice, request or other communication required or permitted to be given under this Agreement shall be in writing and deemed to have been properly given when delivered in person, or when sent by telecopy or other electronic means and electronic confirmation of error free receipt is received or two (2) days after being sent by certified or registered United States mail, return receipt requested, postage prepaid, addressed to the party at the address set forth below.

 

(a)     Pledgor:    
   
   
  Attention:    
  Telecopier:    

with a copy to:

   
   
   
  Attention:    
  Telecopier:    

 

Pledge and Security Agreement

EXHIBIT C-4


(b) Collateral Agent:   Goldman Sachs Bank USA
  6011 Connection Drive
  Irving, Texas 75039
  Attention: Del Frisco’s Account Manager
  Telecopier: (972) 368-5099

with a copy to:

  Hunton & Williams LLP
  600 Peachtree Street, N.E.
  Suite 4100, Bank of America Plaza
  Atlanta, Georgia 30308
  Attention: John R. Schneider, Esq.
  Telecopier: 404-602-8669
(c) Securities    
Intermediary:    
   
   
  Attention:    
  Telecopier:    

Any party may change its address for notices in the manner set forth above.

Section 13. Termination. The obligations of the Securities Intermediary to Collateral Agent pursuant to this Agreement shall continue in effect until the security interest of Collateral Agent in the Securities Account has been terminated pursuant to the terms of the Security Agreement and Collateral Agent has notified the Securities Intermediary of such termination in writing. Collateral Agent agrees to provide Notice of Termination in substantially the form of Exhibit C hereto to the Securities Intermediary upon the request of the Debtor on or after the termination of Collateral Agent’s security interest in the Securities Account pursuant to the terms of the Security Agreement. The termination of this Agreement shall not terminate the Securities Account or alter the obligations of the Securities Intermediary to the Debtor pursuant to any other agreement with respect to the Securities Account.

Section 14. Counterparts. This Agreement may be executed in any number of counterparts, all of which shall constitute one and the same instrument, and any party hereto may execute this Agreement by signing and delivering one or more counterparts.

Section 15. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY AGREES TO WAIVE ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING UNDER THIS AGREEMENT OR ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS AGREEMENT. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS TRANSACTION (INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS). EACH PARTY HERETO

 

Pledge and Security Agreement

EXHIBIT C-5


ACKNOWLEDGES THAT (A) THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, (B) IT HAS ALREADY RELIED ON THIS WAIVER IN ENTERING INTO THIS AGREEMENT, AND (C) IT WILL CONTINUE TO RELY ON THIS WAIVER IN ITS RELATED FUTURE DEALINGS. EACH PARTY HERETO FURTHER REPRESENTS AND WARRANTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.

[Signature Page Follows]

 

Pledge and Security Agreement

EXHIBIT C-6


IN WITNESS WHEREOF, the parties hereto have caused this Securities Account Control Agreement to be executed as of the date first above written by their respective officers thereunto duly authorized.

 

[DEBTOR]
By:    
Name:  
Title:  

 

GOLDMAN SACHS BANK USA , as Collateral

Agent

By:    
Name:  
Title:  

 

[NAME OF SECURITIES INTERMEDIARY],

as Securities Intermediary

By:    
Name:  
Title:  

 

Pledge and Security Agreement

EXHIBIT C-7


EXHIBIT A

TO SECURITIES ACCOUNT CONTROL AGREEMENT

[Letterhead of Collateral Agent]

[Date]

[Name and Address of Securities Intermediary]

Attention:

Re: Notice of Sole Control

Ladies and Gentlemen:

As referenced in the Securities Account Control Agreement dated as of             , 20            among [NAME OF THE DEBTOR] , you and the undersigned, we hereby give you notice of our sole control over securities account number             (the “Securities Account” ) and all financial assets credited thereto. You are hereby instructed not to accept any direction, instructions or entitlement orders with respect to the Securities Account or the financial assets credited thereto from any person other than the undersigned, unless otherwise ordered by a court of competent jurisdiction.

You are instructed to deliver a copy of this notice by facsimile transmission to [NAME OF THE DEBTOR] .

 

Very truly yours,

GOLDMAN SACHS BANK USA, as Collateral

Agent

By:    
Name:  
Title:  

cc: [NAME OF THE DEBTOR]

 

Pledge and Security Agreement

EXHIBIT C-A-1


EXHIBIT B

TO SECURITIES ACCOUNT CONTROL AGREEMENT

Permitted Investments

[TO COME]

 

Pledge and Security Agreement

EXHIBIT C-B-1


EXHIBIT C

TO SECURITIES ACCOUNT CONTROL AGREEMENT

[Letterhead of Collateral Agent]

[Date]

[Name and Address of Securities Intermediary]

Attention:

Re: Termination of Securities Account Control Agreement

You are hereby notified that the Securities Account Control Agreement dated as of             , 20            among you, [NAME OF THE DEBTOR] and the undersigned is terminated and you have no further obligations to the undersigned pursuant to such Agreement. Notwithstanding any previous instructions to you, you are hereby instructed to accept all future directions with respect to account number(s) from [NAME OF THE DEBTOR] . This notice terminates any obligations you may have to the undersigned with respect to such account, however nothing contained in this notice shall alter any obligations which you may otherwise owe to [NAME OF THE DEBTOR] pursuant to any other agreement.

You are instructed to deliver a copy of this notice by facsimile transmission to [NAME OF THE DEBTOR] .

 

Very truly yours,

GOLDMAN SACHS BANK USA, as Collateral

Agent

By:    
Name:  
Title:  

 

Pledge and Security Agreement

EXHIBIT C-C-1


EXHIBIT D

TO PLEDGE AND SECURITY AGREEMENT

DEPOSIT ACCOUNT CONTROL AGREEMENT

This Deposit Account Control Agreement (this “Agreement” ), dated as of             , 20            , is made and entered into by and among             (the “Debtor”), GOLDMAN SACHS BANK USA, as Collateral Agent (in its capacity hereunder as Collateral Agent, “Collateral Agent”), and             , in its capacity as a “bank” as defined in Section 9-102 of the UCC (in such capacity, the “Financial Institution”). Capitalized terms used but not otherwise defined herein shall have the respective meanings ascribed to such terms in that certain Pledge and Security Agreement, dated as of July 29, 2011, by and among the Debtor, Collateral Agent and the other Persons party thereto from time to time (as amended, amended and restated, supplemented or otherwise modified from time to time, the “Security Agreement”). All references herein to the “UCC” shall mean the Uniform Commercial Code as in effect in the State of New York.

Section 1. Establishment of Deposit Account. The Financial Institution hereby confirms and agrees that:

(a) The Financial Institution has established account number [ACCOUNT NUMBER] in the name “ [EXACT TITLE OF ACCOUNT] ” (each such account and any successor account, individually and collectively, the “Deposit Account” ) and the Financial Institution shall not change the name or account number of the Deposit Account without the prior written consent of Collateral Agent and, prior to delivery of a Notice of Sole Control in substantially the form set forth in Exhibit A hereto, the Debtor; and

(b) The Deposit Account is a “deposit account” within the meaning of Section 9-102(a)(29) of the UCC.

Section 2. Control of the Deposit Account. If at any time the Financial Institution shall receive any instructions originated by Collateral Agent directing the disposition of funds in the Deposit Account, the Financial Institution shall comply with such instructions without further consent by the Debtor or any other Person. Until such time as Financial Institution receives a Notice of Control (as defined below) from Collateral Agent, Collateral Agent instructs Financial Institution to comply with instructions directing the disposition of funds with respect to the Deposit Account originated by Debtor or its authorized representatives without further consent of Collateral Agent. In the event that any instructions originated by Collateral Agent with respect to the Deposit Account conflict with any instructions given by the Debtor or any other Person with respect thereto, the instructions given by Collateral Agent shall control. The Financial Institution hereby acknowledges that it has received notice of the security interest of Collateral Agent, on behalf of the Secured Parties, in the Deposit Account and hereby acknowledges and consents to such security interest. For purposes of this Section 2, “Notice of Control” shall mean a notice to Financial Institution from Collateral Agent of its exercise of control over the Deposit Account.

 

Pledge and Security Agreement

EXHIBIT D-1


Section 3. Subordination of Lien; Waiver of Set-Off. In the event that the Financial Institution has or subsequently obtains by agreement, by operation of law or otherwise a security interest in the Deposit Account or any funds credited thereto, the Financial Institution hereby agrees that such security interest shall be subordinate to the security interest of Collateral Agent, on behalf of the Secured Parties. Money and other items credited to the Deposit Account will not be subject to deduction, set-off, banker’s lien, or any other right in favor of any person other than Collateral Agent (except that the Financial Institution may set off (i) all amounts due to the Financial Institution in respect of customary fees and expenses for the routine maintenance and operation of the Deposit Account and (ii) the face amount of any checks which have been credited to such Deposit Account but are subsequently returned unpaid because of uncollected or insufficient funds).

Section 4. Choice of Law. This Agreement and the Deposit Account shall each be governed by the laws of the State of New York. Regardless of any provision in any other agreement, for purposes of the UCC, New York shall be deemed to be the Financial Institution’s jurisdiction (within the meaning of Section 9-304 of the UCC) and the Deposit Account shall be governed by the laws of the State of New York.

Section 5. Conflict with Other Agreements.

(a) In the event of any conflict between this Agreement (or any portion thereof) and any other agreement now existing or hereafter entered into, the terms of this Agreement shall prevail;

(b) No amendment or modification of this Agreement or waiver of any right hereunder shall be binding on any party hereto unless it is in writing and is signed by all of the parties hereto; and

(c) The Financial Institution hereby confirms and agrees that:

(i) No agreement (other than this Agreement and any existing customer agreement) has been entered into between the Financial Institution and the Debtor with respect to the Deposit Account; and

(ii) It has not entered into, and until the termination of this Agreement, will not enter into, any agreement with any other person relating the Deposit Account and/or any funds credited thereto pursuant to which it has agreed to comply with instructions originated by such persons as contemplated by Section 9-104 of the UCC.

Section 6. Adverse Claims. The Financial Institution does not know of any liens, encumbrances or adverse claims relating to the Deposit Account. If any Person asserts any lien, encumbrance or adverse claim (including any writ, garnishment, judgment, warrant of attachment, execution or similar process) against the Deposit Account, the Financial Institution will promptly notify Collateral Agent and the Debtor thereof.

 

Pledge and Security Agreement

EXHIBIT D-2


Section 7. Maintenance of Deposit Account. In addition to, and not in lieu of, the obligation of the Financial Institution to honor instructions from Collateral Agent as set forth in Section 2 hereof, the Financial Institution agrees to maintain the Deposit Account as follows:

(b) Statements and Confirmations . The Financial Institution will promptly send copies of all statements, confirmations and other correspondence concerning the Deposit Account simultaneously to each of the Debtor and Collateral Agent at the address for each set forth in Section 11 of this Agreement; and

(c) Tax Reporting . All interest, if any, relating to the Deposit Account, shall be reported to the Internal Revenue Service and all state and local taxing authorities under the name and taxpayer identification number of the Debtor.

Section 8. Representations, Warranties and Covenants of the Financial Institution. The Financial Institution hereby represents and warrants to, and covenants with, Collateral Agent and the Debtor as follows:

(a) The Deposit Account has been established as set forth in Section 1 and such Deposit Account will be maintained in the manner set forth herein until termination of this Agreement;

(b) The Financial Institution shall not, during the term of this Agreement, amend or otherwise modify either the account agreement, if any, or its policies and procedures with respect to the Deposit Account in derogation of Collateral Agent’s rights hereunder without Collateral Agent’s prior written consent; and

(c) This Agreement is the valid and legally binding obligation of the Financial Institution.

Section 9. Indemnification of Financial Institution. The Debtor and Collateral Agent hereby agree that (a) the Financial Institution is released from any and all liabilities to the Debtor and Collateral Agent arising from the terms of this Agreement and the compliance by the Financial Institution with the terms hereof, except to the extent that such liabilities arise from the Financial Institution’s negligence, willful misconduct or the breach of any of its obligations under this Agreement, and (b) the Debtor, its successors and assigns shall at all times indemnify and save harmless the Financial Institution from and against any and all claims, actions and suits of other Persons arising out of the terms of this Agreement or the compliance by the Financial Institution with the terms hereof and from and against any and all liabilities, losses, damages, costs, charges, counsel fees and other expenses of every nature and character arising by reason of the same, until the termination of this Agreement, except to the extent that any of the same arise from the Financial Institution’s negligence, willful misconduct or the breach of any of its obligations under this Agreement.

Section 10. Successors; Assignment. The terms of this Agreement shall be binding upon, and shall inure to the benefit of, the parties hereto and their respective successors who obtain such rights solely by operation of law. Collateral Agent may assign its rights hereunder to a successor “Collateral Agent” by sending written notice of such assignment to Financial Institution and the Debtor.

 

Pledge and Security Agreement

EXHIBIT D-3


Section 11. Notices. Any notice, request or other communication required or permitted to be given under this Agreement shall be in writing and deemed to have been properly given (a) when delivered in person, (b) when sent by telecopy or other electronic means and electronic confirmation of error free receipt is received, or (c) two (2) Business Days after being sent by certified or registered United States mail, return receipt requested, postage prepaid, addressed to the party at the address set forth below.

 

(d)     Pledgor:    
   
   
  Attention:    
  Telecopier:    

with a copy to:

   
   
   
  Attention:    
  Telecopier:    
(e)     Collateral Agent:   Goldman Sachs Bank USA
  6011 Connection Drive
  Irving, Texas 75039
  Attention: Del Frisco’s Account Manager
  Telecopier: (972) 368-5099

with a copy to:

  Hunton & Williams LLP
  600 Peachtree Street, N.E.
  Suite 4100, Bank of America Plaza
  Atlanta, Georgia 30308
  Attention: John R. Schneider, Esq.
  Telecopier: 404-602-8669
(f)     Financial Institution:    
   
   
  Attention:    
  Telecopier:    

Any party may change its address for notices in the manner set forth above.

Section 12. Termination. The Debtor covenants with Collateral Agent that the Debtor shall not close or otherwise terminate the Deposit Account without Collateral Agent’s prior written consent. The obligations of the Financial Institution to Collateral Agent pursuant to this Agreement shall continue in effect until the security interest of Collateral Agent in the Deposit Account has been terminated pursuant to the terms of the Security Agreement and Collateral Agent has notified the Financial Institution of such termination in writing. Collateral Agent agrees to provide Notice of Termination in substantially the form of Exhibit A hereto to the Financial Institution upon the request of the Debtor after the termination of Collateral Agent’s security interest in the Deposit Account pursuant to the terms of the Security Agreement.

 

Pledge and Security Agreement

EXHIBIT D-4


Section 13. Counterparts. This Agreement may be executed in any number of counterparts, all of which shall constitute one and the same instrument, and any party hereto may execute this Agreement by signing and delivering one or more counterparts.

Section 14. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY AGREES TO WAIVE ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING UNDER THIS AGREEMENT OR ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS AGREEMENT. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS TRANSACTION (INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS). EACH PARTY HERETO ACKNOWLEDGES THAT (A) THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, (B) IT HAS ALREADY RELIED ON THIS WAIVER IN ENTERING INTO THIS AGREEMENT, AND (C) IT WILL CONTINUE TO RELY ON THIS WAIVER IN ITS RELATED FUTURE DEALINGS. EACH PARTY HERETO FURTHER REPRESENTS AND WARRANTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF ANY LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.

[Signature Page Follows]

 

Pledge and Security Agreement

EXHIBIT D-5


IN WITNESS WHEREOF, the parties hereto have caused this Deposit Account Control Agreement to be executed as of the date first above written by their respective officers thereunto duly authorized.

 

[DEBTOR]
By:    
Name:  
Title:  

 

GOLDMAN SACHS BANK USA , as Collateral

Agent

By:    
Name:  
Title:  

 

[NAME OF FINANCIAL INSTITUTION],

as Financial Institution

By:    
Name:  
Title:  

 

Pledge and Security Agreement

EXHIBIT D-6


EXHIBIT A

TO DEPOSIT ACCOUNT CONTROL AGREEMENT

[Letterhead of Collateral Agent]

[Date]

[Name and Address of Financial Institution]

Attention:

Re: Notice of Sole Control

Ladies and Gentlemen:

As referenced in the Deposit Account Control Agreement dated as of             , 20            among [NAME OF THE DEBTOR] , you and the undersigned (a copy of which is attached), we hereby give you notice of our sole control over deposit account number             (the “Deposit Account” ) and all financial assets credited thereto. You are hereby instructed not to accept any direction, instructions or entitlement orders with respect to the Deposit Account or the financial assets credited thereto from any person other than the undersigned, unless otherwise ordered by a court of competent jurisdiction.

You are instructed to deliver a copy of this notice by facsimile transmission to [NAME OF THE DEBTOR] .

 

Very truly yours,

GOLDMAN SACHS BANK USA, as Collateral

Agent

By:    
Name:  
Title:  

cc: [NAME OF THE DEBTOR]

 

Pledge and Security Agreement

EXHIBIT D-A-1


EXHIBIT B

TO DEPOSIT ACCOUNT CONTROL AGREEMENT

[Letterhead of Collateral Agent]

[Date]

[Name and Address of Financial Institution]

Attention:

Re: Termination of Deposit Account Control Agreement

You are hereby notified that the Deposit Account Control Agreement dated as of             , 20            among [NAME OF THE DEBTOR] , you and the undersigned (a copy of which is attached) is terminated and you have no further obligations to the undersigned pursuant to such Agreement. Notwithstanding any previous instructions to you, you are hereby instructed to accept all future directions with respect to account number(s) from [NAME OF THE DEBTOR] . This notice terminates any obligations you may have to the undersigned with respect to such account, however nothing contained in this notice shall alter any obligations which you may otherwise owe to [NAME OF THE DEBTOR] pursuant to any other agreement.

You are instructed to deliver a copy of this notice by facsimile transmission to [NAME OF THE DEBTOR] .

 

Very truly yours,

GOLDMAN SACHS BANK USA, as Collateral

Agent

By:    
Name:  
Title:  

 

Pledge and Security Agreement

Exhibit D-B-1


EXHIBIT J TO

CREDIT AND GUARANTY AGREEMENT

FORM OF MORTGAGE

NOTICE OF CONFIDENTIALITY RIGHTS: IF YOU ARE A NATURAL PERSON, YOU MAY REMOVE OR STRIKE ANY OR ALL OF THE FOLLOWING INFORMATION FROM ANY INSTRUMENT THAT TRANSFERS AN INTEREST IN REAL PROPERTY BEFORE IT IS FILED FOR RECORD IN THE PUBLIC RECORDS: YOUR SOCIAL SECURITY NUMBER OR YOUR DRIVER’S LICENSE NUMBER.

RECORDING REQUESTED BY

AND WHEN RECORDED MAIL TO:

Hunton & Williams LLP

Bank of America Plaza, Suite 4100

600 Peachtree Street, N.E.

Atlanta, Georgia 30308-2216

Attn: John A. Decker, Esq.

 

 

Space above this line for recorder’s use only

DEED OF TRUST, SECURITY AGREEMENT, ASSIGNMENT OF RENTS AND

LEASES AND FIXTURE FILING

This DEED OF TRUST, SECURITY AGREEMENT, ASSIGNMENT OF RENTS AND LEASES AND FIXTURE FILING , dated as of             , 201     (this “Deed of Trust” ),              by and from             , a              having its principal offices at              ( “Grantor” ), to             , a              (“ Trustee ”), having an address of             , and GOLDMAN SACHS BANK USA , as agent for Lenders and Lender Counterparties described in the Credit Agreement defined herein below (in such capacity together with its successors and assigns, “Agent” or “ Beneficiary ”), having an address of 6011 Connection Drive, Irving, Texas 75039 Attn: DFRG Account Manager.

RECITALS:

WHEREAS , reference is made to that certain Credit and Guaranty Agreement, dated as of July 29, 2011 (as amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement” ; the terms defined therein and not otherwise defined herein being used herein as therein defined), by and among Grantor, the other Credit Parties named therein, the Lenders party thereto from time to time, and Agent;

 

Form of Deed of Trust - Texas


WHEREAS , subject to the terms and conditions of the Credit Agreement, Grantor may enter into one or more Interest Rate Agreements or Currency Agreements with one or more Lender Counterparties;

WHEREAS , in consideration of the extensions of credit and other accommodations of Lenders and Lender Counterparties as set forth in the Credit Agreement and the Interest Rate Agreements and Currency Agreements, respectively, Grantor has agreed, subject to the terms and conditions hereof, each other Credit Document and each of the Interest Rate Agreements and Currency Agreements, to secure Grantor’s obligations under the Credit Documents and the Interest Rate Agreements and Currency Agreements as set forth herein; and

NOW , THEREFORE , in consideration of the premises and the agreements, provisions and covenants herein contained, Beneficiary and Grantor agree as follows:

SECTION 1. DEFINITIONS

1.1. Definitions. Capitalized terms used herein (including the recitals hereto) not otherwise defined herein shall have the meanings ascribed thereto in the Credit Agreement. In addition, as used herein, the following terms shall have the following meanings:

“Indebtedness” means (i) with respect to Grantor, all obligations and liabilities of every nature of Grantor now or hereafter existing under or arising out of or in connection with the Credit Agreement, this Deed of Trust, the other Credit Documents or any Interest Rate Agreement or Currency Agreement; and (ii) with respect to any other Credit Party, all obligations and liabilities of every nature of such Credit Party now or hereafter existing under or arising out of or in connection with any other Credit Document, in each case together with all extensions or renewals thereof, whether for principal, interest (including interest that, but for the filing of a petition in bankruptcy with respect to the Credit Parties, would accrue on such obligations, whether or not a claim is allowed against the Credit Parties for such interest in the related bankruptcy proceeding), reimbursement of amounts drawn under letters of credit, payments for early termination of Interest Rate Agreements or Currency Agreements, fees, expenses, indemnities or otherwise, whether voluntary or involuntary, direct or indirect, absolute or contingent, liquidated or unliquidated, whether or not jointly owed with others, and whether or not from time to time decreased or extinguished and later increased, created or incurred, and all or any portion of such obligations or liabilities that are paid, to the extent all or any part of such payment is avoided or recovered directly or indirectly from Grantor, any other Credit Party, any Lender or Lender Counterparty as a preference, fraudulent transfer or otherwise, and all obligations of every nature of Grantor now or hereafter existing under this Deed of Trust. The Credit Agreement contains a revolving credit facility which permits certain Credit Parties to borrow certain principal amounts, repay all or a portion of such principal amounts, and reborrow the amounts previously paid to the Agent or Lenders, all upon satisfaction of certain conditions stated in the Credit Agreement. This Deed of Trust secures all advances and re-advances under the revolving credit feature of the Credit Agreement.

 

Deed of Trust - Texas Form

 

2


“Property” means all of Grantor’s interest in (i) the real property described in Exhibit A, together with any greater or additional estate therein as hereafter may be acquired by Grantor (the “Land” ); (ii) all structures, buildings and improvements now owned or hereafter acquired by Grantor, now or at any time situated, placed or constructed upon the Land subject to the Permitted Liens, (the “Improvements” ; the Land and Improvements are collectively referred to as the “Premises” ); (iii) all fixtures, appliances, machinery, materials, supplies, equipment, apparatus and other items of personal property now owned or hereafter acquired by Grantor and now or hereafter attached to, installed in or used in connection with any of the Improvements or the Land, and water, gas, electrical, telephone, storm and sanitary sewer facilities and all other utilities whether or not situated in easements (the “Fixtures” ); (iv) all right, title and interest of Grantor in and to all goods, accounts, general intangibles, instruments, documents, chattel paper and all other personal property of any kind or character, including such items of personal property as defined in the UCC (defined below), now owned or hereafter acquired by Grantor and now or hereafter affixed to, placed upon, used in connection with, arising from or otherwise related to the Premises (the “Personalty” ); (v) all reserves, escrows or impounds required under the Credit Agreement and all deposit accounts maintained by Grantor with respect to the Property (the “Deposit Accounts” ); (vi) all leases, licenses, concessions, occupancy agreements or other agreements (written or oral, now or at any time in effect) which grant to any Person (other than Grantor) a possessory interest in, or the right to use, all or any part of the Property, together with all related security and other deposits subject to depositors rights and requirements of law (the “Leases” ); (vii) all of the rents, revenues, royalties, income, proceeds, profits, security and other types of deposits subject to depositors rights and requirements of law, and other benefits paid or payable by parties to the Leases for using, leasing, licensing possessing, operating from, residing in, selling or otherwise enjoying the Property (the “Rents” ), (viii) to the extent mortgageable or assignable all other agreements, such as construction contracts, architects’ agreements, engineers’ contracts, utility contracts, maintenance agreements, management agreements, service contracts, listing agreements, guaranties, warranties, permits, licenses, certificates and entitlements in any way relating to the construction, use, occupancy, operation, maintenance, enjoyment or ownership of the Property (the “Property Agreements” ); (ix) to the extent mortgageable or assignable all rights, privileges, tenements, hereditaments, rights-of-way, easements, appendages and appurtenances appertaining to the foregoing; (x) all property tax refunds payable to Grantor (the “Tax Refunds” ); (xi) all accessions, replacements and substitutions for any of the foregoing and all proceeds thereof (the “Proceeds” ); (xii) all insurance policies, unearned premiums therefor and proceeds from such policies covering any of the above property now or hereafter acquired by Grantor (the “Insurance” ); and (xiii) all of Grantor’s right, title and interest in and to any awards, damages, remunerations, reimbursements, settlements or compensation heretofore made or hereafter to be made by any governmental authority pertaining to the Land, Improvements, Fixtures or Personalty (the “Condemnation Awards” ). As used in this Deed of Trust, the term “Property” shall mean all or, where the context permits or requires, any portion of the above or any interest therein.

 

Deed of Trust - Texas Form

 

3


“Obligations” means all of the agreements, covenants, conditions, warranties, representations and other obligations of Grantor and any Credit Party (including, without limitation, the obligation to repay or perform the Indebtedness and the Obligations as defined under the Credit Agreement) under the Credit Agreement, any other Credit Documents or any of the Interest Rate Agreements or Currency Agreements.

“UCC” means the Uniform Commercial Code of New York or, if the creation, perfection and enforcement of any security interest herein granted is governed by the laws of a state other than New York, then, as to the matter in question, the Uniform Commercial Code in effect in that state.

1.2. Interpretation. References to “Sections” shall be to Sections of this Deed of Trust unless otherwise specifically provided. Section headings in this Deed of Trust are included herein for convenience of reference only and shall not constitute a part of this Deed of Trust for any other purpose or be given any substantive effect. The rules of construction set forth in Section 1.3 of the Credit Agreement shall be applicable to this Deed of Trust mutatis mutandis. If any conflict or inconsistency exists between this Deed of Trust and the Credit Agreement, the Credit Agreement shall govern.

SECTION 2. GRANT

To secure the full and timely payment of the Indebtedness and the full and timely performance of the Obligations, Grantor GRANTS, BARGAINS, ASSIGNS, TRANSFERS, SETS OVER and CONVEYS the Property, together with all the rights, privileges, hereditaments and appurtenances belonging or appertaining to it, to Trustee, IN TRUST, with power of sale, for the benefit of Beneficiary, subject, however, to the Permitted Liens, TO HAVE AND TO HOLD the Property unto Trustee and Beneficiary, forever and Grantor does hereby bind itself, its successors and assigns to WARRANT AND FOREVER DEFEND the title to the Property subject to the Permitted Liens, unto the Trustee against every person whomsoever lawfully claiming or to claim the same or any part thereof; provided, however, that if the Grantor shall pay or cause to be paid the Indebtedness and perform the Obligations as and when the same shall become due, payable and performable, then the liens, security interests, estates, and rights granted by this Deed of Trust shall terminate, in accordance with the provisions hereof, otherwise same shall remain in full force and effect.

PROVIDED, HOWEVER, upon written request of Beneficiary stating that all sums secured hereby have been paid, that Grantor has well and truly abided by and complied with each and every covenant and condition set forth herein and in the Credit Documents and Notes, and upon the surrendering of this Deed of Trust and the Notes to Trustee for cancellation and retention and upon payment by Beneficiary of Trustee’s fees, Trustee shall promptly reconvey to Beneficiary, or to the person or persons legally entitled thereto, without warranty, any portion of the estate hereby granted and then held hereunder. The recitals in such reconveyance of any matters or facts shall be conclusive proof of the truthfulness thereof. The grantee in any reconveyance may be described as “the person or persons legally entitled thereto”.

 

Deed of Trust - Texas Form

 

4


SECTION 3. WARRANTIES, REPRESENTATIONS AND COVENANTS

3.1. Title. Grantor represents and warrants to Trustee and Beneficiary that except for the Permitted Liens, (a) Grantor owns the Property free and clear of any liens, claims or interests, and (b) this Deed of Trust creates valid, enforceable first priority liens and security interests against the Property.

3.2. First Lien Status. Grantor shall preserve and protect the first lien and security interest status of this Deed of Trust and the other Credit Documents to the extent related to the Property. If any lien or security interest other than a Permitted Lien is asserted against the Property, Grantor shall promptly, and at its expense, (a) give Beneficiary a detailed written notice of such lien or security interest (including origin, amount and other terms), and (b) pay the underlying claim in full or take such other action so as to cause it to be released.

3.3. Payment and Performance. Grantor shall pay the Indebtedness when due under the Credit Documents and shall perform the Obligations in full when they are required to be performed as required under the Credit Documents.

3.4. Replacement of Fixtures and Personalty. Grantor shall not, without the prior written consent of Beneficiary, permit any of the Fixtures or Personalty to be removed at any time from the Land or Improvements, unless the removed item is removed temporarily for maintenance and repair or, if removed permanently, is obsolete and is replaced by an article of equal or better suitability and value, owned by Grantor subject to the liens and security interests of this Deed of Trust and the other Credit Documents, and free and clear of any other lien or security interest except such as may be permitted under the Credit Agreement or first approved in writing by Beneficiary.

3.5. Inspection. Grantor shall permit Beneficiary, and Beneficiary’s agents, representatives and employees, upon reasonable prior notice to Grantor and at reasonable times during normal business hours, to inspect the Property and all books and records of Grantor located thereon; provided, such inspections and studies shall not materially interfere with the use and operation of the Property.

3.6. Covenants Running with the Land. All Obligations contained in this Deed of Trust are intended by Grantor and Beneficiary to be, and shall be construed as, covenants running with the Property. As used herein, “Grantor” shall refer to the party named in the first paragraph of this Deed of Trust and to any subsequent owner of all or any portion of the Property. All Persons who may have or acquire an interest in the Property shall be deemed to have notice of, and be bound by, the terms of the Credit Agreement and the other Credit Documents; however, no such party shall be entitled to any rights thereunder without the prior written consent of Beneficiary.

 

Deed of Trust - Texas Form

 

5


3.7. Condemnation Awards and Insurance Proceeds. Grantor collaterally assigns all awards and compensation to which it is entitled for any condemnation or other taking, or any purchase in lieu thereof, to Beneficiary and authorizes Beneficiary, upon the occurrence and during the continuance of an Event of Default to collect and receive such awards and compensation and to give proper receipts and acquittances therefor, subject to the terms of the Credit Agreement. Grantor collaterally assigns to Beneficiary all proceeds of any insurance policies insuring against loss or damage to the Property, subject to the terms of the Credit Agreement. Grantor authorizes Beneficiary, upon the occurrence and during the continuance of an Event of Default, to collect and receive such proceeds and authorizes and directs the issuer of each of such insurance policies to make payment for all such losses directly to Beneficiary, instead of to Grantor and Beneficiary jointly, subject to the terms of the Credit Agreement.

3.8. Intentionally Reserved.

3.9. Intentionally Reserved.

3.10. Intentionally Reserved.

SECTION 4. DEFAULT AND REMEDIES

4.1. General Remedies. If an Event of Default has occurred and is continuing, Beneficiary may, at Beneficiary’s election, exercise any or all of the following rights, remedies and recourses, in addition to all other rights and remedies set forth in this Section 4, subject to all requirements of applicable law: (a) declare the Indebtedness to be immediately due and payable, without further notice, presentment, protest, notice of intent to accelerate, notice of acceleration, demand or action of any nature whatsoever (each of which hereby is expressly waived by Grantor), whereupon the same shall become immediately due and payable; (b) enter the Property and take exclusive possession thereof and of all books, records and accounts relating thereto or located thereon; (c) if Grantor remains in possession of the Property after an Event of Default and without Beneficiary’s written consent, invoke any legal remedies to dispossess Grantor; (d) hold, lease, develop, manage, operate or otherwise use the Property upon such terms and conditions as Beneficiary may deem reasonable under the circumstances (making such repairs, alterations, additions and improvements and taking other actions, from time to time, as Beneficiary deems necessary or desirable), and apply all Rents and other amounts collected by Beneficiary in connection therewith in accordance with the provisions hereof; (e) institute proceedings for the complete foreclosure of this Deed of Trust, either by judicial action or by power of sale, in which case the Property may be sold for cash or credit in one or more parcels. With respect to any notices required or permitted under the UCC, Grantor agrees that ten (10) days’ prior written notice shall be deemed commercially reasonable. At any such sale by virtue of any judicial proceedings, power of sale, or any other legal right, remedy or recourse, the title to and right of possession of any such property shall pass to the purchaser thereof, and to the fullest extent permitted by law, Grantor shall be completely and irrevocably divested of all of its right, title, interest, claim, equity, equity of redemption, and demand whatsoever, either at law or in equity, in and to the property sold and such sale shall be a perpetual bar both at law and in

 

Deed of Trust - Texas Form

 

6


equity against Grantor, and against all other Persons claiming or to claim the property sold or any part thereof, by, through or under Grantor. Beneficiary or any of the Lenders may be a purchaser at such sale and if Beneficiary is the highest bidder, Beneficiary shall credit the portion of the purchase price that would be distributed to Beneficiary against the Indebtedness in lieu of paying cash, and in the event this Deed of Trust is foreclosed by judicial action, appraisement of the Property is waived; (f) make application to a court of competent jurisdiction for, and obtain from such court as a matter of strict right and without regard to the adequacy of the Property for the repayment of the Indebtedness, the appointment of a receiver of the Property (and Grantor irrevocably consents to such appointment) and any such receiver shall have all the usual powers and duties of receivers in similar cases, including the full power to rent, maintain and otherwise operate the Property upon such terms as may be approved by the court, and shall apply such Rents in accordance with the provisions hereof; and/or (g) exercise all other rights, remedies and recourses granted under the Credit Documents or otherwise available at law or in equity.

4.2. Notice of Default . Upon the occurrence and during the continuance of an Event of Default under this Deed of Trust, Beneficiary, may elect to have the Property sold in the manner provided herein. Beneficiary may execute or cause Trustee to execute a written notice of default and of election to cause the Property to be sold to satisfy the obligations secured hereby. Upon request of Trustee, Beneficiary shall also deposit with Trustee all promissory notes and all documents evidencing expenditures secured by this Deed of Trust. Notwithstanding anything to the contrary in the foregoing, all procedures shall be conducted in compliance with applicable law. Grantor requests that a copy of any notice of default and of any notice of sale hereunder be mailed to Grantor at the address for notices set forth in the Credit Agreement.

4.3 Surrender of Possession . If possession has not previously been surrendered by Grantor, Grantor shall surrender possession of the Property to the purchaser immediately after the Trustee’s sale.

4.4. Remedies Cumulative, Concurrent and Nonexclusive. Upon the occurrence and during the continuance of an Event of Default under this Deed of Trust, Beneficiary shall have all rights, remedies and recourses granted in the Credit Documents and available at law or equity (including the UCC), which rights (a) shall be cumulated and concurrent, (b) may be pursued separately, successively or concurrently against Grantor or others obligated under the Credit Documents, or against the Property, or against any one or more of them, at the sole discretion of Beneficiary or the Lenders, (c) may be exercised as often as occasion therefor shall arise, and the exercise or failure to exercise any of them shall not be construed as a waiver or release thereof or of any other right, remedy or recourse, and (d) are intended to be, and shall be, nonexclusive. No action by Beneficiary or the Lenders in the enforcement of any rights, remedies or recourses under the Credit Documents or otherwise at law or equity shall be deemed to cure any Event of Default.

 

Deed of Trust - Texas Form

 

7


4.5. Release of and Resort to Collateral. Beneficiary may release, regardless of consideration and without the necessity for any notice to or consent by the holder of any subordinate lien on the Property, any part of the Property without, as to the remainder, in any way impairing, affecting, subordinating or releasing the lien or security interest created in or evidenced by the Credit Documents or their status as a first and prior lien and security interest in and to the Property. For payment of the Indebtedness, Beneficiary may resort to any other security in such order and manner as Beneficiary may elect.

4.6. Waiver of Redemption, Notice and Marshalling of Assets. To the fullest extent permitted by law, Grantor hereby irrevocably and unconditionally waives and releases (a) all benefit that might accrue to Grantor by virtue of any present or future statute of limitations or law or judicial decision exempting the Property from attachment, levy or sale on execution or providing for any stay of execution, exemption from civil process, redemption or extension of time for payment; (b) all notices of any Event of Default or of Beneficiary’s election to exercise or the actual exercise of any right, remedy or recourse provided for under the Credit Documents; and (c) any right to a marshalling of assets or a sale in inverse order of alienation.

4.7. Discontinuance of Proceedings. If Beneficiary or the Lenders shall have proceeded to invoke any right, remedy or recourse permitted under the Credit Documents and shall thereafter elect to discontinue or abandon it for any reason, Beneficiary or the Lenders shall have the unqualified right to do so and, in such an event, Grantor and Beneficiary or the Lenders shall be restored to their former positions with respect to the Indebtedness, the Obligations, the Credit Documents, the Property and otherwise, and the rights, remedies, recourses and powers of Beneficiary or the Lenders shall continue as if the right, remedy or recourse had never been invoked, but no such discontinuance or abandonment shall waive any Event of Default which may then exist or the right of Beneficiary or the Lenders thereafter to exercise any right, remedy or recourse under the Credit Documents for such Event of Default.

4.8. Application of Proceeds. The proceeds of any sale of, and the Rents and other amounts generated by the holding, leasing, management, operation or other use of the Property, shall be applied by Beneficiary (or the receiver, if one is appointed) in the following order unless otherwise required by applicable law: first, to the payment of the costs and expenses of taking possession of the Property and of holding, using, leasing, repairing, improving and selling the same, including, without limitation, (a) receiver’s fees and expenses, including the repayment of the amounts evidenced by any receiver’s certificates, (b) court costs, (c) reasonable attorneys’ and accountants’ fees and expenses, (d) costs of advertisement; and (e) as provided in the Credit Agreement.

4.9. Occupancy After Foreclosure. Any sale of the Property or any part thereof will divest all right, title and interest of Grantor in and to the property sold. Subject to applicable law, any purchaser at a foreclosure sale will receive immediate possession of the property purchased. If Grantor retains possession of such property or any part thereof subsequent to such sale, Grantor will be considered a tenant at sufferance of the purchaser, and will, if Grantor remains in possession after demand to remove, be subject to eviction and removal, forcible or otherwise, with or without process of law.

 

Deed of Trust - Texas Form

 

8


4.10. Additional Advances and Disbursements; Costs of Enforcement. If any Event of Default exists, Beneficiary and each of the Lenders shall have the right, but not the obligation, to cure such Event of Default in the name and on behalf of Grantor in accordance with the Credit Agreement. All sums advanced and expenses incurred at any time by Beneficiary or any Lender under this Section, or otherwise under this Deed of Trust or any of the other Credit Documents or applicable law, shall bear interest from the date that such sum is advanced or expense incurred if not repaid within five (5) days after demand therefor, to and including the date of reimbursement, computed at the rate or rates at which interest is then computed on the Indebtedness, and all such sums, together with interest thereon, shall be secured by this Deed of Trust. Subject to Section 10.2 of the Credit Agreement, Grantor shall pay all expenses of or incidental to the perfection and enforcement of this Deed of Trust and the other Credit Documents, or the enforcement, compromise or settlement of the Indebtedness or any claim under this Deed of Trust and the other Credit Documents, and for the curing thereof, or for defending or asserting the rights and claims of Beneficiary or the Lenders in respect thereof, by litigation or otherwise.

4.11. No Beneficiary in Possession. Neither the enforcement of any of the remedies under this Section, the assignment of the Rents and Leases under Section 5, the security interests under Section 6, nor any other remedies afforded to Beneficiary or the Lenders under the Credit Documents, at law or in equity shall cause Beneficiary or any Lender to be deemed or construed to be a Beneficiary in possession of the Property, to obligate Beneficiary or any Lender to lease the Property or attempt to do so, or to take any action, incur any expense, or perform or discharge any obligation, duty or liability whatsoever under any of the Leases or otherwise.

SECTION 5. ASSIGNMENT OF RENTS AND LEASES

5.1. Assignment. In furtherance of and in addition to the assignment made by Grantor herein, Grantor hereby absolutely and unconditionally assigns, sells, transfers and conveys to Beneficiary all of its right, title and interest in and to all Leases, whether now existing or hereafter entered into, and all of its right, title and interest in and to all Rents. This assignment is an absolute assignment and not an assignment for additional security only. So long as no Event of Default shall have occurred and be continuing, Grantor shall have a revocable license from Beneficiary to exercise all rights extended to the landlord under the Leases, including the right to receive and collect all Rents and to hold the Rents in trust for use in the payment and performance of the Obligations and to otherwise use the same. The foregoing license is granted subject to the conditional limitation that no Event of Default shall have occurred and be continuing. Upon the occurrence and during the continuance of an Event of Default, whether or not legal proceedings have commenced, and without regard to waste, adequacy of security for the Obligations or solvency of Grantor, the license herein granted shall automatically expire and terminate, without notice by Beneficiary (any such notice being hereby expressly waived by Grantor).

 

Deed of Trust - Texas Form

 

9


5.2. Perfection Upon Recordation. Grantor acknowledges that Beneficiary has taken all reasonable actions necessary to obtain, and that upon recordation of this Deed of Trust Beneficiary shall have, to the extent permitted under applicable law, a valid and fully perfected, first priority, present assignment of the Rents arising out of the Leases and all security for such Leases subject to the Permitted Liens and in the case of security deposits, rights of depositors and requirements of law. Grantor acknowledges and agrees that upon recordation of this Deed of Trust Beneficiary’s interest in the Rents shall be deemed to be fully perfected, “choate” and enforced as to Grantor and all third parties, including, without limitation, any subsequently appointed trustee in any case under Title 11 of the United States Code (the “Bankruptcy Code” ), without the necessity of commencing a foreclosure action with respect to this Deed of Trust, making formal demand for the Rents, obtaining the appointment of a receiver or taking any other affirmative action.

5.3. Bankruptcy Provisions. Without limitation of the absolute nature of the assignment of the Rents hereunder, Grantor and Beneficiary agree that (a) this Deed of Trust shall constitute a “security agreement” for purposes of Section 552(b) of the Bankruptcy Code, (b) the security interest created by this Deed of Trust extends to property of Grantor acquired before the commencement of a case in bankruptcy and to all amounts paid as Rents, and (c) such security interest shall extend to all Rents acquired by the estate after the commencement of any case in bankruptcy.

SECTION 6. SECURITY AGREEMENT

6.1. Security Interest. This Deed of Trust constitutes a “security agreement” on personal property within the meaning of the UCC and other applicable law and with respect to the Personalty, Fixtures, Leases, Rents, Deposit Accounts, Property Agreements, Tax Refunds, Proceeds, Insurance and Condemnation Awards. To this end, Grantor grants to Beneficiary a first and prior security interest in the Personalty, Fixtures, Leases, Rents, Deposit Accounts, Property Agreements, Tax Refunds, Proceeds, Insurance, Condemnation Awards and all other Property which is personal property to secure the payment of the Indebtedness and performance of the Obligations subject to the Permitted Liens, and agrees that Beneficiary shall have all the rights and remedies of a secured party under the UCC with respect to such property. Any notice of sale, disposition or other intended action by Beneficiary with respect to the Personalty, Fixtures, Leases, Rents, Deposit Accounts, Property Agreements, Tax Refunds, Proceeds, Insurance and Condemnation Awards sent to Grantor at least ten (10) days prior to any action under the UCC shall constitute reasonable notice to Grantor. To the extent that the Property constitutes or includes personal property, including goods or items of personal property which are or are to become fixtures under applicable law, Grantor hereby grants a security interest therein and this Deed of Trust shall also be construed as a pledge and a security agreement under the UCC applicable in the State or Commonwealth in which the Property is located; and, if any Event of Default has occurred and is continuing, the Beneficiary shall be entitled with respect to such personal property to all remedies available under the UCC and all other remedies available under applicable law. Without limiting the foregoing, any personal property may, at the Beneficiary’s option and, except as otherwise required by applicable law, without the giving of notice, (i) be sold hereunder, (ii) be sold pursuant to the UCC or (iii) be dealt with by the Beneficiary in any other manner permitted under applicable law. If any Event of Default has

 

Deed of Trust - Texas Form

 

10


occurred and is continuing, the Beneficiary shall be the attorney-in-fact of the Grantor with respect to any and all matters pertaining to the personal property with full power and authority to give instructions with respect to the collection and remittance of payments, to endorse checks, to enforce the rights and remedies of the Grantor and to execute on behalf of the Grantor and in the Grantor’s name any instruction, agreement or other writing required therefor.

6.2. Financing Statements. Grantor shall execute and deliver to Beneficiary, in form and substance satisfactory to Beneficiary, such financing statements and such further assurances as Beneficiary may, from time to time, reasonably consider necessary to create, perfect and preserve Beneficiary’s security interest hereunder and Beneficiary may cause such statements and assurances to be recorded and filed, at such times and places as may be required or permitted by law to so create, perfect and preserve such security interest. Grantor’s chief executive office is at the address set forth in the first paragraph of this Deed of Trust.

6.3. Fixture Filing. This Deed of Trust shall also constitute a “fixture filing” for the purposes of the UCC against all of the Property which is or is to become Fixtures. To the extent that the Property includes goods or items of personal property which are or are to become fixtures under applicable law, and to the extent permitted under applicable law, the filing of this Deed of Trust in the real estate records of the county in which the Property is located shall also operate from the time of filing as a fixture filing with respect to such Property, and the following information is applicable for the purpose of such fixture filing, to wit:

(a) The name of the Debtor (Grantor) is:             , a             , having an address as set forth in the first page of this Deed of Trust, whose organizational number is             .

(b) The name of the Secured Party (Beneficiary) is: Goldman Sachs Bank USA, as agent , having an address as set forth below:

6011 Connection Drive

Irving, Texas 75039

(c) Information concerning the security interest evidenced by this instrument may be obtained from the Secured Party (Beneficiary) at its address above.

(d) This document covers goods or items of personal property which are, or are to become, fixtures upon the Premises.

(e) Debtor (Grantor) is the record owner of the real estate described in this security instrument.

This document is to be filed in the real estate records. A description of the real estate is attached hereto as Exhibit A.

 

Deed of Trust - Texas Form

 

11


SECTION 7. ATTORNEY-IN-FACT

Grantor hereby irrevocably appoints Beneficiary and its successors and assigns, as its attorney-in-fact, which agency is coupled with an interest and with full power of substitution, (a) to execute and/or record any notices of completion, cessation of labor or any other notices that Beneficiary deems appropriate to protect Beneficiary’s interest, if Grantor shall fail to do so within ten (10) days after written request by Beneficiary, (b) upon the issuance of a deed pursuant to the foreclosure of this Deed of Trust or the delivery of a deed in lieu of foreclosure, to execute all instruments of assignment, conveyance or further assurance with respect to the Leases, Rents, Deposit Accounts, Fixtures, Personalty, Property Agreements, Tax Refunds, Proceeds, Insurance and Condemnation Awards in favor of the grantee of any such deed and as may be necessary or desirable for such purpose, (c) to prepare, execute and file or record financing statements, continuation statements, applications for registration and like papers necessary to create, perfect or preserve Beneficiary’s security interests and rights in or to any of the Property, and (d) while any Event of Default exists, to perform any obligation of Grantor hereunder; provided, (i) Beneficiary shall not under any circumstances be obligated to perform any obligation of Grantor; (ii) any sums advanced by Beneficiary in such performance shall be added to and included in the Indebtedness and shall bear interest at the rate or rates at which interest is then computed on the Indebtedness provided that from the date incurred said advance is not repaid within five (5) days demand therefor; (iii) Beneficiary as such attorney-in-fact shall only be accountable for such funds as are actually received by Beneficiary; and (iv) Beneficiary shall not be liable to Grantor or any other person or entity for any failure to take any action which it is empowered to take under this Section.

SECTION 8. BENEFICIARY AS AGENT

Agent has been appointed to act as Beneficiary hereunder by Lenders and, by their acceptance of the benefits hereof, Lender Counterparties. Agent shall be obligated, and shall have the right hereunder, to make demands, to give notices, to exercise or refrain from exercising any rights, and to take or refrain from taking any action (including the release or substitution of Property), solely in accordance with this Deed of Trust and the Credit Agreement; provided, Agent shall exercise, or refrain from exercising, any remedies provided for herein in accordance with the instructions of (a) Requisite Lenders, or (b) after payment in full of all Obligations under the Credit Agreement and the other Credit Documents, the holders of a majority of the aggregate notional amount (or, with respect to any Interest Rate Agreement or Currency Agreement that has been terminated in accordance with its terms, the amount then due and payable (exclusive of expenses and similar payments but including any early termination payments then due) under such Interest Rate Agreement or Currency Agreement) under all Interest Rate Agreements or Currency Agreements (Requisite Lenders or, if applicable, such holders being referred to herein as “Requisite Obligees” ). In furtherance of the foregoing provisions of this Section, each Lender Counterparty, by its acceptance of the benefits hereof, agrees that it shall have no right individually to realize upon any of the Property, it being understood and agreed by such Lender Counterparty that all rights and remedies hereunder may

 

Deed of Trust - Texas Form

 

12


be exercised solely by Beneficiary as Agent for the benefit of Lenders and Lender Counterparties in accordance with the terms of this Section. Beneficiary shall at all times be the same Person that is Agent under the Credit Agreement. Written notice of resignation by Agent pursuant to terms of the Credit Agreement shall also constitute notice of resignation as Beneficiary under this Deed of Trust; removal of Agent pursuant to the terms of the Credit Agreement shall also constitute removal as Beneficiary under this Deed of Trust; and appointment of a successor Agent pursuant to the terms of the Credit Agreement shall also constitute appointment of a successor Beneficiary under this Deed of Trust. Upon the acceptance of any appointment as Agent under the terms of the Credit Agreement by a successor Agent, that successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring or removed Beneficiary under this Deed of Trust, and the retiring or removed Beneficiary under this Deed of Trust shall promptly (i) transfer to such successor Beneficiary all sums, securities and other items of Property held hereunder, together with all records and other documents necessary or appropriate in connection with the performance of the duties of the successor Beneficiary under this Deed of Trust, and (ii) execute and deliver to such successor Beneficiary such amendments to financing statements, and take such other actions, as may be necessary or appropriate in connection with the assignment to such successor Beneficiary of the security interests created hereunder, whereupon such retiring or removed Beneficiary shall be discharged from its duties and obligations under this Deed of Trust thereafter accruing. After any retiring or removed Agent’s resignation or removal hereunder as Beneficiary, the provisions of this Deed of Trust shall continue to enure to its benefit as to any actions taken or omitted to be taken by it under this Deed of Trust while it was Beneficiary hereunder.

SECTION 9. LOCAL LAW PROVISIONS

9.1. Inconsistencies. In the event of any inconsistencies between the terms and conditions of this Section 9 and the other provisions of this Deed of Trust, the terms and conditions of this Section 9 shall control and be binding.

9.2. Instrument. This Deed of Trust shall be deemed to be and shall be enforceable as a deed of trust, security agreement, assignment of rents and leases and financing statement.

9.3. Power of Sale. Upon the occurrence of any Event of Default, Beneficiary may request Trustee to proceed with foreclosure under the power of sale which is hereby conferred, such foreclosure to be accomplished in accordance with the following provisions:

9.3.1. Public Sale. Trustee is authorized and empowered and it shall be his special duty at the request of the Beneficiary to sell the Property or any part thereof situated in the State of Texas, at the courthouse of the county in the State of Texas in which any part of the Property is situated, at public venue to the highest bidder for cash at such place, time and date as provided by the statutes of the State of Texas then in force governing sales of real estate under powers of sale conferred by deed of trust, after having given notice of such sale in accordance with such statutes, and shall receive the proceeds of said sale or sales and apply

 

Deed of Trust - Texas Form

 

13


the same as herein provided. Payment of the purchase price to the Trustee shall satisfy the obligation of purchaser at such sale therefor, and such purchaser shall not be responsible for the application thereof. Beneficiary, Trustee and any receiver or custodian of the Property or any part thereof shall be liable to account for only those rents, issues, proceeds and profits actually received by it.

9.3.2. Adjournment. Trustee may adjourn from time to time any sale by it to be made under or by virtue of this Deed of Trust by announcement at the time and place appointed for such sale or for such adjourned sale or sales and, except as otherwise provided by any applicable law, Beneficiary or Trustee, without further notice or publication, may make such sale at the time and place to which the same shall be so adjourned.

9.3.3. Sale Subject to Unmatured Indebtedness. In addition to the rights and powers of sale granted under the preceding provisions of this subsection, if default is made in the payment of any installment of the Indebtedness, Beneficiary may, at Beneficiary’s option, at once or at any time thereafter while any matured installment remains unpaid, without declaring the entire Indebtedness to be due and payable, orally or in writing direct Trustee to enforce this trust and to sell the Property subject to such unmatured Indebtedness and to the rights, powers, liens, security interests, and assignments securing or providing recourse for payment of such unmatured Indebtedness in the same manner, all as provided in the preceding provisions of this subsection. Sales made without maturing the Indebtedness may be made hereunder whenever there is a default in the payment of any installment of the Indebtedness, without exhausting the power of sale granted hereby, and without affecting in any way the power of sale granted under this subsection, the unmatured balance of the Indebtedness or the rights, powers, liens, security interests, and assignments securing or providing recourse for payment of the Indebtedness.

9.3.4. Partial Foreclosure. Sale of a part of the Property shall not exhaust the power of sale, but sales may be made from time to time until the Indebtedness is paid in full. It is intended by each of the foregoing provisions of this subsection that Trustee may, after any request or direction by Beneficiary, sell not only the Land and the Improvements, but also the Fixtures and other interests constituting a part of the Property or any part thereof, along with the Land and the Improvements or any part thereof, as a unit and as a part of a single sale, or may sell at any time or from time to time any part or parts of the Property separately from the remainder of the Property. It shall not be necessary to have present or to exhibit at any sale any of the Property.

 

Deed of Trust - Texas Form

 

14


9.3.5. Trustee’s Conveyances. Upon the completion of any sale or sales ordered by Beneficiary and made by Trustee under or by virtue of this subsection 9.3 Trustee shall make to the purchaser or purchasers at such sale good and sufficient conveyances in the name of the Grantor, conveying the property so sold to the purchaser or purchasers with general warranty of title by the Grantor, subject to the Permitted Liens (and to such leases and other matters, if any, as the Trustee may elect upon request of the Beneficiary). Any and all statements of fact or other recitals made in any deed or deeds or other conveyances given by the Trustee as to nonpayment of the secured Indebtedness or Obligations, as to the occurrence of any Event of Default, as to any notices being given, as to any of the secured Indebtedness or Obligations having been declared to be due and payable, as to the request to sell, as to notice of time, place and terms of sale and the properties to be sold having been duly given, as to the refusal, failure or inability to act of the Trustee or any substitute or successor Trustee, as to the appointment of any substitute or successor trustee, or, without limitation by the foregoing, as to any other act or thing having been duly done by the Beneficiary or by such Trustee, substitute or successor, shall be taken as prima facie evidence of the truth of the facts so stated and recited. The power of sale granted herein shall not be exhausted by any sale held hereunder by the Trustee or his substitute or successor, and such power of sale may be exercised from time to time and as many times as the Beneficiary may deem necessary until all of the Property has been duly sold and all Secured Obligations have been fully paid and discharged. In the event any sale hereunder is not completed or is defective in the opinion of the Beneficiary, such sale shall not exhaust the power of sale hereunder and the Beneficiary shall have the right to cause a subsequent sale or sales to be made hereunder. Any such sale or sales made under or by virtue or this subsection 9.3, shall operate to divest all the estate, right, title, interest, claim and demand whatsoever, whether at law or in equity, of Grantor in and to the property and rights so sold, and shall, to the fullest extent permitted under law, be a perpetual bar both at law and in equity against Grantor and against any and all persons claiming or who may claim the same, or any party thereof, from, through or under Grantor.

9.3.6. Beneficiary Bids. Upon any sale under or by virtue of this Deed of Trust (whether made under the power of sale herein granted or under or by virtue of judicial proceedings or a judgment or decree of foreclosure and sale), Beneficiary may bid for and acquire the Property or any part thereof and in lieu of paying cash therefor may make settlement for the purchase price by crediting an amount up to the aggregate amount of the Indebtedness to and against the bid price.

9.3.7. Rights Unimpaired. No recovery of any judgment by Beneficiary and no levy of an execution under any judgment upon the Property or any part thereof or upon any other property of Grantor shall release the lien of this Deed of Trust upon the Property or any part thereof, or any liens, rights, powers or remedies of Beneficiary hereunder, but such liens, rights, powers and remedies of Beneficiary shall continue unimpaired until the entire aggregate amount of the Indebtedness is paid in full and all of the Obligations are fully performed.

 

Deed of Trust - Texas Form

 

15


9.4. Concerning the Trustee.

9.4.1. Certain Rights . With the approval of Beneficiary, Trustee shall have the right to take any and all of the following actions: (i) to select, employ and consult with counsel (who may be, but need not be, counsel for Beneficiary) upon any matters arising hereunder, including the preparation, execution and interpretation of the Credit Documents, and shall be fully protected in relying as to legal matters on the advice of counsel, (ii) to execute any of the trusts and powers hereof and to perform any duty hereunder either directly or through his or her agents or attorneys, (iii) to select and employ, in and about the execution of his or her duties hereunder, suitable accountants, engineers and other experts, agents and attorneys-in-fact, either corporate or individual, not regularly in the employ of Trustee (and Trustee shall not be answerable for any act, default, negligence, or misconduct of any such accountant, engineer or other expert, agent or attorney-in-fact, if selected with reasonable care, or for any error of judgment or act done by Trustee in good faith, or be otherwise responsible or accountable under any circumstances whatsoever, except for Trustee’s gross negligence or bad faith), and (iv) any and all other lawful action that Beneficiary may instruct Trustee to take to protect or enforce Beneficiary’s rights hereunder. Trustee shall not be personally liable in case of entry by Trustee, or anyone entering by virtue of the powers herein granted to Trustee, upon the Property for debts contracted for or liability or damages incurred in the management or operation of the Property. Trustee shall have the right to rely on any instrument, document, or signature authorizing or supporting any action taken or proposed to be taken by Trustee hereunder, believed by Trustee in good faith to be genuine. Trustee shall be entitled to reimbursement for expenses incurred by Trustee in the performance of Trustee’s duties hereunder and to reasonable compensation for such of Trustee’s services hereunder as shall be rendered. Grantor will, from time to time, pay the compensation due to Trustee hereunder and reimburse Trustee for, and save and hold Trustee harmless against, any and all liability and expenses which may be incurred by Trustee in the performance of Trustee’s duties.

9.4.2 Retention of Money . All moneys received by Trustee shall, until used or applied as herein provided, be held in trust for the purposes for which they were received, and shall be segregated from any other moneys of Trustee.

9.4.3. Successor Trustees . Trustee may resign by the giving of notice of such resignation in writing to Beneficiary. If Trustee shall die, resign or become disqualified from acting in the execution of this trust, or if, for any reason, Beneficiary, in Beneficiary’s sole discretion and with or without cause, shall prefer to appoint a substitute trustee or multiple substitute trustees, or successive substitute trustees or successive multiple substitute trustees, to act instead of the aforenamed Trustee, Beneficiary shall have full power to appoint a substitute

 

Deed of Trust - Texas Form

 

16


trustee (or, if preferred, multiple substitute trustees) in succession who shall succeed (and if multiple substitute trustees are appointed, each of such multiple substitute trustees shall succeed) to all the estates, rights, powers and duties of the aforenamed Trustee. Such appointment may be executed by any authorized agent of Beneficiary, and if such Beneficiary be a corporation and such appointment be executed on its behalf by any officer of such corporation, such appointment shall be conclusively presumed to be executed with authority and shall be valid and sufficient without proof of any action by the board of directors or any superior officer of the corporation. Grantor hereby ratifies and confirms any and all acts which the aforenamed Trustee, or his or her successor or successors in this trust, shall do lawfully by virtue hereof. If multiple substitute trustees are appointed, each of such multiple substitute trustees shall be empowered and authorized to act alone without the necessity of the joinder of the other multiple substitute trustees, whenever any action or undertaking of such substitute trustees is requested or required under or pursuant to this Deed of Trust or applicable law. Any prior election to act jointly or severally shall not prevent either or both of such multiple substitute Trustees from subsequently executing, jointly or severally, any or all of the provisions hereof.

9.4.4. Perfection of Appointment . Should any deed, conveyance, or instrument of any nature be required from Grantor by any Trustee or substitute Trustee to more fully and certainly vest in and confirm to Trustee or substitute Trustee such estates, rights, powers, and duties, then, upon request by Trustee or substitute trustee, any and all such deeds, conveyances and instruments shall be made, executed, acknowledged, and delivered and shall be caused to be recorded and/or filed by Grantor.

9.4.5. Succession Instruments . Any substitute trustee appointed pursuant to any of the provisions hereof shall, without any further act, deed or conveyance, become vested with all the estates, properties, rights, powers, and trusts of its, his or her predecessor in the rights hereunder with like effect as if originally named as Trustee herein; but nevertheless, upon the written request of Beneficiary or of the substitute trustee, the Trustee ceasing to act shall execute and deliver any instrument transferring to such substitute trustee, upon the trusts herein expressed, all the estates, properties, rights, powers, and trusts of the Trustee so ceasing to act, and shall duly assign, transfer and deliver any of the property and moneys held by such Trustee to the substitute trustee so appointed in such Trustee’s place.

9.4.6. No Representation by Trustee or Beneficiary . By accepting or approving anything required to be observed, performed, or fulfilled or to be given to Trustee or Beneficiary pursuant to the Credit Documents, including, without limitation, any officer’s certificate, balance sheet, statement of profit and loss or other financial statement, survey, appraisal or insurance policy, neither Trustee nor Beneficiary shall be deemed to have warranted, consented to, or affirmed the sufficiency, legality, effectiveness or legal effect of the same, or of any term, provision, or condition thereof, and such acceptance or approval thereof shall not be or constitute any warranty or affirmation with respect thereto by Trustee or Beneficiary.

 

Deed of Trust - Texas Form

 

17


9.5. Receiver . Beneficiary, as a matter of right and without regard to the sufficiency of the security for repayment of the Indebtedness and performance and discharge of the Obligations hereunder, without notice to Grantor and without any showing of insolvency, fraud, or mismanagement on the part of Grantor, and without the necessity of filing any judicial or other proceeding other than the proceeding for appointment of a receiver, shall be entitled to the appointment of a receiver or receivers of the Property or any part thereof, and of the Rents, and Grantor hereby irrevocably consents to the appointment of a receiver or receivers. Any receiver appointed pursuant to the provisions of this subsection shall have the usual powers and duties of receivers in such matters.

9.6. FINAL AGREEMENT. THIS DEED OF TRUST AND THE OTHER CREDIT DOCUMENTS EMBODY AND REPRESENT THE FINAL, ENTIRE AGREEMENT AMONG THE PARTIES AND SUPERSEDE ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS, REPRESENTATIONS AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THE SUBJECT MATTER HEREOF AND THEREOF AND MAY NOT BE CONTRADICTED OR VARIED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES.

SECTION 10. MISCELLANEOUS

Any notice required or permitted to be given under this Deed of Trust shall be given in accordance with Section 10.1 of the Credit Agreement. No failure or delay on the part of Beneficiary or any Lender in the exercise of any power, right or privilege hereunder or under any other Credit Document shall impair such power, right or privilege or be construed to be a waiver of any default or acquiescence therein, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other power, right or privilege. All rights and remedies existing under this Deed of Trust and the other Credit Documents are cumulative to, and not exclusive of, any rights or remedies otherwise available. In case any provision in or obligation under this Deed of Trust shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby. All covenants hereunder shall be given independent effect so that if a particular action or condition is not permitted by any of such covenants, the fact that it would be permitted by an exception to, or would otherwise be within the limitations of, another covenant shall not avoid the occurrence of a Default or an Event of Default if such action is taken or condition exists. This Deed of Trust shall be binding upon and inure to the benefit of Beneficiary and Grantor and their respective successors and assigns. Except as permitted in the

 

Deed of Trust - Texas Form

 

18


Credit Agreement, Grantor shall not, without the prior written consent of Beneficiary, assign any rights, duties or obligations hereunder. Upon payment in full of the Indebtedness and performance in full of the Obligations, or upon prepayment of a portion of the Indebtedness equal to the Net Asset Sale Proceeds for the Property in connection with a permitted Asset Sale, subject to and in accordance with the terms and provisions of the Credit Agreement, Beneficiary, at Grantor’s expense, shall promptly release the liens and security interests created by this Deed of Trust or reconvey the Property to Grantor or, at the request of Grantor, assign this Deed of Trust without recourse. This Deed of Trust and the other Credit Documents embody the entire agreement and understanding between Beneficiary and Grantor and supersede all prior agreements and understandings between such parties relating to the subject matter hereof and thereof. Accordingly, the Credit Documents 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.

THE PROVISIONS OF THIS DEED OF TRUST REGARDING THE CREATION, PERFECTION AND ENFORCEMENT OF THE LIENS AND SECURITY INTERESTS HEREIN GRANTED SHALL BE GOVERNED BY AND CONSTRUED UNDER THE LAWS OF THE STATE IN WHICH THE PROPERTY IS LOCATED. ALL OTHER PROVISIONS OF THIS DEED OF TRUST AND THE RIGHTS AND OBLIGATIONS OF GRANTOR AND BENEFICIARY SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE CONFLICT OF LAWS PRINCIPLES THEREOF.

[Remainder of page intentionally left blank]

 

Deed of Trust - Texas Form

 

19


IN WITNESS WHEREOF , Grantor has on the date set forth in the acknowledgment hereto, effective as of the date first above written, caused this instrument to be duly executed and delivered by authority duly given.

 

[NAME OF GRANTOR]
By:    
Name:    
Title:    

 

STATE OF    )   
   )    ss.
COUNTY OF    )   

This instrument was acknowledged before me on the                  day of         , 2011 by                 , the                  of                 , on behalf of said                 .

 

Notary Public, State of                                                  
My commission expires:
 
[NOTARIAL SEAL]

 

Form of Deed of Trust - Texas


EXHIBIT A TO

DEED OF TRUST

Legal Description of Premises:

 

Deed of Trust - Texas Form


EXHIBIT K TO

CREDIT AND GUARANTY AGREEMENT

FORM OF LANDLORD PERSONAL PROPERTY

COLLATERAL ACCESS AGREEMENT

LANDLORD WAIVER AND CONSENT AGREEMENT

This LANDLORD WAIVER AND CONSENT AGREEMENT (this “Agreement” ) is dated as of             , 2011, and entered into by                     ., a                     ( “Landlord” ), to and for the benefit of GOLDMAN SACHS BANK USA , in its capacity as “Agent” as provided below.

RECITALS:

WHEREAS ,                     ( “Tenant” ) has possession of and occupies certain property on which a [Del Frisco’s][Sullivan’s] Steakhouse is operated and which is located in [City, State] (the “Premises” );

WHEREAS , Tenant’s interest in the Premises arises under the lease agreement more particularly described on Exhibit A annexed hereto (as the same may be amended from time to time, the “Lease” ), pursuant to which Landlord has rights, upon the terms and conditions set forth therein, to take possession of, and otherwise assert control over, the Premises;

WHEREAS , Landlord understands that Goldman Sachs Bank USA, as agent (in such capacity, together with its successors and assigns, “ Agent ”) for certain lenders (together with their successors and assigns, “ Lenders ”) have entered into, or after the date hereof shall enter into, a Credit and Guaranty Agreement (as amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement” ), by and among Tenant, certain affiliates of Tenant, and certain other credit parties (collectively, the “Credit Parties” ), Agent and the Lenders party thereto from time to time, pursuant to which Tenant has executed certain security agreements, pledges and other collateral documents in relation to the Credit Agreement;

WHEREAS , repayment by the Credit Parties of the extensions of credit made by Lenders under the Credit Agreement is or will be secured, in part, by a collateral assignment of Tenant’s interest in the Premises and the Lease, and by all inventory of the Credit Parties (including all inventory of Tenant now or hereafter located on the Premises (the “Subject Inventory” )), all equipment used in the Credit Parties’ business (including all equipment of Tenant now or hereafter located on the Premises (the “Subject Equipment” )), and all tangible assets of the Credit Parties now or hereafter located on the Premises (collectively, the “Collateral” ); and

WHEREAS , Agent has requested that Landlord execute this Agreement as a further condition to the extension of credit to the Credit Parties under the Credit Agreement.

 

Collateral Access Agreement


NOW , THEREFORE , in consideration of the premises and for other good and valuable consideration, the receipt, sufficiency and adequacy of which are hereby acknowledged, Landlord hereby represents and warrants to, and covenants and agrees with, Agent, on behalf of Lenders, as follows:

1. Landlord consents to Tenant’s collateral assignment of all of its right, title and interest in and to the Premises and to the Lease.

2. Landlord hereby (a) waives and releases unto Agent and its successors and assigns any and all rights granted by or under any present or future laws to levy or distraint for rent or any other charges which may be due to Landlord against the Collateral, and any and all other claims, liens and demands of every kind which it now has or may hereafter have against the Collateral, and (b) agrees that any rights it may have in or to the Collateral, no matter how arising (to the extent not effectively waived pursuant to clause (a) of this paragraph), shall be second and subordinate to the rights of Agent in respect thereof. Landlord acknowledges that the Collateral is and will remain personal property and not fixtures even though it may be affixed to or placed on the Premises.

3. Landlord certifies that (a) Landlord is the landlord under the Lease, (b) the Lease is in full force and effect and has not been amended, modified or supplemented except as set forth on Exhibit A annexed hereto, (c) to the knowledge of Landlord, there is no defense, offset, claim or counterclaim by or in favor of Landlord against Tenant under the Lease or against the obligations of Landlord under the Lease, and (d) no notice of default has been given under or in connection with the Lease which has not been cured, and Landlord has no knowledge of the occurrence of any other default under or in connection with the Lease.

4. Landlord grants to Agent a license to enter upon the Premises at any time during the continuance of a default under or with respect to the Credit Agreement to assemble and remove the Collateral. In entering upon or into the Premises, Agent hereby agrees to indemnify, defend and hold Landlord harmless from and against any and all claims, judgments, liabilities, costs and expenses incurred by Landlord to the extent caused by Agent’s entering upon or into the Premises and taking any of the foregoing actions with respect to the Collateral. Such costs and expenses shall include any damage to the Premises made by Agent in removing the Collateral therefrom.

5. Landlord agrees that it will not prevent Agent or its designee from exercising the license set forth in Section 4 at all reasonable times during the continuance of a default under or with respect to the Credit Agreement, upon reasonable advance notice. In the event that Landlord has the right to, and desires to, obtain possession of the Premises (either through expiration of the Lease or termination thereof due to the default of Tenant thereunder, including due to monetary default, or otherwise), Landlord will use commercially reasonable efforts, but shall not be obligated, to deliver notice (the “Landlord’s Notice” ) to Agent to that effect. Agent shall have up to ten (10) business days after delivery of the Landlord’s Notice (or longer period concurrent with the grace periods allowed if the Landlord’s Notice is given pursuant to Section 6 hereof) to elect to cause the Collateral to be removed from the Premises by delivery of written notice to Landlord to that effect (“ Agent’s Election ”). After making Agent’s Election, Agent shall have the right, but not the obligation, to cause the Collateral to be removed from the

 

Collateral Access Agreement

-2-


Premises, provided that Agent pays to Landlord the base rent due under the terms of the Lease on a per diem basis for each day that Agent or its agents actually occupies the Premises. During any such period of access, Landlord will not remove the Collateral from the Premises nor interfere with Agent’s actions in removing the Collateral from the Premises or Agent’s actions in otherwise enforcing its security interest in the Collateral (including, without limitation, exercising the license granted in Section 4 ). Notwithstanding anything to the contrary in this paragraph, Agent shall at no time have any obligation to remove the Collateral from the Premises.

6. Landlord acknowledges that Tenant shall send to Agent a copy of any notice of default under the Lease sent by Landlord to Tenant. Agent shall have the right to cure the default set forth therein within the grace periods provided in the Lease; provided, however, that Agent shall be under no obligation to cure any default of Tenant under the Lease. No action by Agent pursuant to this Agreement shall be deemed to be an assumption by Agent of any obligation under the Lease, and Agent shall not have any obligation to Landlord. Notices described in this Section 6 may be delivered to Agent simultaneously with any Landlord’s Notice described in Section 5 hereof.

7. All notices to Agent under this Agreement shall be in writing and sent to Agent at its address set forth on the signature page hereof by telefacsimile, United States mail or overnight delivery service.

8. The provisions of this Agreement shall continue in effect until Landlord shall have received Agent’s written certification that all amounts advanced under the Credit Agreement have been paid in full and the Lenders have no obligation to make any advances or other extensions of credit thereunder (the “ Termination Date ”), and Agent hereby agrees to use commercially reasonable efforts to provide written notice to Landlord of the occurrence of the Termination Date within thirty (30) business days of such occurrence. This Agreement shall inure to the benefit of the parties’ respective successors and assigns. This Agreement may be executed in any number of separate counterparts, which, taken together, shall constitute one instrument.

9. This Agreement and the rights and obligations of the parties hereunder shall be governed by, and shall be construed and enforced in accordance with, the internal laws of the State in which the Premises are located, without regard to its conflicts of laws principles.

[Remainder of page intentionally left blank]

 

Collateral Access Agreement

-3-


IN WITNESS WHEREOF , Landlord has caused this Agreement to be executed and delivered by its duly authorized representative as of the date first set forth above.

 

   

                                                                       ,         as

Landlord

    By:    
    Name:    
    Title:    
     
   

Address:

   

 

   

 

    Attention:    
    Telecopier:    

 

Collateral Access Agreement


By its acceptance hereof, as of the date first set forth above, Agent agrees to be bound by the provisions hereof.

 

    GOLDMAN SACHS BANK USA, as Agent
    By:    
    Name:    
    Title:    
     
   

6011 Connection Drive

Irving, Texas 75039

Attention: DFRG Account Manager

Telecopier: 972-368-5099

 

Collateral Access Agreement


Exhibit A to

Landlord Waiver and Consent

Lease

 

Collateral Access Agreement

Exhibit 10.2

FIRST AMENDMENT TO

CREDIT AND GUARANTY AGREEMENT

This FIRST AMENDMENT TO CREDIT AND GUARANTY AGREEMENT (this “ Amendment ”) is made and entered into as of August 24, 2011 (the “ Effective Date ”), by and among CENTER CUT HOSPITALITY, INC., a Delaware corporation (“ Company ”), DEL FRISCO’S RESTAURANT GROUP, LLC, a Delaware limited liability company (“ Holdings ”), the other Credit Parties party hereto, GOLDMAN SACHS BANK USA (“ GS Bank ”), as Administrative Agent (in such capacity, “ Administrative Agent ”), and the Lenders party hereto.

W I T N E S S E T H :

WHEREAS, Company, Holdings, the other Credit Parties party thereto from time to time, the Lenders party thereto from time to time, and GS Bank, as Administrative Agent, Collateral Agent and Lead Arranger, are party to that certain Credit and Guaranty Agreement, dated as of July 29, 2011 (as amended, restated, supplemented and otherwise modified from time to time, the “ Credit Agreement ”), pursuant to which Lenders have extended to Company certain Loans and other financial accommodations; and

WHEREAS, the Credit Parties have requested that the Lenders make certain amendments with respect to the Credit Agreement; and

WHEREAS, the Lenders are willing to make such amendments subject to the terms and conditions set forth herein;

NOW, THEREFORE, in consideration of the foregoing premises and other good and valuable consideration, the receipt and legal sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:

1. Definitions . All capitalized terms used but not otherwise defined herein shall have the respective meanings ascribed to such terms in the Credit Agreement.

2. Amendments . Subject to the terms and conditions set forth herein, and in reliance on the representations, warranties, covenants and agreements contained in this Amendment:

(a) The definition of “Excluded Account” in Section 1.1 of the Credit Agreement is hereby amended by deleting the existing text of such definition in its entirety and by inserting, in lieu thereof, the following text:

“Excluded Account” means individually or collectively as the context requires, (i) any account used solely for payroll, payroll taxes or other employee wage and benefit payments, (ii) any escrow accounts used solely for consideration that could reasonably be expected to become payable in connection with Permitted Acquisitions, (iii) any accounts used solely to cash collateralize or otherwise satisfy Governmental Authorizations relating to the sale and service of

 

First Amendment to Credit Agreement

 

1


liquor, and (iv) any petty cash deposit account for which a control agreement has not otherwise been obtained, so long as, with respect to this clause (iv), (a) the aggregate amount on deposit in each such petty cash account does not exceed (1) $65,000 at any one time at account number 60750005658 maintained by Center Cut Hospitality, Inc. with Key Bank, (2) $200,000 at any one time at account number 7910033518 maintained by Del Frisco’s of New York, LLC with TD Bank, or (3) $50,000 at any one time at any account other than the accounts in clause (1) and clause (2), and (b) the aggregate amount on deposit in all such petty cash accounts does not exceed $600,000 at any one time as of or after the Closing Date (or, in the case of clause (a) and/or (b), such greater amounts, if any, approved by Administrative Agent from time to time in its reasonable discretion).

(b) Section 1 of Schedule 5.15 to the Credit Agreement is hereby amended by deleting the existing text of such Section in its entirety and by inserting, in lieu thereof, the following text:

1. Credit Parties shall deliver to Administrative Agent, no later than forty-five (45) days after the Closing Date (or any later date(s) approved in writing by Administrative Agent in its sole discretion, which written approval may be in the form of an electronic mail message), a fully executed Deposit Account Control Agreement with respect to account number 650021640 maintained by Center Cut Hospitality, Inc. with Frost National Bank.

(c) Section 3 of Schedule 5.15 to the Credit Agreement is hereby amended by deleting the existing text of such Section in its entirety and by inserting, in lieu thereof, the following text:

3. Credit Parties shall deliver to Administrative Agent, no later than sixty (60) days after the Closing Date (or any later date(s) approved in writing by Administrative Agent in its sole discretion, which written approval may be in the form of an electronic mail message), evidence, in form and substance reasonably satisfactory to Administrative Agent, that Center Cut Marketing, LLC Limited Liability Company, an Indiana limited liability company, has been reinstated as an Indiana limited liability company.

3. Representations, Warranties, Covenants and Acknowledgments . To induce Administrative Agent and the Lenders to enter into this Amendment:

(a) Each Credit Party hereby represents and warrants that (i) as of Effective Date, after giving effect hereto, the representations and warranties contained in the Credit Documents are true and correct in all material respects on and as of the Effective Date to the same extent as though made on and as of the Effective Date, except to the extent such representations and warranties specifically relate to an earlier date, in which case such representations and warranties shall have been true and correct in all material respects on and as of such earlier date, (ii) as of the Effective Date, there exists no Default or Event of Default under the Credit Agreement or the other Credit Documents, (iii) it has the power and is duly authorized to enter into, deliver and

 

First Amendment to Credit Agreement

 

2


perform this Amendment, and (iv) this Amendment and the other Credit Documents are the legal, valid and binding obligations of such Credit Party enforceable against such Credit Party in accordance with their respective terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors’ rights generally or by equitable principles relating to enforceability; and

(b) Each Credit Party hereby reaffirms each of the agreements, covenants and undertakings set forth in the Credit Agreement (as modified hereby) and each other Credit Document as if such Credit Party were making such agreements, covenants and undertakings on the Effective Date; and

(c) Each Credit Party hereby acknowledges and agrees that no right of offset, recoupment, defense, counterclaim, claim, cause of action or objection in favor of such Credit Party against any Agent or any Lender exists arising out of or with respect to (i) the Obligations, this Amendment or the other Credit Documents, (ii) any other documents now or heretofore evidencing, securing or in any way relating to the foregoing, or (iii) the administration or funding of the Loans and Letters of Credit; and

(d) Each Credit Party acknowledges and agrees that this Amendment shall be deemed a “Credit Document” for all purposes under the Credit Agreement; and

(e) Each Credit Party acknowledges and agrees that (i) the Lenders’ agreement to the amendments contained herein does not and shall not create (nor shall any Credit Party rely upon the existence of or claim or assert that there exists) any obligation of any Lender to consider or agree to any further amendment (or any consent or waiver) with respect to any Credit Document, (ii) in the event that any Lender subsequently agrees to consider any further amendment (or any consent or waiver) with respect to any Credit Document, neither this Amendment nor any other conduct of any Lender shall be of any force and effect on any Lender’s consideration or decision with respect thereto, and (iii) Lenders shall have no further obligation whatsoever to consider or agree to any further amendment (or any consent or waiver) with respect to any Credit Document.

4. Release; Indemnification .

(a) In further consideration of Administrative Agent’s and the Lenders’ execution of this Amendment, each Credit Party, individually and on behalf of its respective successors (including, without limitation, any trustees acting on behalf of such Credit Party, and any debtor-in-possession with respect to such Credit Party), assigns, participants, subsidiaries and affiliates, hereby forever releases each Agent and each Lender and their respective successors, assigns, parents, subsidiaries, affiliates, officers, employees, directors, agents and attorneys (collectively, the “ Releasees ”) from any and all debts, claims, demands, liabilities, responsibilities, disputes, causes, damages, actions and causes of actions (whether at law or in equity), and obligations of every nature whatsoever, whether liquidated or unliquidated, whether known or unknown, whether matured or unmatured, whether fixed or contingent that such Credit Party has or may have against the Releasees, or any of them, which arise from or relate to any actions which the Releasees, or any of them, have or may have taken or omitted to take in connection with the Credit Agreement or the other Credit Documents prior to the Effective Date (including, without

 

First Amendment to Credit Agreement

 

3


limitation, with respect to the Obligations, any Collateral, the Credit Agreement, any other Credit Document and any third parties liable in whole or in part for the Obligations). This provision shall survive and continue in full force and effect whether or not the Credit Parties shall satisfy all other provisions of this Amendment, the Credit Agreement or the other Credit Documents, including payment in full of all Obligations.

(b) Each Credit Party hereby agrees that its release of the Releasees set forth in Section 4(a) above shall include an obligation to, and each Credit Party, jointly and severally, hereby agrees to indemnify and hold the Releasees, or any of them, harmless with respect to any and all liabilities, obligations, losses, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever incurred by the Releasees, or any of them, whether direct, indirect or consequential, as a result of or arising from or relating to any proceeding by, or on behalf of any Person, including, without limitation, officers, directors, agents, trustees, creditors, partners or shareholders of such Credit Party or any parent, subsidiary or affiliate of such Credit Party, whether threatened or initiated, asserting any claim for legal or equitable remedy under any statutes, regulation, common law principle or otherwise arising from or in connection with the negotiation, preparation, execution, delivery, performance, administration and enforcement of this Amendment or any other document executed in connection herewith; provided , that no Credit Party shall be liable for any indemnification to a Releasee to the extent that any such liability, obligation, loss, penalty, action, judgment, suit, cost, expense or disbursement results from such Releasee’s gross negligence or willful misconduct, as finally determined by a court of competent jurisdiction. The foregoing indemnity shall survive the payment in full of the Obligations and the termination of this Amendment, the Credit Agreement and the other Credit Documents.

5. Conditions Precedent . The effectiveness of this Amendment is subject to the following conditions precedent:

(a) Delivery of Documents . Company shall have delivered to Administrative Agent (i) fully-executed counterparts of this Amendment executed by the Credit Parties, Administrative Agent and the Lenders, and (ii) any other documentation reasonably requested by Administrative Agent in connection herewith.

(b) Accuracy of Representations and Warranties . All of the representations and warranties made or deemed to be made in this Amendment shall be true and correct as of the Effective Date.

6. Expenses. Company shall pay Administrative Agent all of its actual and reasonable costs and expenses in connection with this Amendment in accordance with the Credit Agreement (including, without limitation, all reasonable fees, expenses and disbursements of counsel to Administrative Agent).

7. Effect of this Amendment; Relationship of Parties. Except as expressly modified hereby, the Credit Documents shall be and remain in full force and effect, and shall constitute the legal, valid, binding and enforceable obligations of the Credit Parties to each Agent and each Lender, except as may be limited by bankruptcy, insolvency, reorganization,

 

First Amendment to Credit Agreement

 

4


moratorium or similar laws relating to or limiting creditors’ rights generally or by equitable principles relating to enforceability. The relationship of Agents and Lenders, on the one hand, and the Credit Parties, on the other hand, has been and shall continue to be, at all times, that of creditor and debtor and not as joint venturers or partners. Nothing contained in this Amendment (or any instrument, document or agreement delivered in connection herewith), the Credit Agreement or the other Credit Documents shall be deemed or construed to create a fiduciary relationship between or among the parties.

8. Miscellaneous. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts (any of which may be delivered via facsimile or electronic mail in portable document format), each of which, when so executed and delivered, shall be deemed to be an original and all of which counterparts, taken together, shall constitute but one and the same Amendment. The exchange of copies of this Amendment and of signature pages hereto by facsimile or electronic mail in portable document format shall constitute effective execution and delivery of this Amendment and may be used in lieu of the original Amendment for all purposes. Signatures of the parties transmitted by facsimile or electronic mail in portable document format shall be deemed to be the parties’ original signatures for all purposes. This Amendment shall be binding upon and inure to the benefit of the successors and permitted assigns of the parties hereto. This Amendment shall be governed by, and construed in accordance with, the laws of the State of New York without giving effect to its conflict of laws principles that would apply the laws of another jurisdiction. Each of the parties hereto accepts the non-exclusive jurisdiction of any state or federal court of competent jurisdiction in the State, County and City of New York for any judicial proceeding arising under or relating to this Amendment, to the full extent set forth in Section 10.15 of the Credit Agreement. Each of the parties hereto hereby agrees to waive its respective rights to a jury trial of any claim or cause of action based upon or arising under this Amendment, to the full extent set forth in Section 10.16 of the Credit Agreement. This Amendment embodies the entire agreement and understanding between the parties hereto with respect to the subject matter hereof and supersedes all prior oral or written negotiations, agreements and understandings of the parties with respect to the subject matter hereof, except the agreements embodied in the Credit Agreement and the other Credit Documents (as modified hereby).

[Remainder of Page Intentionally Left Blank]

 

First Amendment to Credit Agreement

 

5


IN WITNESS WHEREOF, the Credit Parties, Administrative Agent and the Lenders have caused this Amendment to be duly executed and delivered by their respective duly authorized representatives as of the Effective Date.

 

COMPANY:

 

CENTER CUT HOSPITALITY, INC.
By:   /s/ Marc L. Lipshy
Name: Marc L. Lipshy
Title:   President

 

GUARANTORS:

 

DEL FRISCO’S RESTAURANT GROUP, LLC
By:   /s/ Marc L. Lipshy
Name: Marc L. Lipshy
Title:  Vice President

 

ROMO HOLDING, LLC
By:   /s/ Marc L. Lipshy
Name: Marc L. Lipshy

Title:   President

 

DEL FRISCO – DALLAS, L.P.
DEL FRISCO – FORT WORTH, L.P.

SULLIVAN’S – AUSTIN, L.P.

 

By:     ROMO HOLDING, LLC,

Its:     General Partner

 

By:   /s/ Marc L. Lipshy
Name: Marc L. Lipshy
Title:   President

 

Signature Page

 

First Amendment to Credit Agreement


GUARANTORS (continued):
CALIFORNIA SULLIVAN’S, INC.
CBG DELAWARE, INC.
CENTER CUT MARKETING, LLC
DEL FRISCO’S GRILL OF NEW YORK, LLC
COLORADO SULLIVAN’S, INC.
DEL FRISCO’S GRILLE OF DALLAS, LLC
CWA DELAWARE, INC.
DEL FRISCO’S OF BOSTON, LLC
DEL FRISCO’S OF COLORADO, INC.
LONE STAR FINANCE, LLC
LOUISIANA STEAKHOUSE, INC.
DEL FRISCO’S OF NEVADA, INC.
DEL FRISCO’S OF NORTH CAROLINA, INC.
NORTH PHILADELPHIA SULLIVAN’S, INC.
DEL FRISCO’S OF PHILADELPHIA, INC.
DEL FRISCO’S OF NEW YORK, LLC
STEAK CONCEPTS DELAWARE, INC.
SULLIVAN’S OF ILLINOIS, INC.
SULLIVAN’S OF INDIANA, INC.
SULLIVAN’S OF ALASKA, INC.
SULLIVAN’S OF KANSAS, INC.
SULLIVAN’S OF ARIZONA, INC.
SULLIVAN’S OF BALTIMORE, INC.
SULLIVAN’S OF DELAWARE, INC.
SULLIVAN’S OF NORTH CAROLINA, INC.
SULLIVAN’S RESTAURANTS OF NEBRASKA, INC.
CROCKETT BEVERAGE CORPORATION
POST OAK BEVERAGE CORP.
TRAVIS BEVERAGE CORPORATION
SULLIVAN’S OF WASHINGTON, LLC
WESTHEIMER BEVERAGE CORPORATION
IRWIN J. GROSSNERR FOUNDATION, INC.
TOLLWAY BEVERAGE CORPORATION

 

By:   /s/ Mark S. Mednansky
Name: Mark S. Mednansky
Title:   President

 

Signature Page

 

First Amendment to Credit Agreement


ADMINISTRATIVE AGENT and LENDER:

 

GOLDMAN SACHS BANK USA

By:   /s/ Stephen W. Hipp
Name:   Stephen W. Hipp

Title:

  Authorized Signatory

 

Signature Page

 

First Amendment to Credit Agreement


LENDERS (continued):

 

TPG SPECIALTY LENDING, INC.

By:   /s/ Michael Fishman
Name:   Michael Fishman

Title:

  CEO

 

Signature Page

 

First Amendment to Credit Agreement

Exhibit 10.4

DEL FRISCO’S RESTAURANT GROUP

NONQUALIFIED DEFERRED COMPENSATION PLAN

Effective as Amended and Restated

December 1, 2007


DEL FRISCO’S RESTAURANT GROUP

NONQUALIFIED DEFERRED COMPENSATION PLAN

TABLE OF CONTENTS

 

ARTICLE

          PAGE  
  ARTICLE I       DEFINITIONS      2   
  1.1.         Account      2   
  1.2.         Affiliate      2   
  1.3.         Base Pay      2   
  1.4.         Beneficiary      2   
  1.5.         Board      2   
  1.6.         Bonus or Bonuses      2   
  1.7.         Business Day      2   
  1.8.         Change of Control      2   
  1.9.         Code      3   
  1.10.       Committee      3   
  1.11.       Company      3   
  1.12.       Company Contributions      3   
  1.13.       Compensation      3   
  1.14.       Controlled Group      3   
  1.15.       Deferral Election      3   
  1.16.       Deferred Compensation      3   
  1.17.       Disability      3   
  1.18.       Effective Date      3   
  1.19.       Eligible Employee      3   
  1.20.       Employer      4   
  1.21.       ERISA      4   
  1.22.       Forfeiture Account      4   
  1.23.       409A Amounts      4   
  1.24.       Investment Return      4   
  1.25.       Matching Contributions      4   
  1.26.       Participant      4   
  1.27.       Plan      4   
  1.28.       Plan Year      5   
  1.29.       Pre-409A Amounts      5   
  1.30.       Retirement      5   
  1.31.       Service      5   
  1.32.       Specified Employee      5   
  1.33.       Spouse      5   
  1.34.       Termination of Employment      5   
  l.35.       Trust or Trust Agreement      6   
  1.36.       Trustee      6   
  1.37.       Trust Fund      6   
  1.38.       Unforeseeable Emergency      6   
  1.39.       Valuation Date      6   
  1.40.       Year of Service      7   

 

i


DEL FRISCO’S RESTAURANT GROUP.

NONQUALIFIED DEFERRED COMPENSATION PLAN

TABLE OF CONTENTS (Continued)

 

ARTICLE

       PAGE  

ARTICLE II

  ELIGIBILITY AND PARTICIPATION      7   

2.1.        

  Eligibility      7   

2.2.        

  Procedure for Participation      7   

2.3.        

  Cessation of Eligibility      8   

ARTICLE III

  PARTICIPANTS’ ACCOUNTS; DEFERRALS AND CREDlTING      8   

3.1.        

  Participants’ Accounts      8   

3.2.        

  Deferral Elections      9   

3.3.        

  Crediting of Matching and Company Contributions      10   

3.4.        

  Vesting      11   

3.5.        

  Crediting of Forfeitures      12   

3.6.        

  Crediting of Investment Return      12   

3.7.        

  Debiting of Distributions      12   

3.8.        

  Notice to Participants of Account Balances      12   

3.9.        

  Good Faith Valuation Binding      12   

3.10.      

  Errors and Omissions in Accounts      13   

ARTICLE IV

  PARTICIPANT DIRECTION OF ACCOUNT BALANCES      13   

4.1.        

  Selection of Investment Funds      13   

4.2.        

  Participant Direction of Deemed Investments      13   

4.3.        

  Participation Direction Not Binding      15   

ARTICLE V

  PAYMENT OF ACCOUNT BALANCES      15   

5.1.        

  Benefit Payments upon Termination of Service for any Reason Other than Death      15   

5.2.        

  Benefits Payable Upon Death      17   

5.3.        

  In-Service Distributions      17   

5.4.        

  Distributions for Unforeseeable Emergencies      19   

5.5.        

  Beneficiary Designation      20   

5.6.        

  Taxes      20   

ARTICLE VI

  CLAIMS      20   

6.1.        

  Claims      20   

6.2.        

  Exhaustion of Administrative Remedies      21   

6.3.        

  Action for Recovery      21   

6.4.        

  Participant’s Responsibilities      21   

6.5.        

  Unclaimed Benefits      22   

ARTICLE VII

  SOURCE OF FUNDS: TRUST      22   

7.1.        

  Source of Funds      22   

7.2.        

  Trust      22   

 

ii


DEL FRISCO’S RESTAURANT GROUP.

NONQUALIFIED DEFERRED COMPENSATION PLAN

TABLE OF CONTENTS (Continued)

 

ARTICLE

   PAGE  

ARTICLE VIII COMMITTEE

     23   

8.1.

  Action      23   

8.2.

  Rights and Duties      23   

8.3.

  Compensation, Indemnity and Liability      24   

ARTICLE IX AMENDMENT AND TERMINATION

     24   

9.1.

  Amendments      24   

9.2.

  Termination of Plan      24   

ARTICLE X MISCELLANEOUS

     25   

10.1.

  Taxation      25   

10.2.

  No Employment Contract      25   

10.3.

  Headings      25   

10.4.

  Gender and Number      25   

10.5.

  Assignment of Benefits      25   

10.6.

  Spin-off Plan and Trust      26   

10.7.

  Legally Incompetent      27   

10.8.

  Governing Law      27   

10.9.

  Severability      27   

10.10.

  Overpayments      27   

10.11.

  Binding Agreement      28   

10.12.

  Entire Plan      28   

Signatures

     28   

Appendix A Deemed Investment Options

     A   

 

iii


DEL FRISCO’S RESTAURANT GROUP

NONQUALIFIED DEFERRED COMPENSATION PLAN

Effective as of the 1st day of December, 2007, Center Cut Hospitality, Inc. (the “Company”), as the successor to Lone Star Steakhouse & Saloon, Inc. hereby amends and restates the Lone Star Steakhouse & Saloon, Inc. Nonqualified Deferred Compensation Plan as the Del Frisco’s Restaurant Group Nonqualified Deferred Compensation Plan (the “Plan”).

BACKGROUND AND PURPOSE

A. General Purpose . The Employers desire to provide their designated key management and highly compensated employees with an opportunity to defer the receipt and income taxation of a portion of such employees’ annual compensation and, at the sole discretion of the Committee, to be credited with Matching Contributions and/or Company Contributions from time to time. The purpose of the Plan is to set forth the terms and conditions pursuant to which these deferrals and other contributions may be made to the Plan and to describe the nature and extent of the employees’ rights to such amounts.

B. Type of Plan . The Plan constitutes an unfunded, nonqualified deferred compensation plan that benefits certain designated employees who are within a select group of key management or highly compensated employees. This Plan and the participation in the Plan by Eligible Employees is not intended to create and shall not be deemed to create a security which would be subject to regulation by the United States Securities and Exchange Commission or any state agency.

The Plan is intended to comply with the provisions of Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), and regulations thereunder with respect to amounts subject hereto. The Plan has been administered since the effective date of Code Section 409A with the intention to be operationally compliant with Code Section 409A. Accordingly, where applicable, the Plan shall at all times be construed and administered in a manner consistent with the requirements of Code Section 409A and applicable regulations. Notwithstanding the foregoing, nothing in the Plan, as amended and restated, is intended to constitute a material modification of the Plan provisions as applicable to any amounts that were earned and vested prior to January 1, 2005, and the Plan shall be interpreted and applied to that end.

STATEMENT OF AGREEMENT

To establish the Plan with the purposes and goals as hereinabove described, the Company hereby sets forth the terms and provisions as follows:


ARTICLE I

DEFINITIONS

For purposes of the Plan, the following terms, when used with an initial capital letter, shall have the meaning set forth below unless a different meaning plainly is required by the context.

1.1. Account . Account shall mean, with respect to a Participant or Beneficiary, the total dollar amount or value evidenced by the last balance posted in accordance with the terms of the Plan to the account record established for such Participant or Beneficiary.

1.2. Affiliate . Affiliate shall mean any Controlled Group member to the extent that such entity is operating in the United States and any other business entity, domestic or foreign, which the Board designates as eligible to become an Employer.

1.3. Base Pay . Base Pay shall mean the Participant’s regular annual salary for a Plan Year.

1.4. Beneficiary . Beneficiary shall mean, with respect to a Participant, the person(s) designated in accordance with Section 5.5 to receive any benefits that may be payable under the Plan upon the death of the Participant.

1.5. Board . Board shall mean the Board of Directors of the Company.

1.6. Bonus or Bonuses . Bonus or Bonuses shall mean the actual cash bonus or bonuses awarded to the Participant earned during a Plan Year.

1.7. Business Day . Business Day shall mean each day on which national banks generally operate and are open to the public for business.

1.8. Change of Control . Change of Control shall mean, with respect to a Participant a (i) change in ownership of the Participant’s service recipient, (ii) the replacement, in any 12-month period, of a majority of the members of the service recipient’s board of directors by directors whose appointment or election is not endorsed by a majority of such service recipient’s board of directors before the appointment or election of such new directors or (iii) a change in the ownership of a substantial portion of the assets of a service recipient, in each case as more fully defined under Code Section 409A and the regulations thereunder; provided, however, that in applying clause (iii) hereof, a substantial portion of assets shall be determined based upon a percentage of 50%, and there shall be no Change in Control event when, to the extent provided in the applicable Treasury Regulations, there is a transfer to an entity that is controlled by the shareholders of the transferring corporation immediately after the transfer. For purposes of this Section 1.8, a service recipient shall mean with respect to a Participant on any date: (1) the corporation for which the Participant is performing services, (2) a corporation that is a majority shareholder of the corporation for which the Participant is performing services, or (3) any corporation in a chain of corporations in which each corporation is a majority shareholder of another corporation in the chain, ending in the corporation for which the Participant is performing services. A majority shareholder is a shareholder that owns more than 50% of the total fair market value or total voting power of such corporation. A corporation is a legal entity

 

2


including, but not limited to, a limited liability corporation and a limited partnership. References to a corporation’s board of directors, directors, and shareholders shall mean such entity’s governing body, governors, and owners, respectively. Notwithstanding anything to the contrary contained herein, a Change in Control shall not occur with respect to any transaction between entities that are members of the Controlled Group as of November 30, 2007.

1.9. Code. Code shall mean the Internal Revenue Code of 1986, as amended, and any succeeding federal tax provisions.

1.10. Committee . Committee shall mean the committee appointed by the Board, which shall act on behalf of the Company to administer the Plan, as provided in Article VIII.

1.11. Company . Company shall mean Center Cut Hospitality, Inc., successor to Lone Star Steakhouse & Saloon, Inc., a Delaware corporation with its principal place of business in Wichita, Kansas.

1.12. Company Contributions . Company Contributions shall mean the amount, if any, credited to a Participant’s Account pursuant to Section 3.3(b).

1.13. Compensation . Compensation shall mean, for a Participant for any Plan Year, such Participant’s Base Pay plus Bonuses.

1.14. Controlled Group . Controlled Group includes the Company and any other entity that, together with the Company, would be treated as a common employer pursuant to the provisions of Code Section 414(b) or (c), determined, however, by replacing “50 percent” for “80 percent” whenever it appears therein; provided that for purposes of Section 1.34, “Controlled Group” shall be determined by reference to Code Section 414(b) or (c) by replacing “20 percent” for “80 percent” whenever it appears therein

1.15. Deferral Election . Deferral Election shall mean a written election form on which a Participant may elect to defer under the Plan a portion of his Compensation.

1.16. Deferred Compensation . Deferred Compensation shall mean the amount of Compensation that a Participant elects to defer under this Plan pursuant to a timely, written Deferral Election for a given period.

1.17. Disability . Disability shall mean a physical or mental condition of a Participant resulting from bodily injury, disease, or mental disorder which renders him incapable of continuing any gainful occupation and which condition constitutes total disability under the Federal Social Security Act.

1.18. Effective Date . Effective Date shall mean December 1, 2007 for this amendment and restatement. The initial effective date of the Plan was October 6, 1999.

 

3


1.19. Eligible Employee . Eligible Employee shall mean, for a Plan Year, an individual:

(a) Whose employment status is considered to be District Manager level or higher by an Employer, or

(b) Whose Compensation for the Plan Year is projected to be at least an amount determined in accordance with the definition of “Highly Compensated Employee” under Section 414(q) of the Code, or such higher or lower threshold as the Committee in its sole discretion may establish from time to time, and

(c) Who is designated and notified by the Committee as eligible to participate in this Plan.

The Committee shall determine, from time to time and in its sole discretion, which employees satisfy said criteria and the Committee’s determination, whether or not accurate, shall be binding.

1.20. Employer . Employer shall mean the Company and each other member of the Controlled Group who participates in the Plan as approved by the Company from time to time.

1.21. ERISA . ERISA shall mean the Employee Retirement Income Security Act of 1974, as amended.

1.22. Forfeiture Account . Forfeiture Account shall mean an account reflecting the net amount of forfeitures, and any gains or losses realized thereon, arising within a Plan Year.

1.23. 409A Amounts . 409A Amounts shall mean that portion of a Participant’s Account that is subject to the provisions of Code Section 409A and regulations thereunder and shall consist of all Deferred Compensation, Matching Contributions and Company Contributions (i) posted to the Account record for such Participant after December 31, 2004; or (ii) posted to the Account record for such Participant prior to January 1, 2005, but that were not earned and vested under the Plan prior to such date, and (iii) Investment Return on all amounts described in this Section 1.23.

1.24. Investment Return . Investment Return shall mean the amounts credited (as income, gains or appreciation on the deemed investments provided under Article IV) or charged (as losses or depreciation on the deemed investments provided under Article IV) to the balances in the Participant’s Accounts pursuant to Section 3.6.

1.25. Matching Contributions . Matching Contributions shall mean the amount, if any, credited to a Participant’s Account pursuant to Section 3.3(a).

1.26. Participant . Participant shall mean any person who is eligible to participate, and who has been admitted to and has not been removed from participation in the Plan, pursuant to the provisions of Article II.

1.27. Plan . Plan shall mean the Del Frisco’s Restaurant Group Nonqualified Deferred Compensation Plan, as contained herein and all amendments hereto. For tax purposes and purposes of Title I of ERISA, the Plan is intended to be an unfunded, nonqualified deferred compensation plan covering certain designated employees who are within a select group of key management or highly compensated employees.

 

4


1.28. Plan Year . Plan Year shall mean the 12-consecutive month period beginning January 1 and ending on December 31 of each year. The first Plan Year was the short Plan Year beginning on October 6, 1999 and ending on December 31, 1999.

1.29. Pre-409A Amounts . Pre-409A Amounts shall mean that portion of a Participant’s Account that is not subject to the provisions of Code Section 409A and regulations thereunder and shall consist of all Deferred Compensation, Matching Contributions, Company Contributions and Investment Return posted to the Account record of the Participant that was earned and vested under the Plan before January 1, 2005, as well as any Investment Return on such amounts.

1.30. Retirement . Retirement shall mean Termination of Employment on or after age fifty-five (55).

1.31. Service . Service shall mean the period of continuous employment, which is used to determine a Participant’s vesting percentage in accordance with Section 3.4, that commences with the Participant’s most recent date of hire by an Employer, including for this purpose the period of continuous employment of the Participant by any business entity whose operations have been assumed or acquired in whole or in part by the Employer immediately prior to the Participant’s above-described period of employment by the Employer.

1.32. Specified Employee . Specified Employee shall mean a key employee (as defined in Code Section 416(i) and regulations thereunder but without regard to Code Section 416(i)(5) and as more fully defined under Code Section 409A and regulations thereunder) of the Employer. Key employees shall be determined as of each December 31, to be effective for the twelve-month period commencing on the following April 1. Notwithstanding the foregoing, the Company may make such elections by appropriate corporate action as permitted under the Treasury Regulations and other guidance issued under Code Section 409A with respect to determining Specified Employees, and any such election shall be incorporated into and binding upon the Plan as if fully set forth herein.

1.33. Spouse . Spouse shall mean, with respect to a Participant, the person who is treated as married to such Participant under the laws of the state in which the Participant resides. The determination of a Participant’s surviving Spouse shall be made as of the date of such Participant’s death.

1.34. Termination of Employment . Termination of Employment shall mean a separation from service from the Company and all members of the Controlled Group, for any reason; provided that, however, “Controlled Group” shall be determined by reference to Code Section 414(b) or (c) by replacing “20 percent” for “80 percent” whenever it appears therein. By way of clarification and not by limitation, an Employee who transfers employment from one entity in the Controlled Group to another shall not incur a Termination of Employment. Further, by way of clarification and subject to the foregoing provisions of this Section 1.34: (a) if a Participant would otherwise experience a Termination of Employment due to the sale or other

 

5


disposition of substantial assets by an Employer to an unrelated buyer, such termination may not constitute a Termination of Employment, as agreed upon by the Company or its designee and such buyer, provided that (i) such Participant becomes an employee of such buyer after and in connection with such asset transfer, (ii) all similarly situated Participants are treated consistently, and (iii) the Employer and buyer agree in writing to such treatment prior to the closing of the asset transfer transaction; and (b) the sale of stock of the Company or of any Affiliate, a spin-off or other corporate reorganization or transaction with respect to the Company or one or more Affiliates shall not constitute a Termination of Employment with respect to a Participant who continues employment with the same employer both before and after such transaction.

1.35. Trust or Trust Agreement . Trust or Trust Agreement shall mean the separate agreement or agreements between the Company and the Trustee, which shall constitute a rabbi trust that substantially conforms with Internal Revenue Service Revenue Procedure 92-64, as amended or superseded.

1.36. Trustee . Trustee shall mean the party or parties so designated from time to time pursuant to the terms of the Trust Agreement, if any.

1.37. Trust Fund . Trust Fund shall mean the total amount of cash and other property held by the Trustee (or any nominee thereof) at any time under the Trust Agreement, if any.

1.38. Unforeseeable Emergency . Unforeseeable Emergency shall mean a severe financial hardship to the Participant resulting from an illness or accident of the Participant, the Beneficiary, or the Participant’s Spouse or dependent (as defined in Code Section 152(a) without regard to Code Section 152(b)(l), (b)(2) or (d)(l)(b)), loss of the Participant’s property due to casualty (including the need to rebuild a home following damage to a home not otherwise covered by insurance, for example, as a result of a natural disaster, or the need to pay for medical expenses), or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant. An Unforeseeable Emergency shall be determined by the Committee, in its discretion, on the basis of the facts and circumstances of each case, including information supplied by the participant in accordance with uniform guidelines prescribed from time to time by the Committee; provided, the Participant will be deemed not to have an Unforeseeable Emergency to the extent that such Unforeseeable Emergency is or may be relieved:

(a) Through reimbursement or compensation by insurance or otherwise;

(b) By liquidation of the Participant’s assets, to the extent the liquidation of assets would not itself cause severe financial hardship; or

(c) By cessation of deferrals under the Plan.

Examples of what are not considered to be Unforeseeable Emergencies include the need to send a Participant’s child to college or the desire to purchase a home,

1.39. Valuation Date . Valuation Date shall mean each Business Day.

 

6


1.40. Year of Service . Year of Service is the period of employment used to determine a Participant’s vesting percentage under Section 3.4. A Year of Service shall be granted for each 12 consecutive months of Service rendered by a Participant, whether rendered prior to or following the Effective Date. By way of clarification and not by limitation, if a Participant incurs a Termination of Employment, even for one day, as determined on the books and records of the Employer, all Years of Service before such break in service shall be disregarded for purposes of measuring Years of Service for any period of employment after such break. Likewise, all Years of Service earned after a break in service shall be disregarded for purposes of measuring Years of Service for any period of employment before such break.

ARTICLE II

ELIGIBILITY AND PARTICIPATION

2.1. Eligibility .

(a) Annual Participation . Each individual who is an Eligible Employee for a Plan Year as of the first day of such Plan Year shall be eligible to participate in the Plan for the entire Plan Year, so long as the Participant does not have a Termination of Employment. Such Eligible Employee’s participation shall become effective as of the first day of such Plan Year; provided that the Eligible Employee has satisfied the requirements of Section 2.2.

(b) Interim Plan Year Participation . Each employee who first becomes an Eligible Employee during a Plan Year (a “Newly Eligible Employee”) shall be eligible to participate in the Plan for a portion of such Plan Year, A Newly Eligible Employee shall include (i) a newly hired employee who is an Eligible Employee on his date of hire, (ii) a current employee who is promoted to District Manager or above or whose compensation level is increased during the Plan Year to the threshold set forth in Section 1.19(b) or above, and in either case, who is designated and notified as eligible by the Committee; provided that such employee has not been a Participant in the Plan, or of any other plan required to be aggregated under this Plan under Code Section 409A, at any time during the preceding 24 months. No later than 30 days following the date the employee first becomes a Newly Eligible Employee, the employee may make a Deferral Election to defer Compensation for services to be performed subsequent to the Deferral Election.

A Participant who has ceased to be an Eligible Employee, but who has regained eligibility under the Plan shall not be considered a Newly Eligible Employee for purposes of mid-year enrollment under this Section 2.1(b), unless 24 months has elapsed since the employee was last eligible under this Plan (or any other plan required to be aggregated under this Plan under Code Section 409A). An Eligible Employee who is a former or inactive Participant, and who does not qualify as a Newly Eligible Employee may again participate in the Plan on the first day of the Plan Year immediately following the date he again becomes eligible, provided that such employee properly enrolls in the Plan as set forth in Section 2.2.

2.2. Procedure for Participation .

Each Eligible Employee shall become a Participant for a Plan Year by completing such forms and/or providing such data in a timely manner, as required by the Committee, as a

 

7


condition to participation in the Plan. Such forms and data may include, without limitation, a Deferral Election, the designation of the form and time of payment, the Eligible Employee’s acceptance of the terms and conditions of the Plan, a consent to be insured, a designation of investment election, and a designation of a Beneficiary to receive any benefits payable hereunder. It is expressly contemplated that a Participant may elect separate payment dates and forms with respect to deferrals of Base Pay and Bonuses for each Plan Year.

2.3. Cessation of Eligibility.

If in any Plan Year, a Participant ceases to satisfy the criteria that qualified him as an Eligible Employee, he shall continue to be a Participant and his deferrals under the Plan shall continue for that Plan Year; provided that the Participant remains employed by an Employer. Thereafter, such a Participant shall not participate in the Plan until such time as he again satisfies the requirements to be an Eligible Employee and properly enrolls in the Plan in accordance with Section 2.2. Even if an employee’s active participation in the Plan ends, an employee shall remain an inactive Participant in the Plan until the earlier of (i) the date the full amount of his Account (if any) is distributed from the Plan, or (ii) the date he again becomes an Eligible Employee and recommences active participation in the Plan. During the period of time that an employee is an inactive Participant in the Plan, his Account shall continue to be credited with Investment Return as provided for in Section 3.5.

Notwithstanding the preceding paragraph, for any Participant who commenced participation in the Plan prior to January 1 2001, and if as of the beginning of a subsequent Plan Year such Participant does not satisfy the requirements to be an Eligible Employee, such Participant may continue to participate in the Plan as an active Participant for so long as he continues to elect Deferred Compensation of at least the minimum amount set forth in Section 3.2 for each subsequent Plan Year. If such a Participant who is no longer an Eligible Employee does not elect Deferred Compensation of at least the minimum amount set forth in Section 3.2 for any Plan Year, he shall cease to be an active Participant and may not thereafter elect Deferred Compensation unless he again becomes an Eligible Employee. Notwithstanding the foregoing, should the Committee determine, in it sole discretion, that the provisions of this paragraph could affect the Plan’s status as one that is maintained “primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees,” within the meaning of ERISA (a “top-hat plan”), the Committee may take such action is it deems necessary to ensure that the Plan remains a top-hat plan, including but not limited to narrowing eligibility requirements and terminating any employee’s participation in the Plan to the extent consistent with applicable law.

ARTICLE III

PARTICIPANTS’ ACCOUNTS: DEFERRALS AND CREDITING

3.1. Participants’ Accounts.

(a) Establishment of Accounts. The Committee shall establish and maintain, on behalf of each Participant, an Account. The Account shall be divided into two subaccounts: (i) Pre-409A Amounts, and (ii) 409A Amounts. Each subaccount will be further divided into subaccounts that will be credited with (1) the Participant’s Deferred Compensation from Base

 

8


Pay and Investment Return thereon for the applicable period (meaning, for purposes of this subsection, the period before the effective date of Code Section 409A and each plan year after such date); (2) the Participant’s Deferred Compensation from Bonuses and Investment Return thereon for the applicable period (4) the Participant’s Matching Contributions, if any, and Investment Return thereon for the applicable period; and (5) the Participant’s Company Contributions, if any, and Investment Return thereon for the applicable period. The Committee shall establish such other subaccounts as the Committee may deem necessary in its sole discretion.

(b) Nature of Contributions and Accounts. The Deferred Compensation and the Matching Contributions, if any, and Company Contributions, if any, and Investment Return credited to a Participant’s Account shall be credited to the Trust established pursuant to Section 7.2. The Committee shall allocate the total liability to pay benefits under the Plan among the Company and any other Employers in such manner and amounts, as the Committee in its sole discretion deems appropriate. Assets, which may be acquired by an Employer in anticipation of its obligations under the Plan, shall be part of the general assets of that Employer. An Employer’s obligation to pay benefits under the Plan constitutes a mere promise of the Employer to pay such benefits, and a Participant or Beneficiary shall be and remain no more than an unsecured, general creditor of the applicable Employer.

3.2. Deferral Elections.

Each Eligible Employee who is or becomes eligible to participate in the Plan for all or any portion of a Plan Year may elect to become an active Participant for such Plan Year by completing and delivering to the Committee (or its designee) a Deferral Election setting forth the terms of such election and such other forms as required by the Committee and elect Deferred Compensation for the Plan Year. Each Participant shall make a Deferral Election for each Plan Year, with such Deferral Elections being made and effective at the times provided below. Subject to any modifications, additions or exceptions that the Committee, in its sole discretion, deems necessary, appropriate or helpful, the following shall apply to such Deferral Elections:

(a) Effective Date. An Eligible Employee’s initial Deferral Election with respect to his Compensation shall be effective for the first paycheck earned after the date of the Deferral Election or as soon as administratively practicable thereafter. To be effective, a Participant’s initial Deferral Election must be made within thirty (30) days after the date the employee first becomes a Newly Eligible Employee, as described in Section 2.1 (b), and such election may apply only with regard to Compensation paid for services rendered after the Deferral Election is made.

For Plan Years commencing before January 1, 2007, any employee who becomes an Eligible Employee on or after the first day of a Plan Year may make an initial Deferral Election during the Plan Year with respect to any Bonus payable for that year.

For Plan Years commencing after December 31, 2006, only newly hired Eligible Employees may make an initial Deferral Election during the Plan Year with respect to any Bonus payable for that year, provided that such employee qualifies as a Newly Eligible Employee as set forth in Section 2.1(b). An employee who becomes an Eligible Employee by reason of being

 

9


promoted to District Manager or above shall not be allowed to make an initial Deferral Election during the Plan Year with respect to any Bonus payable for that year. With respect to an initial Deferral Election of any Bonus, the Deferral Election will apply only to that portion of the bonus determined by multiplying such bonus by a fraction; the numerator of which is the number of days remaining in the performance period, and the denominator of which is the total number of days in the performance period. Any initial Deferral Election of “performance-based compensation,” as such term is defined in the regulations under Section 409A, must be made on or before the date that is six months before the end of the applicable consecutive twelve-month performance period; provided that the Eligible Employee performs services continuously from the later of: i) the beginning of the performance period or ii) the date the performance criteria are established; through the date an election is made under this paragraph; provided, however, that no Deferral Election shall be made after the amount of such Bonus has become readily ascertainable.

An Eligible Employee’s subsequent Deferral Election for any Plan Year, must be made on or before the last day of the enrollment period designated by the Committee during the Plan Year immediately preceding the Plan Year for which they desire to participate. If an Eligible Employee fails to submit a Deferral Election in a timely manner, the Eligible Employee shall be deemed to have elected not to participate in the Plan for that Plan Year.

(b) Term. Each Eligible Employee’s Deferral Election for a Plan Year shall remain in effect for all such Compensation paid during such Plan Year unless prior to the end of such Plan Year the Participant terminates employment or otherwise ceases to be an active Employee or the Participant’s Deferral Election is cancelled by the Committee due to the Participant’s Unforeseeable Emergency or a hardship distribution pursuant to Treas, Reg. Section 1.401(k)-l(d)(3).

(c) Amount. An Eligible Employee may elect to defer his Base Pay and/or Bonuses by a minimum of 2 percent and a maximum of 80 percent (or such other minimum or maximum percentage and/or amount, if any, established by the Committee from time-to-time), Notwithstanding the foregoing, in no event will Compensation be deferred to the extent that it would reduce a Participant’s Compensation that is not deferred below an amount necessary to satisfy the following obligations, to the extent applicable:

(i) Applicable employment taxes (FICA/Medicare);

(ii) Income tax withholding for Compensation that is not deferred, and

(iii) Benefit plan deductions.

(d) Crediting of Deferred Compensation. For each Plan Year that a participant has a Deferral Election in effect, the Committee shall credit the amount of such Participant’s Deferred Compensation to his Account on the payroll date on which the Deferred Compensation would have been paid to the Participant but for the Deferral Election.

 

10


3.3. Crediting of Matching and Company Contributions.

(a) Matching Contributions. Matching Contributions as of the last Valuation Date within the Plan Year (or such other date or time as the Committee, in its sole discretion, determines from time-to-time) that are attributable to all or part of a Participant’s Deferred Compensation, will be credited to a Participant’s Account when so directed by the Committee. The Matching Contributions to be allocated to a Participant’s Account shall be an amount equal to fifty cents ($0.50) for each dollar ($1) of the first 20 percent of the Participant’s Deferred Compensation contributed to the Plan for the Plan year.

(b) Company Contributions. As of the last Valuation Date within the Plan Year (or such other date or time as the Committee, in its sole discretion, determines from time-to-time), a “Make-up Company Contribution” or a “Special Company Contribution” may be credited to a Participant’s Account if so directed by the Committee. The Committee shall determine the amount of any Make-up Company Contribution or any Special Company Contribution to be credited to a Participant’s Account in its sole discretion and such amount may be zero and may discriminate in favor of one or more Participants. The amount of the Make-up Company Contribution to be credited to a Participant, if any, shall be an amount determined by the Committee, but in general, if made will be an amount equal to the company contributions (other than matching contributions) that would have been credited to the Participant under a defined contribution plan in which the Participant participates, but which were not credited to such plan due to IRS limitations. The amount of the Special Company Contribution to be credited to a Participant, if any, shall be an amount determined by the Committee. Both Make-up Company Contributions and Special Company Contributions shall be referred to herein as “Company Contributions.”

3.4. Vesting.

A Participant shall at all times be fully vested in his Pre-409A Account, and in the Deferred Compensation and the Investment Return credited to his 409A Account with respect to such Deferred Compensation. The Matching Contributions and Company Contributions credited to a Participant’s 409A Account and the Investment Return credited with respect thereto shall vest in accordance with the following vesting schedule:

 

Completed Years of Service

   Vesting Percentage  

1

     25 percent   

2

     50 percent   

3

     75 percent   

4

     100 percent   

A Participant shall become immediately 100% vested in his Account balance as of the date of the occurrence of a Change of Control, as determined under Section 409A. To the extent, however, that a Participant has not completed four Years of Service as of the date of a Change in Control, any future Company Contributions and forfeitures allocated to a Participant will continue to be subject to the above vesting schedule.

Notwithstanding the foregoing, even vested Company Contributions and Investment Return thereon may be forfeitable in the event that the Participant violates noncompetition, nondisclosure or other requirements designated by the Committee at the time that a Company Contribution is made and any forfeitures attributable thereto shall be added to the Forfeiture Account.

 

11


If a Participant incurs a Termination of Employment before becoming fully vested in his Account, the unvested portion of the Participant’s Account shall be immediately forfeited and added to the Forfeiture Account. For this purpose, a Termination of Employment of even one day shall be deemed to constitute a break in service and shall cause an immediate forfeiture of the unvested portion of the Participant’s Account. Moreover, if a former Participant is rehired by an Employer after such break in service, any Service earned prior to such date shall be disregarded for purposes of determining the vesting percentage applicable to any prospective Company Contributions, and any Service earned after such date of rehire shall be disregarded for purposes of determining the vesting percentage applicable to any Company Contributions made prior to such break in service.

3.5. Crediting of Forfeitures.

As of the last Valuation Date of each Plan Year, the Committee shall determine the aggregate amount of forfeitures and Investment Return credited to the Forfeiture Account since the first day of such Plan Year and shall credit to the Company Contribution subaccount of each Participant who is employed by an Employer on the last day of such Plan Year his pro rata share thereof, based on the respective Account Balances of the active Participants on the last Valuation Date of such Plan Year.

3.6. Crediting of Investment Return.

(a) Investment Return . The Committee shall credit to each Participant’s Account and subaccount, as applicable, the amount of deemed Investment Return applicable thereto from time to time in such manner as the Committee shall deem appropriate consistent with the provisions of Article IV.

(b) Timing . Investment Return shall ordinarily be credited as of each Valuation Date, provided that the Committee may, in its sole discretion, designate another date or dates for crediting of Investment Return.

3.7. Debiting of Distributions.

As of each Valuation Date, the Committee shall debit each Participant’s Account for any amount distributed from such Account since the immediately preceding Valuation Date.

3.8. Notice to Participants of Account Balances.

The Committee shall cause a statement of a Participant’s Account balance to be provided or made available to the Participant generally within thirty (30) days following the end of the Plan Year.

 

12


3.9. Good Faith Valuation Binding.

In determining the value of the Accounts, the Committee shall exercise its best judgment, and all such determinations of value shall be binding upon all Participants and designated Beneficiaries.

3.10. Errors and Omissions in Accounts.

If an error or omission is discovered in the Account of a Participant or in the amount of a Participant’s deferrals, the Committee, in its sole discretion, shall cause appropriate, equitable adjustments to be made as soon as administratively practicable following the discovery of such error or omission.

ARTICLE IV

PARTICIPANT DIRECTION OF ACCOUNT BALANCES

4.1. Selection of Investment Funds.

From time to time, the Committee shall select two or more investment funds (the “Investment Funds”) for purposes of determining the Investment Return on amounts deemed invested in accordance with the terms of the Plan. The Committee will notify Participants in writing prior to the beginning of each Plan Year and at such other times as the Committee deems necessary or desirable of the Investment Funds available under the Plan for such Plan Year. The Committee may change, add or remove Investment Funds on a prospective basis at any time and in any manner it deems appropriate. In the discretion of the Committee, the Investment Funds available under the Plan for Participant direction may be mirrored by investment funds that are actually maintained under the Trust, if any, but shall not be required to do so. In the event that such investment funds are maintained under the Trust, the Trustee shall invest the assets of the Trust as directed by the Committee in accordance with the Trust Agreement. The Investment Funds available from time to time shall be set forth on Appendix A and Appendix A may be modified as appropriate by the Committee or its delegate without any need to amend the Plan.

4.2. Participant Direction of Deemed Investments.

Each Participant generally may direct the Committee with respect to the manner in which his Account shall be deemed invested in and among the Investment Funds, provided, such investment directions shall be made in accordance with the following terms:

(a) Nature of Participant Direction. The selection of Investment Funds by a Participant shall be for the sole purpose of determining the Investment Return to be credited to his Account, and shall not be treated or interpreted in any manner whatsoever as a requirement or direction to actually invest assets in any Investment Fund or any other investment media. The Plan, as an unfunded, nonqualified deferred compensation plan, at no time shall have any actual investment of assets relative to the benefits or Account hereunder.

(b) Investment of Contributions. Except as otherwise provided in this Section, each Participant may make an investment election prescribing the percentage of his future Deferred Compensation, Matching Contributions, if any, and Company Contributions, if any, that will be deemed invested in each Investment Fund. An initial investment election of a Participant shall be made as of the date the Participant commences participation in the Plan and

 

13


shall apply to all Deferred Compensation, Matching Contributions, if any, and Company Contributions, if any, credited to such Participant’s Account after such date. Such Participant may make subsequent investment elections at such times as permitted by the Committee, and such elections shall apply to all such specified Deferred Compensation, Matching Contributions, if any, and Company Contributions, if any, credited to such Participant’s Account after the effective date of such election. Any investment election timely and properly made pursuant to this subsection with respect to future contributions shall remain effective until changed by the Participant.

(c) Investment of Existing Account Balances . Each Participant may make an investment election, effective as of the date the Participant commences participation in the Plan, prescribing a different percentage of his existing Account balances that will be deemed invested in each Investment Fund, Such Participant may make subsequent investment elections at such times as permitted by the Committee prescribing a different percentage of his existing Account balances that will be deemed invested in each Investment Fund. Each such election which is timely and properly made shall remain in effect until changed by such Participant.

(d) Procedures for Investment Direction . Except as otherwise provided herein, with respect to deemed investments made available under the Trust, if any, the Committee (or its delegate) shall then relate to the Trustee the directions of each Participant as to which deemed investments are to be made for each Participant. The Participant’s directions, if any, shall be in a form and manner and in the minimum increments prescribed by the Committee. The Committee may, in its sole discretion, permit Participants to communicate directly with the Trustee or its delegate to direct a change in the Investment Fund or Funds in which his Account is invested. The Committee may prescribe the Investment Fund in which a Participants’ Account shall be deemed invested in the absence of a direction by any such Participant.

(e) Committee Discretion . The Committee shall have complete discretion to adopt and revise procedures to be followed in making such investment elections. Such procedures may include, but are not limited to, the process of making elections, the permitted frequency of making elections, the incremental size of elections, the deadline for making elections and the effective date of such elections. The Committee may also proscribe different requirements for different Investment Funds. Any procedures adopted by the Committee that are inconsistent with the deadlines or procedures specified in this section shall supersede such provisions of this section without the necessity of a Plan amendment.

( f ) Investment Direction by Beneficiary . If a Participant who has elected to have a benefit paid in installments dies before the entire benefit has been distributed, the designated Beneficiary may make an investment election prescribing a different percentage of his existing Account balances that will be deemed invested in each Investment Fund. Such Beneficiary may make subsequent investment elections at such times as permitted by the Committee for Participants prescribing a different percentage of his existing Account balances that will be deemed invested in each Investment Fund. Each such election, which is timely and properly made, shall remain in effect until changed by such Beneficiary. A Beneficiary who is permitted by this section to make deemed investment directions shall, with regard thereto, have the same rights and be subject to the same rules as Participants hereunder.

 

14


4.3. Participation Direction Not Binding.

Notwithstanding any provision of the Plan to the contrary, neither the Committee nor the Trustee of the Trust, if any, shall be bound to follow investment directions of each Participant, and the Committee may disregard or modify such directions without the Participant’s or Beneficiary’s consent. The Company shall have the right, at any time and from time to time, in its sole discretion, to substitute assets of equal fair market value for any asset held by the Trust, if any.

ARTICLE V

PAYMENT OF ACCOUNT BALANCES

5.1. Benefit Payments upon Termination of Service for any Reason Other than Death.

(a) Termination Distributions . If a Participant has a Termination of Employment for any reason other than death, the Participant shall receive a distribution of his entire vested Account payable in the form elected by the Participant and permitted by the Plan. At the time a Participant makes a Deferral Election, the Participant may elect to have all or a portion of the Participant’s Account balance attributable to Deferred Compensation credited pursuant to such Deferral Election together with vested Matching Contributions related thereto, and Investment Return thereon, paid upon Termination of Employment in the form of either a single lump sum or (i) quarterly installments for Pre-409A Amounts, or (ii) annual installments for 409 A Amounts, in each case, over a 5- or 10-year period. A Participant may make a separate election under this Section 5,1 for each annual Deferral Election and may elect separate payment dates and forms with regard to each annual Deferral Election from Base Pay and Bonuses. If the Participant fails to designate a form of distribution, the vested benefit will be payable in a single lump sum payment as provided in this Section 5.1. Except as otherwise provided in Section 5.1(d), Pre-409 A Amounts shall be paid at such time and in such form as previously elected by the Participant.

(b) Valuation . The value of a Lump Sum Distribution elected in the case of Termination of Employment shall be determined based upon the value of the Participant’s Account as of the end of the quarter in which the Participant’s Termination of Employment occurs; such benefits shall be payable to the Participant as soon as administratively practicable thereafter, but not later than the last day of the calendar year in which such Termination of Employment occurred or, if later, the 15th day of the third calendar month following such Termination of Employment.

If the Participant has elected installment payments, the installment payments due during the year of termination will be the value as of the end of the quarter in which the Participant’s Termination of Employment occurs. Installment payments payable to the Participant in subsequent Plan Years will be recalculated on September 30 of each Plan Year, with the exception that (i) a final annual installment payment shall be recalculated as of December 31 of the Plan Year preceding the Plan Year in which the final payment is payable; and (ii) a final quarterly installment shall be recalculated as of the last day of the quarter preceding the Plan Year quarter in which the final payment is payable. Installment payments will begin as soon as

 

15


administratively practicable after the end of the quarter in which the Participant’s Termination of Employment occurs, but not later than the date specified in the preceding paragraph for lump sum payments; later installment payments will be made as soon as administratively practicable after the end of each subsequent quarter or, for annual installments, each subsequent Plan Year.

(c) Distribution of Entire Account Balance . If the vested Account balance of the Participant as of the Valuation Date coinciding with or next following the date that the Participant’s benefits become payable due to Termination of Employment for any reason other than death, Disability or Retirement is $50,000 or less, the entire vested Account shall be paid in a single lump sum cash payment as soon as administratively practicable following the end of the quarter in which the Termination of the Participant’s employment occurred.

(d) Permissible Changes to Distributions of Pre-409A Amounts. For distributions of a Participant’s Pre-409A Amounts that are otherwise payable upon Termination of Employment, the form of distribution initially elected by a Participant may be amended by giving the Committee or its designee at least one (1) year advance notice in writing on a form designated by the Committee. If the Participant experiences a Termination of Employment prior to the expiration of such notice period, the new election shall not be given effect and the prior election shall be used. After the second election, a Participant may not further postpone payment of a distribution that would otherwise be made due to Termination of Employment.

(e) Exceptions to Prohibition on Acceleration of Distributions of 409A Amounts. The form and timing of a distribution initially elected by a Participant for any portion of his 409A Amounts due to Termination of Employment is irrevocable and may not be accelerated, except:

(i) to pay Federal Insurance Contributions Act (FICA) tax imposed under Code Sections 3101, 3121 (a) and 3121(v)(2), where applicable, on compensation deferred under the Plan (the “FICA Amount”); provided such payment may not exceed the aggregate of the FICA Amount and the income tax withholding related to such FICA Amount;

(ii) to meet the requirements of Code Section 409A and regulations thereunder; provided such payment may not exceed the amount required to be included in income as a result of the failure to comply with the requirements of Code Section 409A and regulations thereunder;

(iii) if the Employer exercises its discretion under Section 9.2 of the Plan to terminate the Plan within twelve (12) months of a corporate dissolution taxed under Code Section 331 or, with the approval of a bankruptcy court pursuant to 11 U.S.C. 503(b)(1)(A); provided that the amounts deferred under the Plan are included in the Participant’s gross income in the latest of (1) the calendar year in which the Plan termination occurs, (2) the calendar year in which the amount is no longer subject to a substantial risk of forfeiture, or (3) the first calendar year in which the payment is administratively practicable; and provided further, the Plan will be treated as terminated only if all substantially similar arrangements sponsored by the Employer are terminated, so that the Participants in the Plan and all participants in substantially similar arrangements are required to receive all amounts of compensation deferred under the terminated arrangements within twelve (12) months of the date of termination of the arrangements;

 

16


(iv) if the Employer exercises its discretion under Section 9.2 of the Plan to terminate the Plan, within the thirty (30) days preceding or the twelve (12) months following a Change of Control; provided the Plan will be treated as terminated only if all substantially similar arrangements sponsored by the Company are terminated, so that the Participants in the Plan and all participants in substantially similar arrangements are required to receive all amounts of compensation deferred under the terminated arrangements within 12 months of the date of termination of the arrangements;

(v) if the Employer exercises its discretion under Section 9.2 of the Plan to terminate the Plan; provided that (1) all arrangements sponsored by the Employer that would be aggregated with any terminated arrangement under Treas. Reg. Section 1.409A-l (c) if the same Participant participated in all of the arrangements are terminated, (2) no payments other than payments that would be payable under the terms of the Plan if the termination had not occurred are made within twelve (12) months of the termination of the Plan, (3) all payments are made within twenty-four (24) months of the termination of the Plan, and (4) the Employer does not adopt a new plan or arrangement that would be aggregated with the Plan under Treas. Reg. Section 1.409A-l (c) if the Participant participated in both arrangements at any time within five (5) years following the date of termination of the Plan; or

(vi) to make distributions pursuant to Section 10.5 of the Plan.

(f) Required Postponement of Certain Distributions of 409A Amounts. For a Specified Employee, distributions upon Termination of Employment shall not be made (or commence, in the case of installment payments), to the extent required by Code Section 409A, before the date which is six (6) months after the date of Termination of Employment or, if earlier, the date of death of the Specified Employee.

5.2. Benefits Payable Upon Death.

(a) If a Participant dies before payment of his benefit from the Plan is made or commenced, the Beneficiary or Beneficiaries designated by such Participant in his latest beneficiary designation form filed with the Committee shall be entitled to receive a distribution of the total of (i) the entire vested amount credited to such Participant’s Account, determined as of the end of the quarter in which falls the Participant’s death; plus (ii) the vested amount of Deferred Compensation and Matching and Company Contributions, if any, deferred and/or credited to the Account since such Valuation Date plus (iii) Investment Return on such amounts since such Valuation Date. The benefit shall be distributed to such Beneficiary or Beneficiaries, no later than the end of the calendar year in which the Participant’s death occurs, or, if later, the 15 th day of the third calendar month following the Participant’s date of death, in the form of a single lump sum payment.

(b) If a Participant dies after installment payments from the Plan have begun, but before the entire benefit has been distributed, the remaining amount of his vested Account balance shall be distributed to the Participant’s designated Beneficiary in remaining installments as they become due.

 

17


5.3. In-Service Distributions.

(a) Scheduled In-Service Distributions. At the time a Participant makes a Deferral Election, the Participant may elect to have all or a portion of the Participant’s Account balance attributable to Deferred Compensation credited pursuant to such Deferral Election paid in a specified future year that is not earlier than the second Plan Year after the end of the Plan Year for which such Deferral Election applies. For Pre-409A Amounts, if the benefit payable to the Participant is greater than $10,000, then the Participant may elect distribution in the form of either a single lump sum or quarterly installments, over a 2, 3, 4 or 5-year period; provided, however, if the benefit payable to the Participant is $10,000 or less, the benefit payable shall be distributed in the form of a single lump sum payment. For 409A Amounts, an in-service distribution elected by a Participant shall be distributed in the form of a single lump sum payment. A Participant may make a separate election under this Section 5.3 for each annual Deferral Election and may elect separate payment dates and forms with regard to each annual Deferral Election from Base Pay and Bonus for each Plan Year.

The value of a Scheduled In-Service Lump Sum Distribution shall be determined based upon the value the Participant’s account as of December 31 of the prior Plan Year; such benefit shall be payable to the Participant as soon as administratively practicable thereafter.

If the Participant has elected Scheduled In-Service installment payments, the installment payments due during the first year of payments will be the valued as of the December 31 of the previous Plan Year. Installment payments payable to the Participant in subsequent Plan Years will be valued on September 30 of each Plan Year, with the exception of the final year of installment payments which shall be valued as of December 31 of the Plan Year preceding the Plan Year in which the final payment is payable. Installment payments will begin as soon as administratively practicable after the end of the quarter in which the Participant’s installment election begins; later elected installment payments will be made as soon as administratively practicable after the end of each subsequent quarter.

With respect to Scheduled In-Service distributions of a Participant’s Pre-409A Amounts, the form of distribution elected by a Participant may be amended by giving the Committee or its designee at least one (1) year advance notice in writing on a form designated by the Committee. In addition, once an election is made, a Participant may postpone distribution to a later date up to two (2) times, provided the postponed distribution does not commence sooner than two (2) years following the date that the Participant gives the Committee or its designee notification of such postponement. In such event, if the Participant has a Termination of Employment prior to the expiration of such notice period, the new election shall not be given effect and the previous effective election shall be used.

With respect to Scheduled In-Service distributions of a Participant’s 409A Amounts, the timing of the distribution elected by a Participant may be extended by giving the Committee or its designee at least one (1) year advance notice in writing on a form designated by the Committee, provided the postponed distribution does not commence sooner than five (5) years following the date initially elected for distribution. In such event, if the Participant has a Termination of Employment prior to the expiration of such notice period, the new election shall not be given effect and the previous effective election shall be used.

 

18


Provided that the Participant has not had a Termination of Employment prior to the time for payment of a portion of his Deferred Compensation subject to this Section 5.3, the applicable portion of his Account balance shall be paid or payments shall commence to the Participant as soon as administratively practicable after January 1 of the Plan Year chosen by the Participant in the form elected by the Participant at the time of the Participant’s Deferral Election. Notwithstanding the foregoing, if the Participant has had a Termination of Employment prior to the time for payment of a portion of his Account under this Section 5.3, payment shall be made in accordance with the provisions of Sections 5.1 or 5.2, as applicable.

(b) Unscheduled In-Service Distributions of Pre-409A Amounts. In addition, a Participant who is currently employed by an Employer may elect to receive an unscheduled in-service distribution of all or a portion of the Participant’s Pre-409A Amounts attributable to Deferred Compensation and Investment Returns thereon. Such distribution shall be paid in a single lump sum payment as soon as administratively practicable following the Participant’s request for distribution. Upon payment the amount of the elected distribution shall be deducted from the Participant’s Account balance in accordance with Section 3.7. An amount equal to ten percent (10%) of the elected distribution that is deducted from the Account of a Participant receiving an accelerated distribution under this Section 5.3 shall not be paid to the Participant, but shall be added to the Forfeiture Account and applied as provided in Section 3.5. A Participant who receives a distribution under this Section 5.3(b) shall not be permitted to make Compensation Deferrals during the entire Plan Year next commencing after the date of the distribution. If such Employee continues to be an Eligible Employee in accordance with Article 2, such Employee shall be eligible to participate in the Plan in the Plan Year following discontinuance of his Deferral Election and may make a Deferral Election for such Plan Year.

In no event, shall a Participant be permitted to have any portion of his Account attributable to Matching Contributions or Company Contributions paid prior to his Termination of Employment.

5.4. Distributions for Unforeseeable Emergencies.

Upon receipt of an application for a distribution due to an Unforeseeable Emergency, the Committee shall make a decision, in its sole discretion, whether the Participant has suffered an Unforeseeable Emergency and the distribution amount necessary to satisfy the Unforeseeable Emergency. If the Committee determines that the Participant has suffered an Unforeseeable Emergency, distribution of the amount determined to be necessary to satisfy the Unforeseeable Emergency shall be made in a single lump sum payment as soon as administratively feasible after the Committee’s determination. The amount of such distribution shall reduce the Participant’s Account balance as provided in Section 3.7. In no event shall the amount of the distribution for an Unforeseeable Emergency to a Participant exceed the Participant’s vested Account balance at the date of such distribution or the amount reasonably necessary to satisfy the emergency need (which may include amounts necessary to pay any Federal, state, or local income taxes or penalties reasonably anticipated to result from the distribution). Distributions under this Section 5.4 shall be taken first from the Participant’s vested 409A Amounts and, provided the Unforeseeable Emergency was not caused by circumstances relating to the Participant’s non-dependent Beneficiary, may thereafter be taken from Participant’s Pre-409A Amounts.

 

19


5.5. Beneficiary Designation .

(a) General. Participants shall designate and from time to time may redesignate their Beneficiaries in such form and manner as the Committee may determine.

The Participant’s beneficiary designation shall be deemed automatically revoked in the event of the death of the beneficiary, or if the beneficiary is the Participant’s spouse, in the event of dissolution of the marriage. If the Participant’s Compensation constitutes community property, then any beneficiary designation made by the Participant other than a designation of such Participant’s spouse shall not be effective if such beneficiary or beneficiaries are to receive more than 50 percent of the aggregate benefits payable hereunder unless such spouse shall approve such designation in writing.

(b) No Designation or Designee Dead or Missing . In the event that:

(i) a Participant dies without designating a Beneficiary;

(ii) the Beneficiary designated by a Participant is deemed automatically revoked as provided in Section 5.5(a), and no contingent Beneficiary has been designated; or

(iii) the Beneficiary designated by a Participant cannot be located by the Committee within one (1) year from the date benefits are to be paid to such person;

then, in any of such events, the Beneficiary of such Participant with respect to any benefits that remain payable under the Plan shall be the surviving Spouse of the Participant. If there is no surviving Spouse, the Beneficiary shall be made to the legal representative of the Participant’s estate.

5.6. Taxes .

If the whole or any part of any Participant’s or Beneficiary’s benefit hereunder shall become subject to any estate, inheritance, income or other tax which the Company or an Employer shall be required to pay or withhold, the Company shall have the full power and authority to withhold and pay such tax out of any monies or other property in its hand for the account of the Participant or Beneficiary whose interests hereunder are so affected. Amounts so deducted shall be treated as a payment hereunder to the Participant or his beneficiary. Prior to making any payment, the Company may require such releases or other documents from any lawful taxing authority and/or from the Participant or Beneficiary, as it shall deem necessary.

ARTICLE VI

CLAIMS

6.1. Claims .

(a) Initial Claim . Claims for benefits under the Plan may be filed with the Committee on forms or in such other written documents, as the Committee may prescribe. The Committee shall furnish to the claimant written notice of the disposition of a claim within sixty

 

20


(60) days after the application therefor is filed. In the event the claim is denied, the notice of the disposition of the claim shall provide the specific reasons for the denial, citations of the pertinent provisions of the Plan, and, where appropriate, an explanation as to how the claimant can perfect the claim and/or submit the claim for review.

(b) Appeal . Any Participant or Beneficiary who has been denied a benefit shall be entitled, upon request to the Committee, to appeal the denial of his claim. The claimant (or his duly authorized representative) may review pertinent documents related to the Plan and in the Committee’s possession in order to prepare the appeal. The request for review, together with written statement of the claimant’s position, must be filed with the Committee no later than sixty (60) days after receipt of the written notification of denial of a claim provided for in subsection (a). The Committee’s decision shall be made within sixty (60) days following the filing of the request for review. If unfavorable, the notice of the decision shall explain the reasons for denial and indicate the provisions of the Plan or other documents used to arrive at the decision.

(c) Satisfaction of Claims . Any payment to a Participant or Beneficiary shall to the extent thereof be in full satisfaction of all claims hereunder against the Committee and the Company and Employer, any of whom may require such Participant or Beneficiary, as a condition to such payment, to execute a receipt and release therefor in such form as shall be determined by the Committee. If receipt and release is required but the Participant or Beneficiary (as applicable) does not provide such receipt and release in a timely enough manner to permit a timely distribution in accordance with the general timing of distribution provisions in the Plan, the payment of any affected distribution may be delayed until the Committee or the Company or the Employer receives a proper receipt and release.

6.2. Exhaustion of Administrative Remedies .

No action at law or in equity may be brought to recover under this Plan until all administration remedies under the Plan have been exhausted. If a claimant fails to file a timely claim or, if a claim is denied, fails to timely appeal to the Committee and timely request review by the Committee in accordance with the procedures outlined herein, such claimant shall have no rights of review and shall have no right to bring any action in any court and the claim decision shall become final and binding on all persons for all purposes.

6.3. Action for Recovery .

No action at law or in equity may be brought for recovery under this Plan sooner than the date that the Plan’s administrative appeals pursuant to Section 6.1 have been exhausted nor later than two (2) years from the time the claim for benefit was made.

6.4. Participant’s Responsibilities .

Each Participant shall be responsible for providing the Committee with the Participant’s and each Beneficiary’s current address. Any notices required or permitted to be given hereunder shall be deemed given if directed to such address and mailed by regular United States mail. The Committee and the Company shall not have any obligation or duty to locate a Participant or Beneficiary. In the event that a Participant or Beneficiary becomes entitled to a payment under this Plan and such payment is delayed or cannot be made:

(a) because the current address according to Plan records is incorrect;

 

 

21


(b) because the Participant, Spouse, Beneficiary or Personal Representative of the Participant’s estate fails to respond to the notice sent to the current address according to Plan records (or court records in the case of a Personal Representative);

(c) because of conflicting claims to such payments; or

(d) because of any other reason;

the amount of such payment, if and when made, shall be determined under the provisions of this Plan without payment of any Investment Return for the period of delay.

6.5. Unclaimed Benefits.

If, within one (1) year after any amount becomes payable hereunder to a Participant or Beneficiary and the same shall not have been claimed or any check issued under the Plan remains uncashed, provided reasonable care shall have been exercised in attempting to make such payments, the amount thereof shall be forfeited and shall cease to be a liability of the Plan. Notwithstanding the foregoing, if the Participant or Beneficiary thereafter makes a claim for benefit in accordance with this Article VI, the amount payable shall be restored and shall be paid to the Participant or Beneficiary without payment of any Investment Return from the date of forfeiture. The amount forfeited under this Section 6.5 shall not be applied as provided in Section 3.5, but shall be applied to reduce future Matching Contributions and/or Company Contributions as designated by the Committee. Notwithstanding the foregoing, and to the extent applicable, the Company will comply with the escheat statutes of any applicable state.

ARTICLE VII

SOURCE OF FUNDS; TRUST

7.1. Source of Funds .

The Employer shall provide the benefits described in the Plan from the Trust established under Section 7.2. The Company shall establish a Trust and the Employers may pay over funds from time to time to such Trust (as described in Section 7.2), and, to the extent that funds in such Trust allocable to the benefits payable under the Plan are sufficient, the Trust assets shall be used to pay benefits under the Plan. If such Trust assets are not sufficient to pay all benefits due under the Plan, then the applicable Employer shall have the obligation, and the Participant or Beneficiary, who is due such benefits, shall look to the applicable Employer to provide such benefits. The Committee shall allocate the total liability to pay benefits under the Plan among the Company and the Employers in such manner and amount, as the Committee in its sole discretion deems appropriate. To the extent that either the Employer or the Trust pays an amount to the Participant or a Beneficiary, such payment shall operate as a complete discharge for such amount.

 

22


7.2. Trust .

The Employer shall transfer funds as determined by the Company to be necessary to fund benefits accrued hereunder to the Trustee to be held and administered by the Trustee pursuant to the terms of the Trust Agreement. The assets contributed for the Eligible Employees of each Employer, and earnings and losses thereon, shall be accounted for separately under the Trust. The assets held by the Trust, to the extent attributable to contributions for the Eligible Employees of a given Employer, are and shall remain at all times subject to the claims of the general creditors of such Employer. No Participant or Beneficiary shall have any interest in the assets held by the Trust or in the general assets of the Company or any Employer other than as a general, unsecured creditor. Accordingly, the Company shall not grant a security interest in the assets held by the Trust in favor of the Participants, Beneficiaries or any creditor.

ARTICLE VIII

COMMITTEE

8.1. Action .

Action of the Committee may be taken with or without a meeting of committee members; provided, action shall be taken only upon the vote or other affirmative expression of a majority of the committee members qualified to vote with respect to such action. If a member of the committee is a Participant or Beneficiary, he shall not participate in any decision which solely affects his own benefit under the Plan. For purposes of administering the Plan, the Committee shall choose a secretary who shall keep minutes of the committee’s proceedings and all records and documents pertaining to the administration of the Plan. The secretary may execute any certificate or any other written direction on behalf of the Committee.

8.2. Rights and Duties .

The Committee shall administer the Plan and shall have all powers necessary to accomplish that purpose, including (but not limited to) the following:

(a) To construe, interpret and administer the Plan;

(b) To make determinations required by the Plan, and to maintain records regarding Participants’ and Beneficiaries’ benefits hereunder;

(c) To compute and certify to the Company, Employer or the Trustee, if any, the amount and kinds of benefits payable to Participants and Beneficiaries, and to determine the time and manner in which such benefits are to be paid;

(d) To authorize all disbursements by the Company or a Employer pursuant to the Plan;

(e) To maintain all the necessary records of the administration of the Plan;

(f) To make and publish such rules for the regulation of the Plan as are not inconsistent with the terms hereof;

 

23


(g) To delegate to other individuals or entities from time to time the performance of any of its duties or responsibilities hereunder;

(h) To hire agents, accountants, actuaries, consultants and legal counsel to assist in operating and administering the Plan.

The Committee shall have the exclusive right to construe and interpret the Plan, to decide all questions of eligibility for benefits and to determine the amount of such benefits, and its decisions on such matters shall be final and conclusive on all parties.

8.3. Compensation, Indemnity and Liability .

The Committee and its members shall serve as such without bond and without compensation for services hereunder. All expenses of the Committee shall be paid by the Employers. No member of the committee shall be liable for any act or omission of any other member of the committee, nor for any act or omission on his own part, excepting his own willful misconduct. The Company shall indemnify and hold harmless the Committee and each member thereof against any and all expenses and liabilities, including reasonable legal fees and expenses, arising out of his membership on the committee, excepting only expenses and liabilities arising out of his own willful misconduct.

ARTICLE IX

AMENDMENT AND TERMINATION

9.1. Amendments .

The Company, through action of the Board, shall have the right, in its sole discretion, to amend the Plan in whole or in part at any time and from time to time. Notwithstanding the foregoing, the Committee shall have the right, in its sole discretion, to adopt amendments to the Plan that do not have a material cost impact on the Plan, the Company or the Employers at any time and from time to time. Any amendment shall be in writing and executed by a duly authorized officer of the Committee. An amendment to the Plan may modify its terms in any respect whatsoever, and may include, without limitation, a permanent or temporary freezing of the Plan such that the Plan shall remain in effect with respect to existing Account balances without permitting any new contributions, provided, no such action may reduce the amount already credited to a Participant’s Account without the affected Participant’s written consent. All Participants and Beneficiaries shall be bound by such amendment. With regard to any 409A amount, no amendment shall accelerate the payment of any amount under the Plan or otherwise affect the form or timing of the payment of any amount deferred prior to the date of such amendment, except to the extent consistent with Code Section 409A.

9.2. Termination of Plan .

The Company expects to continue the Plan but reserves the right to discontinue and terminate the Plan at any time, for any reason, including, but not limited to the circumstances outlined in Sections 5.1(e)(iii), (iv) or (v) of the Plan. Any action to terminate the Plan shall be taken by the Board in the form of a written Plan amendment executed by a duly authorized officer of the Company. If the Plan is terminated, the termination shall not reduce any amounts

 

24


then credited to a Participant’s Account, but no further deferrals of Deferred Compensation and no further Matching Contributions shall be made. Such termination shall be binding on all Participants and Beneficiaries. Except as otherwise permitted under Section 5.1(e) or to the extent otherwise permitted under 409A or applicable law, no termination of the Plan shall cause the distribution of any benefits hereunder, and all benefits shall be paid at such time and in such form as otherwise payable under the terms hereof.

ARTICLE X

MISCELLANEOUS

10.1. Taxation.

It is the intention of the Company that the benefits payable hereunder shall not be deductible by the Company nor taxable for federal income tax purposes to Participants or Beneficiaries until such benefits are paid by the Company, Employer or the Trust, as the case may be, to such Participants or Beneficiaries. When such benefits are so paid, it is the intention of the Company that they shall be deductible by the Company and/or Employer under Code Section 162.

10.2. No Employment Contract.

Nothing herein contained is intended to be nor shall be construed as constituting a contract or other arrangement between the Company or any Employer and any Participant to the effect that the Participant will be employed by the Company or any Employer for any specific period of time.

10.3. Headings.

The headings of the various articles and sections in the Plan are solely for convenience and shall not be relied upon in construing any provisions hereof. Any reference to a section shall refer to a section of the Plan unless specified otherwise.

10.4. Gender and Number.

Use of any gender in the Plan will be deemed to include all genders when appropriate, and use of the singular number will be deemed to include the plural when appropriate, and vice versa in each instance.

10.5. Assignment of Benefits.

Neither the Participant nor any other person shall have any right to commute, sell, assign, transfer, pledge, anticipate, mortgage, or otherwise encumber, transfer, hypothecate, or convey in advance of actual receipt the amounts, if any, payable hereunder, or any part thereof, which are, and all rights to which are, expressly declared to be unassignable and nontransferable. No part of the amounts payable shall, prior to actual payment, be subject to seizure or sequestration for the payment of any debts, judgments, alimony, or separate maintenance owed by the Participant or any other person, nor be transferable by operation of law in the event of the Participant’s or any other person’s bankruptcy or insolvency.

 

25


Notwithstanding the foregoing, if the Committee receives a domestic relations order that would, if this plan was a qualified plan, meet the requirements of a Qualified Domestic Relations Order under Section 206(d)(3) of ERISA, as amended by the Retirement Equity Act of 1984, and Section 414(p) of the Code, the Committee shall segregate in a separate Account under the Plan the amount, if any, payable to the Alternate Payee pursuant to the domestic relations order. The Alternate Payee shall be treated as a Beneficiary under the Plan for all purposes, except as expressly stated herein.

Such segregated Account balance shall be comprised of a pro rata share of the Participant’s Deferred Compensation, Matching Contributions and Company Contributions unless the Qualified Domestic Relations Order provides otherwise and the Participant consents. The Alternate Payee’s segregated Account balance shall be subject to the Participant’s vesting schedule, as determined under Section 3.4. All distributions from the Alternate Payee’s segregated Account shall be subject to Article V and determined in accordance with the Participant’s elections thereunder.

Notwithstanding the foregoing, the Alternate Payee may elect to receive an unscheduled in-service distribution of one hundred percent (100%) of the fully vested portion of the Alternate Payee’s segregated Pre-409A Amounts subaccount, including the portion of the subaccount that is attributable to Matching Contributions and Company Contributions. An Alternate Payee may not elect an unscheduled in-service distribution for an amount less than the entire balance of the segregated Pre-409A Amounts subaccount as of the time of the request. Upon payment, the amount of the distribution shall be deducted from the Alternate Payee’s Account balance in accordance with Section 3.7. With respect to any such unscheduled in-service distribution of Pre-409A Amounts, an amount equal to ten percent (10%) of the distribution that is deducted from the Account of an Alternate Payee receiving an accelerated distribution under this Section 5.3 shall not be paid to the Alternate Payee, but shall be added to the Forfeiture Account and applied as provided in Section 3.5. An election by an Alternate Payee to receive an unscheduled in-service distribution shall not affect the Participant’s right to participate in the Plan.

The Alternate Payee shall not be able to elect to receive an unscheduled in-service distribution from the Alternate Payee’s segregated 409A Amounts subaccount.

Except as specifically provided herein, any provision of a domestic relations order that purports to require the Plan to pay benefits in a manner other than as elected by the Participant shall not be recognized and any distributions pursuant to a domestic relations order shall be made in the same form as elected by the Participant.

10.6. Spin-off Plan and Trust.

In the event that more than one Employer participates in the Plan, the Company may transfer the portion of the assets in the Trust Fund that relate to benefits to be provided to all Participants who provide services to any designated Employer (“Transferee Employer”), into a trust to be established by such Transferee Employer (“Spin-off Trust”), which shall have terms comparable to the Trust established to fund benefits hereunder; provided, however, that life insurance policies, if any, held in the Trust Fund for the purpose of paying benefits hereunder shall be transferred only to the extent such transfer would not result in either taxation of the

 

26


death benefit under Code Section 101(a)(2) or another taxable event. In addition, the Company may require that the Transferee Employer establish a plan with such terms that the Transferee Employer deems appropriate, which plan may be substantively identical to the terms of the Plan (“Spin-off Plan”), covering all Participants who provide services for such Transferee Employer.

To the extent assets are transferred to a Spin-off Trust and/or a Spin-off Plan, respectively, the Transferee Employer, Spin-off Trust and/or Spin-off Plan shall assume all liabilities hereunder with respect to the affected Participants. The Spin-off Trust and/or Spin-off Plan shall be binding upon such Transferee Employer, all other Employers and all Participants and Beneficiaries. Participants employed by such Transferee Employer and their respective Beneficiaries shall look solely to such Transferee Employer, the Spin-off Trust and the Spin-off Plan to fulfill any obligations under this Plan as are transferred to and assumed by such Transferee Employer, including, but not limited to, payment of benefits hereunder.

10.7. Legally Incompetent.

The Committee, in its sole discretion, may direct that payment be made to an incompetent or disabled person, whether because of minority or mental or physical disability, to the guardian of such person or to the person having custody of such person, without further liability on the part of the Company, an Employer or the Trust for the amount of such payment to the person on whose account such payment is made.

10.8. Governing Law.

The Plan shall be construed, administered and governed in all respects in accordance with applicable federal law (including ERISA) and, to the extent not preempted by federal law, in accordance with the laws of the State of Kansas. Exclusive jurisdiction and venue of all disputes arising out of and relating to the Plan shall be in any court of appropriate jurisdiction in Sedgwick County, Kansas.

10.9. Severability.

If any provision of the Plan is held invalid or unenforceable, its invalidity or unenforceability shall not affect any other provision of the Plan, and the Plan shall be construed and enforced as if such invalid or unenforceable provision had not been included herein.

10.10. Overpayments.

If for any reason, any benefit under this Plan is erroneously paid to a Participant or Beneficiary, the Participant or Beneficiary, as the case may be, shall be responsible for repaying the overpayment to this Plan. The refund shall be a lump-sum payment paid directly by the Participant or Beneficiary, a reduction of the amount of future benefits otherwise payable, or any other method that the Committee shall deem appropriate, including payroll deduction in which case the Participant shall execute such forms authorizing payroll deduction as the Committee shall request.

 

27


10.11. Binding Agreement.

The provisions of the Plan shall be binding upon the Participant, his spouse, his heirs or estate and personal representatives and Beneficiaries and all other persons who claim an interest hereunder.

10.12. Entire Plan.

This document constitutes the entire Plan and there are no oral items or conditions to the contrary. Any change, modification or amendment to the Plan must be in writing.

IN WITNESS WHEREOF, the Company has caused the Plan to be executed by its duly authorized officer as of the         day of December, 2007.

 

CENTER CUT HOSPITALITY, INC.
By:   /s/ Marc L. Lipshy
Title:  

Marc L. Lipshy

President

 

28


APPENDIX A

DEEMED INVESTMENT OPTIONS

SEE ATTACHMENT

 

A

Exhibit 10.5

DEL FRISCO’S RESTAURANT GROUTP

NONQUALIFIED DEFERRED COMPENSATION PLAN

FIRST AMENDMENT

This Amendment is made by Center Cut Hospitality, Inc. (the “Company”), as sponsor of the Del Frisco’s Restaurant Group Nonqualified Deferred Compensation Plan (the “Plan”), pursuant to Section 9.1 of the Plan:

W I T N E S S E T H:

WHEREAS , on December 1, 2007, the Plan was amended and restated; and

WHEREAS, the Company desires to amend the Plan for the first time since such amendment and restatement, so that (i) Participants can receive in-service distributions of the Matching Contributions contributed to their Accounts under the Plan and (ii) forfeitures of deferred compensation under the Plan are no longer credited to Forfeiture Accounts;

NOW, THEREFORE, the Agreement is hereby amended, as follows:

 

(A) Effective December 10, 2009, the following sentence in Section 5.1(a) of the Plan is deleted:

“A Participant may make a separate election under this Section 5.1 for each annual Deferral Election and may elect separate payment dates and forms with regard to each annual Deferral Election from Base Pay and Bonuses.”

 

     and is replaced with the following sentence:

“A Participant may make a separate election under this Section 5.1 for each annual Deferral Election (including the Matching Contribution related thereto). A Participant may also elect separate payment dates and forms with regard to each annual (i) deferral of Base Pay, (ii) deferral of Bonuses, (iii) Matching Contribution related to the deferral of Base Pay and (iv) Matching Contribution related to the deferral of Bonuses.”

 

(B) Effective December 10, 2009, the following sentences in Section 5.3(a) of the Plan are deleted:

“At the time a Participant makes a Deferral Election, the Participant may elect to have all or a portion of the Participant’s Account balance attributable to Deferred Compensation credited pursuant to such Deferral Election paid in a specified future year that is not earlier than the second Plan Year after the end of the Plan Year for which such Deferral Election applies. For Pre-409A Amounts, if the benefit payable to the Participant is greater than $10,000, then the Participant may elect distribution in the form of either a single lump sum or quarterly installments, over a 2, 3, 4 or 5-year period; provided, however, if the benefit payable to the Participant is $10,000 or less, the benefit payable shall be distributed in the form of a single lump sum payment. For 409A Amounts, an

 

Del Frisco’s Restaurant Group   NQDC Plan 12/10/2009

 

1


in-service distribution elected by a Participant shall be distributed in the form of a single lump sum payment. A Participant may make a separate election under this Section 5.3 for each annual Deferral Election and may elect separate payment dates and forms with regard to each annual Deferral Election from Base Pay and Bonus for each Plan Year.

The value of a Scheduled In-Service Lump Sum Distribution shall be determined based upon the value the Participant’s account as of December 31 of the prior Plan Year; such benefit shall be payable to the Participant as soon as administratively practicable thereafter.”

 

     and are replaced with the following sentences:

“Each Plan Year, at the time a Participant makes a Deferral Election, the Participant may elect to have all or a portion of the Participant’s Account balance that is attributable to such Deferral Election (including the Matching Contribution and Investment Return related thereto) paid in a specified future year that is not earlier than the second Plan Year after the end of the Plan Year for which such Deferral Election applies (a “Scheduled In-Service” distribution).

When making an election as to Scheduled In-Service distributions, a Participant may elect separate payment dates and forms with regard to each annual (i) deferral of Base Pay (and Investment Return thereon) and (ii) deferral of Bonuses (and Investment Return thereon).

If the Participant elects a Scheduled In-Service distribution as to Base Pay and/or Bonuses, then, to the extent that such Participant will have completed at least four Years of Service prior to January 1 of the Plan Year in which such distribution is scheduled to occur, the Participant’s Scheduled In-Service distribution election shall also apply to the Matching Contributions related thereto.

For 409A Amounts, a Scheduled In-Service distribution elected by a Participant shall be distributed in the form of a single lump sum payment.

For Pre-409A Amounts, if the benefit payable to the Participant is greater than $10,000, then the Participant may elect a Scheduled In-Service distribution in the form of either a single lump sum or quarterly installments, over a 2, 3, 4 or 5-year period; provided, however, if the benefit payable to the Participant is $10,000 or less, the benefit payable shall be distributed in the form of a single lump sum payment.

The value of a Scheduled In-Service lump sum distribution shall be determined as of December 31 of the Plan Year immediately prior to such distribution.

 

Del Frisco’s Restaurant Group   NQDC Plan 12/10/2009

 

2


Example #1. In December 2009, a Participant elects to defer 10% of his 2010 Base Salary and also elects to receive a lump sum In-Service distribution in 2013 of 10% of the amount attributable to his 2010 Base Salary deferral. The Participant will have at least 4 Years of Service prior to January 1, 2013; therefore, the In-Service distribution election also applies to the 2010 Matching Contribution related to his 2010 Base Salary deferral. The Participant is still employed as of January 1, 2013. The Account balance on December 31, 2012, that is attributable to his 2010 Base Salary deferral is $15,000. The Account balance on December 31, 2012, that is attributable to the 2010 Matching Contribution related to his 2010 Base Salary deferral is $3,000. Therefore, the Participant receives a total In-Service distribution in 2013 of $1,800 ($1,500 + $300).

Example 2. Same facts as in Example #1, except that the Participant would not have four Years of Service prior to January 1, 2013. Therefore, the Participant receives a total In-Service distribution in 2013 of $1,500.

 

(C) Effective January 1, 2010, Section 1.22 of the Plan is deleted and replaced by the following:

“1.22. [DELETED EFFECTIVE JANUARY 1, 2010].”

 

(D) Effective January 1, 2010, Section 2.3 of the Plan is amended so that the cross-reference to Section 3.5 is replaced by a cross-reference to Section 3.6.

 

(E) Effective January 1, 2010, the following sentence in Section 3.4 of the Plan is deleted:

“Notwithstanding the foregoing, even vested Company Contributions and Investment Return thereon may be forfeitable in the event that the Participant violates noncompetition, nondisclosure or other requirements designated by the Committee at the time that a Company Contribution is made and any forfeitures attributable thereto shall be added to the Forfeiture Account.”

 

     and is replaced with the following sentence:

“Notwithstanding the foregoing, even vested Company Contributions and Investment Return thereon may be forfeitable in the event that the Participant violates noncompetition, nondisclosure or other requirements designated by the Committee at the time that a Company Contribution is made.”

 

(F) Effective January 1, 2010, the following sentence in Section 3.4 of the Plan is deleted:

“If a Participant incurs a Termination of Employment before becoming fully vested in his Account, the unvested portion of the Participant’s Account shall be immediately forfeited and added to the Forfeiture Account.”

 

Del Frisco’s Restaurant Group   NQDC Plan 12/10/2009

 

3


     and is replaced with the following sentence:

“If a Participant incurs a Termination of Employment before becoming fully vested in his Account, the unvested portion of the Participant’s Account shall be immediately forfeited.”

 

(G) Effective January 1, 2010, Section 3.5 of the Plan is deleted and replaced by the following:

“3.5. [DELETED EFFECTIVE JANUARY 1, 2010].”

 

(H) Effective January 1, 2010, the following sentence in Section 5.3(b) of the Plan is deleted:

“An amount equal to ten percent (10%) of the elected distribution that is deducted from the Account of a Participant receiving an accelerated distribution under this Section 5.3 shall not be paid to the Participant but shall be added to the Forfeiture Account and applied as provided in Section 3.5.”

 

     and is replaced with the following sentence:

“An amount equal to ten percent (10%) of the elected distribution that is deducted from the Account of a Participant receiving an accelerated distribution under this Section 5.3 shall not be paid to the Participant.”

 

(I) Effective January 1, 2010, the following sentence in Section 6.5 of the Plan is deleted;

“The amount forfeited under this Section 6.5 shall not be applied as provided in Section 3.5, but shall be applied to reduce future Matching Contributions and/or Company Contributions as designated by the Committee.”

 

     and is replaced with the following sentence:

“The amount forfeited under this Section 6.5 shall be applied to reduce future Matching Contributions and/or Company Contributions as designated by the Committee.”

 

(J) Effective January 1, 2010, the following sentence in Section 10.5 of the Plan is deleted:

“With respect to any such unscheduled in-service distribution of Pre-409A Amounts, an amount equal to ten percent (10%) of the distribution that is deducted from the Account of an Alternate Payee receiving an accelerated distribution under this Section 5.3 shall not be paid to the Alternate Payee, but shall be added to the Forfeiture Account and applied as provided in Section 3.5.”

 

     and is replaced with the following sentence:

“With respect to any such unscheduled in-service distribution of Pre-409A Amounts, an amount equal to ten percent (10%) of the distribution that is deducted from the Account of an Alternate Payee receiving an accelerated distribution under this Section 5.3 shall not be paid to the Alternate Payee.”

 

Del Frisco’s Restaurant Group   NQDC Plan 12/10/2009

 

4


IN WITNESS WHEREOF, the Company has caused this First Amendment to the Plan to be executed by its duly authorized officer.

 

 

CENTER CUT HOSPITALITY, INC.    
By:   /s/ Jon W. Howie                                December 31, 2009
Name:   Jon W. Howie                               Date
Title:   Secretary and Treasurer      

 

Del Frisco’s Restaurant Group   NQDC Plan 12/10/2009

 

5

Exhibit 10.6

FINAL

EXECUTIVE EMPLOYMENT AGREEMENT

This Executive Employment Agreement (this “Agreement” ) is made as of the 7th day of February, 2011 (the “Effective Date” ) between Mark Mednansky ( “Executive” ), an individual, and Center Cut Hospitality, Inc., a Delaware corporation (the “Company” ). Capitalized terms used herein shall have the meanings given to them in Section 5 below.

In consideration of the mutual promises expressed herein, Executive and the Company have agreed as follows:

1. E MPLOYMENT .

(a) Effective Date and Term. This Agreement shall be effective as of the Effective Date and will continue indefinitely thereafter unless Executive’s employment terminates earlier in accordance with Section 3.

(b) Duties . Executive shall be employed as chief executive officer or such other comparable position to which Executive and the Company may agree. Executive agrees to devote Executive’s full time and best efforts to the performance of the duties attendant to Executive’s executive position with the Company. The duties of Executive’s position with the Company shall be in accordance with industry standards and shall be set forth in a job description. Unless otherwise agreed to by Executive, Executive shall report directly to the Company’s Board of Directors.

2. C OMPENSATION AND B ENEFITS .

(a) Annual Salary . Executive’s salary shall be $400,000 per year, less applicable taxes and withholdings, to be paid in accordance with the Company’s regular payroll practices for similarly situated executives; provided, however, Executive’s salary shall be reviewed annually in the first quarter and may be increased by the Company’s Board of Directors (the “Board” ) or its designee, in its sole discretion.

(b) Annual Incentive Bonus . Executive shall be entitled to participate in all bonus compensation plans that the Company may offer, in accordance with the terms of any such plans. The target for Executive’s annual bonus shall be at least fifty percent (50%) of Executive annual salary. Executive’s entitlement to an annual incentive bonus under this subparagraph 2(b), and the amount of such bonus shall be determined by the Company in its good faith discretion; provided, however, if the terms of a written annual incentive bonus plan do not include provisions regarding the time of payment for an annual incentive bonus, payment of any such bonus shall occur before March 15th of the calendar year following the calendar year to which the bonus relates.

 

E MPLOYMENT A GREEMENT

 

PAGE 1


FINAL

 

(c) Benefits .

 

  (i) Standard Employee Benefits . Executive shall be eligible for all employee benefits extended, from time to time, to all full-time employees of the Company, subject to the terms and conditions of the Company’s policies and employee benefit plans, as those policies and plans are amended or terminated. The Company shall pay 100% of the medical insurance premium for the medical insurance coverage elected by Executive under the Company’s ERISA medical plan.

 

  (ii) Executive Benefits . Executive shall also be entitled to participate in all benefit programs that are maintained by the Company and available to its executive officers generally (including, but not limited to, any and all deferred compensation plans and the Transaction Bonus Agreement). Executive acknowledges that Executive shall have no vested rights under or in respect to Executive’s participation in any such program except as expressly provided under the terms thereof.

 

  (iii) Business Expenses. Executive shall be authorized to incur reasonable expenses for promoting the business of the Company, including expenses for entertainment, travel, and similar items. The Company shall reimburse Executive for all such expenses upon the presentation by Executive, from time to time, of an itemized account of such expenditures.

 

  (iv) Vacations. Executive shall be entitled to the greater of (x) annual paid vacation commensurate with the Company’s established vacation policy for executive officers or (y) four (4) weeks of annual paid vacation that shall otherwise be subject to the Company’s established vacation policy for executive officers. The timing of paid vacations shall be scheduled in a reasonable manner by Executive.

 

  (v) Use of Automobile. During the term of employment, the Company shall provide, at the option of Executive, the use of an automobile for business and personal use or an allowance not to exceed $1,000 per month. If the Company provides an automobile, the Company shall pay all reasonable expenses of operating, maintaining, and repairing such automobile and shall procure and maintain automobile liability insurance in respect thereof, with such coverage insuring Executive for bodily injury and property damage. Any reimbursement payment due to Executive pursuant to this Section 2(c)(v) shall be paid to Executive on or before the last day of Executive’s taxable year following the taxable year in which the related expense was incurred. Executive agrees to provide prompt notice to the Company of any such expenses (and any other documentation that the Company may reasonably require to substantiate such expenses) in order to facilitate the Company’s timely reimbursement of the same. The reimbursements pursuant to this Section 2(c)(v) are not subject to liquidation or exchange for another benefit and the amount of such reimbursements and benefits that Executive receives in one taxable year shall not affect the amount of such reimbursements or benefits that Executive receives in any other taxable year.

 

E MPLOYMENT A GREEMENT

 

PAGE 2


FINAL

 

 

  (vi) Life Insurance. The Company shall purchase a term life insurance policy on the life of Executive, which shall be owned by Executive, in the amount of $2,000,000.

3. T ERMINATION AND S EVERANCE .

(a) Executive’s employment may be terminated in accordance with the following provisions:

 

  (i) Death. Executive’s employment shall terminate upon Executive’s death.

 

  (ii)

Disability. If Executive incurs a Disability, the Company may give the Executive written notice of its intention to terminate Executive’s employment; provided that such written notice may only be given after the expiration of the time period required under the definition of Disability below. In that event, Executive’s employment with the Company shall terminate effective on the later of (x) the fifteenth (15 th ) day after receipt of such notice by Executive or (y) the date specified in such notice, provided that within the fifteen (15) days after such receipt, Executive shall not have returned to full-time performance of Executive’s duties.

 

  (iii) Termination by the Company without Cause. The Company may terminate Executive’s employment without Cause (as defined below) at any time upon written notice to Executive.

 

  (iv) Termination by the Company for Cause . The Company may terminate Executive’s employment for Cause at any time upon written notice to Executive, and such written notice shall contain a statement noting the reason(s) for the Cause termination. To the extent required by Section 5(a), and if such failure(s) are curable, Executive shall be given an opportunity to cure the failure(s) noted in such written notice as the reason(s) for the Cause termination.

 

  (v) Termination by Executive for Good Reason. Executive may terminate Executive’s employment for Good Reason (as defined below) upon thirty (30) days’ written notice to the Company; provided, however, that the Date of Termination (as defined below) due to Good Reason shall not automatically occur on the date set forth in Executive’s written notice to the Company, but will instead be determined by the Company following the Company’s allowed “cure” period as described in Section 5(e) below.

 

E MPLOYMENT A GREEMENT

 

PAGE 3


FINAL

 

 

  (vi) Voluntary Termination by Executive Not Involving Good Reason . Executive may terminate Executive’s employment voluntarily for any reason other than a Good Reason upon sixty (60) days’ written notice to the Company (such 60-day period is herein referred to as the “Notice Period” ). During the Notice Period, Executive shall continue to be employed by the Company subject to Section 1(b); provided, however, that (x) the Company shall have the right to shorten or eliminate the Notice Period in its good faith discretion and (y) if the Company shortens or eliminates the Notice Period, such action by the Company shall constitute neither (1) a termination of Executive’s employment by Executive pursuant to Section 3(a)(v) nor (2) a termination of Executive’s employment by the Company pursuant to Section 3(a)(ii), Section 3(a)(iii), or Section 3(a)(iv). In the event that the Company shortens or eliminates the Notice Period, the Company shall pay Executive’s salary for the entire Notice Period and shall also pay Executive the same bonuses and incentive payments that Executive would have been paid if Executive had remained employed through the end of the Notice Period.

(b) Severance Benefits.

 

  (i) Termination without Cause; Termination for Good Reason . If Executive’s employment terminates pursuant Section 3(a)(iii) or Section 3(a)(v), the Company agrees to provide Executive, as severance benefits, the following:

 

  (A) Payment of Executive’s base monthly salary in effect at the time of Executive’s Date of Termination during the Severance Period (defined below); and

 

  (B) Payment of Executive’s medical premiums during the Severance Period for the medical coverage that Executive had elected to receive under the Company’s ERISA medical plan and that was in effect as of the Date of Termination, but only to the extent that Executive receives COBRA coverage during the Severance Period.

“Severance Period” means the twelve (12) consecutive months immediately following the Date of Termination; provided, however, if Executive’s employment is terminated pursuant to Section 3(a)(iii) or Section 3(a)(v) at any time within the one-hundred eighty (180) day period following a Change of Control, then “Severance Period” means the eighteen (18) consecutive months immediately following the Date of Termination. Unless delayed pursuant to Section 3(c), monthly severance payments pursuant to Section 3(b)(i)(A) will be paid to Executive in equal installments, beginning on the first pay date occurring after the 75 th day following the Date of Termination. All of the severance benefits pursuant to this Subsection (b)(i) are conditioned upon the Executive entering into a separation agreement and general release of all claims in favor of the Company and its affiliates (the “Release” ), within the prescribed time period set forth therein, and Executive’s non-revocation of the Release during the revocation period prescribed therein. The Company shall

 

E MPLOYMENT A GREEMENT

 

PAGE 4


FINAL

 

provide Executive with the Release within fourteen (14) business days after the Date of Termination. Time is of the essence so that the prescribed time periods therein expire within the seventy-five (75) day period following the Date of Termination.

 

  (ii) Termination due to Disability. If Executive’s employment with the Company terminates due to Disability, the Company shall pay Executive an amount equal to fifty percent (50%) of Executive’s annual salary (in addition to any disability insurance benefits received pursuant to the Company’s employee benefit plans The amount paid pursuant to this Subsection (b)(ii) shall be paid semi-monthly in twelve (12) equal installments.

 

  (iii) Termination for any other Reason . If Executive’s employment terminates pursuant to any provision of this Agreement other than pursuant to Section 3(a)(ii), Section 3(a)(iii), Section 3(a)(v), or Section 3(a)(vi) of this Agreement, the Company has no obligation to pay Executive any severance or other termination benefits.

(c) Timing; Form of Payments. All benefits provided to Executive pursuant to Section 3(b)(i) and (ii) (the “Severance Benefits” ) will be made in accordance with the regular payroll practices of the Company and will be subject to applicable federal and state income tax and employment tax withholdings and deductions and any other applicable withholdings and deductions. Notwithstanding anything else herein, to the extent any of the Severance Benefits are treated as nonqualified deferred compensation subject to Section 409A of the Internal Revenue Code of 1986, as amended (the “Code” ), then (i) no such payment shall be made to Executive unless Executive’s termination of employment constitutes a “separation from service” with the Company (as such term is defined in Treasury Regulation Section 1.409A-1(h) and any successor provision thereto), and (ii) if Executive is determined by the Company to be a “specified employee” for purposes of Code § 409A(a)(2)(B)(i) and the Company determines that delayed commencement of any portion of the Severance Benefits is required in order to avoid a prohibited distribution under Code § 409A(a)(2)(B)(i), commencement of such portion of the Severance Benefits will be delayed for six (6) months following Executive’s “separation from service” pursuant to Code § 409A. Delayed Severance Benefits (if any) shall be payable in a lump sum on the first business day following the expiration of such six (6) month period, and any remaining Severance Benefits due shall be paid as otherwise provided in Section 3(b). Notwithstanding the foregoing, to the maximum extent permitted by applicable law, payment of the Severance Benefits shall be made in reliance upon Treasury Regulation § 1.409A-1(b)(9) (with respect to separation pay plans) or Treasury Regulation § 1.409A-1(b)(4). The Severance Benefits shall be treated as a right to a series of separate payments. The provisions of this Agreement are intended to comply with the applicable requirements of Code § 409A and shall be limited, construed, and interpreted in accordance with such intent.

(d) Consequences of Violation of Promises. Executive acknowledges and agrees that the Company’s obligation to provide and Executive’s entitlement to receive the Severance Benefits shall cease immediately upon any violation by Executive of Executive’s obligations under Section 4 of this Agreement. Executive further agrees to repay the Company, on a pro

 

E MPLOYMENT A GREEMENT

 

PAGE 5


FINAL

 

rata basis, any Severance Benefits received during the period of time in which Executive was in violation of Executive’s obligations under Section 4 of this Agreement, as determined by the Company in its good faith discretion. In the event the Company determines Executive has a repayment obligation pursuant to this Section 3(d), the Company will send notice to Executive identifying the reason(s) Executive’s repayment obligation has been triggered.

(e) Later Determined Cause . Notwithstanding any other provision of this Agreement, if Executive’s employment with the Company is terminated such that Executive is entitled to severance from the Company and the Company determines within no later than one-hundred eighty (180) days after the Date of Termination that Cause existed on, prior to, or after the Date of Termination, then Executive shall not be entitled to any Severance Benefits from the Company, and any and all Severance Benefits and reimbursements from the Company to Executive shall cease.

4. E XECUTIVE S COVENANTS

(a) Confidential Information and Trade Secrets. Executive acknowledges that the Company has trade, business, and financial secrets and other confidential and proprietary information regarding the Company and its business, in whatever form, tangible or intangible (collectively, the “Confidential Information” ), and that, during the term of this Agreement, Executive will receive Confidential Information. Executive acknowledges that the Confidential Information that Executive will receive during the term of this Agreement will be in addition to that which Executive has already received during Executive’s employment with the Company. Executive further acknowledges and agrees that Executive’s use of Confidential Information in the conduct of business on behalf of a competitor of the Company would constitute unfair competition with the Company and would adversely affect the business goodwill of the Company. Confidential Information includes, but is not limited to, sales materials, technical information, processes, compilations of information, records, specifications, information concerning customers and prospective customers, customer and prospective customer lists, and information regarding methods of doing business. As defined herein, Confidential Information shall not include information that is: (i) obtained by Executive from a source other than the Company or its affiliates, which source is not under a duty of non-disclosure in regard to such information; or (ii) becomes generally available to the public other than through disclosure by Executive in violation of the provisions of this Agreement. For purposes of clarity, the parties understand and agree that Confidential Information also does not include general know-how and/or general processes, systems, and procedures (such as general sales processes and best practices) that Executive has gained or gains by virtue of his experience working for the Company and/or within the “white-tablecloth restaurant” and/or “fine dining establishment” industries.

Executive is aware of those policies implemented by the Company to keep its Confidential Information secret, including those policies limiting the disclosure of information on a need-to-know basis and requiring the keeping of information in secure areas. Executive acknowledges that the Confidential Information has been developed or acquired by the Company through the expenditure of substantial time, effort, and money and provides the Company with an advantage over competitors who do not know or use such Confidential Information.

 

E MPLOYMENT A GREEMENT

 

PAGE 6


FINAL

 

During and following Executive’s employment by the Company, Executive shall hold in confidence and not directly or indirectly disclose, use (for Executive’s commercial advantage or otherwise), copy, make lists of, or make available to others any Confidential Information except in Executive’s good faith performance of Executive’s duties to the Company as an executive of the Company or to the extent authorized in writing by the Board or required by law or compelled by legal process. Executive agrees to use reasonable efforts to give the Company notice of any and all attempts to compel disclosure of any Confidential Information, in such a manner so as to provide the Company with written notice at least five (5) days before disclosure or within three (3) business days after Executive is informed that such disclosure is being or shall be compelled, whichever is earlier. Such written notice shall include a description of the information to be disclosed, the court, government agency, or other forum through which the disclosure is sought, and the date by which the information is to be disclosed, and shall contain a copy of the subpoena, order, or other process used to compel disclosure.

Executive further agrees not to use any Confidential Information for the benefit of any person or entity other than the Company, its subsidiaries and affiliates, and any Protected Company.

Executive agrees that all Confidential Information and other files, documents, materials, records, notebooks, customer lists, business proposals, contracts, agreements, and other repositories containing information concerning the Company or the business of the Company, in whatever form, tangible or intangible (including all copies thereof), that Executive shall prepare, use, or be provided with as a result of Executive’s employment with the Company, shall be and remain the sole property of the Company. Upon termination of Executive’s employment hereunder, Executive agrees that all Confidential Information and other files, documents, materials, records, notebooks, customer lists, business proposals, contracts, agreements, and other repositories containing information concerning the Company or the business of the Company (including all copies thereof) in Executive’s possession, custody, or control, whether prepared by Executive or others, shall remain with or be returned to the Company promptly (within 48 hours) after the Date of Termination.

Notwithstanding anything herein to the contrary, Executive may disclose to Executive’s spouse and any personal tax or financial advisor the United States Federal income tax treatment and tax structure of the transactions contemplated in this Agreement and all materials of any kind (including opinions and other tax analyses) that are provided to Executive relating to such tax treatment and tax structure. For this purpose, “tax structure” is limited to facts relevant to the United States Federal income tax treatment of the transactions contemplated in this Agreement and does not include information relating to the identity of the parties hereto.

(b) Non-Competition . Executive acknowledges and agrees that the nature of the Confidential Information that the Company commits to provide to Executive during Executive’s employment by the Company would make it unlikely that Executive would be able to perform in a similar capacity for a Competing Business (as defined below) without disclosing or utilizing the Confidential Information. Executive further acknowledges and agrees that the Company’s business is conducted in a highly competitive market. Accordingly, Executive agrees that during the Non-Competition Period (as defined below), Executive will not (other than for the benefit of the Company, its subsidiaries and affiliates, and any Protected Company pursuant to this

 

E MPLOYMENT A GREEMENT

 

PAGE 7


FINAL

 

Agreement) directly or indirectly, individually or as an officer, director, employee, shareholder, consultant, contractor, partner, joint venturer, agent, equity owner, or in any capacity whatsoever, (i) regardless of the reason for termination, work for, engage in, or operate any restaurant business or restaurant operating or management company that (x) features the sale of steak where the sale of steak exceeds thirty percent (30%) of the restaurant’s revenues from food sales and (y) which is, or owns or operates restaurants, located within thirty (30) miles of any Del Frisco’s Double Eagle Steak House restaurant, any Del Frisco’s Grill restaurant, or any Sullivan’s Steakhouse restaurant (a “Competing Business” ), or (ii) (x) hire, attempt to hire, contact with respect to hiring, or solicit with respect to hiring any employee of any Protected Company; (y) solicit, divert, or take away any customers or customer leads of any Protected Company with whom Executive had, whether directly or indirectly, contact or business relations during the period of time that Executive was employed by the Company or its predecessors-in-interest or its affiliates (herein, the “Employment Period” ) or about whom Executive possesses Confidential Information; or (z) solicit, encourage, or influence any suppliers or vendors of any Protected Company to cease doing business with any Protected Company or change the terms and conditions upon which they conduct their business with any Protected Company where Executive had, whether directly or indirectly, contact during the Employment Period or business relations during the Employment Period with such vendors or suppliers, or about whom Executive possesses Confidential Information.

For purposes of this Section, “Non-Competition Term” means the Employment Period and, (a) if Severance Benefits are not owed under Section 3(b)(i), a period of eighteen (18) consecutive months immediately following the Date of Termination and, (b) if Severance Benefits are owed under Section 3(b)(i), the 12-month or 18-month period that is the Executive’s Severance Period.

If any court determines that any portion of this Section 4(b) is invalid or unenforceable, the remainder of this Section 4(b) shall not thereby be affected and shall be given full effect without regard to the invalid provisions. If any court construes any of the provisions of this Section 4(b), or any part thereof, to be unreasonable because of the duration or scope of such provision, such court shall have the power to reduce the duration or scope of such provision and to enforce such provision as so reduced.

(c) Irreparable Harm . Executive acknowledges that Executive’s violation of the provisions of Section 4(a) or Section 4(b) of this Agreement will cause irreparable harm to the Company, and Executive agrees that the Company shall be entitled as a matter of right to an injunction restraining any violation or further violation of such provisions by Executive or others acting on Executive’s behalf, without any showing of irreparable harm and without any showing that the Company does not have an adequate remedy at law. Executive further covenants and warrants that Executive will not dispute in any proceeding that any given violation or further violation of the covenants contained in Section 4(a) or Section 4(b): (i) will result in irreparable harm to the Company; or (ii) could not be remedied adequately at law. The Company’s right to injunctive relief shall be cumulative and in addition to any other remedies provided by law or equity.

 

E MPLOYMENT A GREEMENT

 

PAGE 8


FINAL

 

(d) Reasonableness of Restrictions . Executive understands and acknowledges that the Company has made substantial investments to develop its Confidential Information, goodwill, and other legitimate business interests. Executive agrees that such investments are worthy of protection, and that the Company’s need for the protection afforded by Section 4(b) is greater than any hardship Executive might experience by complying with its terms. Executive agrees that the limitations as to time, geographic area, and scope of activity to be restrained contained in this Agreement are reasonable and are not greater than necessary to protect the Confidential Information, goodwill, and other legitimate interests of the Company. Executive specifically agrees that, given the senior executive nature of Executive’s position and national operations of the Company, any restriction other than on the basis specified in Section 4(b) would be inadequate to protect the company’s Confidential Information. Executive further agrees that the restrictions contained in Section 4(b) allow Executive an adequate number and variety of employment alternatives, based on Executive’s varied skills and abilities. Accordingly, Executive covenants and warrants that Executive will not dispute in any proceeding that: (i) the restraints contained in Section 4(b) are reasonable and not greater than necessary to protect proprietary information and/or the goodwill or other business interests of the Company; or (ii) the scope of the restraints contained in Section 4(b) should be reformed so as to make them enforceable, if it is judicially determined that they are unenforceable as drafted.

5. D EFINITIONS .

(a) Cause. “Cause” shall mean any or all of the following:

 

  (i) Failure by Executive to substantially perform material duties hereunder or to devote Executive’s full time and effort to Executive’s position with the Company, other than any failure resulting from death, illness or injury, or Disability, which, to the extent such failure is curable, Executive does not cure within a period of thirty (30) days after written notice of such failure is provided to Executive by the Company;

 

  (ii) Failure by Executive to comply materially with the policies of the Company, which, to the extent such failure is curable, Executive does not cure within a period of thirty (30) days after written notice of such failure is provided to Executive by the Company;

 

  (iii) Commission by Executive of any material illegal act or any act that is not in the ordinary course of Executive’s responsibilities that exposes the Company to a significant level of undue liability; provided, however, a violation due to use by the Company of the Executive’s liquor license shall not constitute Cause;

 

  (iv) Executive’s conviction of or plea of guilty or nolo contendere to any felony; or

 

  (v) Any breach of Executive’s obligations under Section 4 of this Agreement.

(b) Change of Control. “Change of Control” shall mean either (i) the closing of a Qualified Public Offering (as defined in the Transaction Bonus Agreement) or (ii) the closing of a Sale (as defined in the Transaction Bonus Agreement).

 

E MPLOYMENT A GREEMENT

 

PAGE 9


FINAL

 

(c) Date of Termination. “Date of Termination” shall mean the date on which the Executive’s termination of employment with the Company occurs; provided, however, to the extent that Executive is receiving compensation due to such termination of employment and such compensation is subject to Code § 409A, “Date of Termination” shall mean the date of Executive’s “separation from service” (within the meaning of Treasury Regulation § 1.409A-1(h)).

(d) Disability . “Disability” shall mean shall mean Executive’s inability to perform, with or without reasonable accommodation, the essential functions of Executive’s position hereunder for a total of three (3) months during any six (6) month period as a result of incapacity due to mental or physical illness as determined by a physician selected by the Company or its insurers and acceptable to Executive or Executive’s legal representative, such agreement as to acceptability not to be unreasonably withheld or delayed.

(e) Good Reason. “Good Reason” shall mean that any of the following events occurs without Executive’s consent:

 

  (i) The Company requires Executive to be based from a location that is outside of a fifty (50) mile radius of the Company office where the Executive is based as of the Effective Date;

 

  (ii) The Company materially decreases Executive’s annual salary (other than a general reduction in base salary that affects all salaried employees of the Company proportionately, which reduction shall not be more than ten percent (10%) of Executive’s annual salary

 

  (iii) A material breach by the Company of this Agreement; or

 

  (iv) A material diminution caused by the Company in the title and/or duties, responsibilities, or authority of Executive.

Provided, however, for all of the events described in clauses (i), (ii), (iii), and (iv) immediately above, Good Reason will not exist (x) unless Executive has provided the Company with written notice of the circumstances that Executive believes constitute Good Reason within thirty (30) days after Executive knows, or through reasonable diligence, should know of such events and circumstances and (y) the Company has failed to cure within thirty (30) days of such notice. Failure to present the circumstances that Executive believes constitutes Good Reason within thirty (30) days of the Employee’s first knowledge of such circumstances waives any right by Executive to assert that Executive has Good Reason for termination and constitutes acceptance by Executive as new terms of Executive’s employment. Resignation by the Executive following the Company’s cure of identified circumstances or before the expiration of the 30-day “cure” period referred to above shall constitute a voluntary termination under Section 3(a)(vi). In the event the Company does not cure the identified circumstances on or before the expiration of the 30-day “cure” period referred to above, then Executive must terminate employment for Good Reason within fifteen (15) days of the end of such cure period, or any later termination of employment by Executive will not constitute Good Reason based upon the same previously identified circumstances. Notwithstanding anything else herein, the Company and Executive may agree, in writing, to extend the 15-day period during which the Executive must terminate employment for Good Reason.

 

E MPLOYMENT A GREEMENT

 

PAGE 10


FINAL

 

(f) Protected Company. “Protected Company” shall mean, individually, each of Del Frisco’s Restaurant Group, LLC (together with its successors and assigns, “DFRG” ) and all subsidiaries of DFRG (together with each successor and assign of such subsidiaries).

(g) Transaction Bonus Agreement . “Transaction Bonus Agreement” shall mean that certain letter agreement between Executive and LSF5 Wagon Holdings, LLC dated February 7, 2011, which provides Executive with the opportunity to earn additional compensation in connection with the sale or public offering of Del Frisco’s Restaurant Group, LLC and its subsidiaries, successors, and assigns.

6. Arbitration; Waiver of Right to Jury Trial.

(a) In the event any claim, demand, cause of action, dispute, controversy, or other matter in question (in this Section 6, a “Claim” ) arises out of this Agreement (or its termination) or the Transaction Bonus Agreement, whether arising in contract, tort, or otherwise and whether provided by statute, equity, or common law, that the Company may have against Executive or that Executive may have against the Company, or any of the Company’s subsidiaries or affiliates, or any of the foregoing entities’ respective officers, directors, employees, or agents in their capacity as such or otherwise, all such Claims shall be submitted to binding arbitration. Any arbitration shall be conducted in accordance with the Federal Arbitration Act ( “FAA” ) and, to the extent an issue is not addressed by the FAA or the FAA does not apply, with the then-current National Rules for the Resolution of Employment Disputes of the American Arbitration Association ( “AAA” ). The arbitrator shall apply the substantive law of Texas (excluding Texas choice-of-law principles that might call for the application of some other state’s law) or federal law, or both as applicable to the Claims asserted. The arbitrator shall have exclusive authority to resolve any dispute relating to the interpretation, applicability, or enforceability of this Section 6(a), including any Claim that all or part of this Agreement is void or voidable and any Claim that an issue is not subject to arbitration. The results of arbitration will be binding and conclusive on the parties hereto and judgment upon the award resulting from arbitration may be entered in any court of competent jurisdiction. Venue for arbitration, and for any disputes relating to the enforceability of this Section 6(a) will be in Dallas County, Texas. All proceedings conducted pursuant to this Section 6(a), including any order decision or award of the arbitrator, shall be kept confidential by all parties. Where permitted by law, the Company and Executive shall equally share the costs and expenses of the arbitration that are actually incurred by the parties, excluding attorney’s fees and expenses and expert witness fees, which shall remain the sole responsibility of each party, respectively.

(b) Notwithstanding any of the foregoing or any other provision of this Agreement, Executive and the Company may petition a court for an injunction to maintain the status quo pending resolution of any Claim under Section 6(a), and Section 6(a) shall not require the arbitration of an application for emergency or temporary injunctive relief by either party pending arbitration; provided, however, that the remainder of any such dispute beyond the application for emergency or temporary injunctive relief shall be subject to arbitration under Section 6(a).

 

E MPLOYMENT A GREEMENT

 

PAGE 11


FINAL

 

(c) Executive and the Company agree that, in the event that the arbitration provision set forth in Section 6(a) is unenforceable, that all Claims shall be decided by trial before the court and not by a jury trial. The venue for any such trial shall be Dallas County, Texas.

(d) Executive acknowledges that by signing this Agreement, Executive is waiving any right that Executive may have to a jury trial in connection with, or relating to, a Claim .

7. M ISCELLANEOUS .

(a) Entire Agreement. This Agreement embodies the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior agreements and understandings, if any, between the parties regarding the subject matter hereof.

(b) Modification, Severability, and Waiver. Both parties agree that neither has the authority to modify or amend this Agreement unless the modification or amendment is in writing and signed by both of them. If any provision of this Agreement is declared or found to be illegal, unenforceable, or void, the remainder of this Agreement shall remain valid and enforceable to the extent feasible. Any waiver of any term of this Agreement by the Company shall not operate as a waiver of any other term of this Agreement, nor shall any failure to enforce any provision of this Agreement operate as a waiver of the right of the Company to enforce any other provision of this Agreement.

(c) Notice to the Company. Notice to the Company shall have occurred and be effective when a written notice is delivered via certified mail to the then-current address of the Company’s principal office and to the attention of the Board Chair.

(d) Withholding. The Company may withhold from any amounts payable under this Agreement such Federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation.

(e) Survival and Construction. Executive’s obligations under this Agreement will be binding upon Executive’s heirs, executors, assigns, and administrators and will inure to the benefit of the Company, its subsidiaries, successors, and assigns. The Company’s obligations under this Agreement will be binding upon the Company’s successors assigns and will inure to the benefit of the Executive and Executive’s heirs, executors, and administrators. The language of this Agreement shall in all cases be construed as a whole according to its fair meaning, and not strictly for or against any of the parties. The paragraph headings used in this Agreement are intended solely for convenience of reference and shall not in any manner amplify, limit, modify, or otherwise be used in the interpretation of any of the provisions hereof. Executive may not assign, pledge, grant a security interest in, hypothecate, or otherwise transfer any of its rights, duties, or obligations hereunder.

(f) Prior Agreements. This Agreement supplants in its entirety that certain Employment Agreement dated as of April 24, 2003 (the “Prior Agreement” ), by and between Executive and Lone Star Steakhouse & Saloon, Inc., predecessor in interest to the Company, and Executive hereby releases the Company, each other Protected Company, and their equity owners from any and all claims arising from or related to the Prior Agreement and/or the termination of the Prior Agreement. The Prior Agreement is terminated.

 

E MPLOYMENT A GREEMENT

 

PAGE 12


FINAL

 

(g) No Mitigation. Executive shall not be required to mitigate damages or the amount of any payment provided for under this Agreement by seeking other employment or otherwise, nor shall the amount of any payment provided for under this Agreement be reduced by any compensation earned by Executive as the result of employment by another employer after Executive’s Date of Termination.

(h) Other Contractual Rights. Except as otherwise provided in Subsection (f), the provisions of this Agreement, and any payment provided for hereunder, shall not reduce any amount otherwise payable, or in any way diminish Executive’s existing rights, or right which would accrue solely as a result of passage of time under any employee benefit plan or other contract, plan, or arrangement of which Executive is a beneficiary or in which Executive participates.

(i) Indemnification. The Company covenants and agrees to indemnify, defend and hold Executive harmless from any and all losses, claims, costs, liabilities, penalties, fines, damages, and expenses (including legal fees) suffered or incurred by Executive, either directly or indirectly, as a result of any asserted or alleged claim made against Executive by a third party in connection with Executive’s employment with Company, excepting only such claims arising solely out of Executive’s willful misconduct.

[signature page follows]

 

E MPLOYMENT A GREEMENT

 

PAGE 13


FINAL

 

I N W ITNESS W HEREOF , Executive and the Company have executed this Agreement as of the Effective Date.

 

C ENTER C UT H OSPITALITY , I NC .     Executive:
By:   /s/ Marc L. Lipshy       /s/ Mark S. Mednansky
Printed Name: Marc L. Lipshy       Printed Name: Mark S. Mednansky
Title: President      

 

E MPLOYMENT A GREEMENT

 

PAGE 14

Exhibit 10.7

LSF5 WAGON HOLDINGS, LLC

2711 N. Haskell Avenue, Suite 1700

Dallas, Texas 75204

February 14, 2011

Mr. Mark Mednansky

1308 Regency Court

Southlake, Texas 76092

Dear Mark:

Reference is made to that certain Amended and Restated Limited Liability Company Agreement of LSF5 Wagon Holdings, LLC, dated as of February 5, 2007 (as the same may be amended from time to time, the “ LLC Agreement ”), and to that certain transaction bonus letter agreement among you, Wagon and DFRG, dated as of February 7, 2011 (the “ TBA ”). Capitalized terms used but not defined in this letter shall have the meanings ascribed thereto in the TBA.

This letter (this “ Letter ”) will confirm our agreement that in the event of (i) a Qualified Public Offering or Secondary Public Offering as a result of which the percentage of the aggregate common equity of the Public Company held directly or indirectly by Wagon is no longer greater than 50% or (ii) a Sale, you shall have the right (but not the obligation), upon your written request dated and delivered to Wagon no later than five (5) days after such event (the “ Election Notice ”), to require Wagon to purchase from you all (but not less than all) of the Class B Interests (as such term is defined in the LLC Agreement) you then hold, if any (the “ Subject Interests ”), for an amount (the “ Purchase Price ”) equal to the sum of (i) $350,000 minus (ii) all distributions of Available Cash (as defined in the LLC Agreement), if any, paid to you on or before the date on which such purchase is consummated. The Purchase Price shall be paid to you in cash or by wire transfer to an account designated by you no later than seventy-five (75) days after the date Wagon receives the Election Notice, subject to the following:

 

  (a) You must comply with all requirements as to the execution and delivery of the Release (defined below) provided for below; and

 

  (b) No purchase shall be required and the Purchase Price shall not be paid if your employment with CCH is terminated by CCH for Cause or by you without Good Reason prior to payment of the Purchase Price.

In addition to any other requirements set forth in this Letter, payment of the Purchase Price shall be contingent upon, and shall be payable to you if, and only if, you execute and deliver to Wagon a release agreement in favor of each member of the Company Group, their respective direct and indirect equity owners (including Wagon, DFRG and their direct and indirect equity owners), and their respective affiliates, in form and substance reasonably satisfactory to Wagon (the “ Release ”), provided that the Release shall not release any obligations to make any payments to, or to cause payments to be made to, you required under this Letter or the TBA, and such Release remains in effect following the expiration of any applicable notice, review and/or revocation periods.


Mr. Mark Mednansky

Page 2

The rights provided to you herein may not be transferred by you, nor shall you have any right to anticipate, alienate, assign, dispose of, pledge or encumber the same, nor shall the same be subject to attachment, garnishment, execution following judgment or other legal process instituted by your creditors, and any action in violation of this provision shall be void. Upon its receipt of your Election Notice, Wagon shall have the right, in its sole discretion, to assign to any one or more of its Class A Member(s) the obligation to purchase the Subject Interests for such Class A Member(s)’ own account upon tender of the Purchase Price and thereby satisfy in full all of Wagon’s obligations hereunder. Notwithstanding anything to the contrary contained herein, no Member of the Company Group other than Wagon shall be liable for, and you shall look solely to the general credit of Wagon for satisfaction of, any obligations due or to become due under this Letter.

This Letter shall be governed by and construed in accordance with the internal laws of the State of Delaware, without reference to conflict of laws principles.

 

LSF5 WAGON HOLDINGS, LLC
By:   /s/ Marc L. Lipshy
 

Name: Marc L. Lipshy

Title:   President

Exhibit 10.8

LSF5 WAGON HOLDINGS, LLC

2711 N. Haskell Avenue, Suite 1700

Dallas, Texas 75204

October 21, 2011

Mr. Mark Mednansky

1308 Regency Court

Southlake, Texas 76092

Dear Mark:

As a highly valued senior executive of Center Cut Hospitality, Inc., a Delaware corporation (together with its successors and assigns, “ CCH ”), you (also referred to herein as “ Employee ”) are being given the opportunity to earn bonus compensation tied to a successful Sale (as defined below) or Qualified Public Offering (as defined below). This letter agreement (this “ Letter ”) sets forth the terms of this opportunity, which have been designed so that you will not be required to make any future financial investment in Wagon, DFRG, CCH, or the Company (including any Public Company) (collectively, the “ Company Group ”) or incur an immediate tax obligation in connection with the award of this opportunity. This opportunity is designed to align your interests with the interests of the Company’s investors, and, except as specifically provided below in this Letter, is provided in addition to, and not in lieu of, any existing equity, bonus, or other compensation plan arrangement you currently have or in which you currently participate with the Company. Definitions of certain capitalized terms used herein are set forth at the end of this Letter.

Subject to the terms and conditions set forth below, following consummation of a Sale, a Qualified Public Offering or a Secondary Public Offering (each as defined below and each, a “ Transaction ”), and provided that, in each case, the Employee is actively employed with CCH on the date such Transaction is consummated (the “ Transaction Date ”), then the Employee shall be eligible to earn a bonus (a “ Transaction Bonus ”) in an amount determined as set forth below and based on the Employee’s Transaction Bonus Amount with respect to such Transaction, as calculated in accordance with the methodology set forth on Schedule A hereto (the amount so calculated in accordance with Schedule A with respect to any Transaction, the “ Employee’s Transaction Bonus Amount ”).

For purposes hereof, if Employee’s employment with CCH is terminated within the 180-day period ending with any Transaction Date (i) solely due to Employee’s Disability, (ii) by CCH without Cause, or (iii) by Employee for Good Reason, Employee shall be considered actively employed with CCH on such Transaction Date.

A. In the event of a Transaction that is a Sale, one-hundred per cent (100%) of the Employee’s Transaction Bonus Amount shall be payable to the Employee no later than seventy-five (75) days after the applicable Transaction Date, subject to the following:

 

  (a) The Employee must comply with all requirements as to the execution and delivery of the Release (defined below) and award termination instruments provided for below;


Mr. Mark Mednansky

Page 2

 

 

  (b)

If the seventy-fifth (75 th ) day following the Transaction Date is in a different calendar year than the first (1 st ) day following the Transaction Date, such payment shall be made in the calendar year in which the 75 th day falls (but no later than such 75 th day); and

 

  (c) The Transaction Bonus shall not be paid if the Employee’s employment with CCH (which term shall include, for purposes of this subparagraph, any successor or acquirer of the Company’s business) is terminated by CCH for Cause or by the Employee without Good Reason prior to payment of the Transaction Bonus.

Any portion of a Transaction Bonus otherwise payable pursuant to this Paragraph A that is attributable to consideration which is deferred or contingent shall not be paid until the applicable seller(s) receive such deferred or contingent portion of the consideration and to the extent that a portion of the consideration paid to the applicable seller(s) is in a form other than cash, Wagon shall have the right to pay a corresponding portion of the Transaction Bonus to the Employee in the same form of consideration.

B. In the event of a Transaction that is a Qualified Public Offering, an amount equal to the product of the Applicable Qualified Offering Percentage (as defined below) multiplied by the Employee’s Transaction Bonus Amount with respect to such Qualified Public Offering shall be payable to the Employee in cash no later than seventy-five (75) days after the applicable Transaction Date; provided, however, if the seventy-fifth (75 th ) day following the Transaction Date is in a different calendar year than the first (1 st ) day following the Transaction Date, such payment shall be made in the calendar year in which the 75 th day falls (but no later than such 75 th day). In addition, if (x) the Employee is entitled to a Transaction Bonus with respect to such Qualified Public Offering and (y) Wagon’s direct or indirect ownership percentage in the common equity of the Public Company is not reduced to zero as a result of such Qualified Public Offering, then following each subsequent Secondary Public Offering (until Wagon’s direct or indirect ownership percentage in the common equity of the Public Company is reduced to zero), and provided that (i) except as specifically provided herein, the Employee is actively employed with CCH (which term shall include, for all purposes of this Paragraph B, any successor or acquirer of the Company’s business) on the date such Secondary Public Offering is consummated (also a “ Transaction Date ”), (ii) the Employee has not breached or violated any provision of the Employment Agreement or any other obligation to the Company, (iii) the Employee complies with all requirements as to the execution and delivery of the Release and award termination instruments provided for below, and (iv) the Employee was entitled to a Transaction Bonus with respect to all previous Secondary Public Offerings (if any), then the Employee shall be entitled to receive an additional bonus (also a “ Transaction Bonus ”) in an amount equal to the product of the Employee’s Transaction Bonus Amount with respect to such Secondary Public Offering, multiplied by the Applicable Secondary Offering Percentage (as defined below) with respect to such Secondary Public Offering. Any Transaction Bonus payable with respect to a Secondary Public Offering shall be paid in cash no later than seventy-five (75) days after the Transaction Date for such Secondary Public Offering; provided, however, if the seventy-fifth (75th) day following such Transaction Date is in a different calendar year than the first (1st) day following such Transaction Date, such payment shall be made in the calendar year in which the 75th day falls (but no later than such 75th day).

Notwithstanding anything to the contrary contained in this Letter, if (i) Employee is eligible hereunder for a Transaction Bonus in connection with a Qualified Public Offering, (ii) Employee remains actively employed with CCH at all times through the date that is 21 months after the Transaction Date of such Qualified Public Offering, and (iii) Employee has not breached or violated any provision of the


Mr. Mark Mednansky

Page 3

 

Employment Agreement or any other obligation to the Company during such 21-month period, then Employee shall not forfeit his or her eligibility to receive a Transaction Bonus with respect to any Secondary Public Offering that is consummated after such 21-month period solely because Employee is not actively employed with CCH on the Transaction Date of such Secondary Public Offering; provided, however, that this sentence shall not be applicable, and no Transaction Bonus shall be payable, from and after the date (if ever) that Employee is terminated for Cause or voluntarily resigns under circumstances where Cause exists.

Notwithstanding anything to the contrary contained in this Letter, if at any time the percentage of the aggregate common equity of the Public Company held directly or indirectly by Wagon is greater than zero but not greater than 50% (determined on an as converted, fully diluted basis), Wagon shall have the right, but not the obligation, by written notice to Employee, to pay to Employee a bonus equal to the product of (i) the percentage of the aggregate common equity of the Public Company held directly or indirectly by Wagon at the time of such notice (determined on an as converted, fully diluted basis) multiplied by (ii) the amount that would be the Employee’s Transaction Bonus Amount (calculated in accordance with Schedule A hereto) if at the time of such notice the Public Company consummated a Secondary Public Offering at a per share issuance price equal to 105% of the Fair Market Value (as defined below) of one share of the Public Company’s common equity securities as of such date. Any such bonus shall be payable, at Wagon’s election, in any combination of cash and/or the Public Company’s common stock (“ Stock ”) (valued as of the date of grant and with registration rights as set forth above) no later than 75 days after the date of such notice. Following the exercise of this right, no additional Transaction Bonus will be payable under this Letter with respect to any subsequent Transaction.

C. Notwithstanding anything to the contrary contained in this Letter:

 

  (a) Any portion of a Transaction Bonus otherwise payable that is attributable to that part of Aggregate Value which is deferred or contingent shall not be paid until the Company Group and/or the equity owners of any member(s) of the Company Group receive such deferred or contingent portion of Aggregate Value and to the extent that a portion of Aggregate Value is paid to the Company or its equity owners in non-marketable securities, Wagon shall have the right to pay, or to cause the payment of, a corresponding portion of the Transaction Bonus to the Employee in the same form of consideration, unless otherwise agreed to by the parties;

 

  (b) Except as specifically set forth above with respect to Disability, if Employee’s employment with CCH terminates upon the Employee’s death or Disability, then, thereafter, Employee (or his or her heirs and estate) shall not become entitled to any further payments hereunder (but Employee (and Employee’s heirs and estate) shall remain entitled to any payments hereunder to which Employee is otherwise entitled as of the date of such termination);

 

  (c) The Employee shall not be eligible to earn or receive, and shall have no right, entitlement or earned or vested interest in or to any Transaction Bonus (i) until the consummation of a Sale or Qualified Public Offering or Secondary Public Offering or (ii) except as specifically set forth above, based on any Transaction that is consummated after the termination of the Employee’s employment with CCH for any reason; and


Mr. Mark Mednansky

Page 4

 

 

  (d) The Employee shall not be eligible to earn or receive a Transaction Bonus, and the Employee shall forfeit all rights in and to any Transaction Bonus, if Employee’s employment with CCH shall terminate for any reason prior to a Transaction (except as specifically set forth above).

 

  (e) Payment of the Transaction Bonus to which the Employee is otherwise entitled shall be contingent upon, and shall be earned and payable to the Employee if, and only if: (i) a Transaction is consummated; and (ii) no later than sixty (60) days after the Transaction Date the Employee executes and delivers to Wagon a separation and release agreement (or, in the event the Employee’s employment with CCH does not terminate upon consummation of the Transaction, a release agreement) in favor of each member of the Company Group, their respective direct and indirect equity owners (including Wagon, DFRG and their direct and indirect equity owners), and their respective affiliates in form and substance reasonably satisfactory to Wagon (the “ Release ”), provided that the Release shall not release any obligations to make any payments to, or to cause payments to be made to, the Employee required under this Letter, and such Release remains in effect following the expiration of any applicable notice, review and/or revocation periods. Wagon shall be required to deliver to the Employee its required form of Release within fourteen (14) days after the Transaction Date.

D. For the avoidance of doubt, the Employee’s rights, if any, with respect to a Transaction Bonus in the event of a Qualified Public Offering shall apply only with respect to the first Qualified Public Offering consummated after the date of this Letter and, but only to the extent specifically provided for herein, each subsequent Secondary Public Offering, and no Transaction Bonus shall be paid or payable with respect to any subsequent Sale or Qualified Public Offering (other than the portion of any subsequent public offering that constitutes a Secondary Public Offering). In addition, if prior to a Qualified Public Offering there is a Sale, then no Transaction Bonus shall be paid or payable with respect to any subsequent sale of any other assets of the Company or Qualified Public Offering.

E. The Employee shall not have any transferable right or interest in the Transaction Bonus or other compensation or amounts payable pursuant to this Letter, nor any right to anticipate, alienate, assign, dispose of, pledge or encumber the same, nor shall the same be subject to attachment, garnishment, execution following judgment or other legal process instituted by creditors of the Employee, and any action in violation of this provision shall be void. No member of the Company Group shall be required to segregate any funds or other assets to be used for the payment of the Transaction Bonus or any other payment under this Letter, and no record or other notation on any member of the Company Group’s books of the obligations created by this Letter with respect to the Transaction Bonus or any other payment shall be considered as evidence of the creation of a trust fund, an escrow or any other segregation of assets for the benefit of the Employee. Any obligation to pay the Transaction Bonus or any other compensation or amounts are unsecured contractual obligations only, and the Employee shall not have any beneficial or preferred interest by way of trust, escrow, lien or otherwise in and to any specific assets or funds of any member of the Company Group. The Employee specifically acknowledges and agrees that (i) any rights Employee may have to the Transaction Bonus or any other payment pursuant to the terms of this Letter (except for Stock issued under Paragraph B above) are not securities of any person or entity and do not create any right in the equity or capital of any member of the Company Group, and (ii) receipt of the Transaction Bonus, if any, or other compensation or amounts payable pursuant to this Letter, may constitute ordinary income for federal and state income tax purposes and shall be subject to all applicable payroll, income tax and other withholding obligations. No Member of the Company Group other than Wagon and DFRG shall be liable for, and the Employee shall


Mr. Mark Mednansky

Page 5

 

look solely to the general credit of Wagon and DFRG for satisfaction of, any obligations due or to become due under this Letter with respect to a Transaction Bonus, or any other payment, resulting from a Sale. No Member of the Company Group other than Wagon shall be liable for, and the Employee shall look solely to the general credit of Wagon for satisfaction of, any obligations due or to become due under this Letter with respect to a Transaction Bonus, or any other payment, resulting from a Qualified Public Offering or Secondary Public Offering. If any member of the Company Group should, in its sole discretion, earmark or set aside any funds or other assets to pay amounts hereunder, the same shall, nevertheless, remain and be regarded as part of the general assets of such member, as applicable, subject to the claims of its general creditors (and shall not be considered to be held in a fiduciary capacity for the benefit of the Employee), and the Employee shall not have any legal, beneficial, security or other property interest herein. Nothing herein shall be deemed as a waiver of any rights of the Employee or Employee’s heirs or estate in the event of Employee’s death.

F. Notwithstanding anything to the contrary contained in this Letter, in the event that any Transaction Bonus is paid to the Employee before any portion of the Employee’s Existing IA Compensation (if any) is paid, then such Transaction Bonus shall be paid in accordance with the terms of this Letter and the future payment of the Existing IA Compensation (if any) shall be reduced by the aggregate amount of all Transaction Bonuses paid to the Employee prior to the payment of any Existing IA Compensation. If any portion of the Employee’s Existing IA Compensation is paid before any Transaction Bonus is paid to Employee, then such Transaction Bonus and, to the extent necessary, all future Transaction Bonuses payable to Employee shall be reduced by the aggregate Existing IA Compensation payable to the Employee under the Existing Investment Agreements. For the avoidance of doubt, the Employee’s rights under and pursuant to the Existing Investment Agreements (including the Employee’s “Class B Interests” (as defined in the Existing Investment Agreements)) shall not be limited by anything in this Letter. The parties hereto agree that the provisions of this Paragraph F shall be binding and effective against them notwithstanding anything to the contrary contained in the Existing Investment Agreements. Without limiting the foregoing, if and to the extent anything in this Letter constitutes an amendment to the Existing Investment Agreements, the parties’ signatures hereto shall constitute their consent to such amendment.

G. All payments and benefits under this Letter are intended to comply with Section 409A of the Internal Revenue Code of 1986, as amended, and the United States Treasury Regulations and Internal Revenue Service guidance published thereunder or with respect thereto (collectively, “ Section 409A ”) and, accordingly, to the maximum extent permitted, this Letter shall be interpreted to be in compliance therewith. Notwithstanding such intent or anything to the contrary contained in this Letter, in no event whatsoever shall any member of the Company Group be liable for any additional tax, interest or penalty that may be imposed on Employee by Section 409A or damages for failing to comply with Section 409A.

H. All determinations under this Letter of the Employee’s Transaction Bonus Amount, Transaction Bonus, the Existing IA Compensation and any other amounts payable under or relevant to the determination of any Transaction Bonus provided for herein, and all decisions, interpretations and determinations with regard to any question or matter arising under this Letter, will be made in the good faith discretion of Wagon.


Mr. Mark Mednansky

Page 6

 

I. As used herein:

Aggregate Value ” shall mean: either (1) in the case of a Sale, the sum of the aggregate outstanding principal balance of indebtedness for borrowed money of the Company plus the total net purchase price paid to CCH in respect of its assets or to the equity holders of DFRG or CCH in respect of their equity interests, as the case may be (as adjusted for working capital and other purchase price adjustments pursuant to the applicable Sale documents), or (2) in the case of a Qualified Public Offering or Secondary Public Offering, the sum of the aggregate outstanding principal balance of indebtedness for borrowed money of the Company plus the implied aggregate common equity value of the Public Company based on such Qualified Public Offering or Secondary Public Offering issuance price, as the case may be, and for avoidance of doubt, in both clauses (1) and (2) above, without duplication.

Applicable Qualified Offering Percentage ” shall mean the excess of (i) the percentage of the aggregate common equity of the Public Company held directly or indirectly by Wagon immediately prior to the first Qualified Public Offering consummated after the date of this Letter (determined on an as converted, fully diluted basis) over (ii) the percentage of the aggregate common equity of the Public Company held directly or indirectly by Wagon immediately after such Qualified Public Offering (determined on an as converted, fully diluted basis). Notwithstanding the foregoing, the portion, if any, of the excess described immediately above that results from the compensatory grant or compensatory issuance of common equity or of options or similar rights to acquire common equity in connection with such Qualified Public Offering shall be added back to the amount described in clause (ii) above for purposes of determining the Applicable Qualified Offering Percentage with respect to such Qualified Public Offering.

Applicable Secondary Offering Percentage ” shall mean with respect to any Secondary Public Offering, the excess of (i) the percentage of the aggregate common equity of the Public Company held directly or indirectly by Wagon immediately prior to such Secondary Public Offering over (ii) the percentage of the aggregate common equity of the Public Company held directly or indirectly by Wagon immediately after such Secondary Public Offering. Notwithstanding the foregoing, the portion, if any, of the excess described immediately above that results from the grant or issuance (whether or not compensatory) by the Public Company of common equity or of warrants or options to acquire common equity, or the sale by the Public Company of newly issued common equity or of securities or other instruments convertible into common equity, in connection with such Secondary Public Offering, shall be added back to the amount described in clause (ii) above for purposes of determining the Applicable Secondary Offering Percentage with respect to such Secondary Public Offering.

Cause ” shall have the meaning set forth in the Employment Agreement.

Company ” shall mean, collectively, DFRG, together with each of its subsidiaries (including, but not limited to, CCH) and its and their successors and assigns.

DFRG ” shall mean Del Frisco’s Restaurant Group, LLC, a Delaware limited liability company, together with its successors and assigns.

Disability ” shall have the meaning set forth in the Employment Agreement.

Employment Agreement ” shall mean Employee’s Executive Employment Agreement dated as of February 7, 2011 with CCH (which term shall include, for purposes of this Letter, any successor or acquirer of the Company’s business), as from time to time amended, supplemented, restated, or otherwise modified.


Mr. Mark Mednansky

Page 7

 

Existing Investment Agreements ” shall mean (i) the Subscription Agreement executed by Employee in favor of Wagon dated as of April 30, 2007, (ii) the Amended and Restated Limited Liability Company Agreement of LSF5 Wagon Holdings, LLC, dated as of February 5, 2007 (as the same may be amended from time to time), and (iii) any and all letter agreements, pledge agreements, promissory notes, and other agreements executed by Employee in connection therewith or relating directly or indirectly thereto.

Existing IA Compensation ” shall mean the aggregate amount payable to the Employee in respect of his “Class C Interests” (as that term is defined in the Existing Investment Agreements).

Fair Market Value ” means:

(i) If the Public Company’s common equity shares are listed on any established stock exchange or a national market system, or are regularly quoted on an automated quotation system (including the OTC Bulletin Board and the “Pink Sheets” published by the National Quotation Bureau, Inc.) or by a recognized securities dealer, the average of the closing sales prices per share over the 30-day period ending on the date of determination, as reported in The Wall Street Journal or such other source as Wagon deems reliable; or

(ii) In the absence of an established market for the shares described in (i) above, the issuance price used in the most recent Qualified Public Offering or Secondary Public Offering to have been consummated.

Good Reason ” shall have the meaning set forth in the Employment Agreement.

Prior Letter Agreement ” shall mean that certain undated letter agreement between Wagon and Employee that was executed on or about April 30, 2007.

Public Company ” shall mean whichever of DFRG or CCH is the issuer in the first Qualified Public Offering to be consummated after the date hereof.

Qualified Public Offering ” shall mean a firm commitment underwritten public offering of common equity securities for gross cash proceeds to the issuer of at least $30 Million where the shares of DFRG’s or CCH’s common equity securities that are registered under the Securities Act of 1933, as amended, are listed on a national securities exchange or are quoted on NASDAQ.

Sale ” shall mean a sale or transfer of all or substantially all of the assets of CCH in one transaction or series of transactions, the sale, exchange, or other disposition of a majority of the equity interests in or of DFRG or CCH, or any transaction having a similar effect (including, without limitation, a merger or consolidation), but excluding (i) a Qualified Public Offering or Secondary Public Offering or (ii) any sales, transfers or other transactions to or with subsidiaries or affiliates of any member of the Company Group or Wagon’s equity holders, or any transaction with an entity that is entered into by any member of the Company Group, or their subsidiaries or affiliates, or Wagon’s equity holders, as part of a reorganization, restructuring or conversion of one or more members of the Company Group.


Mr. Mark Mednansky

Page 8

 

Secondary Public Offering ” shall mean a registered public offering of the same class of equity securities that were sold in the first Qualified Public Offering consummated after the date of this Letter, but only if Wagon receives proceeds from such offering due to a reduction in Wagon’s direct or indirect ownership percentage in the common equity of the Public Company.

Wagon ” means LSF5 Wagon Holdings, LLC, a Delaware limited liability company, together with its successors and assigns.

 

 

This Letter shall be governed by and construed in accordance with the laws of the State of Texas and shall be subject to Section 6 of the Employment Agreement in all respects. In order for the Transaction Bonus opportunity described above to be effective, you are required to promptly countersign and deliver to Wagon the enclosed copy of this Letter (you may keep the original for your records). This Letter amends and restates in its entirety that certain letter agreement among Employee, Wagon, and DFRG dated as of February 7, 2011 (the “Original Letter Agreement”). Each of the Original Letter Agreement and the Prior Letter Agreement is hereby terminated and is no longer of any force or effect.

This Letter may be executed in any number of counterparts with the same effect as if all parties hereto had signed the same document. All counterparts shall be construed together and shall constitute one agreement. This Letter and any amendments hereto, to the extent signed and delivered by means of a facsimile machine or electronic transmission, shall be treated in all manner and respects as an original Letter and shall be considered to have the same binding legal effect as if it were the original signed version thereof delivered in person. At the request of any party hereto the other parties hereto shall re-execute original forms thereof and deliver them to such requesting party. No party hereto shall raise the use of a facsimile machine or electronic transmission to deliver a signature or the fact that any signature was transmitted or communicated through the use of facsimile machine or electronic transmission as a defense to the formation of a contract and each such party forever waives any such defense.

[Signature page follows.]


Mr. Mark Mednansky

Page 9

 

Should you have any questions, please contact the undersigned.

Sincerely,

 

LSF5 WAGON HOLDINGS, LLC
By:    /s/ Marc L. Lipshy
  Name: Marc L. Lipshy
  Title:   President

 

DEL FRISCO’S RESTAURANT GROUP, LLC
By:    /s/ Marc L. Lipshy
  Name: Marc L. Lipshy
  Title:   Vice President

I hereby acknowledge receipt and agree to the terms of this Letter this 21st day of October, 2011.

 

/s/ Mark Mednansky
Name: Mark Mednansky

 


Mr. Mark Mednansky

Page 10

 

Schedule A

Computation of Employee’s Transaction Bonus Amount

Mark Mednansky

 

Transaction Bonus Program  
Aggregate Value      Bonus
Share
%
    Bonus Pool  

Min
($MM)

   Max
($MM)
       Min
($000)
     Max
($000)
 
<228.0      —           0.0     0.0         0.0   
> 228.0      < 260.2         0.5     1,140.0         1,301.0   
>260.2      < 277.8         1.0     2,603.0         2,778.0   
>277.8      <292.5         1.5     4,168.5         4,386.0   

> 292.5

  

      

 

5,850.0 + 5% of anything

over 292.5MM

  

  

General Rule: If the Aggregate Value with respect to a particular Transaction is less than $292,500,000, the Employee’s Transaction Bonus Amount with respect to such Transaction shall be calculated using the following formula:

A X B X C, where:

A = 45%*

B = Aggregate Value from the subject Transaction

C = The Aggregate Value’s applicable Bonus Share % from the chart above

Exception: If the Aggregate Value with respect to a particular Transaction is $292,500,000 or greater, the Employee’s Transaction Bonus Amount with respect to such Transaction shall be calculated using the following formula:

A X [$5,850,000 + (C X (B – $292,500,000))], where:

A = 45%*

B = Aggregate Value from the subject Transaction

C = 5%

 

* Subject to the right of the Company, in its sole and absolute discretion, to increase the specified percentage by up to five (5) percentage points.

Exhibit 10.9

EXECUTIVE EMPLOYMENT AGREEMENT

This Executive Employment Agreement (this “Agreement” ) is made as of the 17th day of October, 2011 (the “Effective Date” ) between Thomas J. Pennison, Jr. ( “Executive” ), an individual, and Center Cut Hospitality, Inc., a Delaware corporation (the “Company” ). Capitalized terms used herein shall have the meanings given to them in Section 5 below.

In consideration of the mutual promises expressed herein, Executive and the Company have agreed as follows:

1. E MPLOYMENT .

(a) Effective Date and Term. This Agreement shall be effective as of the Effective Date and will continue indefinitely thereafter unless Executive’s employment terminates earlier in accordance with Section 3.

(b) Duties . Executive shall be employed as chief financial officer or such other comparable position to which Executive and the Company may agree. Executive agrees to devote Executive’s full time and best efforts to the performance of the duties attendant to Executive’s executive position with the Company. The duties of Executive’s position with the Company shall be in accordance with industry standards and shall be set forth in a job description. Unless otherwise agreed to by Executive, Executive shall report directly to the chief executive officer.

2. C OMPENSATION AND B ENEFITS .

(a) Annual Salary . Executive’s salary shall be $250,000 per year, less applicable taxes and withholdings, to be paid in accordance with the Company’s regular payroll practices for similarly situated executives; provided, however, Executive’s salary shall be reviewed annually in the first quarter and may be increased by the Company’s Board of Directors (the “Board” ) or its designee, in its sole discretion.

(b) Annual Incentive Bonus . Executive shall be entitled to participate in all bonus compensation plans that the Company may offer, in accordance with the terms of any such plans. The target for Executive’s annual bonus shall be at least fifty percent (50%) of Executive annual salary. Executive’s entitlement to an annual incentive bonus under this subparagraph 2(b), and the amount of such bonus shall be determined by the Company in its good faith discretion; provided, however, if the terms of a written annual incentive bonus plan do not include provisions regarding the time of payment for an annual incentive bonus, payment of any such bonus shall occur before March 15th of the calendar year following the calendar year to which the bonus relates.

 

E MPLOYMENT A GREEMENT

 

P AGE 1


(c) Benefits .

 

  (i) Standard Employee Benefits . Executive shall be eligible for all employee benefits extended, from time to time, to all full-time employees of the Company, subject to the terms and conditions of the Company’s policies and employee benefit plans, as those policies and plans are amended or terminated. The Company shall pay 100% of the medical insurance premium for the medical insurance coverage elected by Executive under the Company’s ERISA medical plan.

 

  (ii) Executive Benefits . Executive shall also be entitled to participate in all benefit programs that are maintained by the Company and available to its executive officers generally (including, but not limited to, any and all deferred compensation plans, equity compensation plans, and the Transaction Bonus Agreement). Executive acknowledges that Executive shall have no vested rights under or in respect to Executive’s participation in any such program except as expressly provided under the terms thereof.

 

  (iii) Business Expenses. Executive shall be authorized to incur reasonable expenses for promoting the business of the Company, including expenses for entertainment, travel, and similar items. The Company shall reimburse Executive for all such expenses upon the presentation by Executive, from time to time, of an itemized account of such expenditures.

 

  (iv) Vacations. Executive shall be entitled to the greater of (x) annual paid vacation commensurate with the Company’s established vacation policy for executive officers or (y) four (4) weeks of annual paid vacation that shall otherwise be subject to the Company’s established vacation policy for executive officers. The timing of paid vacations shall be scheduled in a reasonable manner by Executive.

 

  (v) Relocation Allowance. Executive shall be eligible to receive reimbursement for up to $50,000 of reasonable relocation and temporary living expenses incurred within the first twelve months of Executive’s employment under this Agreement (including any expenses incurred in locating Executive’s new personal residence), the reasonableness of such expenses to be determined by the Company in its sole good faith discretion. Any expenses eligible for reimbursement under this Section 2(c)(v) must be incurred and accounted for in accordance with the policies and procedures established by the Company. Any such reimbursement of expenses shall be made by the Company upon or as soon as practicable following receipt of supporting documentation reasonably satisfactory to the Company (but in no event later than the earlier to occur of (1) 30 days after such expense is incurred, or (2) October 15, 2012).

 

E MPLOYMENT A GREEMENT

 

P AGE 2


3. T ERMINATION AND S EVERANCE .

(a) Executive’s employment may be terminated in accordance with the following provisions:

 

  (i) Death. Executive’s employment shall terminate upon Executive’s death.

 

  (ii)

Disability. If Executive incurs a Disability, the Company may give the Executive written notice of its intention to terminate Executive’s employment; provided that such written notice may only be given after the expiration of the time period required under the definition of Disability below. In that event, Executive’s employment with the Company shall terminate effective on the later of (x) the fifteenth (15 th ) day after receipt of such notice by Executive or (y) the date specified in such notice, provided that within the fifteen (15) days after such receipt, Executive shall not have returned to full-time performance of Executive’s duties.

 

  (iii) Termination by the Company without Cause. The Company may terminate Executive’s employment without Cause (as defined below) at any time upon written notice to Executive.

 

  (iv) Termination by the Company for Cause . The Company may terminate Executive’s employment for Cause at any time upon written notice to Executive, and such written notice shall contain a statement noting the reason(s) for the Cause termination. To the extent required by Section 5(a), and if such failure(s) are curable, Executive shall be given an opportunity to cure the failure(s) noted in such written notice as the reason(s) for the Cause termination.

 

  (v) Termination by Executive for Good Reason. Executive may terminate Executive’s employment for Good Reason (as defined below) upon thirty (30) days’ written notice to the Company; provided, however, that the Date of Termination (as defined below) due to Good Reason shall not automatically occur on the date set forth in Executive’s written notice to the Company, but will instead be determined by the Company following the Company’s allowed “cure” period as described in Section 5(e) below.

 

  (vi) Voluntary Termination by Executive Not Involving Good Reason . Executive may terminate Executive’s employment voluntarily for any reason other than a Good Reason upon sixty (60) days’ written notice to the Company (such 60-day period is herein referred to as the “Notice Period” ). During the Notice Period, Executive shall continue to be employed by the Company subject to Section 1(b); provided, however, that (x) the Company shall have the right to shorten or eliminate the Notice Period in its good faith discretion and (y) if the Company shortens or eliminates the Notice Period, such action by the Company shall constitute neither (1) a termination of Executive’s employment by

 

E MPLOYMENT A GREEMENT

 

P AGE 3


  Executive pursuant to Section 3(a)(v) nor (2) a termination of Executive’s employment by the Company pursuant to Section 3(a)(ii), Section 3(a)(iii), or Section 3(a)(iv). In the event that the Company shortens or eliminates the Notice Period, the Company shall pay Executive’s salary for the entire Notice Period and shall also pay Executive the same bonuses and incentive payments that Executive would have been paid if Executive had remained employed through the end of the Notice Period.

(b) Severance Benefits.

 

  (i) Termination without Cause; Termination for Good Reason . If Executive’s employment terminates pursuant Section 3(a)(iii) or Section 3(a)(v), the Company agrees to provide Executive, as severance benefits, the following:

 

  (A) Payment of Executive’s base monthly salary in effect at the time of Executive’s Date of Termination during the Severance Period (defined below); and

 

  (B) Payment of Executive’s medical premiums during the Severance Period for the medical coverage that Executive had elected to receive under the Company’s ERISA medical plan and that was in effect as of the Date of Termination, but only to the extent that Executive receives COBRA coverage during the Severance Period.

“Severance Period” means the twelve (12) consecutive months immediately following the Date of Termination; provided, however, (1) if Executive’s employment is terminated pursuant to Section 3(a)(iii) or Section 3(a)(v) at any time within the 365 day period following the Effective Date (but prior to a Change of Control), then “Severance Period” means the six (6) consecutive months immediately following the Date of Termination and (2) if Executive’s employment is terminated pursuant to Section 3(a)(iii) or Section 3(a)(v) at any time within the one-hundred eighty (180) day period following a Change of Control (irrespective of when such Change of Control occurs), then “Severance Period” means the eighteen (18) consecutive months immediately following the Date of Termination. Unless delayed pursuant to Section 3(c), monthly severance payments pursuant to Section 3(b)(i)(A) will be paid to Executive in equal installments, beginning on the first pay date occurring after the 75 th day following the Date of Termination. All of the severance benefits pursuant to this Subsection (b)(i) are conditioned upon the Executive entering into a separation agreement and general release of all claims in favor of the Company and its affiliates (the “Release” ), within the prescribed time period set forth therein, and Executive’s non-revocation of the Release during the revocation period prescribed therein. The Company shall provide Executive with the Release within fourteen (14) business days after the Date of Termination. Time is of the essence so that the prescribed time periods therein expire within the seventy-five (75) day period following the Date of Termination.

 

E MPLOYMENT A GREEMENT

 

P AGE 4


  (ii) Termination due to Disability. If Executive’s employment with the Company terminates due to Disability, the Company shall pay Executive an amount equal to fifty percent (50%) of Executive’s annual salary (in addition to any disability insurance benefits received pursuant to the Company’s employee benefit plans The amount paid pursuant to this Subsection (b)(ii) shall be paid semi-monthly in twelve (12) equal installments.

 

  (iii) Termination for any other Reason . If Executive’s employment terminates pursuant to any provision of this Agreement other than pursuant to Section 3(a)(ii), Section 3(a)(iii), Section 3(a)(v), or Section 3(a)(vi) of this Agreement, the Company has no obligation to pay Executive any severance or other termination benefits.

(c) Timing; Form of Payments. All benefits provided to Executive pursuant to Section 3(b)(i) and (ii) (the “Severance Benefits” ) will be made in accordance with the regular payroll practices of the Company and will be subject to applicable federal and state income tax and employment tax withholdings and deductions and any other applicable withholdings and deductions. Notwithstanding anything else herein, to the extent any of the Severance Benefits are treated as nonqualified deferred compensation subject to Section 409A of the Internal Revenue Code of 1986, as amended (the “Code” ), then (i) no such payment shall be made to Executive unless Executive’s termination of employment constitutes a “separation from service” with the Company (as such term is defined in Treasury Regulation Section 1.409A-1(h) and any successor provision thereto), and (ii) if Executive is determined by the Company to be a “specified employee” for purposes of Code § 409A(a)(2)(B)(i) and the Company determines that delayed commencement of any portion of the Severance Benefits is required in order to avoid a prohibited distribution under Code § 409A(a)(2)(B)(i), commencement of such portion of the Severance Benefits will be delayed for six (6) months following Executive’s “separation from service” pursuant to Code § 409A. Delayed Severance Benefits (if any) shall be payable in a lump sum on the first business day following the expiration of such six (6) month period, and any remaining Severance Benefits due shall be paid as otherwise provided in Section 3(b). Notwithstanding the foregoing, to the maximum extent permitted by applicable law, payment of the Severance Benefits shall be made in reliance upon Treasury Regulation § 1.409A-1(b)(9) (with respect to separation pay plans) or Treasury Regulation § 1.409A-1(b)(4). The Severance Benefits shall be treated as a right to a series of separate payments. The provisions of this Agreement are intended to comply with the applicable requirements of Code § 409A and shall be limited, construed, and interpreted in accordance with such intent.

(d) Consequences of Violation of Promises. Executive acknowledges and agrees that the Company’s obligation to provide and Executive’s entitlement to receive the Severance Benefits shall cease immediately upon any violation by Executive of Executive’s obligations under Section 4 of this Agreement. Executive further agrees to repay the Company, on a pro rata basis, any Severance Benefits received during the period of time in which Executive was in violation of Executive’s obligations under Section 4 of this Agreement, as determined by the

 

E MPLOYMENT A GREEMENT

 

P AGE 5


Company in its good faith discretion. In the event the Company determines Executive has a repayment obligation pursuant to this Section 3(d), the Company will send notice to Executive identifying the reason(s) Executive’s repayment obligation has been triggered.

(e) Later Determined Cause . Notwithstanding any other provision of this Agreement, if Executive’s employment with the Company is terminated such that Executive is entitled to severance from the Company and the Company determines within no later than one-hundred eighty (180) days after the Date of Termination that Cause existed on, prior to, or after the Date of Termination, then Executive shall not be entitled to any Severance Benefits from the Company, and any and all Severance Benefits and reimbursements from the Company to Executive shall cease.

4. E XECUTIVE S COVENANTS

(a) Confidential Information and Trade Secrets. Executive acknowledges that the Company has trade, business, and financial secrets and other confidential and proprietary information regarding the Company and its business, in whatever form, tangible or intangible (collectively, the “Confidential Information” ), and that, during the term of this Agreement, Executive will receive Confidential Information. Executive acknowledges that the Confidential Information that Executive will receive during the term of this Agreement will be in addition to that which Executive has already received during Executive’s employment with the Company. Executive further acknowledges and agrees that Executive’s use of Confidential Information in the conduct of business on behalf of a competitor of the Company would constitute unfair competition with the Company and would adversely affect the business goodwill of the Company. Confidential Information includes, but is not limited to, sales materials, technical information, processes, compilations of information, records, specifications, information concerning customers and prospective customers, customer and prospective customer lists, and information regarding methods of doing business. As defined herein, Confidential Information shall not include information that is: (i) obtained by Executive from a source other than the Company or its affiliates, which source is not under a duty of non-disclosure in regard to such information; or (ii) becomes generally available to the public other than through disclosure by Executive in violation of the provisions of this Agreement. For purposes of clarity, the parties understand and agree that Confidential Information also does not include general know-how and/or general processes, systems, and procedures (such as general sales processes and best practices) that Executive has gained or gains by virtue of his experience working for the Company and/or within the “white-tablecloth restaurant” and/or “fine dining establishment” industries.

Executive is aware of those policies implemented by the Company to keep its Confidential Information secret, including those policies limiting the disclosure of information on a need-to-know basis and requiring the keeping of information in secure areas. Executive acknowledges that the Confidential Information has been developed or acquired by the Company through the expenditure of substantial time, effort, and money and provides the Company with an advantage over competitors who do not know or use such Confidential Information.

 

E MPLOYMENT A GREEMENT

 

P AGE 6


During and following Executive’s employment by the Company, Executive shall hold in confidence and not directly or indirectly disclose, use (for Executive’s commercial advantage or otherwise), copy, make lists of, or make available to others any Confidential Information except in Executive’s good faith performance of Executive’s duties to the Company as an executive of the Company or to the extent authorized in writing by the Board or required by law or compelled by legal process. Executive agrees to use reasonable efforts to give the Company notice of any and all attempts to compel disclosure of any Confidential Information, in such a manner so as to provide the Company with written notice at least five (5) days before disclosure or within three (3) business days after Executive is informed that such disclosure is being or shall be compelled, whichever is earlier. Such written notice shall include a description of the information to be disclosed, the court, government agency, or other forum through which the disclosure is sought, and the date by which the information is to be disclosed, and shall contain a copy of the subpoena, order, or other process used to compel disclosure.

Executive further agrees not to use any Confidential Information for the benefit of any person or entity other than the Company, its subsidiaries and affiliates, and any Protected Company.

Executive agrees that all Confidential Information and other files, documents, materials, records, notebooks, customer lists, business proposals, contracts, agreements, and other repositories containing information concerning the Company or the business of the Company, in whatever form, tangible or intangible (including all copies thereof), that Executive shall prepare, use, or be provided with as a result of Executive’s employment with the Company, shall be and remain the sole property of the Company. Upon termination of Executive’s employment hereunder, Executive agrees that all Confidential Information and other files, documents, materials, records, notebooks, customer lists, business proposals, contracts, agreements, and other repositories containing information concerning the Company or the business of the Company (including all copies thereof) in Executive’s possession, custody, or control, whether prepared by Executive or others, shall remain with or be returned to the Company promptly (within 48 hours) after the Date of Termination.

Notwithstanding anything herein to the contrary, Executive may disclose to Executive’s spouse and any personal tax or financial advisor the United States Federal income tax treatment and tax structure of the transactions contemplated in this Agreement and all materials of any kind (including opinions and other tax analyses) that are provided to Executive relating to such tax treatment and tax structure. For this purpose, “tax structure” is limited to facts relevant to the United States Federal income tax treatment of the transactions contemplated in this Agreement and does not include information relating to the identity of the parties hereto.

(b) Non-Competition . Executive acknowledges and agrees that the nature of the Confidential Information that the Company commits to provide to Executive during Executive’s employment by the Company would make it unlikely that Executive would be able to perform in a similar capacity for a Competing Business (as defined below) without disclosing or utilizing the Confidential Information. Executive further acknowledges and agrees that the Company’s business is conducted in a highly competitive market. Accordingly, Executive agrees that during the Non-Competition Period (as defined below), Executive will not (other than for the benefit of the Company, its subsidiaries and affiliates, and any Protected Company pursuant to this Agreement) directly or indirectly, individually or as an officer, director, employee, shareholder, consultant, contractor, partner, joint venturer, agent, equity owner, or in any capacity

 

E MPLOYMENT A GREEMENT

 

P AGE 7


whatsoever, (i) regardless of the reason for termination, work for, engage in, or operate any restaurant business or restaurant operating or management company that (x) features the sale of steak where the sale of steak exceeds thirty percent (30%) of the restaurant’s revenues from food sales and (y) which is, or owns or operates restaurants, located within thirty (30) miles of any Del Frisco’s Double Eagle Steak House restaurant, any Del Frisco’s Grill restaurant, or any Sullivan’s Steakhouse restaurant (a “Competing Business” ), or (ii) (x) hire, attempt to hire, contact with respect to hiring, or solicit with respect to hiring any employee of any Protected Company; (y) solicit, divert, or take away any customers or customer leads of any Protected Company with whom Executive had, whether directly or indirectly, contact or business relations during the period of time that Executive was employed by the Company or its predecessors-in-interest or its affiliates (herein, the “Employment Period” ) or about whom Executive possesses Confidential Information; or (z) solicit, encourage, or influence any suppliers or vendors of any Protected Company to cease doing business with any Protected Company or change the terms and conditions upon which they conduct their business with any Protected Company where Executive had, whether directly or indirectly, contact during the Employment Period or business relations during the Employment Period with such vendors or suppliers, or about whom Executive possesses Confidential Information.

For purposes of this Section, “Non-Competition Term” means the Employment Period and, (a) if Severance Benefits are not owed under Section 3(b)(i), a period of eighteen (18) consecutive months immediately following the Date of Termination and, (b) if Severance Benefits are owed under Section 3(b)(i), the 6-month, 12-month or 18-month period that is the Executive’s Severance Period.

If any court determines that any portion of this Section 4(b) is invalid or unenforceable, the remainder of this Section 4(b) shall not thereby be affected and shall be given full effect without regard to the invalid provisions. If any court construes any of the provisions of this Section 4(b), or any part thereof, to be unreasonable because of the duration or scope of such provision, such court shall have the power to reduce the duration or scope of such provision and to enforce such provision as so reduced.

(c) Irreparable Harm . Executive acknowledges that Executive’s violation of the provisions of Section 4(a) or Section 4(b) of this Agreement will cause irreparable harm to the Company, and Executive agrees that the Company shall be entitled as a matter of right to an injunction restraining any violation or further violation of such provisions by Executive or others acting on Executive’s behalf, without any showing of irreparable harm and without any showing that the Company does not have an adequate remedy at law. Executive further covenants and warrants that Executive will not dispute in any proceeding that any given violation or further violation of the covenants contained in Section 4(a) or Section 4(b): (i) will result in irreparable harm to the Company; or (ii) could not be remedied adequately at law. The Company’s right to injunctive relief shall be cumulative and in addition to any other remedies provided by law or equity.

(d) Reasonableness of Restrictions . Executive understands and acknowledges that the Company has made substantial investments to develop its Confidential Information, goodwill, and other legitimate business interests. Executive agrees that such investments are worthy of protection, and that the Company’s need for the protection afforded by Section 4(b) is

 

E MPLOYMENT A GREEMENT

 

P AGE 8


greater than any hardship Executive might experience by complying with its terms. Executive agrees that the limitations as to time, geographic area, and scope of activity to be restrained contained in this Agreement are reasonable and are not greater than necessary to protect the Confidential Information, goodwill, and other legitimate interests of the Company. Executive specifically agrees that, given the senior executive nature of Executive’s position and national operations of the Company, any restriction other than on the basis specified in Section 4(b) would be inadequate to protect the company’s Confidential Information. Executive further agrees that the restrictions contained in Section 4(b) allow Executive an adequate number and variety of employment alternatives, based on Executive’s varied skills and abilities. Accordingly, Executive covenants and warrants that Executive will not dispute in any proceeding that: (i) the restraints contained in Section 4(b) are reasonable and not greater than necessary to protect proprietary information and/or the goodwill or other business interests of the Company; or (ii) the scope of the restraints contained in Section 4(b) should be reformed so as to make them enforceable, if it is judicially determined that they are unenforceable as drafted.

5. Definitions.

(a) Cause. “Cause” shall mean any or all of the following:

 

  (i) Failure by Executive to substantially perform material duties hereunder or to devote Executive’s full time and effort to Executive’s position with the Company, other than any failure resulting from death, illness or injury, or Disability, which, to the extent such failure is curable, Executive does not cure within a period of thirty (30) days after written notice of such failure is provided to Executive by the Company;

 

  (ii) Failure by Executive to comply materially with the policies of the Company, which, to the extent such failure is curable, Executive does not cure within a period of thirty (30) days after written notice of such failure is provided to Executive by the Company;

 

  (iii) Commission by Executive of any material illegal act or any act that is not in the ordinary course of Executive’s responsibilities that exposes the Company to a significant level of undue liability; provided, however, a violation due to use by the Company of the Executive’s liquor license shall not constitute Cause;

 

  (iv) Executive’s conviction of or plea of guilty or nolo contendere to any felony; or

 

  (v) Any breach of Executive’s obligations under Section 4 of this Agreement.

(b) Change of Control. “Change of Control” shall mean either (i) the closing of a Qualified Public Offering (as defined in the Transaction Bonus Agreement) or (ii) the closing of a Sale (as defined in the Transaction Bonus Agreement).

 

E MPLOYMENT A GREEMENT

 

P AGE 9


(c) Date of Termination. “Date of Termination” shall mean the date on which the Executive’s termination of employment with the Company occurs; provided, however, to the extent that Executive is receiving compensation due to such termination of employment and such compensation is subject to Code § 409A, “Date of Termination” shall mean the date of Executive’s “separation from service” (within the meaning of Treasury Regulation § 1.409A-1(h)).

(d) Disability . “Disability” shall mean shall mean Executive’s inability to perform, with or without reasonable accommodation, the essential functions of Executive’s position hereunder for a total of three (3) months during any six (6) month period as a result of incapacity due to mental or physical illness as determined by a physician selected by the Company or its insurers and acceptable to Executive or Executive’s legal representative, such agreement as to acceptability not to be unreasonably withheld or delayed.

(e) Good Reason. “Good Reason” shall mean that any of the following events occurs without Executive’s consent:

 

  (i) The Company requires Executive to be based from a location that is outside of a fifty (50) mile radius of the Company office where the Executive is based as of the Effective Date;

 

  (ii) The Company materially decreases Executive’s annual salary (other than a general reduction in base salary that affects all salaried employees of the Company proportionately, which reduction shall not be more than ten percent (10%) of Executive’s annual salary)

 

  (iii) A material breach by the Company of this Agreement; or

 

  (iv) A material diminution caused by the Company in the title and/or duties, responsibilities, or authority of Executive.

Provided, however, for all of the events described in clauses (i), (ii), (iii), and (iv) immediately above, Good Reason will not exist (x) unless Executive has provided the Company with written notice of the circumstances that Executive believes constitute Good Reason within thirty (30) days after Executive knows, or through reasonable diligence, should know of such events and circumstances and (y) the Company has failed to cure within thirty (30) days of such notice. Failure to present the circumstances that Executive believes constitutes Good Reason within thirty (30) days of the Employee’s first knowledge of such circumstances waives any right by Executive to assert that Executive has Good Reason for termination and constitutes acceptance by Executive as new terms of Executive’s employment. Resignation by the Executive following the Company’s cure of identified circumstances or before the expiration of the 30-day “cure” period referred to above shall constitute a voluntary termination under Section 3(a)(vi). In the event the Company does not cure the identified circumstances on or before the expiration of the 30-day “cure” period referred to above, then Executive must terminate employment for Good Reason within fifteen (15) days of the end of such cure period, or any later termination of employment by Executive will not constitute Good Reason based upon the same previously identified circumstances. Notwithstanding anything else herein, the Company and Executive may agree, in writing, to extend the 15-day period during which the Executive must terminate employment for Good Reason.

 

E MPLOYMENT A GREEMENT

 

P AGE 10


(f) Protected Company. “Protected Company” shall mean, individually, each of Del Frisco’s Restaurant Group, LLC (together with its successors and assigns, “DFRG” ) and all subsidiaries of DFRG (together with each successor and assign of such subsidiaries).

(g) Transaction Bonus Agreement . “Transaction Bonus Agreement” shall mean that certain letter agreement between Executive and LSF5 Wagon Holdings, LLC dated October 17, 2011, as from time to time amended, supplemented, restated, or otherwise modified, which provides Executive with the opportunity to earn additional compensation in connection with the sale or public offering of Del Frisco’s Restaurant Group, LLC and its subsidiaries, successors, and assigns.

6. Arbitration; Waiver of Right to Jury Trial.

(a) In the event any claim, demand, cause of action, dispute, controversy, or other matter in question (in this Section 6, a “Claim” ) arises out of this Agreement (or its termination) or the Transaction Bonus Agreement, whether arising in contract, tort, or otherwise and whether provided by statute, equity, or common law, that the Company may have against Executive or that Executive may have against the Company, or any of the Company’s subsidiaries or affiliates, or any of the foregoing entities’ respective officers, directors, employees, or agents in their capacity as such or otherwise, all such Claims shall be submitted to binding arbitration. Any arbitration shall be conducted in accordance with the Federal Arbitration Act ( “FAA” ) and, to the extent an issue is not addressed by the FAA or the FAA does not apply, with the then-current National Rules for the Resolution of Employment Disputes of the American Arbitration Association ( “AAA” ). The arbitrator shall apply the substantive law of Texas (excluding Texas choice-of-law principles that might call for the application of some other state’s law) or federal law, or both as applicable to the Claims asserted. The arbitrator shall have exclusive authority to resolve any dispute relating to the interpretation, applicability, or enforceability of this Section 6(a), including any Claim that all or part of this Agreement is void or voidable and any Claim that an issue is not subject to arbitration. The results of arbitration will be binding and conclusive on the parties hereto and judgment upon the award resulting from arbitration may be entered in any court of competent jurisdiction. Venue for arbitration, and for any disputes relating to the enforceability of this Section 6(a) will be in Dallas County, Texas. All proceedings conducted pursuant to this Section 6(a), including any order decision or award of the arbitrator, shall be kept confidential by all parties. Where permitted by law, the Company and Executive shall equally share the costs and expenses of the arbitration that are actually incurred by the parties, excluding attorney’s fees and expenses and expert witness fees, which shall remain the sole responsibility of each party, respectively.

(b) Notwithstanding any of the foregoing or any other provision of this Agreement, Executive and the Company may petition a court for an injunction to maintain the status quo pending resolution of any Claim under Section 6(a), and Section 6(a) shall not require the arbitration of an application for emergency or temporary injunctive relief by either party pending arbitration; provided, however, that the remainder of any such dispute beyond the application for emergency or temporary injunctive relief shall be subject to arbitration under Section 6(a).

 

E MPLOYMENT A GREEMENT

 

P AGE 11


(c) Executive and the Company agree that, in the event that the arbitration provision set forth in Section 6(a) is unenforceable, that all Claims shall be decided by trial before the court and not by a jury trial. The venue for any such trial shall be Dallas County, Texas.

(d) Executive acknowledges that by signing this Agreement, Executive is waiving any right that Executive may have to a jury trial in connection with, or relating to, a Claim .

7. M ISCELLANEOUS .

(a) Entire Agreement. This Agreement embodies the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior agreements and understandings, if any, between the parties regarding the subject matter hereof.

(b) Modification, Severability, and Waiver. Both parties agree that neither has the authority to modify or amend this Agreement unless the modification or amendment is in writing and signed by both of them. If any provision of this Agreement is declared or found to be illegal, unenforceable, or void, the remainder of this Agreement shall remain valid and enforceable to the extent feasible. Any waiver of any term of this Agreement by the Company shall not operate as a waiver of any other term of this Agreement, nor shall any failure to enforce any provision of this Agreement operate as a waiver of the right of the Company to enforce any other provision of this Agreement.

(c) Notice to the Company. Notice to the Company shall have occurred and be effective when a written notice is delivered via certified mail to the then-current address of the Company’s principal office and to the attention of the Chief Executive Officer of the Company.

(d) Withholding. The Company may withhold from any amounts payable under this Agreement such Federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation.

(e) Survival and Construction. Executive’s obligations under this Agreement will be binding upon Executive’s heirs, executors, assigns, and administrators and will inure to the benefit of the Company, its subsidiaries, successors, and assigns. The Company’s obligations under this Agreement will be binding upon the Company’s successors assigns and will inure to the benefit of the Executive and Executive’s heirs, executors, and administrators. The language of this Agreement shall in all cases be construed as a whole according to its fair meaning, and not strictly for or against any of the parties. The paragraph headings used in this Agreement are intended solely for convenience of reference and shall not in any manner amplify, limit, modify, or otherwise be used in the interpretation of any of the provisions hereof. Executive may not assign, pledge, grant a security interest in, hypothecate, or otherwise transfer any of its rights, duties, or obligations hereunder.

(f) No Mitigation. Executive shall not be required to mitigate damages or the amount of any payment provided for under this Agreement by seeking other employment or otherwise, nor shall the amount of any payment provided for under this Agreement be reduced by any compensation earned by Executive as the result of employment by another employer after Executive’s Date of Termination.

 

E MPLOYMENT A GREEMENT

 

P AGE 12


(g) Other Contractual Rights. Except as otherwise expressly provided herein, the provisions of this Agreement, and any payment provided for hereunder, shall not reduce any amount otherwise payable, or in any way diminish Executive’s existing rights, or right which would accrue solely as a result of passage of time under any employee benefit plan or other contract, plan, or arrangement of which Executive is a beneficiary or in which Executive participates.

(h) Indemnification. The Company covenants and agrees to indemnify, defend and hold Executive harmless from any and all losses, claims, costs, liabilities, penalties, fines, damages, and expenses (including legal fees) suffered or incurred by Executive, either directly or indirectly, as a result of any asserted or alleged claim made against Executive by a third party in connection with Executive’s employment with Company, excepting only such claims arising solely out of Executive’s willful misconduct.

[signature page follows]

 

E MPLOYMENT A GREEMENT

 

P AGE 13


I N W ITNESS W HEREOF , Executive and the Company have executed this Agreement as of the Effective Date.

 

C ENTER C UT H OSPITALITY , I NC .       E XECUTIVE :
By:   /s/ Marc L. Lipshy       /s/ Thomas J. Pennison, Jr.
Printed Name: Marc L. Lipshy       Printed Name: Thomas J. Pennison, Jr.
Title: President      

 

E MPLOYMENT A GREEMENT

 

P AGE 14

Exhibit 10.10

LSF5 WAGON HOLDINGS, LLC

2711 N. Haskell Avenue, Suite 1700

Dallas, Texas 75204

October 17, 2011

Mr. Thomas J. Pennison, Jr.

9 Serenity Drive

Mandeville, LA 70471

Dear Tom:

As a highly valued senior executive of Center Cut Hospitality, Inc., a Delaware corporation (together with its successors and assigns, “ CCH ”), you (also referred to herein as “ Employee ”) are being given the opportunity to earn bonus compensation tied to a successful Sale (as defined below) or Qualified Public Offering (as defined below). This letter agreement (this “ Letter ”) sets forth the terms of this opportunity, which have been designed so that you will not be required to make any future financial investment in Wagon, DFRG, CCH, or the Company (including any Public Company) (collectively, the “ Company Group ”) or incur an immediate tax obligation in connection with the award of this opportunity. This opportunity is designed to align your interests with the interests of the Company’s investors, and, except as specifically provided below in this Letter, is provided in addition to, and not in lieu of, any existing equity, bonus, or other compensation plan arrangement you currently have or in which you currently participate with the Company. Definitions of certain capitalized terms used herein are set forth at the end of this Letter.

Subject to the terms and conditions set forth below, following consummation of a Sale, a Qualified Public Offering or a Secondary Public Offering (each as defined below and each, a “ Transaction ”), and provided that, in each case, the Employee is actively employed with CCH on the date such Transaction is consummated (the “ Transaction Date ”), then the Employee shall be eligible to earn a bonus (a “ Transaction Bonus ”) in an amount determined as set forth below and based on the Employee’s Transaction Bonus Amount with respect to such Transaction, as calculated in accordance with the methodology set forth on Schedule A hereto (the amount so calculated in accordance with Schedule A with respect to any Transaction, the “ Employee’s Transaction Bonus Amount ”).

For purposes hereof, if Employee’s employment with CCH is terminated within the 180-day period ending with any Transaction Date (i) solely due to Employee’s Disability, (ii) by CCH without Cause, or (iii) by Employee for Good Reason, Employee shall be considered actively employed with CCH on such Transaction Date.

A. In the event of a Transaction that is a Sale, one-hundred per cent (100%) of the Employee’s Transaction Bonus Amount shall be payable to the Employee no later than seventy-five (75) days after the applicable Transaction Date, subject to the following:

 

  (a) The Employee must comply with all requirements as to the execution and delivery of the Release (defined below) and award termination instruments provided for below;


Mr. Thomas J. Pennison, Jr.

Page 2

 

 

  (b)

If the seventy-fifth (75 th ) day following the Transaction Date is in a different calendar year than the first (1 st ) day following the Transaction Date, such payment shall be made in the calendar year in which the 75 th day falls (but no later than such 75 th day); and

 

  (c) The Transaction Bonus shall not be paid if the Employee’s employment with CCH (which term shall include, for purposes of this subparagraph, any successor or acquirer of the Company’s business) is terminated by CCH for Cause or by the Employee without Good Reason prior to payment of the Transaction Bonus.

Any portion of a Transaction Bonus otherwise payable pursuant to this Paragraph A that is attributable to consideration which is deferred or contingent shall not be paid until the applicable seller(s) receive such deferred or contingent portion of the consideration and to the extent that a portion of the consideration paid to the applicable seller(s) is in a form other than cash, Wagon shall have the right to pay a corresponding portion of the Transaction Bonus to the Employee in the same form of consideration.

B. In the event of a Transaction that is a Qualified Public Offering, an amount equal to the product of the Applicable Qualified Offering Percentage (as defined below) multiplied by the Employee’s Transaction Bonus Amount with respect to such Qualified Public Offering shall be payable to the Employee in cash no later than seventy-five (75) days after the applicable Transaction Date; provided, however, if the seventy-fifth (75 th ) day following the Transaction Date is in a different calendar year than the first (1 st ) day following the Transaction Date, such payment shall be made in the calendar year in which the 75 th day falls (but no later than such 75 th day). In addition, if (x) the Employee is entitled to a Transaction Bonus with respect to such Qualified Public Offering and (y) Wagon’s direct or indirect ownership percentage in the common equity of the Public Company is not reduced to zero as a result of such Qualified Public Offering, then following each subsequent Secondary Public Offering (until Wagon’s direct or indirect ownership percentage in the common equity of the Public Company is reduced to zero), and provided that (i) except as specifically provided herein, the Employee is actively employed with CCH (which term shall include, for all purposes of this Paragraph B, any successor or acquirer of the Company’s business) on the date such Secondary Public Offering is consummated (also a “ Transaction Date ”), (ii) the Employee has not breached or violated any provision of the Employment Agreement or any other obligation to the Company, (iii) the Employee complies with all requirements as to the execution and delivery of the Release and award termination instruments provided for below, and (iv) the Employee was entitled to a Transaction Bonus with respect to all previous Secondary Public Offerings (if any), then the Employee shall be entitled to receive an additional bonus (also a “ Transaction Bonus ”) in an amount equal to the product of the Employee’s Transaction Bonus Amount with respect to such Secondary Public Offering, multiplied by the Applicable Secondary Offering Percentage (as defined below) with respect to such Secondary Public Offering. Any Transaction Bonus payable with respect to a Secondary Public Offering shall be paid in cash no later than seventy-five (75) days after the Transaction Date for such Secondary Public Offering; provided, however, if the seventy-fifth (75th) day following such Transaction Date is in a different calendar year than the first (1st) day following such Transaction Date, such payment shall be made in the calendar year in which the 75th day falls (but no later than such 75th day).

Notwithstanding anything to the contrary contained in this Letter, if (i) Employee is eligible hereunder for a Transaction Bonus in connection with a Qualified Public Offering, (ii) Employee remains actively employed with CCH at all times through the date that is 21 months after the Transaction Date of such Qualified Public Offering, and (iii) Employee has not breached or violated any provision of the


Mr. Thomas J. Pennison, Jr.

Page 3

 

Employment Agreement or any other obligation to the Company during such 21-month period, then Employee shall not forfeit his or her eligibility to receive a Transaction Bonus with respect to any Secondary Public Offering that is consummated after such 21-month period solely because Employee is not actively employed with CCH on the Transaction Date of such Secondary Public Offering; provided, however, that this sentence shall not be applicable, and no Transaction Bonus shall be payable, from and after the date (if ever) that Employee is terminated for Cause or voluntarily resigns under circumstances where Cause exists.

Notwithstanding anything to the contrary contained in this Letter, if at any time the percentage of the aggregate common equity of the Public Company held directly or indirectly by Wagon is greater than zero but not greater than 50% (determined on an as converted, fully diluted basis), Wagon shall have the right, but not the obligation, by written notice to Employee, to pay to Employee a bonus equal to the product of (i) the percentage of the aggregate common equity of the Public Company held directly or indirectly by Wagon at the time of such notice (determined on an as converted, fully diluted basis) multiplied by (ii) the amount that would be the Employee’s Transaction Bonus Amount (calculated in accordance with Schedule A hereto) if at the time of such notice the Public Company consummated a Secondary Public Offering at a per share issuance price equal to 105% of the Fair Market Value (as defined below) of one share of the Public Company’s common equity securities as of such date. Any such bonus shall be payable, at Wagon’s election, in any combination of cash and/or the Public Company’s common stock (“ Stock ”) (valued as of the date of grant and with registration rights as set forth above) no later than 75 days after the date of such notice. Following the exercise of this right, no additional Transaction Bonus will be payable under this Letter with respect to any subsequent Transaction.

C. Notwithstanding anything to the contrary contained in this Letter:

 

  (a) Any portion of a Transaction Bonus otherwise payable that is attributable to that part of Aggregate Value which is deferred or contingent shall not be paid until the Company Group and/or the equity owners of any member(s) of the Company Group receive such deferred or contingent portion of Aggregate Value and to the extent that a portion of Aggregate Value is paid to the Company or its equity owners in non-marketable securities, Wagon shall have the right to pay, or to cause the payment of, a corresponding portion of the Transaction Bonus to the Employee in the same form of consideration, unless otherwise agreed to by the parties;

 

  (b) Except as specifically set forth above with respect to Disability, if Employee’s employment with CCH terminates upon the Employee’s death or Disability, then, thereafter, Employee (or his or her heirs and estate) shall not become entitled to any further payments hereunder (but Employee (and Employee’s heirs and estate) shall remain entitled to any payments hereunder to which Employee is otherwise entitled as of the date of such termination);

 

  (c) The Employee shall not be eligible to earn or receive, and shall have no right, entitlement or earned or vested interest in or to any Transaction Bonus (i) until the consummation of a Sale or Qualified Public Offering or Secondary Public Offering or (ii) except as specifically set forth above, based on any Transaction that is consummated after the termination of the Employee’s employment with CCH for any reason; and


Mr. Thomas J. Pennison, Jr.

Page 4

 

 

  (d) The Employee shall not be eligible to earn or receive a Transaction Bonus, and the Employee shall forfeit all rights in and to any Transaction Bonus, if Employee’s employment with CCH shall terminate for any reason prior to a Transaction (except as specifically set forth above).

 

  (e) Payment of the Transaction Bonus to which the Employee is otherwise entitled shall be contingent upon, and shall be earned and payable to the Employee if, and only if: (i) a Transaction is consummated; and (ii) no later than sixty (60) days after the Transaction Date the Employee executes and delivers to Wagon a separation and release agreement (or, in the event the Employee’s employment with CCH does not terminate upon consummation of the Transaction, a release agreement) in favor of each member of the Company Group, their respective direct and indirect equity owners (including Wagon, DFRG and their direct and indirect equity owners), and their respective affiliates in form and substance reasonably satisfactory to Wagon (the “ Release ”), provided that the Release shall not release any obligations to make any payments to, or to cause payments to be made to, the Employee required under this Letter, and such Release remains in effect following the expiration of any applicable notice, review and/or revocation periods. Wagon shall be required to deliver to the Employee its required form of Release within fourteen (14) days after the Transaction Date.

D. For the avoidance of doubt, the Employee’s rights, if any, with respect to a Transaction Bonus in the event of a Qualified Public Offering shall apply only with respect to the first Qualified Public Offering consummated after the date of this Letter and, but only to the extent specifically provided for herein, each subsequent Secondary Public Offering, and no Transaction Bonus shall be paid or payable with respect to any subsequent Sale or Qualified Public Offering (other than the portion of any subsequent public offering that constitutes a Secondary Public Offering). In addition, if prior to a Qualified Public Offering there is a Sale, then no Transaction Bonus shall be paid or payable with respect to any subsequent sale of any other assets of the Company or Qualified Public Offering.

E. The Employee shall not have any transferable right or interest in the Transaction Bonus or other compensation or amounts payable pursuant to this Letter, nor any right to anticipate, alienate, assign, dispose of, pledge or encumber the same, nor shall the same be subject to attachment, garnishment, execution following judgment or other legal process instituted by creditors of the Employee, and any action in violation of this provision shall be void. No member of the Company Group shall be required to segregate any funds or other assets to be used for the payment of the Transaction Bonus or any other payment under this Letter, and no record or other notation on any member of the Company Group’s books of the obligations created by this Letter with respect to the Transaction Bonus or any other payment shall be considered as evidence of the creation of a trust fund, an escrow or any other segregation of assets for the benefit of the Employee. Any obligation to pay the Transaction Bonus or any other compensation or amounts are unsecured contractual obligations only, and the Employee shall not have any beneficial or preferred interest by way of trust, escrow, lien or otherwise in and to any specific assets or funds of any member of the Company Group. The Employee specifically acknowledges and agrees that (i) any rights Employee may have to the Transaction Bonus or any other payment pursuant to the terms of this Letter (except for Stock issued under Paragraph B above) are not securities of any person or entity and do not create any right in the equity or capital of any member of the Company Group, and (ii) receipt of the Transaction Bonus, if any, or other compensation or amounts payable pursuant to this Letter, may constitute ordinary income for federal and state income tax purposes and shall be subject to all applicable payroll, income tax and other withholding obligations. No Member of the Company Group other than Wagon and DFRG shall be liable for, and the Employee shall


Mr. Thomas J. Pennison, Jr.

Page 5

 

look solely to the general credit of Wagon and DFRG for satisfaction of, any obligations due or to become due under this Letter with respect to a Transaction Bonus, or any other payment, resulting from a Sale. No Member of the Company Group other than Wagon shall be liable for, and the Employee shall look solely to the general credit of Wagon for satisfaction of, any obligations due or to become due under this Letter with respect to a Transaction Bonus, or any other payment, resulting from a Qualified Public Offering or Secondary Public Offering. If any member of the Company Group should, in its sole discretion, earmark or set aside any funds or other assets to pay amounts hereunder, the same shall, nevertheless, remain and be regarded as part of the general assets of such member, as applicable, subject to the claims of its general creditors (and shall not be considered to be held in a fiduciary capacity for the benefit of the Employee), and the Employee shall not have any legal, beneficial, security or other property interest herein. Nothing herein shall be deemed as a waiver of any rights of the Employee or Employee’s heirs or estate in the event of Employee’s death.

F. [Intentionally omitted.]

G. All payments and benefits under this Letter are intended to comply with Section 409A of the Internal Revenue Code of 1986, as amended, and the United States Treasury Regulations and Internal Revenue Service guidance published thereunder or with respect thereto (collectively, “ Section 409A ”) and, accordingly, to the maximum extent permitted, this Letter shall be interpreted to be in compliance therewith. Notwithstanding such intent or anything to the contrary contained in this Letter, in no event whatsoever shall any member of the Company Group be liable for any additional tax, interest or penalty that may be imposed on Employee by Section 409A or damages for failing to comply with Section 409A.

H. All determinations under this Letter of the Employee’s Transaction Bonus Amount, Transaction Bonus, the Existing IA Compensation and any other amounts payable under or relevant to the determination of any Transaction Bonus provided for herein, and all decisions, interpretations and determinations with regard to any question or matter arising under this Letter, will be made in the good faith discretion of Wagon.

I. As used herein:

Aggregate Value ” shall mean: either (1) in the case of a Sale, the sum of the aggregate outstanding principal balance of indebtedness for borrowed money of the Company plus the total net purchase price paid to CCH in respect of its assets or to the equity holders of DFRG or CCH in respect of their equity interests, as the case may be (as adjusted for working capital and other purchase price adjustments pursuant to the applicable Sale documents), or (2) in the case of a Qualified Public Offering or Secondary Public Offering, the sum of the aggregate outstanding principal balance of indebtedness for borrowed money of the Company plus the implied aggregate common equity value of the Public Company based on such Qualified Public Offering or Secondary Public Offering issuance price, as the case may be, and for avoidance of doubt, in both clauses (1) and (2) above, without duplication.

Applicable Qualified Offering Percentage ” shall mean the excess of (i) the percentage of the aggregate common equity of the Public Company held directly or indirectly by Wagon immediately prior to the first Qualified Public Offering consummated after the date of this Letter (determined on an as converted, fully diluted basis) over (ii) the percentage of the aggregate common equity of the Public Company held directly or indirectly by Wagon immediately after such Qualified Public Offering (determined on an as converted, fully diluted basis).


Mr. Thomas J. Pennison, Jr.

Page 6

 

Notwithstanding the foregoing, the portion, if any, of the excess described immediately above that results from the compensatory grant or compensatory issuance of common equity or of options or similar rights to acquire common equity in connection with such Qualified Public Offering shall be added back to the amount described in clause (ii) above for purposes of determining the Applicable Qualified Offering Percentage with respect to such Qualified Public Offering.

Applicable Secondary Offering Percentage ” shall mean with respect to any Secondary Public Offering, the excess of (i) the percentage of the aggregate common equity of the Public Company held directly or indirectly by Wagon immediately prior to such Secondary Public Offering over (ii) the percentage of the aggregate common equity of the Public Company held directly or indirectly by Wagon immediately after such Secondary Public Offering. Notwithstanding the foregoing, the portion, if any, of the excess described immediately above that results from the grant or issuance (whether or not compensatory) by the Public Company of common equity or of warrants or options to acquire common equity, or the sale by the Public Company of newly issued common equity or of securities or other instruments convertible into common equity, in connection with such Secondary Public Offering, shall be added back to the amount described in clause (ii) above for purposes of determining the Applicable Secondary Offering Percentage with respect to such Secondary Public Offering.

Cause ” shall have the meaning set forth in the Employment Agreement.

Company ” shall mean, collectively, DFRG, together with each of its subsidiaries (including, but not limited to, CCH) and its and their successors and assigns.

DFRG ” shall mean Del Frisco’s Restaurant Group, LLC, a Delaware limited liability company, together with its successors and assigns.

Disability ” shall have the meaning set forth in the Employment Agreement.

Employment Agreement ” shall mean Employee’s Executive Employment Agreement of even date herewith with CCH (which term shall include, for purposes of this Letter, any successor or acquirer of the Company’s business), as from time to time amended, supplemented, restated, or otherwise modified.

Fair Market Value ” means:

(i) If the Public Company’s common equity shares are listed on any established stock exchange or a national market system, or are regularly quoted on an automated quotation system (including the OTC Bulletin Board and the “Pink Sheets” published by the National Quotation Bureau, Inc.) or by a recognized securities dealer, the average of the closing sales prices per share over the 30-day period ending on the date of determination, as reported in The Wall Street Journal or such other source as Wagon deems reliable; or

(ii) In the absence of an established market for the shares described in (i) above, the issuance price used in the most recent Qualified Public Offering or Secondary Public Offering to have been consummated.


Mr. Thomas J. Pennison, Jr.

Page 7

 

Good Reason ” shall have the meaning set forth in the Employment Agreement.

Public Company ” shall mean whichever of DFRG or CCH is the issuer in the first Qualified Public Offering to be consummated after the date hereof.

Qualified Public Offering ” shall mean a firm commitment underwritten public offering of common equity securities for gross cash proceeds to the issuer of at least $30 Million where the shares of DFRG’s or CCH’s common equity securities that are registered under the Securities Act of 1933, as amended, are listed on a national securities exchange or are quoted on NASDAQ.

Sale ” shall mean a sale or transfer of all or substantially all of the assets of CCH in one transaction or series of transactions, the sale, exchange, or other disposition of a majority of the equity interests in or of DFRG or CCH, or any transaction having a similar effect (including, without limitation, a merger or consolidation), but excluding (i) a Qualified Public Offering or Secondary Public Offering or (ii) any sales, transfers or other transactions to or with subsidiaries or affiliates of any member of the Company Group or Wagon’s equity holders, or any transaction with an entity that is entered into by any member of the Company Group, or their subsidiaries or affiliates, or Wagon’s equity holders, as part of a reorganization, restructuring or conversion of one or more members of the Company Group.

Secondary Public Offering ” shall mean a registered public offering of the same class of equity securities that were sold in the first Qualified Public Offering consummated after the date of this Letter, but only if Wagon receives proceeds from such offering due to a reduction in Wagon’s direct or indirect ownership percentage in the common equity of the Public Company.

Wagon ” means LSF5 Wagon Holdings, LLC, a Delaware limited liability company, together with its successors and assigns.

 

 

This Letter shall be governed by and construed in accordance with the laws of the State of Texas and shall be subject to Section 6 of the Employment Agreement in all respects. In order for the Transaction Bonus opportunity described above to be effective, you are required to promptly countersign and deliver to Wagon (i) the enclosed copy of this Letter (you may keep the original for your records) and (ii) the accompanying Employment Agreement.

This Letter may be executed in any number of counterparts with the same effect as if all parties hereto had signed the same document. All counterparts shall be construed together and shall constitute one agreement. This Letter and any amendments hereto, to the extent signed and delivered by means of a facsimile machine or electronic transmission, shall be treated in all manner and respects as an original Letter and shall be considered to have the same binding legal effect as if it were the original signed version thereof delivered in person. At the request of any party hereto the other parties hereto shall re-execute original forms thereof and deliver them to such requesting party. No party hereto shall raise the use of a facsimile machine or electronic transmission to deliver a signature or the fact that any signature was transmitted or communicated through the use of facsimile machine or electronic transmission as a defense to the formation of a contract and each such party forever waives any such defense.

[Signature page follows.]


Mr. Thomas J. Pennison, Jr.

Page 8

 

Should you have any questions, please contact the undersigned.

Sincerely,

 

LSF5 WAGON HOLDINGS, LLC
By:   /s/ Jennifer R. Lamprecht        
  Name: Jennifer Lamprecht
  Title: Vice President

 

DEL FRISCO’S RESTAURANT GROUP, LLC
By:   /s/ Jennifer R. Lamprecht        
  Name: Jennifer Lamprecht
  Title: Vice President

I hereby acknowledge receipt and agree to the terms of this Letter and the accompanying Employment Agreement this 17th day of October, 2011.

 

      /s/ Thomas J. Pennison, Jr.        
Name: Thomas J. Pennison, Jr.


Mr. Thomas J. Pennison, Jr.

Page 9

 

Schedule A

Computation of Employee’s Transaction Bonus Amount

Thomas J. Pennison, Jr.

 

Transaction Bonus Program  
Aggregate Value    Bonus Share %      Bonus Pool  
Min ($MM)  

Max ($MM)

      Min
($000)
     Max
($000)
 
<228.0   —        0.0%         0.0         0.0   
> 228.0   < 260.2      0.5%         1,140.0         1,301.0   
>260.2   < 277.8      1.0%         2,603.0         2,778.0   
>277.8   <292.5      1.5%         4,168.5         4,386.0   

> 292.5

       
 
5,850.0 + 5% of anything
over 292.5MM
  
  

General Rule: If the Aggregate Value with respect to a particular Transaction is less than $292,500,000, the Employee’s Transaction Bonus Amount with respect to such Transaction shall be calculated using the following formula:

A x B x C, where:

A = 20%*

B = Aggregate Value from the subject Transaction

C = The Aggregate Value’s applicable Bonus Share % from the chart above

Exception: If the Aggregate Value with respect to a particular Transaction is $292,500,000 or greater, the Employee’s Transaction Bonus Amount with respect to such Transaction shall be calculated using the following formula:

A x [$5,850,000 + (C x (B – $292,500,000))], where:

A = 20%*

B = Aggregate Value from the subject Transaction

C = 5%

* Subject to the right of the Company, in its sole and absolute discretion, to increase the specified percentage by up to five (5) percentage points.

Exhibit 10.11

NON-COMPETITION, CONFIDENTIALITY, AND NON-SOLICITATION

AGREEMENT

THIS AGREEMENT dated 7 - 13 - 99, is by and between Lone Star Steakhouse & Saloon, Inc., a Delaware corporation (the “Corporation”), and Thomas George Dritsas (“Manager”).

WITNESSETH

WHEREAS, Manager is disirous of being employed by Corporation through one of its subsidiaries in a managerial capacity, and Manager will have access to certain business trade secrets, business methods, processes, and financial information (“business information”) of Corporation which is sensitive, proprietary, and valuable to Corporation; and

WHEREAS , disclosure by Manager of “business information” would be injurious to the Corporation; and

WHEREAS, Corporation agrees to hire Manager upon the condition that Manager agrees to enter into this Agreement as it is deemed necessary for the protection of the business information of Corporation; and

NOW, THEREFORE, in consideration of those agreements herein contained, the parties hereby agree as follows:

 

1. Term . This Agreement shall commence on the date hereof and continue for so long as Manager continues to be an employee of Corporation.

 

2. Non- Competition . During the term, and for twenty-four (24) months thereafter, Manager shall not, individually or jointly with others, directly or indirectly, whether for his or her own account or for that of any other person or entity engage in, or have an ownership interest in a restaurant business which serves steak as a primary menu item at any location within any state wherein an existing Lone Star Steakhouse & Saloon restaurant then exists.

 

3. Nondisclosure . During such employment and thereafter, Manager shall not at any time, directly or indirectly, disclose any recipes or “business information” furnished by the Corporation, and/or its management company, or any other information acquired by the Manager in the course of his or her employment with the Corporation in any capacity whatsoever, except to the Corporation, its duly authorized officers, employees or representatives entitled thereto. Upon termination of Manager’s employment with the Corporation, Manager shall immediately return all procedural manuals, guides, specifications, formulas, records, and similar materials of any kind, which are then in Manager’s possession or control, whether prepared by Manager or others.

 

4. Non-Solicitation . In the event of Manager’s termination of employment with the Corporation, for a period of twenty-four (24) months thereafter such Manager shall not, employ or seek to employ, directly or indirectly any person serving in a


IN WITNESS WHEREOF, the Corporation has caused this Agreement to be executed and its seal affixed hereby by its officers thereunto duly authorized; and the Manager has executed this Agreement, as of the day and year first above written.

 

    LONE STAR STEAKHOUSE & SALOON, INC.
       
      By:   /s/ Jamie B. Coulter
        Jamie B. Coulter, Chief Executive Officer
       
By:   /s/ Thomas George Dritsas     By:   /s/ A A Cohr
  New “Manager”       Attest


IN WITNESS WHEREOF, the Company has caused this Agreement to be executed and its seal affixed hereby by its officers thereunto duly authorized; and the undersigned has executed this Agreement, as of the day and year first above written.

 

    LONE STAR STEAKHOUSE & SALOON, INC.
    By:    
      Jamie B. Coulter, Chief Executive Officer

 

By:   /s/ Thomas George Dritsas     By:   /s/ A A Cohr
  “Undersigned”       Witness

Thomas George Dritsas                                                           

Name (Printed)

Lone Star Steakhouse & Saloon

Restaurant Location

Sullivan’s Raleigh

Exhibit 10.12

AMENDED AND RESTATED EMPLOYMENT AGREEMENT

This Amended and Restated Employment Agreement (“Agreement”), is effective as of 6/10, 2010 (“ Effective Date ), and is between Thomas Dritsas (“ Employee ”) and Sullivan’s of North Carolina, Inc. (the Company ”) (collectively, Parties ).

In consideration of the respective agreements and covenants set forth in this Agreement, the receipt of which is hereby acknowledged, the parties intending to be legally bound agree as follows:

AGREEMENTS

1. Prior Employment Agreement . Employee and Company are parties to a Noncompetition Confidentiality and Non-Solicitation employment agreement dated July 13, 1999. The Parties have agreed to amend in part and restate in full the terms of their employment relationship in this Agreement which supersedes and replaces that prior agreement. Employee acknowledges and agrees that this Agreement provides new and additional valuable consideration beyond that to which he was entitled under the prior agreement.

2. Employment Period . The Company agrees to Employ Employee, and Employee agrees to be employed by the Company, for a period (the “ Employment Period ”) commencing on the Effective Date and ending on the third anniversary of such date, unless earlier terminated in accordance with Section 4, if party provides ninety (90) days written notice to the other party that it or he intends for this Agreement to terminate on such first anniversary. If no such notice is given, then this Agreement shall continue for successive one year terms (each a “Renewal Term”), unless earlier terminated in accordance with Section 4, until either party provides ninety (90) days written notice to the other party that it or he intends for this Agreement to terminate at the end of any such one year period. In the event that this Agreement is continued for one or more Renewal Terms, such additional Renewal Term(s) shall be included in the term Employment Period. If the Company provides notice of termination under this Section  2, the Company has the right to terminate Employee’s employment and relieve him of his duties under Section 3 immediately upon notice or at any time during the 90 day notice period and the Company’s sole obligations to Employee thereafter shall be those set forth in Section 5(b) of this Agreement.

3. Terms of Employment .

(a) Position and Duties .

(1) During Employment Period, Employee shall serve as Corporate Executive Chef and, in so doing, shall perform the normal duties associated with such position and such other duties as may be assigned from time to time by Employee’s Supervisor or the Company’s executive management.

(2) During the Employment Period, Employee agrees to devote his full working time to the business and affairs of the Company and to use his best efforts to perform faithfully, effectively and efficiently his duties. Employee covenants, warrants and represents that he shall: (i) devote his full and best efforts to the fulfillment of employment obligations; (ii)

 

1


exercise the highest degree of fiduciary loyalty and care and the highest standards of conduct in the performance of his duties; (iii) endeavor to prevent any harm, in any way, to the business or reputation of the Company or its affiliates; and (iv) not engaged in any other business activity of any kind without the advance written consent of the Company, including any passive investments other than the ownership of publicly traded stock in an amount not to exceed three percent of the issued and outstanding stock of the company.

(3) In keeping with Employee’s fiduciary duties to the Company, Employee agrees that he shall not, directly or indirectly, become involved in any conflict of interest, or upon discovery thereof, allow such a conflict to continue. Employee agrees that he shall promptly disclose to the Company any facts which might involve any reasonable possibility of a conflict of interest. Employee further agrees that he shall abide by the Company’s Code of Ethics, as may be amended from time to time. During the Employment Period, Employee shall not engage in any activities in competition with the Company or its affiliates or participate in any business, either as an employee, officer, director, shareholder or contractor, in competition with the Company or its affiliates. Further, during the Employment Period, Employee agrees not to engage in any other business or profession, directly or indirectly, without the prior written approval of the Company, including any passive investments other than the ownership of publicly traded stock in an amount not to exceed three percent of the issued and outstanding stock of the company.

(4) Employee agrees to observe and company with the Company’s policies, practices, and procedures, as adopted or amended from time to time.

(b) Compensation .

(1) Base Salary. During the Employment Period, Employee shall receive an annualized base salary (“ Base Salary ”), which shall be paid in accordance with the customary payroll practices of the Company, in an amount equal to $180,000.00.

(2) Incentive Bonus. Employee is eligible to participate in all bonus compensation plans and stock plans which, by their terms are specifically applicable to General Managers. Such participation shall be in accordance with the plan terms

(3) Welfare Benefit Plans. During the Employment Period, and subject to the terms and conditions of applicable plans or programs, Employee and/or Employee’s family, as the case may be, shall be eligible for participation in and shall receive all benefits under the welfare benefit plans, practices, policies and programs applicable generally to other employees of the Company as adopted or amended from time to time.

(4) Business Expenses. During the Employment Period, Employee shall be entitled to receive prompt reimbursement for all reasonable business-related expenses incurred by Employee in accordance with the Company’s policies, practices and procedures, as adopted or amended from time to time.

 

2


(5) Vacation. During the Employment Period, Employee shall be entitled to paid vacation in accordance with the Company’s vacation pay policy, as adopted or amended from time to time.

4. Termination of Employment .

(a) Death or Disability . Employee’s employment shall terminate automatically upon Employee’s death during the Employment Period. If the Disability of Employee occurs during the Employment Period (pursuant to the definition of Disability set forth below), the Company may terminated Employee’s employment upon 30 days advance written notice provided that, within the 30 days after such receipt, Employee has not returned to perform, with or without reasonable accommodation, the essential functions of his position. For purposes of this Agreement, “ Disability ” shall mean Employee’s inability to perform, with or without reasonable accommodation, the essential functions of his position hereunder for a period of 180 consecutive days due to mental or physical incapacity, as determined by a physician mutually selected by the Company or its insurers and Employee.

(b) Cause . The Company may terminate Employee’s employment at any time during the Employment Period for Cause. For purposes of this Agreement, “ Cause ” shall mean (1) a material breach by Employee of Employee’s obligations under Section 2(a) (other than as a result of physical or mental incapacity); (2) commission by Employee of an act of fraud, embezzlement, misappropriation, willful misconduct or breach of fiduciary duty against the Company or other conduct harmful or potentially harmful to the Company’s best interest; (3) a material breach by Employee of Sections 7, 8, or 9 of this Agreement; (4) Employee’s conviction, plea of guilty, no contest, or nolo contendere, deferred adjudication or unadjudicated probation for any felony or any crime involving moral turpitude, (5) the failure of Employee to carry out, or comply with, in any material respect, any lawful directive of the Company; or (6) Employee’s unlawful use (including being under the influence) or possession of illegal drugs. For purposes of the previous sentence, no act or failure to act on Employee’s part shall be deemed “willful” unless done, or omitted to be done, by Employee not in good faith and without reasonable belief that Employee’s action or omission was in the best interest of the Company.

(c) Date of Termination , “ Date of Termination” means (1) if Employee’s employment is terminated by the Company for Cause or without Cause, or by Employee through resignation, the date of receipt by Employee of the notice of termination or by the Company of the notice of resignation or any later date specified therein that is mutually agreeable to the Parties, (2) if Employee’s employment is terminated by reason of death, the date of death of Employee, (3) if Employee’s employment is terminated by reason of Disability, 30 days from the date on which the Company provides notice to Employee of its intent to terminate his employment unless Employee returns to work during that 30 day period, or (4) if Employee’s employment is terminated pursuant to Section 2 , the date specified by the Company in its notice of termination as Employee’s last day of employment.

5. Obligations of the Company upon Termination.

(a) For Cause; Death or Disability; Resignation. If the Company terminates Employee’s employment for Cause or because of Employee’s death or Disability, or Employee

 

3


resigns from his employment, Employee shall forfeit all rights to any Incentive Bonus otherwise due to him or to which he may be entitled, and the Company shall have no further payment obligations to Employee or his legal representatives, other than for the payment of in a lump sum in cash within fourteen (14) days after the Date of Termination (or such earlier date as required by applicable law) that portion of Employee’s Annual Base Salary earned and accrued through the Date of Termination to the extent not previously paid.

(b) Without Cause. If Employee’s employment is terminated by the Company without Cause before expiration of the Employment Period or if Company gives notice of termination of this Agreement to Employee, in accordance with Section 2 of this Agreement, the Company shall have no further payment obligations to Employee or his legal representatives, other than (i) for the payment, in a lump sum in cash within fourteen (14) days after the Date of Termination (or such earlier date as required by applicable law), of that portion of Employee’s Annual Base Salary accrued through the Date of Termination to the extent not previously paid; (ii) to continue Employee’s Base Salary in effect on the Date of Termination for twelve months from the Date of Termination. Such payments shall be made in accordance with the customary payroll practices of the Company and reduced by applicable withholdings; and (iii) for a period of twelve months from the Date of Termination, the continued provision of any of Employee’s health benefits, as Employee had enrolled in and participated in such health benefits offered by the Company as of the Date of Termination.

(c) Release. The obligation of the Company to pay any portion of the amounts due pursuant to Section 5(b) , shall be expressly conditioned on Employee’s (1) execution (and, if applicable, non-revocation) of a full general release, releasing all claims, known or unknown, that the Executive may have against the Company, including those arising out of or in any way related to Employee’s employment or termination of employment with the Company and (2) continued compliance with the requirements of Sections 7, 8, and 9.

6. Full Settlement, Mitigation .

(a) Employee is not obligated to seek other employment or take any other action by way of mitigation of the amounts payable to Employee under any of the provisions of this Agreement and such amounts shall not be reduced whether or not Employee obtains other employment.

(b) The provision of this Agreement, any payment provided for hereunder, and the release referenced in Section 5(c) shall not reduce any amount otherwise payable, or in any way diminish Employee’s existing right or those right that would accrue solely as a result of the passage of time, under any employee benefit plan or other contract or plan of which Employee is a beneficiary or in which he participates except that nothing in this Section 6(b) or Agreement shall be construed to limit the Company right to amend its employee benefit plans from time to time, in its sole discretion.

7 . Confidential Information.

(a) Employee acknowledges that the Company has trade, business and financial secrets and other confidential and proprietary information (collectively, the

 

4


Confidential Information ”). Confidential information includes, but is not limited to, sales materials, marketing objectives, and strategies, financial information, strategic information, business plans, recipes, procedures, and information concerning customers or venders. As defined herein, Confidential Information shall not include information that is generally known to other persons or entities who can obtain economic value from its disclosure or use.

(b) Employee acknowledges that the Confidential Information has been developed or acquired by the Company through the expenditure of substantial time, effort and money and provides the Company with an advantage over competitors who do not know or use such Confidential Information.

(c) All records, files, documents and materials, or copies thereof, relating to the Company’s and its affiliates’ business which Employee shall prepare, or use, or be provided with as a result of his employment with the Company, shall be and remain the sole property of the Company or its affiliates, as the case may be, and shall be returned promptly by Employee to the owner upon termination of Employee’s employment with the Company.

8. Non-Disclosure

(a) During the Employment Period, the Company shall provide Employee with Confidential Information of the Company as described in Section 7 . Accordingly, in consideration for the Company’s commitment to provide Confidential Information to Employee and, in the case of Employee’s termination without Cause in consideration for the payments specified in Section 5(b) , and in order to protect the value of the Confidential Information to the Company, Employee agrees that during his employment with the Company and at all times thereafter, he will not directly or indirectly disclose or use or disclose for any reason whatsoever any Confidential Information obtained by reason of his employment with the Company or any predecessor, except (i) as required to conduct the business of the Company during Employee’s employment; (ii) as authorized in writing by the Company; (iii) in connection with an arbitration brought relating to this Agreement; or (iv) as compelled by legal process. Employee agrees to use reasonable efforts to give the Company notice of any and all attempts to compel disclosure of any Confidential Information, in such a manner so as to provide the Company with written notice at least five (5) days before disclosure or within one (1) business day after Employee is informed that such disclosure is being or will be compelled, whichever is earlier. Such written notice shall include a description of the information to be disclosed, the court, government agency, or other forum through which the disclosure is sought, and the date by which the information is to be disclosed, and shall contain a copy of the subpoena, order or other process used to compel disclosure.

(b) The obligations of Employee set forth in the preceding sentence are in addition to, and not in lieu of, the any obligations Employee may have under applicable common or statutory law.

9. Non-Competition; Non-Solicitation .

(a) Employee acknowledges and agrees that the nature of the Confidential Information which the Company commits to provide him during his employment by the

 

5


Company would make it difficult, if not impossible, for him to perform in a similar capacity for a Competing Business (as defined below) without disclosing or utilizing the Confidential Information. Employee further acknowledges and agrees that the Company’s business is conducted in a highly competitive market. Accordingly, Employee agrees that he will not (other than for the benefit of the Company pursuant to this Agreement) directly or indirectly, individually or as an officer, director, employee, shareholder, consultant, contractor, partner, joint venturer, agent, equity owner or in any capacity whatsoever (1) during the Employment Period and for a term of 12 months following the Termination Date work for or engage in a restaurant business that features the sale of steak where the sale of steak exceeds 30% of the restaurant’s revenues from food sales and which is located within 25 miles of any Del Frisco’s Double Eagle Steak House restaurant or Sullivan’s Steakhouse restaurant, (a “ Competing Business ”), or (2) for a period of 12 months following the Termination Date, (i) hire, attempt to hire, or contact or solicit with respect to hiring any managerial employee of the Protected Company which includes, but is not necessarily limited to Regional Managers, General Managers, Probationary Managers, Managers, Executive Chefs, Managers in Training, and Sous Chefs; (ii) solicit, divert or take away any customers or customer leads of the Company with whom Employee had, whether directly or indirectly, contact or business relations during the Employment Period or about whom Employee possesses Confidential Information; or (iii) solicit, encourage, or influence any suppliers or vendors of the Protected Company to cease doing business with the Protected Company or change the terms and conditions upon which they conduct their business with the Protected Company where Employee had, whether directly or indirectly, contact or business relations during the Employment Period with such vendors or suppliers, or about whom Employee possesses Confidential Information.

(b) Employee acknowledges that the geographic boundaries, scope of prohibited activities, and time duration of the preceding paragraphs are reasonable in nature and are no broader than are necessary to maintain the confidentiality and the goodwill of the Company and the confidentiality of its Confidential Information and to protect the other legitimate business interests of the Company.

(c) If any court determines that any portion of this Section 9 is invalid or unenforceable, the remainder of this Section 9 shall not thereby be affected and shall be given full effect without regard to the invalid provisions. If any court construes any of the provisions of this Section 9 , or any part thereof, to be unreasonable because of the duration or scope of such provision, such court shall have the power to reduce the duration or scope of such provision and to enforce such provision as so reduced.

(d) Notwithstanding the foregoing, in the event there is a Change in Control of the Company, and Employee elects to resign his employment within six months of the Change in Control upon providing ten days advance notice of such resignation, then Employee shall not thereafter be bound by Section 9(a) of this Agreement and the provisions therein shall be void and of no effect.

(e) Definitions for Section 9

(1) “Change in Control” means the occurrence of any one of the following: the closing of a sale (by merger, sale of membership interests, issuance of

 

6


membership interests by the Company, consolidation or other transaction) that results in either of the following: (i) the Company’s members or equity owners immediately prior to the effective time of the transaction beneficially owning immediately after the closing of the transaction securities of the Company or any surviving or new corporation having less than 50% of the “voting power” (the right to vote generally to elect managers or directors and whether by ownership or by agreements or arrangements concerning voting) of the Company or any surviving or new entity, including “voting power” exercisable on a contingent or deferred basis as well as immediately exercisable “voting power;” or (ii) the closing of a sale, lease, exchange or other transfer or disposition by the Company of all or substantially all of the assets of the Company, in one or a series of integrated transactions; or (iii) the dissolution or liquidation of the Company. Notwithstanding the foregoing, none of the foregoing transactions shall constitute a Change of Control under this Agreement if the transaction is approved by a majority of the Company’s Board of Directors as constituted immediately prior to the transaction.

(2) “ Protected Company ” shall include the Company and LSF5 Wagon Holdings, LLC, and any of their subsidiaries or affiliates.

10. Inventions; Assignment . All rights to discoveries, inventions, improvements and innovations (including all data and records pertaining thereto) related to the Company’s business, whether or not patentable, copyrightable, registrable as a trademark, or reduced to writing, that Employee may discover, invent or originate during the Employment Period, either alone or with others and during work hours or by the use of the facilities of the Company (“ Inventions ”), shall be the exclusive property of the Company. Employee shall promptly disclose all Inventions to the Company, shall execute at the request of the Company any assignments or other documents the Company may deem necessary to protect or perfect its rights therein, and shall assist the Company, at the Company’s expense, in obtaining, defending and enforcing the Company’s rights therein. Employee hereby appoints the Company as his attorney-in-fact to execute on his behalf any assignments or other documents deemed necessary by the Company to protect or perfect its rights to any Inventions.

11. Miscellaneous.

(a) Construction. This Agreement shall be deemed drafted equally by both the parties. Its language shall be construed as a whole and according to its fair meaning. Any presumption or principle that the language is to be construed against any party shall not apply. The headings in this Agreement are only for convenience and are not intended to affect construction or interpretation.

(b) Notices. All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows:

If to Employee:                 Thomas Dritsas

                                           2600 Crofton Springs Drive

                                           Raleigh, NC 27615

If to the Company:           Sullivan’s of North Carolina, Inc.

                                           930 S. Kimball Ave., Ste 100

                                           Southlake, Texas 76092

 

7


or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee.

(c) Enforcement. If any provision of this Agreement is held to be illegal, invalid or unenforceable under present or future laws effective during the term of this Agreement, such provision shall be fully severable; this Agreement shall be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a portion of this Agreement; and the remaining provisions of this Agreement shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance from this Agreement. Furthermore, in lieu of such illegal, invalid or unenforceable provision there shall be added automatically as part of this Agreement a provision as similar in terms to such illegal, invalid or unenforceable provision as may be possible and be legal, valid and enforceable.

(d) No Waiver . No waiver by either party at any time of any breach by the other party of, or compliance with, any condition or provision of this Agreement to be performed by the other party shall be deemed a waiver of similar or dissimilar provisions or conditions at any time.

(e) Equitable and Other Relief. Employee acknowledges that money damages would be both incalculable and an insufficient remedy for a breach by Employee and that any such breach would cause the Company irreparable harm. Accordingly, the Company, in addition to any other remedies at law or in equity it may have, shall be entitled, without the requirement of posting of bond or other security, to equitable relief, including injunctive relief and specific performance, in connection with a breach of Sections 7, 8, or 9 by Employee. Employee further agrees that, in the event he is adjudicated to have violated Sections 8 and 9, the term of his obligations thereunder shall be extended for a period of time equal to the period of time during which he was in violation of such obligations. In addition to the remedies the Company may have at law or in equity, violation of Sections 7, 8, or 9 entitles the Company at its sole option to discontinue the Severance Payments to Employee, and to seek repayment from Employee of any Severance Payments paid to him by the Company during any period of time Employee was in violation of Sections 7, 8, or 9 . No action taken by the Company under this Section 11(e) shall affect the enforceability of the release and waiver of claims executed by Employee pursuant to Section 5(b).

(f) Complete Agreement. The provisions of this Agreement constitute the entire and complete understanding and agreement between the parties with respect to the subject matter hereof, and supersedes all prior and contemporaneous oral and written agreements, representations and understandings of the parties, which are hereby terminated. Other than expressly set forth herein, Employee and Company acknowledge and represent that there are no other promises, terms, conditions or representations (or written) regarding any matter relevant hereto. This Agreement may be executed in two or more counterparts.

 

8


(g) Arbitration; Venue for Disputes . The Company and Employee agree to the resolution by binding arbitration of all claims, demands, causes of action, disputes, controversies or other matters in question in accordance with the terms of the Company’s Mandatory Arbitration Policy and Procedure for Resolving Disputes Arising out of Its Employees’ Employment or Termination of Employment (“ Arbitration Agreement ”) to which Employee has previously agreed and which is incorporated herein by reference. Notwithstanding anything to the contrary in the Arbitration Agreement, the Parties agree that the Company has the right to seek temporary relief, including injuctive relief and specific performance, in a court of competent jurisdiction for an alleged breach of Sections 7, 8, and 9 of this Agreement. The parties agree that venue for any disputes arising from or related to this Agreement or any threatened breach thereof shall lie exclusively in Dallas County, Texas and that lawsuit or arbitration commenced in any other venue will be transferred to Dallas County, Texas upon the written request of any party to this Agreement.

(h) Survival . Sections 7, 8, 9, 10  & 11 of this Agreement shall survive the termination of this Agreement except as provided in Section 9(d) .

(i) Choice of Law . This Agreement shall be governed by and construed in accordance with the laws of the State of North Carolina without reference to principles of conflict of laws of Texas or any other jurisdiction, and, where applicable, the laws of the United States.

(j) Amendment . This Agreement may not be amended or modified at any time except by a written instrument executed by the Company and Employee.

(k) Indemnification. Toe the full extent permitted by law, the Company shall pay reasonable expenses incurred by or judgments or fines rendered or levied against Employee in action brought by a third-party against Employee (whether or not the Company is a party to that action) arising from any act alleged by have been committed by Employee in the course and scope of his employment during the Employment Period unless (i) Employee acted with gross negligence or willful misconduct or (ii) the action is one between the Company and Employee. Payments authorized hereunder shall include reasonable amounts paid and expenses incurred in settled such action or threatened action provided the Company is consulted with respect to any such settlement.

(l) Employee Acknowledgment . Employee acknowledges that he has read and understands this Agreement, is fully aware of its legal effect, has not acted in reliance upon any representatives or promises made by the Company other than those contained in writing herein, and has entered into this Agreement freely based on his own judgment.

SIGNATURES ON SUCCEEDING PAGE

 

9


IN WITNESS WHEREOF, Employee executed this Agreement and the Company has caused this Agreement to be executed in its name on its behalf, all as of the day and year first above written.

 

EMPLOYEE:

/s/ Thomas Dritsas

Thomas Dritsas

COMPANY:

 

SULLIVAN’S OF NORTH CAROLINA INC.

By:

 

/s/ Mark Mednansky

  Mark Mednansky

Its:

  President

 

10

Exhibit 10.13

EMPLOYMENT AGREEMENT

This Employment Agreement (“ Agreement ”), is effective as of January 4, 2012 , (“ Effective Date ), and is between Thomas G. Dritsas (“ Employee ”) and Del Frisco’s Restaurant Group, LLC (the “ Company ”) (collectively, “ Parties ”).

In consideration of the respective agreements and covenants set forth in this Agreement, the receipt of which is hereby acknowledged, the parties intending to be legally bound agree as follows:

AGREEMENTS

1. Employment Period . The Company agrees to employ Employee, and Employee agrees to be employed by the Company, for a period (the “ Employment Period ”) commencing on the Effective Date and ending on the third anniversary of such date, unless earlier terminated in accordance with Section 3 , if party provides ninety (90) days written notice to the other party that it or he intends for this Agreement to terminate on such first anniversary. If no such notice is given, then this Agreement shall continue for successive one year terms (each a “ Renewal Term”) , unless earlier terminated in accordance with Section 3 , until either party provides ninety (90) days written notice to the other party that it or he intends for this Agreement to terminate at the end of any such one year period. In the event that this Agreement is continued for one or more Renewal Terms, such additional Renewal Term(s) shall be included in the term Employment Period. If the Company provides notice of termination under this Section 1 , the Company has the right to terminate Employee’s employment and relieve him of his duties under Section 2 immediately upon notice or at any time during the 90-day notice period and the Company’s sole obligations to Employee thereafter shall be those set forth in Section 4(b) of this Agreement.

2. Terms of Employment .

(a) Position and Duties .

(1) During Employment Period, Employee shall serve as Corporate Executive Chef and, in so doing, shall perform the normal duties associated with such position and such other duties as may be assigned from time to time by Employee’s Supervisor or the Company’s executive management.

(2) During the Employment Period, Employee agrees to devote his full working time to the business and affairs of the Company and to use his best efforts to perform faithfully, effectively and efficiently his duties. Employee covenants, warrants and represents that he shall: (i) devote his full and best efforts to the fulfillment of employment obligations; (ii) exercise the highest degree of fiduciary loyalty and care and the highest standards of conduct in the performance of his duties; (iii) endeavor to prevent any harm, in any way, to the business or reputation of the Company or its affiliates; and (iv) not engaged in any other business activity of any kind without the advance written consent of the Company, including any passive

 

1


investments other than the ownership of publicly traded stock in an amount not to exceed three percent of the issued and outstanding stock of the company.

(3) In keeping with Employee’s fiduciary duties to the Company, Employee agrees that he shall not, directly or indirectly, become involved in any conflict of interest, or upon discovery thereof, allow such a conflict to continue. Employee agrees that he shall promptly disclose to the Company any facts which might involve any reasonable possibility of a conflict of interest. Employee further agrees that he shall abide by the Company’s Code of Ethics, as may be amended from time to time. During the Employment Period, Employee shall not engage in any activities in competition with the Company or its affiliates or participate in any business, either as an employee, officer, director, shareholder or contractor, in competition with the Company or its affiliates. Further, during the Employment Period, Employee agrees not to engage in any other business or profession, directly or indirectly, without the prior written approval of the Company, including any passive investments other than the ownership of publicly traded stock in an amount not to exceed three percent of the issued and outstanding stock of the company.

(4) Employee agrees to observe and comply with the Company’s policies, practices, and procedures, as adopted or amended from time to time.

(b) Compensation .

(1) Base Salary . During the Employment Period, Employee shall receive an annualized base salary (“ Base Salary ”), which shall be paid in accordance with the customary payroll practices of the Company, in an amount equal to $ 198,000 .

(2) Incentive Bonus . Employee is eligible to participate in all bonus compensation plans and stock plans which, by their terms are specifically applicable to Corporate Executive Chef. Such participation shall be in accordance with the plan terms

(3) Welfare Benefit Plans . During the Employment Period, and subject to the terms and conditions of applicable plans or programs, Employee and/or Employee’s family, as the case may be, shall be eligible for participation in and shall receive all benefits under the welfare benefit plans, practices, policies and programs applicable generally to other employees of the Company as adopted or amended from time to time.

(4) Business Expenses . During the Employment Period, Employee shall be entitled to receive prompt reimbursement for all reasonable business-related expenses incurred by Employee in accordance with the Company’s policies, practices and procedures, as adopted or amended from time to time.

(5) Vacation . During the Employment Period, Employee shall be entitled to paid vacation in accordance with the Company’s vacation pay policy, as adopted or amended from time to time.

 

2


3. Termination of Employment .

(a) Death or Disability . Employee’s employment shall terminate automatically upon Employee’s death during the Employment Period. If the Disability of Employee occurs during the Employment Period (pursuant to the definition of Disability set forth below), the Company may terminated Employee’s employment upon thirty (30) days advance written notice provided that, within the 30 days after such receipt, Employee has not returned to perform, with or without reasonable accommodation, the essential functions of his position. For purposes of this Agreement, “ Disability ” shall mean Employee’s inability to perform, with or without reasonable accommodation, the essential functions of his position hereunder for a period of 180 consecutive days due to mental or physical incapacity, as determined by a physician mutually selected by the Company or its insurers and Employee.

(b) Cause . The Company may terminate Employee’s employment at any time during the Employment Period for Cause. For purposes of this Agreement, “ Cause ” shall mean (1) a material breach by Employee of Employee’s obligations under Section 1 (other than as a result of physical or mental incapacity); (2) commission by Employee of an act of fraud, embezzlement, misappropriation, willful misconduct or breach of fiduciary duty against the Company or other conduct harmful or potentially harmful to the Company’s best interest; (3) a material breach by Employee of Sections 6, 7, or 8 of this Agreement; (4) Employee’s conviction, plea of guilty, no contest, or nolo contendere , deferred adjudication or unadjudicated probation for any felony or any crime involving moral turpitude, (5) the failure of Employee to carry out, or comply with, in any material respect, any lawful directive of the Company; (6) Employee’s unlawful use (including being under the influence) or possession of illegal drugs; (7) Employee’s disparagement of the Company or any of its affiliates or any employee, officer, director, member, manager, agent, or representative of the Company or any of its affiliates; or (8) the Company is temporarily or permanently enjoined from employing Employee, or a court of competent jurisdiction otherwise orders the Company to cease employing Employee, or the Company determines in its reasonable discretion that it is in the best interests of the Company and/or its employees or members that Employee’s employment with the Company be terminated due to restrictions or covenants to which Employee agreed with his former employer(s) and which may impact Employee’s ability to be employed by the Company. For purposes of the previous sentence, no act or failure to act on Employee’s part shall be deemed “willful” unless done, or omitted to be done, by Employee not in good faith and without reasonable belief that Employee’s action or omission was in the best interest of the Company.

(c) Date of Termination . “ Date of Termination ” means (1) if Employee’s employment is terminated by the Company for Cause or without Cause, or by Employee through resignation, the date of receipt by Employee of the notice of termination or by the Company of the notice of resignation or any later date specified therein that is mutually agreeable to the Parties, (2) if Employee’s employment is terminated by reason of death, the date of death of Employee, (3) if Employee’s employment is terminated by reason of Disability, thirty (30) days from the date on which the Company provides notice to Employee of its intent to terminate his employment unless Employee returns to work during that 30-day period, or (4) if Employee’s employment is terminated pursuant to Section 1 , the date specified by the Company in its notice of termination as Employee’s last day of employment.

 

3


4. Obligations of the Company upon Termination .

(a) For Cause; Death or Disability; Resignation . If the Company terminates Employee’s employment for Cause or because of Employee’s death or Disability, or Employee resigns from his employment, Employee shall forfeit all rights to any Incentive Bonus otherwise due to him or to which he may be entitled, and the Company shall have no further payment obligations to Employee or his legal representatives, other than for the payment of in a lump sum in cash within fourteen (14) days after the Date of Termination (or such earlier date as required by applicable law) that portion of Employee’s Annual Base Salary earned and accrued through the Date of Termination to the extent not previously paid.

(b) Without Cause . If Employee’s employment is terminated by the Company without Cause before expiration of the Employment Period or if Company gives notice of termination of this Agreement to Employee, in accordance with Section 1 of this Agreement, the Company shall have no further payment obligations to Employee or his legal representatives, other than (i) for the payment, in a lump sum in cash within fourteen (14) days after the Date of Termination (or such earlier date as required by applicable law), of that portion of Employee’s Annual Base Salary accrued through the Date of Termination to the extent not previously paid; (ii) to continue Employee’s Base Salary in effect on the Date of Termination for twelve (12) months from the Date of Termination. Such payments shall be made in accordance with the customary payroll practices of the Company and reduced by applicable withholdings; and (iii) for a period of twelve (12) months from the Date of Termination, the continued provision of any of Employee’s health benefits, as Employee had enrolled in and participated in such health benefits offered by the Company as of the Date of Termination.

(c) Release . The obligation of the Company to pay any portion of the amounts due pursuant to Section 4(b) , shall be expressly conditioned on Employee’s (1) execution (and, if applicable, non-revocation) of a full general release, releasing all claims, known or unknown, that the Executive may have against the Company, including those arising out of or in any way related to Employee’s employment or termination of employment with the Company and (2) continued compliance with the requirements of Sections 6, 7, and 8 .

5. Full Settlement, Mitigation .

(a) Employee is not obligated to seek other employment or take any other action by way of mitigation of the amounts payable to Employee under any of the provisions of this Agreement and such amounts shall not be reduced whether or not Employee obtains other employment.

(b) The provision of this Agreement, any payment provided for hereunder, and the release referenced in Section 4(c) shall not reduce any amount otherwise payable, or in any way diminish Employee’s existing right or those right that would accrue solely as a result of the passage of time, under any employee benefit plan or other contract or plan of which Employee is a beneficiary or in which he participates except that nothing in this Section 5(b) or Agreement shall be construed to limit the Company right to amend its employee benefit plans from time to time, in its sole discretion.

 

4


6. Confidential Information .

(a) Employee acknowledges that the Company has trade, business and financial secrets and other confidential and proprietary information (collectively, the “ Confidential Information ”). Confidential information includes, but is not limited to, sales materials, marketing objectives, and strategies, financial information, strategic information, business plans, recipes, procedures, and information concerning customers or venders. As defined herein, Confidential Information shall not include information that is generally known to other persons or entities who can obtain economic value from its disclosure or use.

(b) Employee acknowledges that the Confidential Information has been developed or acquired by the Company through the expenditure of substantial time, effort and money and provides the Company with an advantage over competitors who do not know or use such Confidential Information.

(c) All records, files, documents and materials, or copies thereof, relating to the Company’s and its affiliates’ business which Employee shall prepare, or use, or be provided with as a result of his employment with the Company, shall be and remain the sole property of the Company or its affiliates, as the case may be, and shall be returned promptly by Employee to the owner upon termination of Employee’s employment with the Company.

7. Non-Disclosure

(a) During the Employment Period, the Company shall provide Employee with Confidential Information of the Company as described in Section 6 . Accordingly, in consideration for the Company’s commitment to provide Confidential Information to Employee and, in the case of Employee’s termination without Cause in consideration for the payments specified in Section 4(b) , and in order to protect the value of the Confidential Information to the Company, Employee agrees that during his employment with the Company and at all times thereafter, he will not directly or indirectly disclose or use or disclose for any reason whatsoever any Confidential Information obtained by reason of his employment with the Company or any predecessor, except (i) as required to conduct the business of the Company during Employee’s employment; (ii) as authorized in writing by the Company; (iii) in connection with an arbitration brought relating to this Agreement; or (iv) as compelled by legal process. Employee agrees to use reasonable efforts to give the Company notice of any and all attempts to compel disclosure of any Confidential Information, in such a manner so as to provide the Company with written notice at least five (5) days before disclosure or within one (1) business day after Employee is informed that such disclosure is being or will be compelled, whichever is earlier. Such written notice shall include a description of the information to be disclosed, the court, government agency, or other forum through which the disclosure is sought, and the date by which the information is to be disclosed, and shall contain a copy of the subpoena, order or other process used to compel disclosure.

(b) The obligations of Employee set forth in the preceding sentence are in addition to, and not in lieu of, the any obligations Employee may have under applicable common or statutory law.

 

5


8. Non-Competition; Non-Solicitation .

(a) Employee acknowledges and agrees that the nature of the Confidential Information which the Company commits to provide him during his employment by the Company would make it difficult, if not impossible, for him to perform in a similar capacity for a Competing Business (as defined below) without disclosing or utilizing the Confidential Information. Employee further acknowledges and agrees that the Company’s business is conducted in a highly competitive market. Accordingly, Employee agrees that he will not (other than for the benefit of the Company pursuant to this Agreement) directly or indirectly, individually or as an officer, director, employee, shareholder, consultant, contractor, partner, joint venturer, agent, equity owner or in any capacity whatsoever (1) during the Employment Period and for a term of twelve (12) months following the Termination Date work for or engage in a restaurant business that features the sale of steak where the sale of steak exceeds 30% of the restaurant’s revenues from food sales and which is located within 25 miles of any Del Frisco’s Double Eagle Steak House restaurant or Sullivan’s Steakhouse restaurant, (a “ Competing Business ”), or (2) for a period of twelve (12) months following the Termination Date, (i) hire, attempt to hire, or contact or solicit with respect to hiring any managerial employee of the Protected Company which includes, but is not necessarily limited to Regional Managers, General Managers, Probationary Managers, Managers, Executive Chefs, Managers in Training, and Sous Chefs; (ii) solicit, divert or take away any customers or customer leads of the Company with whom Employee had, whether directly or indirectly, contact or business relations during the Employment Period or about whom Employee possesses Confidential Information; or (iii) solicit, encourage, or influence any suppliers or vendors of the Protected Company to cease doing business with the Protected Company or change the terms and conditions upon which they conduct their business with the Protected Company where Employee had, whether directly or indirectly, contact or business relations during the Employment Period with such vendors or suppliers, or about whom Employee possesses Confidential Information.

(b) Employee acknowledges that the geographic boundaries, scope of prohibited activities, and time duration of the preceding paragraphs are reasonable in nature and are no broader than are necessary to maintain the confidentiality and the goodwill of the Company and the confidentiality of its Confidential Information and to protect the other legitimate business interests of the Company.

(c) If any court determines that any portion of this Section 8 is invalid or unenforceable, the remainder of this Section 8 shall not thereby be affected and shall be given full effect without regard to the invalid provisions. If any court construes any of the provisions of this Section 8 , or any part thereof, to be unreasonable because of the duration or scope of such provision, such court shall have the power to reduce the duration or scope of such provision and to enforce such provision as so reduced.

(d) Notwithstanding the foregoing, in the event there is a Change in Control of the Company, and Employee elects to resign his employment within six (6) months of the Change in Control upon providing ten (10) days advance notice of such resignation, then Employee shall not thereafter be bound by Section 8(a) of this Agreement and the provisions therein shall be void and of no effect.

 

6


(e) Definitions for Section 8

(1) “ Change in Control ” means the occurrence of any one of the following: the closing of a sale (by merger, sale of membership interests, issuance of membership interests by the Company, consolidation or other transaction) that results in either of the following: (i) the Company’s members or equity owners immediately prior to the effective time of the transaction beneficially owning immediately after the closing of the transaction securities of the Company or any surviving or new corporation having less than 50% of the “voting power” (the right to vote generally to elect managers or directors and whether by ownership or by agreements or arrangements concerning voting) of the Company or any surviving or new entity, including “voting power” exercisable on a contingent or deferred basis as well as immediately exercisable “voting power;” or (ii) the closing of a sale, lease, exchange or other transfer or disposition by the Company of all or substantially all of the assets of the Company, in one or a series of integrated transactions; or (iii) the dissolution or liquidation of the Company. Notwithstanding the foregoing, none of the foregoing transactions shall constitute a Change of Control under this Agreement if the transaction is approved by a majority of the Company’s Board of Directors as constituted immediately prior to the transaction.

(2) “ Protected Company ” shall include the Company and LSF5 Wagon Holdings, LLC, and any of their subsidiaries or affiliates.

9. Inventions; Assignment . All rights to discoveries, inventions, improvements and innovations (including all data and records pertaining thereto) related to the Company’s business, whether or not patentable, copyrightable, registrable as a trademark, or reduced to writing, that Employee may discover, invent or originate during the Employment Period, either alone or with others and during work hours or by the use of the facilities of the Company (“ Inventions ”), shall be the exclusive property of the Company. Employee shall promptly disclose all Inventions to the Company, shall execute at the request of the Company any assignments or other documents the Company may deem necessary to protect or perfect its rights therein, and shall assist the Company, at the Company’s expense, in obtaining, defending and enforcing the Company’s rights therein. Employee hereby appoints the Company as his attorney-in-fact to execute on his behalf any assignments or other documents deemed necessary by the Company to protect or perfect its rights to any Inventions.

10. Miscellaneous .

(a) Construction . This Agreement shall be deemed drafted equally by both the parties. Its language shall be construed as a whole and according to its fair meaning. Any presumption or principle that the language is to be construed against any party shall not apply. The headings in this Agreement are only for convenience and are not intended to affect construction or interpretation.

(b) Notices . All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows:

 

7


If to Employee:                 Thomas G. Dritsas

                                            2600 Crofton Springs Drive

                                            Raleigh, NC 27615

If to the Company:            Del Frisco’s Restaurant Group, LLC

                                            930 South Kimball, Suite 100

                                            Southlake, TX 76092

or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee.

(c) Enforcement . If any provision of this Agreement is held to be illegal, invalid or unenforceable under present or future laws effective during the term of this Agreement, such provision shall be fully severable; this Agreement shall be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a portion of this Agreement; and the remaining provisions of this Agreement shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance from this Agreement. Furthermore, in lieu of such illegal, invalid or unenforceable provision there shall be added automatically as part of this Agreement a provision as similar in terms to such illegal, invalid or unenforceable provision as may be possible and be legal, valid and enforceable.

(d) No Waiver . No waiver by either party at any time of any breach by the other party of, or compliance with, any condition or provision of this Agreement to be performed by the other party shall be deemed a waiver of similar or dissimilar provisions or conditions at any time.

(e) Equitable and Other Relief . Employee acknowledges that money damages would be both incalculable and an insufficient remedy for a breach by Employee and that any such breach would cause the Company irreparable harm. Accordingly, the Company, in addition to any other remedies at law or in equity it may have, shall be entitled, without the requirement of posting of bond or other security, to equitable relief, including injunctive relief and specific performance, in connection with a breach of Sections 6, 7, or 8 by Employee. Employee further agrees that, in the event he is adjudicated to have violated Sections 7 and 8, the term of his obligations thereunder shall be extended for a period of time equal to the period of time during which he was in violation of such obligations. In addition to the remedies the Company may have at law or in equity, violation of Sections 6, 7, or 8 entitles the Company at its sole option to discontinue the Severance Payments to Employee, and to seek repayment from Employee of any Severance Payments paid to him by the Company during any period of time Employee was in violation of Sections 6, 7, or 8 . No action taken by the Company under this Section 10(e) shall affect the enforceability of the release and waiver of claims executed by Employee pursuant to Section 4(b) .

(f) Complete Agreement . The provisions of this Agreement constitute the entire and complete understanding and agreement between the parties with respect to the subject

 

8


matter hereof, and supersedes all prior and contemporaneous oral and written agreements, representations and understandings of the parties, which are hereby terminated. Other than expressly set forth herein, Employee and Company acknowledge and represent that there are no other promises, terms, conditions or representations (or written) regarding any matter relevant hereto. This Agreement may be executed in two or more counterparts.

(g) Arbitration; Venue for Disputes . The Company and Employee agree to the resolution by binding arbitration of all claims, demands, causes of action, disputes, controversies or other matters in question in accordance with the terms of the Company’s Mandatory Arbitration Policy and Procedure for Resolving Disputes Arising out of Its Employees’ Employment or Termination of Employment (“ Arbitration Agreement ”) to which Employee has previously agreed and which is incorporated herein by reference. Notwithstanding anything to the contrary in the Arbitration Agreement, the Parties agree that the Company has the right to seek temporary relief, including injunctive relief and specific performance, in a court of competent jurisdiction for an alleged breach of Sections 6, 7, and 8 of this Agreement. The parties agree that venue for any disputes arising from or related to this Agreement or any threatened breach thereof shall lie exclusively in Dallas County, Texas and that lawsuit or arbitration commenced in any other venue will be transferred to Dallas County, Texas upon the written request of any party to this Agreement.

(h) Survival . Sections 6, 7, 8, 9 & 10 of this Agreement shall survive the termination of this Agreement except as provided in Section 8(d) .

(i) Choice of Law . This Agreement shall be governed by and construed in accordance with the laws of the State of New York without reference to principles of conflict of laws of Texas or any other jurisdiction, and, where applicable, the laws of the United States.

(j) Amendment . This Agreement may not be amended or modified at any time except by a written instrument executed by the Company and Employee.

(k) Indemnification . Toe the full extent permitted by law, the Company shall pay reasonable expenses incurred by or judgments or fines rendered or levied against Employee in action brought by a third-party against Employee (whether or not the Company is a party to that action) arising from any act alleged by have been committed by Employee in the course and scope of his employment during the Employment Period unless (i) Employee acted with gross negligence or willful misconduct or (ii) the action is one between the Company and Employee. Payments authorized hereunder shall include reasonable amounts paid and expenses incurred in settled such action or threatened action provided the Company is consulted with respect to any such settlement.

(l) Employee Acknowledgment . Employee acknowledges that he has read and understands this Agreement, is fully aware of its legal effect, has not acted in reliance upon any representatives or promises made by the Company other than those contained in writing herein, and has entered into this Agreement freely based on his own judgment.

SIGNATURES ON SUCCEEDING PAGE

 

9


IN WITNESS WHEREOF, Employee executed this Agreement and the Company has caused this Agreement to be executed in its name on its behalf, all as of the day and year first above written.

 

EMPLOYEE:

/s/ Thomas G. Dritsas

Thomas G. Dritsas

COMPANY:

 

Del Frisco’s Restaurant Group, LLC

By:

 

/s/ Mark Mednansky

  Mark Mednansky
  Its: President

 

10

Exhibit 10.14

NON-COMPETITION, CONFIDENTIALITY, AND

NON-SOLICITATION AGREEMENT

THIS AGREEMENT dated April 16, 2008 is by and between Del Frisco’s Restaurant Group, LLC, a Delaware limited liability company (the “Company”), its successors, assigns and affiliated entities, and William Martens (“EMPLOYEE”).

W I T N E S S E T H :

WHEREAS, EMPLOYEE is desirous of working for the Company; and

WHEREAS, EMPLOYEE will have access to certain business trade secrets, such as marketing objectives and strategies, financial reporting, management systems, recipes, procedures, business methods, processes, and financial information (“business information”) of Company which is sensitive, proprietary, and valuable to Company; and

WHEREAS, such business information has been prepared by Company at great cost and expense to it, and such business information is confidential by EMPLOYEE and such business information is intended only for those working in an executive management capacity;

WHEREAS, EMPLOYEE acknowledges that he or she will continue to develop management skills utilizing the Company’s business information; and

WHEREAS, the parties agree that it would be impossible for EMPLOYEE to work for one of the direct competitors of the Company without utilizing such sensitive, proprietary and confidential information; and

WHEREAS, disclosure by EMPLOYEE of “business information” would be injurious to the Company; and

NOW, THEREFORE, in consideration of those agreements herein contained, the parties hereby agree as follows:

1. Term. This Agreement shall commence on the date hereof and continue for so long as EMPLOYEE continues to be an employee of Company.

2. General Duties. EMPLOYEE shall devote his or her entire business time, attention, and energies to the business of the Company, and faithfully and competently perform his/her duties hereunder during the term of this Agreement. Further, EMPLOYEE shall not in any capacity whatsoever, either directly or indirectly be employed by any other business or provide services or assistance to any other business organization.

 

1


3. Non-Competition. During the Term and for twenty-four (24) months thereafter, EMPLOYEE shall not in any capacity whatsoever, individually or jointly with others, directly or indirectly, whether for her own account or for that of any other person or entity be employed by, engage in, serve as an officer, director, consultant, agent, partner, proprietor or other participant, or own or hold any ownership interest in any person or entity engaged in a restaurant business, which features steak and where steak sales, as a percentage of food sales, exceed thirty percent (30%) which restaurant business is located within a one hundred mile radius of any existing Sullivan’s Steakhouse or Del Frisco’s Double Eagle Steak House restaurant without the Company’s written consent.

4. Nondisclosure. During EMPLOYEE’s employment and for a period of ten (10) years after the termination of employment, whether the termination is initiated by EMPLOYEE or Company, EMPLOYEE shall not at any time, directly or indirectly, disclose any proprietary information or information not known outside the Company, furnished by the Company, and/or its management company, or any other information acquired by the EMPLOYEE in the course of his or her employment with the Company in any capacity whatsoever, except to the Company, its duly authorized officers, employees or representatives entitled thereto. Upon termination of EMPLOYEE’s employment with the Company, EMPLOYEE shall immediately return all procedural manuals, guides, specifications, formulas, financial statements, operational worksheets, records, and similar materials of any kind, which are then in EMPLOYEE’s possession or control, whether prepared by EMPLOYEE or others.

5. Non-Solicitation. In the event of EMPLOYEE’s termination of employment with the Company, for a period of twenty-four (24) months thereafter EMPLOYEE shall not, employ or seek to employ, target or assist others in employing or seeking to employ directly or indirectly any person serving in a managerial capacity with the Company, and/or any affiliated operating companies managed by the Company. For the purposes of this provision, managerial capacity includes an executive officer, Director of Operations, District Manager, General Manager, Manager or Manager in Training.

6. Consideration. In consideration of the promises and agreements made herein, the Company shall promote or continue the employment of EMPLOYEE until such time as such employment is terminated whether initiated by EMPLOYEE, or initiated with or without cause by the Company.

 

2


7. Miscellaneous.

 

  (a) Reasonableness. The parties agree that the covenants contained herein are reasonable and necessary to the protection of the business of the Company.

 

  (b) Severance; Enforceability. In the event that a Court of competent jurisdiction shall determine that any restriction or provision herein is unenforceable, the parties agree that this Agreement shall nevertheless be enforceable for the maximum term and maximum geographical area allowable by law, and any restriction deemed unenforceable shall be severed from this Agreement and the remainder of the Agreement enforced just as if the original Agreement had contained only those restrictions or provisions not severed.

 

  (c) Assignment. Company may assign its rights obtained in this agreement to any Entity into which Company may be merged or consolidated, or any entity which shall be an affiliate, subsidiary, parent or successor of Company.

 

  (d) Common Law Rights. By entering into this Agreement, the Company does not waive any common law right to which it may be entitled.

 

  (e) Governing Law. This Agreement shall be enforced by any Court of competent jurisdiction by application of the laws of the State of Texas.

 

  (f) Amendment. No amendment or modification of this Agreement shall be deemed effective unless or until executed in writing by the parties hereto.

 

  (g) Enforcement. If there is a breach or threatened breach of the provisions of this Agreement, the Company shall be entitled to an injunction restraining EMPLOYEE from such breach. Nothing herein shall be construed as prohibiting the Company from pursuing any other remedies for such breach or threatened breach.

 

  (h) Waiver of Breach. The waiver by any party hereto of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach by any party.

 

3


  (i) Arbitration. The parties agree that any disputes, claims or controversy of any kind arising out of this agreement or out of the employment relationship between EMPLOYEE and the Company shall be submitted to arbitration. EMPLOYEE acknowledges that he has previously received the Company’s Mandatory Arbitration policy and has signed a Receipt acknowledging his receipt of same.

IN WITNESS WHEREOF, the Company has caused this Agreement to be executed and its seal affixed hereby by its officers thereunto duly authorized; and the EMPLOYEE has executed this Agreement, as of the day and year first above written.

 

   Del Frisco’s Restaurant Group, LLC   
   By:    /s/ Jon W. Howie   
      Jon W. Howie, Chief Financial Officer   

 

By:       /s/ William Martens     By:       /s/ Amanda Faster
      EMPLOYEE           Witness

 

4

Exhibit 10.15

SUBSCRIPTION AGREEMENT

(Mark Mednansky)

LSF5 Wagon Holdings, LLC

April 30, 2007

LSF5 Wagon Holdings, LLC

717 N, Harwood, Suite 2200

Dallas, Texas 75201

Ladies and Gentlemen:

The undersigned (the “ Subscriber ”) understands that LSF5 Wagon Holdings, LLC, a Delaware limited liability company (the “ Company ”), is offering for sale to the Subscriber Class B Interests, Class C Interests and/or Class D Interests (collectively, the “ Interests ”), as defined in the Amended and Restated Limited Liability Company Agreement of LSF5 Wagon Holdings, LLC dated as of February 5, 2007 (the “LLC Agreement”), as indicated on the signature page of this Agreement. The Subscriber acknowledges that it is not acting on the basis of any representations or warranties other than those contained in Section 5 and understands that the offering of the Interests (the “ Offering ”) is being made without registration of the Interests under the Securities Act of 1933, as amended (the “ Securities Act ”), or any securities, “blue sky” or other similar laws of any state or foreign jurisdiction (“ State Securities Laws ”). Capitalized terms used and not defined have the meaning given to them in the LLC Agreement.

1. Subscription and Agreement to Be Bound by LLC Agreement. Subject to the terms and conditions of this Subscription Agreement, the Subscriber agrees to purchase, for the aggregate purchase price set forth on the signature page of this Subscription Agreement, the Class B Interests (if any), Class C Interests initially representing the Class C Percentage (as defined in the LLC Agreement) (if any) indicated on the signature page of this Agreement and Class D Interests initially representing the Class D Percentage (as defined in the LLC Agreement) (if any) indicated on the signature page of this Subscription Agreement and in Exhibit A hereto (the “Acquired Interests”). The Subscriber agrees that this Subscription Agreement shall be irrevocable and shall survive the death, dissolution or legal incapacity of the Subscriber. Upon acceptance of this Subscription Agreement, the Subscriber hereby agrees to become a Class B Member, Class C Member and/or Class D Member of the Company (as applicable based upon the composition of the Acquired Interests as among Class B Interests, Class C Interests and Class D Interests) and to become a party to and bound by the LLC Agreement, as now in effect and as subsequently amended from time to time in accordance with the terms thereof.

2. Payment for Acquired Interests. Along with the signed copy of this Subscription Agreement, the subscriber shall deliver to the Company the consideration (“ Purchase Price ”) required to purchase the Acquired Interests subscribed for under this Subscription Agreement. Payment of the Purchase Price is being made by delivery to the Company of a check made payable to the Company in the amount indicated by the Subscriber’s name on the signature page of this Subscription Agreement.

3. Funds. If the conditions of the sale of the Acquired Interests specified in Section 4 are not timely satisfied in full (or waived), the subscription shall be void, all funds received from the Subscriber shall be promptly returned to Subscriber, and the Subscriber shall not become a Member of the Company.


4. Acceptance of Subscription. The Subscriber understands and acknowledges that (a) the Company has the unconditional right, exercisable in its sole and absolute discretion, to accept or reject this Subscription Agreement, in whole or in part, (b) the subscription is subject to prior sale, withdrawal, modification, or cancellation of the Offering by the Company, (c) the subscription shall not be valid unless and until accepted by the Company, (d) this Subscription Agreement shall be deemed to be accepted by the Company only when it is signed by an authorized officer or manager of the Company, and (e) notwithstanding anything in this Subscription Agreement to the contrary, the Company shall have no obligation to issue the Interests to the Subscriber if the issuance of the Acquired Interests to the Subscriber would constitute a violation of the Securities Act or any State Securities Laws.

5. Representations and Warranties of the Company. As of the Closing (as defined in Section 9 below), the Company represents and warrants that:

(a) The Company will be duly organized, validly existing and in good standing under the laws of its state of organization, with full power and authority to conduct its business as it is currently being conducted and to own its assets. The Company will be duly qualified to do business, and will be in good standing as a foreign entity authorized to do business, in all jurisdictions in which a failure to so qualify would have a material adverse effect on the business condition (financial or otherwise), earnings, properties, or results of operations of the Company, taken as a whole.

(b) The Acquired Interests will have been duly authorized and, when issued and paid for in accordance with the terms set out in this Subscription Agreement, will be duly issued, fully paid and nonassessable obligations of the Company.

6. Representations and Warranties of the Subscriber. The Subscriber represents and warrants to and covenants with the Company and each officer, manager, member and agent of the Company as follows:

(a) General.

(i) The Subscriber has all requisite authority to enter into this Subscription Agreement and to perform all of the obligations required to be performed by the Subscriber under this Subscription Agreement.

(ii) The Subscriber is the sole party in interest and is not acquiring the Acquired Interests as an agent or otherwise for any other person. The Subscriber is a resident of the jurisdiction set forth opposite the Subscriber’s name on the signature page of this Subscription Agreement and (A) if a corporation, partnership, trust or other form of business organization, it has its principal office within that jurisdiction, (B) if an individual, he or she has his or her principal residence in that jurisdiction, and (C) if a corporation, partnership, trust or other form of business organization that was organized for the specific purpose of acquiring the Acquired Interests, all of the beneficial owners are residents of that jurisdiction.

(iii) The Subscriber acknowledges that there are no consents or approvals of governmental authorities or third parties that are required for the execution and delivery of this Agreement or the LLC Agreement by it; the execution of this Agreement and the LLC Agreement by the Subscriber shall not constitute a default under any material contract or agreement to which the Subscriber is bound; and no agreement or obligation exists that affects the Subscriber that has the effect of restricting the ability of the Subscriber to perform the Subscriber’s obligations under this Agreement or the LLC Agreement.

(iv) The Subscriber acknowledges that there is no litigation, action, suit, arbitration, governmental investigation or other proceeding pending or, to the best knowledge of the Subscriber threatened, to which the Subscriber is party that, if adversely determined, could have a material adverse effect on, or enjoin, restrict or otherwise prevent, the consummation of any of the transactions contemplated by this Agreement or the LLC Agreement or the ability of the Subscriber to perform the Subscriber’s obligations under this Agreement or the LLC Agreement.

 

2


(v) The Subscriber acknowledges that this Agreement, the LLC Agreement and all agreements, instruments and documents executed by the Subscriber or to be caused to be executed by the Subscriber in connection therewith will be duly authorized, executed and delivered by, are binding upon the Subscriber and are enforceable against the Subscriber in accordance with their terms.

(vi) The Subscriber acknowledges that (A) the Subscriber has the authority to enter into this Agreement and the LLC Agreement and consummate the transactions provided herein and therein, and (B) nothing prohibits or restricts the right or ability of the Subscriber to close the transactions contemplated by this Agreement and the LLC Agreement and carry out the terms hereof and thereof. The Subscriber acknowledges that neither this Agreement, the LLC Agreement nor any agreement, document or instrument executed or to be executed in connection with the same, nor anything provided in or contemplated by this Agreement, the LLC Agreement or any such other agreement, document or instrument, does now or shall hereafter breach, invalidate, cancel, make inoperative or interfere with, or result in the acceleration or maturity of, any contract, agreement, lease, easement, right or interest, affecting or relating to the Subscriber. The Subscriber has not transferred (as defined in the LLC Agreement) its Interest.

(vii) The Subscriber acknowledges that there are no bankruptcy, insolvency or divorce proceedings pending or contemplated by or against the Subscriber.

(b) Information Concerning the Company.

(i) The Subscriber understands that the Company is newly formed and has only recently acquired its business and assets. The Subscriber is a member, executive officer or employee of the Company and certain of its Subsidiaries, is familiar with the proposed business, properties, operations and prospects of the Company and, at a reasonable time prior to the execution of this Subscription Agreement, has been afforded the opportunity to ask questions of and received satisfactory answers from the Company’s officers and managers, or other persons acting on the Company’s behalf, concerning the proposed business, properties, operations and prospects of the Company and concerning the terms and conditions of the offering of the Interests and has asked any questions the Subscriber desires to ask and all such questions have been answered to the full satisfaction of the Subscriber.

(ii) The Subscriber understands that, unless the Subscriber notifies the Company in writing to the contrary before the Closing, all the representations and warranties contained in this Subscription Agreement will be deemed to have been reaffirmed and confirmed as of the Closing, taking into account all information received by the Subscriber.

(iii) The Subscriber understands that the purchase of the Acquired Interests involves various risks, including, but not limited to, those outlined in this Subscription Agreement.

(iv) The Subscriber acknowledges and agrees that no representations or warranties have been made to the Subscriber by the Company as to the tax consequences of this investment, or as to profits, losses or cash flow that may be received or sustained as a result of this investment.

(v) All documents, records and books pertaining to a proposed investment in the Acquired Interests which the Subscriber has requested have been made available to the Subscriber.

 

3


(c) Status of the Subscriber.

(i) The Subscriber has such knowledge and experience in financial and business matters that the Subscriber is capable of evaluating the merits and risks of an investment in the Acquired Interests. The Subscriber is able to bear the economic risk of this investment. The Subscriber has had the opportunity to consult with the Subscriber’s own attorney, accountant and/or purchaser representative regarding the Subscriber’s investment in the Acquired Interests and their suitability for purchase by the Subscriber, and to the extent necessary, the Subscriber has retained, at the Subscriber’s own expense, and relied upon, such attorney, accountant and/or purchaser representative, or other appropriate professional advice, regarding the investment, tax and legal merits, risks and consequences of this Subscription Agreement and of purchasing and owning the Acquired Interests.

(ii) The Subscriber represents that the Subscriber is (CHECK EACH CATEGORY OF “ACCREDITED INVESTOR” BELOW, IF ANY, WHICH IS APPLICABLE TO THE SUBSCRIBER):

( ) A. a natural person whose individual net worth, or joint net worth with that person’s spouse, at the time of his purchase exceeds $l,000,000;

( ) B. a natural person who had an individual income in excess of $200,000 in each of the two most recent years or joint income with that person’s spouse in excess of $300,000 in each of those years and has a reasonable expectation of reaching the same income level in the current year;

( ) C. an organization described in Section 501(c)(3) of the Internal Revenue Code, a corporation, Massachusetts or similar business trust, or a partnership, with total assets in excess of $5,000,000, and which was not formed for the specific purpose of acquiring the Acquired Interests;

( ) D. a trust, with total assets in excess of $5,000,000 not formed for the specific purpose of acquiring the Acquired Interests whose purchase is directed by a person who has knowledge and experience in financial and business matters that he is capable of evaluating the merits and risks of an investment in Acquired Interests; or

( ) E. an entity in which all of the equity owners are Accredited Investors (as listed in categories (A)-(D)) .

(iii) The Subscriber agrees to furnish any additional information requested to assure compliance with applicable Federal and State Securities Laws in connection with the purchase and sale of the Acquired Interests.

(d) Restrictions on Transfer or Sale of the Acquired Interests.

(i) The Subscriber is acquiring the Acquired Interests described solely for the Subscriber’s own beneficial account, for investment purposes, and not with view to, or for resale in connection with, any distribution of the Acquired Interests. The Subscriber understands that the offer and the sale of the Acquired Interests has not been registered under the Securities Act or any State Securities Law by reason of specific exemptions under the provisions thereof that depend in part upon the investment intent of the Subscriber and of the other representations made by the Subscriber in this Subscription Agreement. The Subscriber understands that the Company is relying upon the representations, covenants and agreements contained in this Subscription Agreement (and any supplemental information) for the purposes of determining whether this transaction meets the requirements for those exemptions.

 

4


(ii) The Subscriber understands that the Acquired Interests are “restricted securities” under applicable federal securities laws and that the Securities Act and the rules of the Securities and Exchange Commission (the “ Commission ”) provide in substance that the Subscriber may dispose of the Acquired Interests only pursuant to an effective registration statement under the Securities Act or an exemption therefrom, and the Subscriber understands that the Company has no obligation or intention to register any of the Acquired Interests purchased by the Subscriber or to take action so as to permit sales pursuant to the Securities Act (including Rule 144). As a consequence, the Subscriber understands that there is no public market for the Acquired Interests and the Subscriber therefore must bear the economic risks of the investment in the Acquired Interests for an indefinite period of time. The Subscriber understands that the Subscriber may not at any time demand the purchase by the Company of the Subscriber’s Acquired Interests.

(iii) The Subscriber agrees: (A) that the Subscriber will not sell, assign, pledge, give, transfer or otherwise dispose of the Acquired Interests or any interest therein, or make any offer or attempt to do any of the foregoing, except pursuant to a registration of the Acquired Interests under the Securities Act and all applicable State Securities Laws or in a transaction that is exempt from the registration provisions of the Securities Act and all applicable State Securities Laws; (B) that the Company and any transfer agent for the Acquired Interests shall not be required to give effect to any purported transfer of any of the Acquired Interests except upon compliance with the foregoing restrictions; and (C) that a legend in substantially the following form will be placed on the certificates representing the Acquired Interests, if any certificates are issued:

“THE ACQUIRED INTERESTS IN THE COMPANY REPRESENTED BY THIS CERTIFlCATE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES LAWS OF ANY STATE, WITHOUT SUCH REGISTRATION, THESE SECURITIES MAY NOT BE SOLD OR OTHERWISE TRANSFERRED, EXCEPT UPON DELIVERY TO THE COMPANY OF AN OPINlON OF COUNSEL SATISFACTORY TO THE COMPANY THAT REGISTRATION IS NOT REQUIRED FOR TRANSFER, AND THAT THE TRANSFER IS NOT IN VIOLATION OF THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS. THE SALE OR OTHER TRANSFER OF SUCH ACQUIRED INTERESTS IS ALSO SUBJECT TO THE RESTRICTIONS SET FORTH IN THE LIMITED LIABILITY COMPANY AGREEMENT (AS AMENDED) OF THE COMPANY.”

(iv) The Subscriber has not offered or sold any portion of the Acquired Interests subscribed for and has no present intention of dividing the Acquired Interests with others or of reselling or otherwise disposing of any portion of the Acquired Interests either currently or after the passage of a fixed or determinable period of time or upon the occurrence or nonoccurrence of any predetermined event or circumstance.

7. Survival and Indemnification. All representations, warranties and covenants contained in this Agreement and the indemnification contained in this Section 7 shall survive (i) the acceptance of this Subscription Agreement by the Company, (ii) changes in the transactions, documents and instruments described in this Subscription Agreement that are not material or that are to the benefit of the Subscriber,

 

5


and (iii) the death or disability of the Subscriber. The Subscriber acknowledges the meaning and legal consequences of the representations, warranties and covenants in determining the Subscriber’s qualification and suitability to purchase the Acquired Interests. The Subscriber agrees to indemnify, defend and hold harmless the Company, and its members, managers, officers, directors, employees, agents and controlling persons, from and against any and all losses, claims, damages, liabilities, expenses (including attorneys’ fees and disbursements), judgments or amounts paid in settlement of actions arising out of or resulting from the untruth or any representation, or the breach of any warranty or covenant, made by the Subscriber in this Subscription Agreement. Notwithstanding the foregoing, however, no representation, warranty, covenant or acknowledgment made by the Subscriber shall in any manner be deemed to constitute a waiver of any rights granted to the Subscriber under the Securities Act or State Securities laws.

8. Conditions to Obligations of the Company. The obligations of the Company to sell the Acquired Interests specified in this Subscription Agreement is subject to the condition that the representations and warranties of the Subscriber contained in Section 6 shall be true and correct on and as of the Closing in all respects with the same effect as though such representations and warranties had been made on and as of the Closing.

9. Closing. The closing of the purchase and sale of the Acquired Interests (the “ Closing ”) and the acceptance of the Purchase Price from the Subscriber is anticipated to occur at the Company’s offices on the date hereof or at such other time and place as the Company determines.

10. Vesting of Class C Interests and Class D Interests; Repurchase Upon Termination of Employment.

(a) All of the Class C Interests and Class D Interests shall initially be unvested. The vesting of Class C Interests and Class D Interests acquired by the Subscriber shall vest in accordance with the following vesting schedule:

(i) On December 31, 2007:

A. 7.5% of the Subscriber’s Class C Interests and Class D Interests shall vest if the Subscriber is employed by the Company on that date; and

B . an additional 12.5% of the Subscriber’s Class C Interests and Class D Interests shall vest if the Performance Targets for 2007 have been achieved by that date, it being understood that all Class C Interests and Class D Interests described in this Section 10(a)(i)(B) shall be forfeited (and shall not be eligible to vest on a subsequent date) if the Performance Targets for 2007 have not been achieved by December 31, 2007.

(ii) On December 31, 2008:

A. 7.5% of the Subscriber’s Class C Interests and Class D Interests shall vest if the Subscriber is employed by the Company on that date; and

B. an additional 12.5% of the Subscriber’s Class C Interests and Class D Interests shall vest if the Performance Targets for 2008 have been achieved by that date, it being understood that all Class C Interests and Class D Interests described in this Section 10(a)(ii)(B) shall be forfeited (and shall not be eligible to vest on a subsequent date) if the Performance Targets for 2008 have not been achieved by December 31, 2008.

(iii) On December 31, 2009:

 

6


A. 7.5% of the Subscriber’s Class C Interests and Class D Interests shall vest if the Subscriber is employed by the Company on that date; and

B. an additional 12.5% of the Subscriber’s Class C Interests and Class D Interests shall vest if the Performance Targets for 2009 have been achieved by that date, it being understood that all Class C Interests and Class D Interests described in this Section 10(a)(iii)(B) shall be forfeited (and shall not be eligible to vest on a subsequent date) if the Performance Targets for 2009 have not been achieved by December 31, 2009.

(iv) On December 31, 2010:

A. 7.5% of the Subscriber’s Class C Interests and Class D Interests shall vest if the Subscriber is employed by the Company on that date; and

B. an additional 12.5% of the Subscriber’s Class C Interests and Class D Interests shall vest if the Performance Targets for 2010 have been achieved by that date, it being understood that all Class C Interests and Class D Interests described in this Section 10(a)(iv)(B) shall be forfeited (and shall not be eligible to vest on a subsequent date) if the Performance Targets for 2010 have not been achieved by December 31, 2010.

(v) On December 31, 2011:

A. 7.5% of the Subscriber’s Class C Interests and Class D Interests shall vest if the Subscriber is employed by the Company on that date; and

B. an additional 12.5% of the Subscriber’s Class C Interests and Class D Interests shall vest if the Performance Targets for 2011 have been achieved by that date, it being understood that all Class C Interests and Class D Interests described in this Section 10(a)(v)(B) shall be forfeited (and shall not be eligible to vest on a subsequent date) if the Performance Targets for 2011 have not been achieved by December 31, 2011.

(vi) Upon a Change of Control in which the holders of the Class A Interests receive payment of all Unrecovered Contributions and Preferred Returns to which they are entitled to that date, all unvested Class C Interests and Class D Interests that have not previously been forfeited under the terms set forth herein or any other agreement, shall vest.

(vii) Except as provided in Section 10(a)(vi) above, Class C Interests and Class D Interests eligible for vesting on a specified date that have not vested shall be forfeited and shall not be eligible to vest on a subsequent date or upon the occurrence of subsequent events.

(b) It is intended that the Class B Interests, Class C Interests and Class D Interests are to be purchased and held only by employees of the Company or its Subsidiaries. Therefore:

(i) Upon termination of the Subscriber’s employment by the Company or its Subsidiaries without Cause or by the Subscriber for Good Reason, or upon the death or Disability of the Subscriber, the Subscriber will retain all Class B Interests and all vested Class C Interests and vested Class D Interests the Subscriber then holds, in each case subject to repurchase by the Company pursuant to Sections 10(c) and 10(d) below. With respect to unvested Class C Interests and unvested Class D Interests then held by the Subscriber, (A) that portion that would vest within one year after the date of the termination of the Subscriber’s employment based on the Subscriber’s continued employment will vest at the specified date or dates, unless a Change of Control occurs prior to any such date in which case clause (C) below shall govern their vesting, (B) that portion that would vest within one year after the date of the termination of the

 

7


Subscriber’s employment based on the performance of the Company will vest at the specified date if the specified performance criteria are met on the specified date or dates, unless a Change of Control occurs prior to any such date, in which case clause (C) below shall govern their vesting, (C) that portion that would vest upon a Change of Control will vest if a Change of Control in which the holders of the Class A Interests receive payment of all Unrecovered Contributions and Preferred Returns to which they are entitled to that date occurs within one year after the date of the termination of the Subscriber’s employment, and (D) all other unvested Class C Interests and unvested Class D Interests will be forfeited and canceled; provided that in any of the circumstances described in this paragraph a minimum of 25% of the Class C Interests and Class D Interests originally purchased by or issued to Subscriber will vest. All Class C Interests and Class D Interests that vest as described in the immediately preceding sentence shall be subject to repurchase by the Company pursuant to Sections 10(c) and 10(d) below.

(ii) Upon termination of employment by Subscriber without Good Reason, all unvested Class C Interests and unvested Class D Interests held by the Subscriber will automatically be forfeited and canceled, without consideration, and the Subscriber will retain all Class B Interests held by the Subscriber and all Class C Interests and Class D Interests held by the Subscriber that have vested at the time of the termination of employment, in each case subject to repurchase by the Company pursuant to Sections 10(c) and 10(d) below.

(iii) Upon termination of employment of Subscriber by the Company or its Subsidiaries for Cause, all vested and unvested Class C Interests and all vested and unvested Class D Interests held by Subscriber will automatically be forfeited and canceled, and the Subscriber will retain all Class B Interests held by the Subscriber, subject to repurchase by the Company pursuant to Sections 10(c) and 10(d) below.

(c) Upon the termination of the Subscriber’s employment (including upon death or Disability), the Company will have the option, exercisable by giving the Subscriber notice at any time on or prior to one (1) year after the date of the termination of the Subscriber’s employment, to purchase all or any portion of the Class B Interests, Class C Interests and Class D Interests held by the Subscriber, including, without limitation, those Class C and Class D Interests that vest as described in the second sentence of Section 10(b)(i) above. The purchase price for Class B Interests, Class C Interests and Class D Interests pursuant to this repurchase option shall be determined as follows:

(i) Upon exercise of a repurchase option in connection with a termination described in Section 10(b)(i) above, the purchase price (i) for Class B Interests shall be equal to the Preferred Return and remaining Unrecovered Contribution of Subscriber and (ii) for vested Class C Interests and vested Class D Interests shall be the fair market value of such Class C Interests and Class D Interests as determined by the Managing Member in its reasonable judgment.

(ii) Upon exercise of a repurchase option in connection with a termination described in Section 10(b)(ii) above, the purchase price (i) for all Class B Interests shall be equal to the remaining Unrecovered Contribution of Subscriber and (ii) for vested Class C Interests and vested Class D Interests shall be the fair market value of such Class C Interests and Class D Interests as determined by the Managing Member in its reasonable judgment.

(iii) Upon exercise of a repurchase option in connection with a termination described in Section 10(b)(iii) above, the purchase price for all Class B Interests shall be equal to the remaining Unrecovered Contribution of Subscriber.

The purchase price for Acquired Interests to be purchased shall be computed as of the date that such Subscriber’s employment ends. The Company shall pay for the Acquired Interests purchased pursuant to this Section 10(c) by wire transfer of immediately available funds to an account designated in

 

8


writing by the Subscriber. The closing of the purchase of such Interests shall take place at the offices of the Managing Member of the Company and shall occur within ten (10) days of the determination of the purchase price for such Interests (which shall not, in any event, be more than thirteen (13) months after the termination of the Subscriber’s employment). The Subscriber shall execute and deliver such documentation as is reasonably requested by the Company to consummate the purchase of such Interests.

(d) In the event that Subscriber has entered into any agreement containing noncompetition and/or nonsolicitation provisions or become subject to any noncompetition and/or nonsolicitation provisions (whether contained in an agreement or a policy) or similar duties related to the Company of any of its Subsidiaries, and the Subscriber violates or breaches any of such agreements and/or provisions and/or duties, then, notwithstanding anything else contained in this Agreement or in any subscription or other agreement entered into by the Subscriber, (i) the Company shall have the option, exercisable by giving the Subscriber written notice at any time on or prior to one (1) year after the date that the Managing Member has actual, as opposed to constructive or deemed, knowledge of such violation or breach, to purchase all or any portion of the Subscriber’s Class B Interests for a purchase price equal to the remaining Unrecovered Contribution of the Subscriber, and (ii) all vested and unvested Class C Interests and all vested and unvested Class D Interests held by the Subscriber will be automatically forfeited and cancelled.

11. Acknowledgment Concerning Potential Dilution to Class C Percentage and Class D Percentage. The Subscriber specifically acknowledges that it has read Section 4.1 of the LLC Agreement and understands (a) the methodology by which Class C Interests and Class D Interests are being allocated to such Subscriber based upon such Subscriber’s investment, if any, in Class B Interests relative to the investment target on the signature page of this Agreement, (b) the difference in the Class C Percentage and Class D Percentage attributable to such Interests and in the rate at which the Class C Interests and Class D Interests share in distributions of Available Cash pursuant to Section 5.2(c) of the LLC Agreement, and (c) that the Class C Percentage and/or Class D Percentage attributable to the Class C Interests and/or Class D Interests of such Subscriber are subject to dilution after the date hereof in the event that the Managing Member of the Company determines, in its sole discretion, to issue additional Class A Interests, Class C Interests, Class D Interests or other equity securities that dilute the Class C Percentage or Class D Percentage of such Subscriber.

12. Notices. All notices and other communications provided for in this Subscription Agreement shall be in writing and shall be deemed to have been duly given if delivered personally or sent by registered or certified mail, return receipt requested, postage prepaid, telecopier, overnight air courier guaranteeing next day delivery, or electronic mail:

(a) if to the Company, to it at the following address:

LSF5 Wagon Holdings, LLC

717 N. Harwood, Suite 2200

Dallas, Texas 75201

Attn: Managing Member

(b) if to the Subscriber, to the address set forth on the signature page hereto, or at such other address as either party shall have specified by notice in writing to the other.

All notices and communications shall be deemed to have been duly given; at the time delivered by hand, if personally delivered; when receipt acknowledged, if mailed, telecopied, sent by electronic mail, or sent by overnight air courier.

If a notice or communication is mailed in the manner provided above within the time prescribed, it is duly given, whether or not the addressee receives it.

 

9


13. Notification of Changes. The Subscriber agrees and covenants to notify the Company immediately upon the occurrence of any event prior to the Closing that would cause any representation, warranty, covenant or other statement contained in this Subscription Agreement to be false or incorrect or of any change in any statement made herein occurring prior to the Closing.

14. Assignability. This Subscription Agreement is not assignable by the Subscriber, and may not be modified, waived or terminated except by an instrument in writing signed by the party against whom enforcement of such modifications, waiver or termination is sought.

15. Binding Effect. Except as otherwise provided in this Subscription Agreement, this Subscription Agreement shall be binding upon and inure to the benefit of the parties and their heirs, executors, administrators, successors, legal representatives and assigns, and the agreements, representations, warranties and acknowledgments contained in this Subscription Agreement shall be deemed to be made by and be binding upon such heirs, executors, administrators, successors, legal representatives and assigns. If the Subscriber is more than one person, the obligation of the Subscriber shall be joint and several and the agreements, representations, warranties and acknowledgments contained herein shall be deemed to be made by and be binding upon each such person and his heirs, executors, administrators and successors.

16. Obligations Irrevocable. The obligations of the Subscriber shall be irrevocable, except with the consent of the Company, until the Closing.

17. Entire Agreement. This Subscription Agreement and the LLC Agreement constitutes the entire agreement of the Subscriber and the Company relating to the matters contained herein and therein, superseding all prior contracts or agreements, whether oral or written.

18. Governing Law. This Subscription Agreement shall be governed and controlled as to the validity, enforcement, interpretations, construction and effect and in all other aspects by the substantive laws of the State of Delaware, without reference to conflicts of laws principles.

19. Severability. If any provision of this Subscription Agreement or the application thereof to any subscriber or circumstance shall be held invalid or unenforceable to any extent, the remainder of this Subscription Agreement and the application of such provision to other subscriptions or circumstances shall not be affected thereby and shall be enforced to the greatest extent permitted by law.

20. Headings. The headings in this Subscription Agreement are inserted for convenience and identification only and are not intended to describe, interpret, define, or limit the scope, extent or intent of this Subscription Agreement or any provision of this Subscription Agreement.

21. Counterparts. This Subscription Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which together shall be deemed to be one and the same agreement.

[Signature page follows]

 

10


IN WITNESS WHEREOF, the undersigned Subscriber has executed this Subscription Agreement to be effective as of the date first above written.

Summary of Investment and Acquired Interests (see also Exhibit A):

A. Class B Investment Target: $350,000

B. Actual Class B investment, initial Capital Contribution, and Total Purchase Price: $350,000

C. Percentage of Class B target level invested (B / A): 100.00%

Applicable Incentive Pool Percentage: 35.00%

D. Allocation of Applicable Incentive Pool Percentage between Class C and Class D Interests pursuant to Section 4.1.1 of the LLC Agreement (based on percentage of Class B investment level invested): 35.00% Class C and 0.00% Class D

E. Initial Class C Percentage attributable to Class C Interests purchased by Subscriber: 3.50%

F. Initial Class D Percentage attributable to Class D Interests purchased by Subscriber: 0.00%

 

Signature:   /s/ Mark Mednansky
  Mark Mednansky
Address:   525 N. Tallyrand
  Wichita, Kansas 67206
Fax Number:   316-691-8323
Federal Tax ID No.:    

[Please also complete and return a Form W-9 with this Subscription Agreement]

 

11


AGREED TO AND ACCEPTED BY:
LSF5 Wagon Holdings, LLC
By:   /s/ Marc L. Lipshy
Name:   MARC L. LIPSHY
Title:   PRESIDENT

 

12


EXHIBIT A

SUMMARY OF ACQUIRED INTERESTS, CLASS C PERCENTAGES AND CLASS D PERCENTAGES

 

Applicable
Incentive Pool %
(at

100%

Vesting)

  

Applicable

Class B

Investment

Target

   % of Class
B Target
Invested
     Class B
Actual
Investment
     Applicable
Incentive Pool

%  Attributable
to Class C
Interests
     Applicable
Incentive
Pool

% Attributable
to Class D
Interests
     Class C
Percentage
     Class D
Percentage
     Combined
Percentage
for
Sharing
In Total
Equity in
Excess of
Preferred
Return
 

35.00%

   $350,000      100.00%         $350,000         35.00%         0.00%         3.50%         0.00%         3.50%   

Exhibit 10.16

SUBSCRIPTION AGREEMENT

(Jon Howie)

LSF5 Wagon Holdings, LLC

April 30, 2007

LSF5 Wagon Holdings, LLC

717 N. Harwood, Suite 2200

Dallas, Texas 75201

Ladies and Gentlemen:

The undersigned (the “ Subscriber ”) understands that LSF5 Wagon Holdings, LLC, a Delaware limited liability company (the “ Company ”), is offering for sale to the Subscriber Class B Interests, Class C Interests and/or Class D Interests (collectively, the “ Interests ”), as defined in the Amended and Restated Limited Liability Company Agreement of LSF5 Wagon Holdings, LLC dated as of February 5, 2007 (the “ LLC Agreement ”), as indicated on the signature page of this Agreement. The Subscriber acknowledges that it is not acting on the basis of any representations or warranties other than those contained in Section 5 and understands that the offering of the Interests (the “ Offering ”) is being made without registration of the Interests under the Securities Act of 1933, as amended (the “ Securities Act ”). or any securities, “blue sky” or other similar laws of any state or foreign jurisdiction (“ State Securities Laws ”). Capitalized terms used and not defined have the meaning given to them in the LLC Agreement.

1.     Subscription and Agreement to Be Bound by LLC Agreement. Subject to the terms and conditions of this Subscription Agreement, the Subscriber agrees to purchase, for the aggregate purchase price set forth on the signature page of this Subscription Agreement, the Class B Interests (if any), Class C Interests initially representing the Class C Percentage (as defined in the LLC Agreement) (if any) indicated on the signature page of this Agreement and Class D Interests initially representing the Class D Percentage (as defined in the LLC Agreement) (if any) indicated on the signature page of this Subscription Agreement and in Exhibit A hereto (the “ Acquired Interests ”). The Subscriber agrees that this Subscription Agreement shall be irrevocable and shall survive the death, dissolution or legal incapacity of the Subscriber. Upon acceptance of this Subscription Agreement, the Subscriber hereby agrees to become a Class B Member, Class C Member and/or Class D Member of the Company (as applicable based upon the composition of the Acquired Interests as among Class B Interests, Class C Interests and Class D Interests) and to become a party to and bound by the LLC Agreement, as now in effect and as subsequently amended from time to time in accordance with the terms thereof.

2.     Payment for Acquired Interests. Along with the signed copy of this Subscription Agreement, the Subscriber shall deliver to the Company the consideration (“ Purchase Price ”) required to purchase the Acquired Interests subscribed for under this Subscription Agreement. Payment of the Purchase Price is being made by delivery to the Company of a check made payable to the Company in the amount indicated by the Subscriber’s name on the signature page of this Subscription Agreement.

3.     Funds. If the conditions of the sale of the Acquired Interests specified in Section 4 are not timely satisfied in full (or waived), the subscription shall be void, all funds received from the Subscriber shall be promptly returned to Subscriber, and the Subscriber shall not become a Member of the Company.

4.     Acceptance of Subscription. The Subscriber understands and acknowledges that (a) the Company has the unconditional right, exercisable in its sole and absolute discretion, to accept or reject


this Subscription Agreement, in whole or in part, (b) the subscription is subject to prior sale, withdrawal, modification, or cancellation of the Offering by the Company, (c) the subscription shall not be valid unless and until accepted by the Company, (d) this Subscription Agreement shall be deemed to be accepted by the Company only when it is signed by an authorized officer or manager of the Company, and (e) notwithstanding anything in this Subscription Agreement to the contrary, the Company shall have no obligation to issue the Interests to the Subscriber if the issuance of the Acquired Interests to the Subscriber would constitute a violation of the Securities Act or any State Securities Laws.

5.     Representations and Warranties of the Company. As of the Closing (as defined in Section 9 below), the Company represents and warrants that:

(a)    The Company will be duly organized, validly existing and in good standing under the laws of its state of organization, with full power and authority to conduct its business as it is currently being conducted and to own its assets. The Company will be duly qualified to do business, and will be in good standing as a foreign entity authorized to do business, in all jurisdictions in which a failure to so qualify would have a material adverse effect on the business condition (financial or otherwise), earnings, properties, or results of operations of the Company, taken as a whole.

(b)    The Acquired Interests will have been duly authorized and, when issued and paid for in accordance with the terms set out in this Subscription Agreement, will be duly issued, fully paid and nonassessable obligations of the Company.

6.     Representations and Warranties of the Subscriber . The Subscriber represents and warrants to and covenants with the Company and each officer, manager, member and agent of the Company as follows:

(a)     General .

(i)    The Subscriber has all requisite authority to enter into this Subscription Agreement and to perform all of the obligations required to be performed by the Subscriber under this Subscription Agreement.

(ii)    The Subscriber is the sole party in interest and is not acquiring the Acquired Interests as an agent or otherwise for any other person. The Subscriber is a resident of the jurisdiction set forth opposite the Subscriber’s name on the signature page of this Subscription Agreement and (A) if a corporation, partnership, trust or other form of business organization, it has its principal office within that jurisdiction, (B) if an individual, he or she has his or her principal residence in that jurisdiction, and (C) if a corporation, partnership, trust or other form of business organization that was organized for the specific purpose of acquiring the Acquired Interests, all of the beneficial owners are residents of that jurisdiction.

(iii)    The Subscriber acknowledges that there are no consents or approvals of governmental authorities or third parties that are required for the execution and delivery of this Agreement or the LLC Agreement by it; the execution of this Agreement and the LLC Agreement by the Subscriber shall not constitute a default under any material contract or agreement to which the Subscriber is bound; and no agreement or obligation exists that affects the Subscriber that has the effect of restricting the ability of the Subscriber to perform the Subscriber’s obligations under this Agreement or the LLC Agreement.

(iv)    The Subscriber acknowledges that there is no litigation, action, suit, arbitration, governmental investigation or other proceeding pending or, to the best knowledge of the Subscriber threatened, to which the Subscriber is party that, if adversely determined, could have a material adverse effect on, or enjoin, restrict or otherwise prevent, the consummation of any of

 

2


the transactions contemplated by this Agreement or the LLC Agreement or the ability of the Subscriber to perform the Subscriber’s obligations under this Agreement or the LLC Agreement.

(v)    The Subscriber acknowledges that this Agreement, the LLC Agreement and all agreements, instruments and documents executed by the Subscriber or to be caused to be executed by the Subscriber in connection therewith will be duly authorized, executed and delivered by, are binding upon the Subscriber and are enforceable against the Subscriber in accordance with their terms.

(vi)    The Subscriber acknowledges that (A) the Subscriber has the authority to enter into this Agreement and the LLC Agreement and consummate the transactions provided herein and therein, and (B) nothing prohibits or restricts the right or ability of the Subscriber to close the transactions contemplated by this Agreement and the LLC Agreement and carry out the terms hereof and thereof. The Subscriber acknowledges that neither this Agreement, the LLC Agreement nor any agreement, document or instrument executed or to be executed in connection with the same, nor anything provided in or contemplated by this Agreement, the LLC Agreement or any such other agreement, document or instrument, does now or shall hereafter breach, invalidate, cancel, make inoperative or interfere with, or result in the acceleration or maturity of, any contract, agreement, lease, easement, right or interest, affecting or relating to the Subscriber. The Subscriber has not transferred (as defined in the LLC Agreement) its Interest.

(vii)    The Subscriber acknowledges that there are no bankruptcy, insolvency or divorce proceedings pending or contemplated by or against the Subscriber.

(b)     Information Concerning the Company .

(i)    The Subscriber understands that the Company is newly formed and has only recently acquired its business and assets. The Subscriber is a member, executive officer or employee of the Company and certain of its Subsidiaries, is familiar with the proposed business, properties, operations and prospects of the Company and, at a reasonable time prior to the execution of this Subscription Agreement, has been afforded the opportunity to ask questions of and received satisfactory answers from the Company’s officers and managers, or other persons acting on the Company’s behalf, concerning the proposed business, properties, operations and prospects of the Company and concerning the terms and conditions of the offering of the Interests and has asked any questions the Subscriber desires to ask and all such questions have been answered to the full satisfaction of the Subscriber.

(ii)    The Subscriber understands that, unless the Subscriber notifies the Company in writing to the contrary before the Closing, all the representations and warranties contained in this Subscription Agreement will be deemed to have been reaffirmed and confirmed as of the Closing, taking into account all information received by the Subscriber.

(iii)    The Subscriber understands that the purchase of the Acquired Interests involves various risks, including, but not limited to, those outlined in this Subscription Agreement.

(iv)    The Subscriber acknowledges and agrees that no representations or warranties have been made to the Subscriber by the Company as to the tax consequences of this investment, or as to profits, losses or cash flow that may be received or sustained as a result of this investment.

(v)    All documents, records and books pertaining to a proposed investment in the Acquired Interests which the Subscriber has requested have been made available to the Subscriber.

 

3


(c) Status of the Subscriber.

(i) The Subscriber has such knowledge and experience in financial and business matters that the Subscriber is capable of evaluating the merits and risks of an investment in the Acquired Interests. The Subscriber is able to bear the economic risk of this investment. The Subscriber has had the opportunity to consult with the Subscriber’s own attorney, accountant and/or purchaser representative regarding the Subscriber’s investment in the Acquired Interests and their suitability for purchase by the Subscriber, and to the extent necessary, the Subscriber has retained, at the Subscriber’s own expense, and relied upon, such attorney, accountant and/or purchaser representative, or other appropriate professional advice, regarding the investment, tax and legal merits, risks and consequences of this Subscription Agreement and of purchasing and owning the Acquired Interests.

(ii) The Subscriber represents that the Subscriber is (CHECK EACH CATEGORY OF “ACCREDITED INVESTOR” BELOW, IF ANY, WHICH IS APPLICABLE TO THE SUBSCRIBER):

( )    A, a natural person whose individual net worth, or joint net worth with that person’s spouse, at the time of his purchase exceeds $1,000,000;

(x)    B, a natural person who had an individual income in excess of $200,000 in each of the two most recent years or joint income with that person’s spouse in excess of $300,000 in each of those years and has a reasonable expectation of reaching the same income level in the current year;

( )    C, an organization described in Section 501(c)(3) of the Internal Revenue Code, a corporation, Massachusetts or similar business trust, or a partnership, with total assets in excess of $5,000,000, and which was not formed for the specific purpose of acquiring the Acquired Interests;

( )    D, a trust, with total assets in excess of $5,000,000 not formed for the specific purpose of acquiring the Acquired Interests whose purchase is directed by a person who has knowledge and experience in financial and business matters that he is capable of evaluating the merits and risks of an investment in Acquired Interests; or

( )    E, an entity in which all of the equity owners are Accredited Investors (as listed in categories (A)-(D)).

(iii)    The Subscriber agrees to furnish any additional information requested to assure compliance with applicable Federal and State Securities Laws in connection with the purchase and sale of the Acquired Interests.

(d)     Restrictions on Transfer or Sale of the Acquired Interests.

(i)    The Subscriber is acquiring the Acquired Interests described solely for the Subscriber’s own beneficial account, for investment purposes, and not with view to, or for resale in connection with, any distribution of the Acquired Interests, The Subscriber understands that the offer and the sale of the Acquired Interests has not been registered under the Securities Act or any State Securities Law by reason of specific exemptions under the provisions thereof that depend in part upon the investment intent of the Subscriber and of the other representations made by the Subscriber in this Subscription Agreement. The Subscriber understands that the Company is relying upon the representations, covenants and agreements contained in this Subscription

 

4


Agreement (and any supplemental information) for the purposes of determining whether this transaction meets the requirements for those exemptions.

(ii) The Subscriber understands that the Acquired Interests are “restricted securities” under applicable federal securities laws and that the Securities Act and the rules of the Securities and Exchange Commission (the “ Commission ”) provide in substance that the Subscriber may dispose of the Acquired Interests only pursuant to an effective registration statement under the Securities Act or an exemption therefrom, and the Subscriber understands that the Company has no obligation or intention to register any of the Acquired Interests purchased by the Subscriber or to take action so as to permit sales pursuant to the Securities Act (including Rule 144). As a consequence, the Subscriber understands that there is no public market for the Acquired Interests and the Subscriber therefore must bear the economic risks of the investment in the Acquired Interests for an indefinite period of time. The Subscriber understands that the Subscriber may not at any time demand the purchase by the Company of the Subscriber’s Acquired Interests.

(iii) The Subscriber agrees: (A) that the Subscriber will not sell, assign, pledge, give, transfer or otherwise dispose of the Acquired Interests or any interest therein, or make any offer or attempt to do any of the foregoing, except pursuant to a registration of the Acquired Interests under the Securities Act and all applicable State Securities Laws or in a transaction that is exempt from the registration provisions of the Securities Act and all applicable State Securities Laws; (B) that the Company and any transfer agent for the Acquired Interests shall not be required to give effect to any purported transfer of any of the Acquired Interests except upon compliance with the foregoing restrictions; and (C) that a legend in substantially the following form will be placed on the certificates representing the Acquired Interests, if any certificates are issued;

“THE ACQUIRED INTERESTS IN THE COMPANY REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES LAWS OF ANY STATE. WITHOUT SUCH REGISTRATION, THESE SECURITIES MAY NOT BE SOLD OR OTHERWISE TRANSFERRED, EXCEPT UPON DELIVERY TO THE COMPANY OF AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT REGISTRATION IS NOT REQUIRED FOR TRANSFER, AND THAT THE TRANSFER IS NOT IN VIOLATION OF THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLlCABLE STATE SECURITIES LAWS. THE SALE OR OTHER TRANSFER OF SUCH ACQUIRED INTERESTS IS ALSO SUBJECT TO THE RESTRICTIONS SET FORTH IN THE LIMITED LIABILITY COMPANY AGREEMENT (AS AMENDED) OF THE COMPANY.”

(iv) The Subscriber has not offered or sold any portion of the Acquired Interests subscribed for and has no present intention of dividing the Acquired Interests with others or of reselling or otherwise disposing of any portion of the Acquired Interests either currently or after the passage of a fixed or determinable period of time or upon the occurrence or nonoccurrence of any predetermined event or circumstance.

7. Survival and Indemnification . All representations, warranties and covenants contained in this Agreement and the indemnification contained in this Section 7 shall survive (i) the acceptance of

 

5


this Subscription Agreement by the Company, (ii) changes in the transactions, documents and instruments described in this Subscription Agreement that are not material or that are to the benefit of the Subscriber, and (iii) the death or disability of the Subscriber. The Subscriber acknowledges the meaning and legal consequences of the representations, warranties and covenants in determining the Subscriber’s qualification and suitability to purchase the Acquired Interests. The Subscriber agrees to indemnify, defend and hold harmless the Company, and its members, managers, officers, directors, employees, agents and controlling persons, from and against any and all losses, claims, damages, liabilities, expenses (including attorneys’ fees and disbursements), judgments or amounts paid in settlement of actions arising out of or resulting from the untruth or any representation, or the breach of any warranty or covenant, made by the Subscriber in this Subscription Agreement. Notwithstanding the foregoing, however, no representation, warranty, covenant or acknowledgment made by the Subscriber shall in any manner be deemed to constitute a waiver of any rights granted to the Subscriber under the Securities Act or State Securities laws.

8. Conditions to Obligations of the Company . The obligations of the Company to sell the Acquired Interests specified in this Subscription Agreement is subject to the condition that the representations and warranties of the Subscriber contained in Section 6 shall be true and correct on and as of the Closing in all respects with the same effect as though such representations and warranties had been made on and as of the Closing.

9. Closing. The closing of the purchase and sale of the Acquired Interests (the “ Closing ”) and the acceptance of the Purchase Price from the Subscriber is anticipated to occur at the Company’s offices on the date hereof or at such other time and place as the Company determines.

10. Vesting of Class C Interests and Class D Interests; Repurchase Upon Termination of Employment.

(a) All of the Class C Interests and Class D Interests shall initially be unvested. The vesting of Class C Interests and Class D Interests acquired by the Subscriber shall vest in accordance with the following vesting schedule:

(i) On December 31, 2007:

A. 7.5% of the Subscriber’s Class C Interests and Class D Interests shall vest if the Subscriber is employed by the Company on that date; and

B. an additional 12.5% of the Subscriber’s Class C Interests and Class D Interests shall vest if the Performance Targets for 2007 have been achieved by that date, it being understood that all Class C Interests and Class D Interests described in this Section 10(a)(i)(B) shall be forfeited (and shall not be eligible to vest on a subsequent date) if the Performance Targets for 2007 have not been achieved by December 31, 2007.

(ii) On December 31, 2008:

A. 7.5% of the Subscriber’s Class C Interests and Class D Interests shall vest if the Subscriber is employed by the Company on that date; and

B. an additional 12.5% of the Subscriber’s Class C Interests and Class D Interests shall vest if the Performance Targets for 2008 have been achieved by that date, it being understood that all Class C Interests and Class D Interests described in this Section 10(a)(ii)(B) shall be forfeited (and shall not be eligible to vest on a subsequent date) if the Performance Targets for 2008 have not been achieved by December 31, 2008.

 

6


(iii) On December 31, 2009:

A. 7.5% of the Subscriber’s Class C Interests and Class D Interests shall vest if the Subscriber is employed by the Company on that date; and

B. an additional 12.5% of the Subscriber’s Class C Interests and Class D Interests shall vest if the Performance Targets for 2009 have been achieved by that date, it being understood that all Class C Interests and Class D Interests described in this Section 10(a)(iii)(B) shall be forfeited (and shall not be eligible to vest on a subsequent date) if the Performance Targets for 2009 have not been achieved by December 31, 2009.

(iv) On December 31,2010:

A. 7.5% of the Subscriber’s Class C Interests and Class D Interests shall vest if the Subscriber is employed by the Company on that date; and

B. an additional 12.5% of the Subscriber’s Class C Interests and Class D Interests shall vest if the Performance Targets for 2010 have been achieved by that date, it being understood that all Class C Interests and Class D Interests described in this Section 10(a)(iv)(B) shall be forfeited (and shall not be eligible to vest on a subsequent date) if the Performance Targets for 2010 have not been achieved by December 31, 2010.

(v) On December 31, 2011:

A. 7.5% of the Subscriber’s Class C Interests and Class D Interests shall vest if the Subscriber is employed by the Company on that date; and

B. an additional 12.5% of the Subscriber’s Class C Interests and Class D Interests shall vest if the Performance Targets for 2011 have been achieved by that date, it being understood that all Class C Interests and Class D Interests described in this Section 10(a)(v)(B) shall be forfeited (and shall not be eligible to vest on a subsequent date) if the Performance Targets for 2011 have not been achieved by December 31, 2011.

(vi) Upon a Change of Control in which the holders of the Class A Interests receive payment of all Unrecovered Contributions and Preferred Returns to which they are entitled to that date, all unvested Class C Interests and Class D Interests that have not previously been forfeited under the terms set forth herein or any other agreement, shall vest.

( vii) Except as provided in Section 10(a)(vi) above, Class C Interests and Class D Interests eligible for vesting on a specified date that have not vested shall be forfeited and shall not be eligible to vest on a subsequent date or upon the occurrence of subsequent events.

(b) It is intended that the Class B Interests, Class C Interests and Class D Interests are to be purchased and held only by employees of the Company or its Subsidiaries. Therefore:

(i) Upon termination of the Subscriber’s employment by the Company or its Subsidiaries without Cause or by the Subscriber for Good Reason, or upon the death or Disability of the Subscriber, the Subscriber will retain all Class B Interests and all vested Class C Interests and vested Class D Interests the Subscriber then holds, in each case subject to repurchase by the Company pursuant to Sections 10(c) and 10(d) below. With respect to unvested Class C Interests and unvested Class D Interests then held by the Subscriber, (A) that portion that would vest within one year after the date of the termination of the Subscriber’s employment based on the Subscriber’s continued employment will vest at the specified date or dates, unless a Change of

 

7


Control occurs prior to any such date in which case clause (C) below shall govern their vesting, (B) that portion that would vest within one year after the date of the termination of the Subscriber’s employment based on the performance of the Company will vest at the specified date if the specified performance criteria are met on the specified date or dates, unless a Change of Control occurs prior to any such date, in which case clause (C) below shall govern their vesting, (C) that portion that would vest upon a Change of Control will vest if a Change of Control in which the holders of the Class A Interests receive payment of all Unrecovered Contributions and Preferred Returns to which they are entitled to that date occurs within one year after the date of the termination of the Subscriber’s employment, and (D) all other unvested Class C Interests and unvested Class D Interests will be forfeited and canceled; provided that in any of the circumstances described in this paragraph a minimum of 25% of the Class C Interests and Class D Interests originally purchased by or issued to Subscriber will vest. All Class C Interests and Class D Interests that vest as described in the immediately preceding sentence shall be subject to repurchase by the Company pursuant to Sections 10(c) and 10(d) below.

(ii) Upon termination of employment by Subscriber without Good Reason, all unvested Class C Interests and unvested Class D Interests held by the Subscriber will automatically be forfeited and canceled, without consideration, and the Subscriber will retain all Class B Interests held by the Subscriber and all Class C Interests and Class D Interests held by the Subscriber that have vested at the time of the termination of employment, in each case subject to repurchase by the Company pursuant to Sections 10(c) and 10(d) below.

(iii) Upon termination of employment of Subscriber by the Company or its Subsidiaries for Cause, all vested and unvested Class C Interests and all vested and unvested Class D Interests held by Subscriber will automatically be forfeited and canceled, and the Subscriber will retain all Class B Interests held by the Subscriber, subject to repurchase by the Company pursuant to Sections 10(c) and 10(d) below.

(c)     Upon the termination of the Subscriber’s employment (including upon death or Disability), the Company will have the option, exercisable by giving the Subscriber notice at any time on or prior to one (1) year after the date of the termination of the Subscriber’s employment, to purchase all or any portion of the Class B Interests, Class C Interests and Class D Interests held by the Subscriber, including, without limitation, those Class C and Class D Interests that vest as described in the second sentence of Section 10(b)(i) above. The purchase price for Class B Interests, Class C Interests and Class D Interests pursuant to this repurchase option shall be determined as follows:

(i) Upon exercise of a repurchase option in connection with a termination described in Section 10(b)(i) above, the purchase price (i) for Class B Interests shall be equal to the Preferred Return and remaining Unrecovered Contribution of Subscriber and (ii) for vested Class C Interests and vested Class D Interests shall be the fair market value of such Class C Interests and Class D Interests as determined by the Managing Member in its reasonable judgment.

(ii) Upon exercise of a repurchase option in connection with a termination described in Section 10(b)(ii) above, the purchase price (i)   for all Class B Interests shall be equal to the remaining Unrecovered Contribution of Subscriber and (ii) for vested Class C Interests and vested Class D Interests shall be the fair market value of such Class C Interests and Class D Interests as determined by the Managing Member in its reasonable judgment.

(iii) Upon exercise of a repurchase option in connection with a termination described in Section 10(b)(iii) above, the purchase price for all Class B Interests shall be equal to the remaining Unrecovered Contribution of Subscriber.

 

8


The purchase price for Acquired Interests to be purchased shall be computed as of the date that such Subscriber’s employment ends. The Company shall pay for the Acquired interests purchased pursuant to this Section 10(c) by wire transfer of immediately available funds to an account designated in writing by the Subscriber. The closing of the purchase of such Interests shall take place at the offices of the Managing Member of the Company and shall occur within ten (10) days of the determination of the purchase price for such Interests (which shall not, in any event, be more than thirteen (13) months after the termination of the Subscriber’s employment). The Subscriber shall execute and deliver such, documentation as is reasonably request by the Company to consummate the purchase of such Interests.

(d) In the event that Subscriber has entered into any agreement containing noncompetition and/or nonsolicitation provisions or become subject to any noncompetition and/or nonsolicitation provisions (whether contained in an agreement or a policy) or similar duties related to the Company of any of its Subsidiaries, and the Subscriber violates or breaches any of such agreements and/or provisions and/or duties, then, notwithstanding anything else contained in this Agreement or in any subscription or other agreement entered into by the Subscriber, (i) the Company shall have the option, exercisable by giving the Subscriber written notice at any time on or prior to one (1) year after the date that the Managing Member has actual, as opposed to constructive or deemed, knowledge of such violation or breach, to purchase all or any portion of the Subscriber’s Class B Interests for a purchase price equal to the remaining Unrecovered Contribution of the Subscriber, and (ii) all vested and unvested Class C Interests and all vested and unvested Class D Interests held by the Subscriber will be automatically forfeited and cancelled.

11. Acknowledgment Concerning Potential Dilution to Class C Percentage and Class D Percentage . The Subscriber specifically acknowledges that it has read Section 4.1 of the LLC Agreement and understands (a) the methodology by which Class C Interests and Class D Interests are being allocated to such Subscriber based upon such Subscriber’s investment, if any, in Class B Interests relative to the investment target on the signature page of this Agreement, (b) the difference in the Class C Percentage and Class D Percentage attributable to such Interests and in the rate at which the Class C Interests and Class D Interests share in distributions of Available Cash pursuant to Section 5.2(c) of the LLC Agreement, and (c) that the Class C Percentage and/or Class D Percentage attributable to the Class C Interests and/or Class D Interests of such subscriber are subject to dilution after the date hereof in the event that the Managing Member of the Company determines, in its sole discretion, to issue additional Class A Interests, Class C Interests, Class D Interests or other equity securities that dilute the Class C Percentage or Class D Percentage of such Subscriber.

12 . Notice s . All notices and other communications provided for in this Subscription Agreement shall be in writing and shall be deemed to have been duly given if delivered personally or sent by registered or certified mail, return receipt requested, postage prepaid, telecopier, overnight air courier guaranteeing next day delivery, or electronic mail:

(a) If to the Company, to it at the following address:

LSF5 Wagon Holdings, LLC

717 N. Harwood, Suite 2200

Dallas, Texas 75201

Attn: Managing Member

(b) if to the Subscriber, to the address set forth on the signature page hereto, or at such other address as either party shall have specified by notice in writing to the other.

All notices and communications shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; when receipt acknowledged, if mailed, telecopied, sent by electronic mail, or sent by overnight air courier.

 

9


If a notice or communication is mailed in the manner provided above within the time prescribed, it is duly given, whether or not the addressee receives it.

13. Notification of Changes. The Subscriber agrees and covenants to notify the Company immediately upon the occurrence of any event prior to the Closing that would cause any representation, warranty, covenant or other statement contained in this Subscription Agreement to be false or incorrect or of any change in any statement made herein occurring prior to the Closing.

14. Assignability. This Subscription Agreement is not assignable by the Subscriber, and may not be modified, waived or terminated except by an instrument in writing signed by the party against whom enforcement of such modifications, waiver or termination is sought.

15. Binding Effect. Except as otherwise provided in this Subscription Agreement, this Subscription Agreement shall be binding upon and inure to the benefit of the parties and their heirs, executors, administrators, successors, legal representatives and assigns, and the agreements, representations, warranties and acknowledgments contained in this Subscription Agreement shall be deemed to be made by and be binding upon such heirs, executors, administrators, successors, legal representatives and assigns. If the Subscriber is more than one person, the obligation of the Subscriber shall be joint and several and the agreements, representations, warranties and acknowledgments contained herein shall be deemed to be made by and be binding upon each such person and his heirs, executors, administrators and successors.

16. Obligations Irrevocable. The obligations of the Subscriber shall be irrevocable, except with the consent of the Company, until the Closing.

17. Entire Agreement . This Subscription Agreement and the LLC Agreement constitutes the entire agreement of the Subscriber and the Company relating to the matters contained herein and therein, superseding all prior contracts or agreements, whether oral or written.

18. Governing Law . This Subscription Agreement shall be governed and controlled as to the validity, enforcement, interpretations, construction and effect and in all other aspects by the substantive laws of the State of Delaware, without reference to conflicts of laws principles.

19. Severability. If any provision of this Subscription Agreement or the application thereof to any subscriber or circumstance shall be held invalid or unenforceable to any extent, the remainder of this Subscription Agreement and the application of such provision to other subscriptions or circumstances shall not be affected thereby and shall be enforced to the greatest extent permitted by law.

20. Headings. The headings in this Subscription Agreement are inserted for convenience and identification only and are not intended to describe, interpret, define, or limit the scope, extent or intent of this Subscription Agreement or any provision of this Subscription Agreement.

21. Counterparts. This Subscription Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which together shall be deemed to be one and the same agreement.

[Signature page follows]

 

10


IN WITNESS WHEREOF, the undersigned Subscriber has executed this Subscription Agreement to be effective as of the date first above written.

Summary of Investment and Acquired Interests (see also Exhibit A):

A. Class B Investment Target: $250,000

B. Actual Class B investment, initial Capital Contribution, and Total Purchase Price: $250,000

C. Percentage of Class B target level invested (B/A): 100.00%

Applicable Incentive Pool Percentage: 25.00%

D. Allocation of Applicable Incentive Pool Percentage between Class C and Class D Interests pursuant to Section 4.1.1 of the LLC Agreement (based on percentage of Class B investment level invested): 25.00% Class C and 0.00% Class D

E. Initial Class C Percentage attributable to Class C Interests purchased by Subscriber: 2.50%

F. Initial Class D Percentage attributable to Class D Interests purchased by Subscriber: 0.00%

 

Signature:   /s/    Jon Howie
  Jon Howie
Address:   26820 West 13 th
  Garden Plain, KS 67050

 

Fax Number: (316) 206-1818
Federal Tax ID No.: 

[Please also complete and return a Form W-9

with this Subscription Agreement]

 

11


AGREED TO AND ACCEPTED BY:

 

LSF5 Wagon Holdings, LLC

By:   /s/    Marc L. Lipshy
Name:   MARC L. LIPSHY
Title:   PRESIDENT

 

12


EXHIBIT A

SUMMARY OF ACQUIRED INTERESTS, CLASS C PERCENTAGES AND CLASS D PERCENTAGES

 

Applicable

Incentive

Pool % (at

100%

Vesting)

  

Applicable

Class B

Investment

Target

  

% of Class

B Target

Invested

  

Class B

Actual

Investment

  

Applicable

Incentive
Pool

% Attributable

to Class C

Interests

  

Applicable

Incentive
Pool

% Attributable

to Class D

Interests

  

Class C

Percentage

  

Class D

Percentage

  

Combined

Percentage

for Sharing

in Total

Equity in

Excess of

Preferred

Return

 

25.00%

   $250,000    100.00%    $250,000    25.00%    0.00%    2.50%    0.00%    2.50%

Exhibit 10.17

FINAL

 

 

EXECUTIVE EMPLOYMENT AGREEMENT

This Executive Employment Agreement (this “Agreement” ) is made as of the 7th day of February, 2011 (the “Effective Date” ) between Jon Howie ( “Executive” ), an individual, and Center Cut Hospitality, Inc., a Delaware corporation (the “Company” ). Capitalized terms used herein shall have the meanings given to them in Section 5 below.

In consideration of the mutual promises expressed herein, Executive and the Company have agreed as follows:

1. E MPLOYMENT .

(a) Effective Date and Term. This Agreement shall be effective as of the Effective Date and will continue indefinitely thereafter unless Executive’s employment terminates earlier in accordance with Section 3.

(b) Duties . Executive shall be employed as chief financial officer or such other comparable position to which Executive and the Company may agree. Executive agrees to devote Executive’s full time and best efforts to the performance of the duties attendant to Executive’s executive position with the Company. The duties of Executive’s position with the Company shall be in accordance with industry standards and shall be set forth in a job description. Unless otherwise agreed to by Executive, Executive shall report directly to the chief executive officer.

2. C OMPENSATION AND B ENEFITS .

(a) Annual Salary . Executive’s salary shall be $270,000 per year, less applicable taxes and withholdings, to be paid in accordance with the Company’s regular payroll practices for similarly situated executives; provided, however, Executive’s salary shall be reviewed annually in the first quarter and may be increased by the Company’s Board of Directors (the “Board” ) or its designee, in its sole discretion.

(b) Annual Incentive Bonus . Executive shall be entitled to participate in all bonus compensation plans that the Company may offer, in accordance with the terms of any such plans. The target for Executive’s annual bonus shall be at least fifty percent (50%) of Executive annual salary. Executive’s entitlement to an annual incentive bonus under this subparagraph 2(b), and the amount of such bonus shall be determined by the Company in its good faith discretion; provided, however, if the terms of a written annual incentive bonus plan do not include provisions regarding the time of payment for an annual incentive bonus, payment of any such bonus shall occur before March 15th of the calendar year following the calendar year to which the bonus relates.

 

E MPLOYMENT A GREEMENT

PAGE 1


FINAL

 

(c) Benefits .

 

  (i) Standard Employee Benefits . Executive shall be eligible for all employee benefits extended, from time to time, to all full-time employees of the Company, subject to the terms and conditions of the Company’s policies and employee benefit plans, as those policies and plans are amended or terminated. The Company shall pay 100% of the medical insurance premium for the medical insurance coverage elected by Executive under the Company’s ERISA medical plan.

 

  (ii) Executive Benefits . Executive shall also be entitled to participate in all benefit programs that are maintained by the Company and available to its executive officers generally (including, but not limited to, any and all deferred compensation plans and the Transaction Bonus Agreement). Executive acknowledges that Executive shall have no vested rights under or in respect to Executive’s participation in any such program except as expressly provided under the terms thereof.

 

  (iii) Business Expenses. Executive shall be authorized to incur reasonable expenses for promoting the business of the Company, including expenses for entertainment, travel, and similar items. The Company shall reimburse Executive for all such expenses upon the presentation by Executive, from time to time, of an itemized account of such expenditures.

 

  (iv) Vacations. Executive shall be entitled to the greater of (x) annual paid vacation commensurate with the Company’s established vacation policy for executive officers or (y) four (4) weeks of annual paid vacation that shall otherwise be subject to the Company’s established vacation policy for executive officers. The timing of paid vacations shall be scheduled in a reasonable manner by Executive.

 

  (v)

Use of Automobile. During the term of employment, the Company shall provide, at the option of Executive, the use of an automobile for business and personal use or an allowance not to exceed $1,000 per month. If the Company provides an automobile, the Company shall pay all reasonable expenses of operating, maintaining, and repairing such automobile and shall procure and maintain automobile liability insurance in respect thereof, with such coverage insuring Executive for bodily injury and property damage. Any reimbursement payment due to Executive pursuant to this Section 2(c)(v) shall be paid to Executive on or before the last day of Executive’s taxable year following the taxable year in which the related expense was incurred. Executive agrees to provide prompt notice to the Company of any such expenses (and any other documentation that the Company may reasonably require to substantiate such expenses) in order to facilitate the Company’s timely reimbursement of the same. The reimbursements pursuant to this Section 2(c)(v) are not subject to liquidation or exchange for another benefit and the amount of such

 

E MPLOYMENT A GREEMENT

PAGE 2


FINAL

 

reimbursements and benefits that Executive receives in one taxable year shall not affect the amount of such reimbursements or benefits that Executive receives in any other taxable year.

 

  (vi) Life Insurance. The Company shall purchase a term life insurance policy on the life of Executive, which shall be owned by Executive, in the amount of $1,000,000.

3. T ERMINATION AND S EVERANCE .

(a) Executive’s employment may be terminated in accordance with the following provisions:

 

  (i) Death. Executive’s employment shall terminate upon Executive’s death.

 

  (ii)

Disability. If Executive incurs a Disability, the Company may give the Executive written notice of its intention to terminate Executive’s employment; provided that such written notice may only be given after the expiration of the time period required under the definition of Disability below. In that event, Executive’s employment with the Company shall terminate effective on the later of (x) the fifteenth (15 th ) day after receipt of such notice by Executive or (y) the date specified in such notice, provided that within the fifteen (15) days after such receipt, Executive shall not have returned to full-time performance of Executive’s duties.

 

  (iii) Termination by the Company without Cause. The Company may terminate Executive’s employment without Cause (as defined below) at any time upon written notice to Executive.

 

  (iv) Termination by the Company for Cause . The Company may terminate Executive’s employment for Cause at any time upon written notice to Executive, and such written notice shall contain a statement noting the reason(s) for the Cause termination. To the extent required by Section 5(a), and if such failure(s) are curable, Executive shall be given an opportunity to cure the failure(s) noted in such written notice as the reason(s) for the Cause termination.

 

  (v) Termination by Executive for Good Reason. Executive may terminate Executive’s employment for Good Reason (as defined below) upon thirty (30) days’ written notice to the Company; provided, however, that the Date of Termination (as defined below) due to Good Reason shall not automatically occur on the date set forth in Executive’s written notice to the Company, but will instead be determined by the Company following the Company’s allowed “cure” period as described in Section 5(e) below.

 

  (vi)

Voluntary Termination by Executive Not Involving Good Reason . Executive may terminate Executive’s employment voluntarily for any reason other than a Good Reason upon sixty (60) days’ written notice to

 

E MPLOYMENT A GREEMENT

PAGE 3


FINAL

 

the Company (such 60-day period is herein referred to as the “Notice Period” ). During the Notice Period, Executive shall continue to be employed by the Company subject to Section 1(b); provided, however, that (x) the Company shall have the right to shorten or eliminate the Notice Period in its good faith discretion and (y) if the Company shortens or eliminates the Notice Period, such action by the Company shall constitute neither (1) a termination of Executive’s employment by Executive pursuant to Section 3(a)(v) nor (2) a termination of Executive’s employment by the Company pursuant to Section 3(a)(ii), Section 3(a)(iii), or Section 3(a)(iv). In the event that the Company shortens or eliminates the Notice Period, the Company shall pay Executive’s salary for the entire Notice Period and shall also pay Executive the same bonuses and incentive payments that Executive would have been paid if Executive had remained employed through the end of the Notice Period.

(b) Severance Benefits.

 

  (i) Termination without Cause; Termination for Good Reason. If Executive’s employment terminates pursuant Section 3(a)(iii) or Section 3(a)(v), the Company agrees to provide Executive, as severance benefits, the following:

 

  (A) Payment of Executive’s base monthly salary in effect at the time of Executive’s Date of Termination during the Severance Period (defined below); and

 

  (B) Payment of Executive’s medical premiums during the Severance Period for the medical coverage that Executive had elected to receive under the Company’s ERISA medical plan and that was in effect as of the Date of Termination, but only to the extent that Executive receives COBRA coverage during the Severance Period.

“Severance Period” means the twelve (12) consecutive months immediately following the Date of Termination; provided, however, if Executive’s employment is terminated pursuant to Section 3(a)(iii) or Section 3(a)(v) at any time within the one-hundred eighty (180) day period following a Change of Control, then “Severance Period” means the eighteen (18) consecutive months immediately following the Date of Termination. Unless delayed pursuant to Section 3(c), monthly severance payments pursuant to Section 3(b)(i)(A) will be paid to Executive in equal installments, beginning on the first pay date occurring after the 75 th day following the Date of Termination. All of the severance benefits pursuant to this Subsection (b)(i) are conditioned upon the Executive entering into a separation agreement and general release of all claims in favor of the Company and its affiliates (the “Release” ), within the prescribed time period set forth therein, and Executive’s non-revocation of the Release during the revocation period prescribed therein. The Company shall

 

E MPLOYMENT A GREEMENT

PAGE 4


FINAL

 

provide Executive with the Release within fourteen (14) business days after the Date of Termination. Time is of the essence so that the prescribed time periods therein expire within the seventy-five (75) day period following the Date of Termination.

 

  (ii) Termination due to Disability. If Executive’s employment with the Company terminates due to Disability, the Company shall pay Executive an amount equal to fifty percent (50%) of Executive’s annual salary (in addition to any disability insurance benefits received pursuant to the Company’s employee benefit plans The amount paid pursuant to this Subsection (b)(ii) shall be paid semi-monthly in twelve (12) equal installments.

 

  (iii) Termination for any other Reason . If Executive’s employment terminates pursuant to any provision of this Agreement other than pursuant to Section 3(a)(ii), Section 3(a)(iii), Section 3(a)(v), or Section 3(a)(vi) of this Agreement, the Company has no obligation to pay Executive any severance or other termination benefits.

(c) Timing; Form of Payments. All benefits provided to Executive pursuant to Section 3(b)(i) and (ii) (the “Severance Benefits” ) will be made in accordance with the regular payroll practices of the Company and will be subject to applicable federal and state income tax and employment tax withholdings and deductions and any other applicable withholdings and deductions. Notwithstanding anything else herein, to the extent any of the Severance Benefits are treated as nonqualified deferred compensation subject to Section 409A of the Internal Revenue Code of 1986, as amended (the “Code” ), then (i) no such payment shall be made to Executive unless Executive’s termination of employment constitutes a “separation from service” with the Company (as such term is defined in Treasury Regulation Section 1.409A-1(h) and any successor provision thereto), and (ii) if Executive is determined by the Company to be a “specified employee” for purposes of Code § 409A(a)(2)(B)(i) and the Company determines that delayed commencement of any portion of the Severance Benefits is required in order to avoid a prohibited distribution under Code § 409A(a)(2)(B)(i), commencement of such portion of the Severance Benefits will be delayed for six (6) months following Executive’s “separation from service” pursuant to Code § 409A. Delayed Severance Benefits (if any) shall be payable in a lump sum on the first business day following the expiration of such six (6) month period, and any remaining Severance Benefits due shall be paid as otherwise provided in Section 3(b). Notwithstanding the foregoing, to the maximum extent permitted by applicable law, payment of the Severance Benefits shall be made in reliance upon Treasury Regulation § 1.409A-1(b)(9) (with respect to separation pay plans) or Treasury Regulation § 1.409A-1(b)(4). The Severance Benefits shall be treated as a right to a series of separate payments. The provisions of this Agreement are intended to comply with the applicable requirements of Code § 409A and shall be limited, construed, and interpreted in accordance with such intent.

(d) Consequences of Violation of Promises. Executive acknowledges and agrees that the Company’s obligation to provide and Executive’s entitlement to receive the Severance Benefits shall cease immediately upon any violation by Executive of Executive’s obligations under Section 4 of this Agreement. Executive further agrees to repay the Company, on a pro

 

E MPLOYMENT A GREEMENT

PAGE 5


FINAL

 

rata basis, any Severance Benefits received during the period of time in which Executive was in violation of Executive’s obligations under Section 4 of this Agreement, as determined by the Company in its good faith discretion. In the event the Company determines Executive has a repayment obligation pursuant to this Section 3(d), the Company will send notice to Executive identifying the reason(s) Executive’s repayment obligation has been triggered.

(e) Later Determined Cause . Notwithstanding any other provision of this Agreement, if Executive’s employment with the Company is terminated such that Executive is entitled to severance from the Company and the Company determines within no later than one-hundred eighty (180) days after the Date of Termination that Cause existed on, prior to, or after the Date of Termination, then Executive shall not be entitled to any Severance Benefits from the Company, and any and all Severance Benefits and reimbursements from the Company to Executive shall cease.

4. E XECUTIVE S COVENANTS

(a) Confidential Information and Trade Secrets. Executive acknowledges that the Company has trade, business, and financial secrets and other confidential and proprietary information regarding the Company and its business, in whatever form, tangible or intangible (collectively, the “Confidential Information” ), and that, during the term of this Agreement, Executive will receive Confidential Information. Executive acknowledges that the Confidential Information that Executive will receive during the term of this Agreement will be in addition to that which Executive has already received during Executive’s employment with the Company. Executive further acknowledges and agrees that Executive’s use of Confidential Information in the conduct of business on behalf of a competitor of the Company would constitute unfair competition with the Company and would adversely affect the business goodwill of the Company. Confidential Information includes, but is not limited to, sales materials, technical information, processes, compilations of information, records, specifications, information concerning customers and prospective customers, customer and prospective customer lists, and information regarding methods of doing business. As defined herein, Confidential Information shall not include information that is: (i) obtained by Executive from a source other than the Company or its affiliates, which source is not under a duty of non-disclosure in regard to such information; or (ii) becomes generally available to the public other than through disclosure by Executive in violation of the provisions of this Agreement. For purposes of clarity, the parties understand and agree that Confidential Information also does not include general know-how and/or general processes, systems, and procedures (such as general sales processes and best practices) that Executive has gained or gains by virtue of his experience working for the Company and/or within the “white-tablecloth restaurant” and/or “fine dining establishment” industries.

Executive is aware of those policies implemented by the Company to keep its Confidential Information secret, including those policies limiting the disclosure of information on a need-to-know basis and requiring the keeping of information in secure areas. Executive acknowledges that the Confidential Information has been developed or acquired by the Company through the expenditure of substantial time, effort, and money and provides the Company with an advantage over competitors who do not know or use such Confidential Information.

 

E MPLOYMENT A GREEMENT

PAGE 6


FINAL

 

During and following Executive’s employment by the Company, Executive shall hold in confidence and not directly or indirectly disclose, use (for Executive’s commercial advantage or otherwise), copy, make lists of, or make available to others any Confidential Information except in Executive’s good faith performance of Executive’s duties to the Company as an executive of the Company or to the extent authorized in writing by the Board or required by law or compelled by legal process. Executive agrees to use reasonable efforts to give the Company notice of any and all attempts to compel disclosure of any Confidential Information, in such a manner so as to provide the Company with written notice at least five (5) days before disclosure or within three (3) business days after Executive is informed that such disclosure is being or shall be compelled, whichever is earlier. Such written notice shall include a description of the information to be disclosed, the court, government agency, or other forum through which the disclosure is sought, and the date by which the information is to be disclosed, and shall contain a copy of the subpoena, order, or other process used to compel disclosure.

Executive further agrees not to use any Confidential Information for the benefit of any person or entity other than the Company, its subsidiaries and affiliates, and any Protected Company.

Executive agrees that all Confidential Information and other files, documents, materials, records, notebooks, customer lists, business proposals, contracts, agreements, and other repositories containing information concerning the Company or the business of the Company, in whatever form, tangible or intangible (including all copies thereof), that Executive shall prepare, use, or be provided with as a result of Executive’s employment with the Company, shall be and remain the sole property of the Company. Upon termination of Executive’s employment hereunder, Executive agrees that all Confidential Information and other files, documents, materials, records, notebooks, customer lists, business proposals, contracts, agreements, and other repositories containing information concerning the Company or the business of the Company (including all copies thereof) in Executive’s possession, custody, or control, whether prepared by Executive or others, shall remain with or be returned to the Company promptly (within 48 hours) after the Date of Termination.

Notwithstanding anything herein to the contrary, Executive may disclose to Executive’s spouse and any personal tax or financial advisor the United States Federal income tax treatment and tax structure of the transactions contemplated in this Agreement and all materials of any kind (including opinions and other tax analyses) that are provided to Executive relating to such tax treatment and tax structure. For this purpose, “tax structure” is limited to facts relevant to the United States Federal income tax treatment of the transactions contemplated in this Agreement and does not include information relating to the identity of the parties hereto.

(b) Non-Competition . Executive acknowledges and agrees that the nature of the Confidential Information that the Company commits to provide to Executive during Executive’s employment by the Company would make it unlikely that Executive would be able to perform in a similar capacity for a Competing Business (as defined below) without disclosing or utilizing the Confidential Information. Executive further acknowledges and agrees that the Company’s business is conducted in a highly competitive market. Accordingly, Executive agrees that during the Non-Competition Period (as defined below), Executive will not (other than for the benefit of the Company, its subsidiaries and affiliates, and any Protected Company pursuant to this

 

E MPLOYMENT A GREEMENT

PAGE 7


FINAL

 

Agreement) directly or indirectly, individually or as an officer, director, employee, shareholder, consultant, contractor, partner, joint venturer, agent, equity owner, or in any capacity whatsoever, (i) regardless of the reason for termination, work for, engage in, or operate any restaurant business or restaurant operating or management company that (x) features the sale of steak where the sale of steak exceeds thirty percent (30%) of the restaurant’s revenues from food sales and (y) which is, or owns or operates restaurants, located within thirty (30) miles of any Del Frisco’s Double Eagle Steak House restaurant, any Del Frisco’s Grill restaurant, or any Sullivan’s Steakhouse restaurant (a “Competing Business” ), or (ii) (x) hire, attempt to hire, contact with respect to hiring, or solicit with respect to hiring any employee of any Protected Company; (y) solicit, divert, or take away any customers or customer leads of any Protected Company with whom Executive had, whether directly or indirectly, contact or business relations during the period of time that Executive was employed by the Company or its predecessors-in-interest or its affiliates (herein, the “Employment Period” ) or about whom Executive possesses Confidential Information; or (z) solicit, encourage, or influence any suppliers or vendors of any Protected Company to cease doing business with any Protected Company or change the terms and conditions upon which they conduct their business with any Protected Company where Executive had, whether directly or indirectly, contact during the Employment Period or business relations during the Employment Period with such vendors or suppliers, or about whom Executive possesses Confidential Information.

For purposes of this Section, “Non-Competition Term” means the Employment Period and, (a) if Severance Benefits are not owed under Section 3(b)(i), a period of eighteen (18) consecutive months immediately following the Date of Termination and, (b) if Severance Benefits are owed under Section 3(b)(i), the 12-month or 18-month period that is the Executive’s Severance Period.

If any court determines that any portion of this Section 4(b) is invalid or unenforceable, the remainder of this Section 4(b) shall not thereby be affected and shall be given full effect without regard to the invalid provisions. If any court construes any of the provisions of this Section 4(b), or any part thereof, to be unreasonable because of the duration or scope of such provision, such court shall have the power to reduce the duration or scope of such provision and to enforce such provision as so reduced.

(c) Irreparable Harm . Executive acknowledges that Executive’s violation of the provisions of Section 4(a) or Section 4(b) of this Agreement will cause irreparable harm to the Company, and Executive agrees that the Company shall be entitled as a matter of right to an injunction restraining any violation or further violation of such provisions by Executive or others acting on Executive’s behalf, without any showing of irreparable harm and without any showing that the Company does not have an adequate remedy at law. Executive further covenants and warrants that Executive will not dispute in any proceeding that any given violation or further violation of the covenants contained in Section 4(a) or Section 4(b): (i) will result in irreparable harm to the Company; or (ii) could not be remedied adequately at law. The Company’s right to injunctive relief shall be cumulative and in addition to any other remedies provided by law or equity.

 

E MPLOYMENT A GREEMENT

PAGE 8


FINAL

 

(d) Reasonableness of Restrictions . Executive understands and acknowledges that the Company has made substantial investments to develop its Confidential Information, goodwill, and other legitimate business interests. Executive agrees that such investments are worthy of protection, and that the Company’s need for the protection afforded by Section 4(b) is greater than any hardship Executive might experience by complying with its terms. Executive agrees that the limitations as to time, geographic area, and scope of activity to be restrained contained in this Agreement are reasonable and are not greater than necessary to protect the Confidential Information, goodwill, and other legitimate interests of the Company. Executive specifically agrees that, given the senior executive nature of Executive’s position and national operations of the Company, any restriction other than on the basis specified in Section 4(b) would be inadequate to protect the company’s Confidential Information. Executive further agrees that the restrictions contained in Section 4(b) allow Executive an adequate number and variety of employment alternatives, based on Executive’s varied skills and abilities. Accordingly, Executive covenants and warrants that Executive will not dispute in any proceeding that: (i) the restraints contained in Section 4(b) are reasonable and not greater than necessary to protect proprietary information and/or the goodwill or other business interests of the Company; or (ii) the scope of the restraints contained in Section 4(b) should be reformed so as to make them enforceable, if it is judicially determined that they are unenforceable as drafted.

5. Definitions.

(a) Cause. “Cause” shall mean any or all of the following:

 

  (i) Failure by Executive to substantially perform material duties hereunder or to devote Executive’s full time and effort to Executive’s position with the Company, other than any failure resulting from death, illness or injury, or Disability, which, to the extent such failure is curable, Executive does not cure within a period of thirty (30) days after written notice of such failure is provided to Executive by the Company;

 

  (ii) Failure by Executive to comply materially with the policies of the Company, which, to the extent such failure is curable, Executive does not cure within a period of thirty (30) days after written notice of such failure is provided to Executive by the Company;

 

  (iii) Commission by Executive of any material illegal act or any act that is not in the ordinary course of Executive’s responsibilities that exposes the Company to a significant level of undue liability; provided, however, a violation due to use by the Company of the Executive’s liquor license shall not constitute Cause;

 

  (iv) Executive’s conviction of or plea of guilty or nolo contendere to any felony; or

 

  (v) Any breach of Executive’s obligations under Section 4 of this Agreement.

(b) Change of Control. “Change of Control” shall mean either (i) the closing of a Qualified Public Offering (as defined in the Transaction Bonus Agreement) or (ii) the closing of a Sale (as defined in the Transaction Bonus Agreement).

 

E MPLOYMENT A GREEMENT

PAGE 9


FINAL

 

(c) Date of Termination. “Date of Termination” shall mean the date on which the Executive’s termination of employment with the Company occurs; provided, however, to the extent that Executive is receiving compensation due to such termination of employment and such compensation is subject to Code § 409A, “Date of Termination” shall mean the date of Executive’s “separation from service” (within the meaning of Treasury Regulation § 1.409A-1(h)).

(d) Disability . “Disability” shall mean shall mean Executive’s inability to perform, with or without reasonable accommodation, the essential functions of Executive’s position hereunder for a total of three (3) months during any six (6) month period as a result of incapacity due to mental or physical illness as determined by a physician selected by the Company or its insurers and acceptable to Executive or Executive’s legal representative, such agreement as to acceptability not to be unreasonably withheld or delayed.

(e) Good Reason. “Good Reason” shall mean that any of the following events occurs without Executive’s consent:

 

  (i) The Company requires Executive to be based from a location that is outside of a fifty (50) mile radius of the Company office where the Executive is based as of the Effective Date;

 

  (ii) The Company materially decreases Executive’s annual salary (other than a general reduction in base salary that affects all salaried employees of the Company proportionately, which reduction shall not be more than ten percent (10%) of Executive’s annual salary

 

  (iii) A material breach by the Company of this Agreement; or

 

  (iv) A material diminution caused by the Company in the title and/or duties, responsibilities, or authority of Executive.

Provided, however, for all of the events described in clauses (i), (ii), (iii), and (iv) immediately above, Good Reason will not exist (x) unless Executive has provided the Company with written notice of the circumstances that Executive believes constitute Good Reason within thirty (30) days after Executive knows, or through reasonable diligence, should know of such events and circumstances and (y) the Company has failed to cure within thirty (30) days of such notice. Failure to present the circumstances that Executive believes constitutes Good Reason within thirty (30) days of the Employee’s first knowledge of such circumstances waives any right by Executive to assert that Executive has Good Reason for termination and constitutes acceptance by Executive as new terms of Executive’s employment. Resignation by the Executive following the Company’s cure of identified circumstances or before the expiration of the 30-day “cure” period referred to above shall constitute a voluntary termination under Section 3(a)(vi). In the event the Company does not cure the identified circumstances on or before the expiration of the 30-day “cure” period referred to above, then Executive must terminate employment for Good Reason within fifteen (15) days of the end of such cure period, or any later termination of employment by Executive will not constitute Good Reason based upon the same previously identified circumstances. Notwithstanding anything else herein, the Company and Executive may agree, in writing, to extend the 15-day period during which the Executive must terminate employment for Good Reason.

 

E MPLOYMENT A GREEMENT

PAGE 10


FINAL

 

(f) Protected Company. “Protected Company” shall mean, individually, each of Del Frisco’s Restaurant Group, LLC (together with its successors and assigns, “DFRG” ) and all subsidiaries of DFRG (together with each successor and assign of such subsidiaries).

(g) Transaction Bonus Agreement . “Transaction Bonus Agreement” shall mean that certain letter agreement between Executive and LSF5 Wagon Holdings, LLC dated February 7, 2011, which provides Executive with the opportunity to earn additional compensation in connection with the sale or public offering of Del Frisco’s Restaurant Group, LLC and its subsidiaries, successors, and assigns.

6. Arbitration; Waiver of Right to Jury Trial.

(a) In the event any claim, demand, cause of action, dispute, controversy, or other matter in question (in this Section 6, a “Claim” ) arises out of this Agreement (or its termination) or the Transaction Bonus Agreement, whether arising in contract, tort, or otherwise and whether provided by statute, equity, or common law, that the Company may have against Executive or that Executive may have against the Company, or any of the Company’s subsidiaries or affiliates, or any of the foregoing entities’ respective officers, directors, employees, or agents in their capacity as such or otherwise, all such Claims shall be submitted to binding arbitration. Any arbitration shall be conducted in accordance with the Federal Arbitration Act ( “FAA” ) and, to the extent an issue is not addressed by the FAA or the FAA does not apply, with the then-current National Rules for the Resolution of Employment Disputes of the American Arbitration Association ( “AAA” ). The arbitrator shall apply the substantive law of Texas (excluding Texas choice-of-law principles that might call for the application of some other state’s law) or federal law, or both as applicable to the Claims asserted. The arbitrator shall have exclusive authority to resolve any dispute relating to the interpretation, applicability, or enforceability of this Section 6(a), including any Claim that all or part of this Agreement is void or voidable and any Claim that an issue is not subject to arbitration. The results of arbitration will be binding and conclusive on the parties hereto and judgment upon the award resulting from arbitration may be entered in any court of competent jurisdiction. Venue for arbitration, and for any disputes relating to the enforceability of this Section 6(a) will be in Dallas County, Texas. All proceedings conducted pursuant to this Section 6(a), including any order decision or award of the arbitrator, shall be kept confidential by all parties. Where permitted by law, the Company and Executive shall equally share the costs and expenses of the arbitration that are actually incurred by the parties, excluding attorney’s fees and expenses and expert witness fees, which shall remain the sole responsibility of each party, respectively.

(b) Notwithstanding any of the foregoing or any other provision of this Agreement, Executive and the Company may petition a court for an injunction to maintain the status quo pending resolution of any Claim under Section 6(a), and Section 6(a) shall not require the arbitration of an application for emergency or temporary injunctive relief by either party pending arbitration; provided, however, that the remainder of any such dispute beyond the application for emergency or temporary injunctive relief shall be subject to arbitration under Section 6(a).

 

E MPLOYMENT A GREEMENT

PAGE 11


FINAL

 

(c) Executive and the Company agree that, in the event that the arbitration provision set forth in Section 6(a) is unenforceable, that all Claims shall be decided by trial before the court and not by a jury trial. The venue for any such trial shall be Dallas County, Texas.

(d) Executive acknowledges that by signing this Agreement, Executive is waiving any right that Executive may have to a jury trial in connection with, or relating to, a Claim .

7. M ISCELLANEOUS .

(a) Entire Agreement. This Agreement embodies the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior agreements and understandings, if any, between the parties regarding the subject matter hereof.

(b) Modification, Severability, and Waiver. Both parties agree that neither has the authority to modify or amend this Agreement unless the modification or amendment is in writing and signed by both of them. If any provision of this Agreement is declared or found to be illegal, unenforceable, or void, the remainder of this Agreement shall remain valid and enforceable to the extent feasible. Any waiver of any term of this Agreement by the Company shall not operate as a waiver of any other term of this Agreement, nor shall any failure to enforce any provision of this Agreement operate as a waiver of the right of the Company to enforce any other provision of this Agreement.

(c) Notice to the Company. Notice to the Company shall have occurred and be effective when a written notice is delivered via certified mail to the then-current address of the Company’s principal office and to the attention of the Chief Executive Officer of the Company.

(d) Withholding. The Company may withhold from any amounts payable under this Agreement such Federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation.

(e) Survival and Construction. Executive’s obligations under this Agreement will be binding upon Executive’s heirs, executors, assigns, and administrators and will inure to the benefit of the Company, its subsidiaries, successors, and assigns. The Company’s obligations under this Agreement will be binding upon the Company’s successors assigns and will inure to the benefit of the Executive and Executive’s heirs, executors, and administrators. The language of this Agreement shall in all cases be construed as a whole according to its fair meaning, and not strictly for or against any of the parties. The paragraph headings used in this Agreement are intended solely for convenience of reference and shall not in any manner amplify, limit, modify, or otherwise be used in the interpretation of any of the provisions hereof. Executive may not assign, pledge, grant a security interest in, hypothecate, or otherwise transfer any of its rights, duties, or obligations hereunder.

(f) Prior Agreements. This Agreement supplants in its entirety (i) that certain Employment Agreement dated as of May 19, 2003, by and between Executive and Lone Star Steakhouse & Saloon, Inc., predecessor in interest to the Company, and (ii) that certain Severance Agreement dated as of April 30, 2007, by and between Executive and LSF5 Wagon Investments, LLC ( “Wagon” ), the present indirect owner of all of the equity interests of the Company (collectively, the “Prior Agreements” ), and Executive hereby releases Wagon, the Company, each other Protected Company, and their equity owners from any and all claims arising from or related to the Prior Agreements and/or the termination of the Prior Agreements. Each of the Prior Agreements is terminated.

 

E MPLOYMENT A GREEMENT

PAGE 12


FINAL

 

(g) No Mitigation. Executive shall not be required to mitigate damages or the amount of any payment provided for under this Agreement by seeking other employment or otherwise, nor shall the amount of any payment provided for under this Agreement be reduced by any compensation earned by Executive as the result of employment by another employer after Executive’s Date of Termination.

(h) Other Contractual Rights. Except as otherwise provided in Subsection (f), the provisions of this Agreement, and any payment provided for hereunder, shall not reduce any amount otherwise payable, or in any way diminish Executive’s existing rights, or right which would accrue solely as a result of passage of time under any employee benefit plan or other contract, plan, or arrangement of which Executive is a beneficiary or in which Executive participates.

(i) Indemnification. The Company covenants and agrees to indemnify, defend and hold Executive harmless from any and all losses, claims, costs, liabilities, penalties, fines, damages, and expenses (including legal fees) suffered or incurred by Executive, either directly or indirectly, as a result of any asserted or alleged claim made against Executive by a third party in connection with Executive’s employment with Company, excepting only such claims arising solely out of Executive’s willful misconduct.

[signature page follows]

 

E MPLOYMENT A GREEMENT

PAGE 13


FINAL

 

I N W ITNESS W HEREOF , Executive and the Company have executed this Agreement as of the Effective Date.

 

C ENTER C UT H OSPITALITY , I NC .     E XECUTIVE :
By:   /s/ Marc L. Lipshy     /s/ Jon W. Howie
Printed Name: Marc L. Lipshy     Printed Name: Jon W. Howie
Title: President    

 

E MPLOYMENT A GREEMENT

PAGE 14

Exhibit 10.18

LSF5 WAGON HOLDINGS, LLC

2711 N. Haskell Avenue, Suite 1700

Dallas, Texas 75204

February 7, 2011

Mr. Jon Howie

1413 Cherry Blossom Ln.

Keller, Texas 76248

Dear Jon:

As a highly valued senior executive of Center Cut Hospitality, Inc., a Delaware corporation (together with its successors and assigns, “ CCH ”), you (also referred to herein as “ Employee ”) are being given the opportunity to earn bonus compensation tied to a successful Sale (as defined below) or Qualified Public Offering (as defined below). This letter agreement (this “ Letter ”) sets forth the terms of this opportunity, which have been designed so that you will not be required to make any future financial investment in Wagon, DFRG, CCH, or the Company (including any Public Company) (collectively, the “ Company Group ”) or incur an immediate tax obligation in connection with the award of this opportunity. This opportunity is designed to align your interests with the interests of the Company’s investors, and, except as specifically provided below in this Letter, is provided in addition to, and not in lieu of, any existing equity, bonus, or other compensation plan arrangement you currently have or in which you currently participate with the Company. Definitions of certain capitalized terms used herein are set forth at the end of this Letter.

Subject to the terms and conditions set forth below, following consummation of a Sale, a Qualified Public Offering or a Secondary Public Offering (each as defined below and each, a “ Transaction ”), and provided that, in each case, the Employee is actively employed with CCH on the date such Transaction is consummated (the “ Transaction Date ”), then the Employee shall be eligible to earn a bonus (a “ Transaction Bonus ”) in an amount determined as set forth below and based on the Employee’s Transaction Bonus Amount with respect to such Transaction, as calculated in accordance with the methodology set forth on Schedule A hereto (the amount so calculated in accordance with Schedule A with respect to any Transaction, the “ Employee’s Transaction Bonus Amount ”).

For purposes hereof, if Employee’s employment with CCH is terminated within the 180-day period ending with any Transaction Date (i) solely due to Employee’s Disability, (ii) by CCH without Cause, or (iii) by Employee for Good Reason, Employee shall be considered actively employed with CCH on such Transaction Date.

A. In the event of a Transaction that is a Sale, one-hundred per cent (100%) of the Employee’s Transaction Bonus Amount shall be payable to the Employee no later than seventy-five (75) days after the applicable Transaction Date, subject to the following:

 

  (a) The Employee must comply with all requirements as to the execution and delivery of the Release (defined below) and award termination instruments provided for below;


Mr. Jon Howie

Page 2

 

 

  (b)

If the seventy-fifth (75 th ) day following the Transaction Date is in a different calendar year than the first (1 st ) day following the Transaction Date, such payment shall be made in the calendar year in which the 75 th day falls (but no later than such 75 th day); and

 

  (c) The Transaction Bonus shall not be paid if the Employee’s employment with CCH (which term shall include, for purposes of this subparagraph, any successor or acquirer of the Company’s business) is terminated by CCH for Cause or by the Employee without Good Reason prior to payment of the Transaction Bonus.

Any portion of a Transaction Bonus otherwise payable pursuant to this Paragraph A that is attributable to consideration which is deferred or contingent shall not be paid until the applicable seller(s) receive such deferred or contingent portion of the consideration and to the extent that a portion of the consideration paid to the applicable seller(s) is in a form other than cash, Wagon shall have the right to pay a corresponding portion of the Transaction Bonus to the Employee in the same form of consideration.

B. In the event of a Transaction that is a Qualified Public Offering, an amount equal to the product of the Applicable Qualified Offering Percentage (as defined below) multiplied by the Employee’s Transaction Bonus Amount with respect to such Qualified Public Offering shall be payable to the Employee in cash no later than seventy-five (75) days after the applicable Transaction Date; provided, however, if the seventy-fifth (75 th ) day following the Transaction Date is in a different calendar year than the first (1 st ) day following the Transaction Date, such payment shall be made in the calendar year in which the 75 th day falls (but no later than such 75 th day). In addition, if (x) the Employee is entitled to a Transaction Bonus with respect to such Qualified Public Offering and (y) Wagon’s direct or indirect ownership percentage in the common equity of the Public Company is not reduced to zero as a result of such Qualified Public Offering, then following each subsequent Secondary Public Offering (until Wagon’s direct or indirect ownership percentage in the common equity of the Public Company is reduced to zero), and provided that (i) except as specifically provided herein, the Employee is actively employed with CCH (which term shall include, for all purposes of this Paragraph B, any successor or acquirer of the Company’s business) on the date such Secondary Public Offering is consummated (also a “ Transaction Date ”), (ii) the Employee has not breached or violated any provision of the Employment Agreement or any other obligation to the Company, (iii) the Employee complies with all requirements as to the execution and delivery of the Release and award termination instruments provided for below, and (iv) the Employee was entitled to a Transaction Bonus with respect to all previous Secondary Public Offerings (if any), then the Employee shall be entitled to receive an additional bonus (also a “ Transaction Bonus ”) in an amount equal to the product of the Employee’s Transaction Bonus Amount with respect to such Secondary Public Offering, multiplied by the Applicable Secondary Offering Percentage (as defined below) with respect to such Secondary Public Offering. Any Transaction Bonus payable with respect to a Secondary Public Offering shall be paid in cash no later than seventy-five (75) days after the Transaction Date for such Secondary Public Offering; provided, however, if the seventy-fifth (75th) day following such Transaction Date is in a different calendar year than the first (1st) day following such Transaction Date, such payment shall be made in the calendar year in which the 75th day falls (but no later than such 75th day).

Notwithstanding anything to the contrary contained in this Letter, if (i) Employee is eligible hereunder for a Transaction Bonus in connection with a Qualified Public Offering, (ii) Employee remains actively employed with CCH at all times through the date that is 21 months after the Transaction Date of such Qualified Public Offering, and (iii) Employee has not breached or violated any provision of the


Mr. Jon Howie

Page 3

 

Employment Agreement or any other obligation to the Company during such 21-month period, then Employee shall not forfeit his or her eligibility to receive a Transaction Bonus with respect to any Secondary Public Offering that is consummated after such 21-month period solely because Employee is not actively employed with CCH on the Transaction Date of such Secondary Public Offering; provided, however, that this sentence shall not be applicable, and no Transaction Bonus shall be payable, from and after the date (if ever) that Employee is terminated for Cause or voluntarily resigns under circumstances where Cause exists.

Notwithstanding anything to the contrary contained in this Letter, if at any time the percentage of the aggregate common equity of the Public Company held directly or indirectly by Wagon is greater than zero but not greater than 50% (determined on an as converted, fully diluted basis), Wagon shall have the right, but not the obligation, by written notice to Employee, to pay to Employee a bonus equal to the product of (i) the percentage of the aggregate common equity of the Public Company held directly or indirectly by Wagon at the time of such notice (determined on an as converted, fully diluted basis) multiplied by (ii) the amount that would be the Employee’s Transaction Bonus Amount (calculated in accordance with Schedule A hereto) if at the time of such notice the Public Company consummated a Secondary Public Offering at a per share issuance price equal to 105% of the Fair Market Value (as defined below) of one share of the Public Company’s common equity securities as of such date. Any such bonus shall be payable, at Wagon’s election, in any combination of cash and/or the Public Company’s common stock (“ Stock ”) (valued as of the date of grant and with registration rights as set forth above) no later than 75 days after the date of such notice. Following the exercise of this right, no additional Transaction Bonus will be payable under this Letter with respect to any subsequent Transaction.

C. Notwithstanding anything to the contrary contained in this Letter:

 

  (a) Any portion of a Transaction Bonus otherwise payable that is attributable to that part of Aggregate Value which is deferred or contingent shall not be paid until the Company Group and/or the equity owners of any member(s) of the Company Group receive such deferred or contingent portion of Aggregate Value and to the extent that a portion of Aggregate Value is paid to the Company or its equity owners in non-marketable securities, Wagon shall have the right to pay, or to cause the payment of, a corresponding portion of the Transaction Bonus to the Employee in the same form of consideration, unless otherwise agreed to by the parties;

 

  (b) Except as specifically set forth above with respect to Disability, if Employee’s employment with CCH terminates upon the Employee’s death or Disability, then, thereafter, Employee (or his or her heirs and estate) shall not become entitled to any further payments hereunder (but Employee (and Employee’s heirs and estate) shall remain entitled to any payments hereunder to which Employee is otherwise entitled as of the date of such termination);

 

  (c) The Employee shall not be eligible to earn or receive, and shall have no right, entitlement or earned or vested interest in or to any Transaction Bonus (i) until the consummation of a Sale or Qualified Public Offering or Secondary Public Offering or (ii) except as specifically set forth above, based on any Transaction that is consummated after the termination of the Employee’s employment with CCH for any reason; and


Mr. Jon Howie

Page 4

 

 

  (d) The Employee shall not be eligible to earn or receive a Transaction Bonus, and the Employee shall forfeit all rights in and to any Transaction Bonus, if Employee’s employment with CCH shall terminate for any reason prior to a Transaction (except as specifically set forth above).

 

  (e) Payment of the Transaction Bonus to which the Employee is otherwise entitled shall be contingent upon, and shall be earned and payable to the Employee if, and only if: (i) a Transaction is consummated; and (ii) no later than sixty (60) days after the Transaction Date the Employee executes and delivers to Wagon a separation and release agreement (or, in the event the Employee’s employment with CCH does not terminate upon consummation of the Transaction, a release agreement) in favor of each member of the Company Group, their respective direct and indirect equity owners (including Wagon, DFRG and their direct and indirect equity owners), and their respective affiliates in form and substance reasonably satisfactory to Wagon (the “ Release ”), provided that the Release shall not release any obligations to make any payments to, or to cause payments to be made to, the Employee required under this Letter, and such Release remains in effect following the expiration of any applicable notice, review and/or revocation periods. Wagon shall be required to deliver to the Employee its required form of Release within fourteen (14) days after the Transaction Date.

D. For the avoidance of doubt, the Employee’s rights, if any, with respect to a Transaction Bonus in the event of a Qualified Public Offering shall apply only with respect to the first Qualified Public Offering consummated after the date of this Letter and, but only to the extent specifically provided for herein, each subsequent Secondary Public Offering, and no Transaction Bonus shall be paid or payable with respect to any subsequent Sale or Qualified Public Offering (other than the portion of any subsequent public offering that constitutes a Secondary Public Offering). In addition, if prior to a Qualified Public Offering there is a Sale, then no Transaction Bonus shall be paid or payable with respect to any subsequent sale of any other assets of the Company or Qualified Public Offering.

E. The Employee shall not have any transferable right or interest in the Transaction Bonus or other compensation or amounts payable pursuant to this Letter, nor any right to anticipate, alienate, assign, dispose of, pledge or encumber the same, nor shall the same be subject to attachment, garnishment, execution following judgment or other legal process instituted by creditors of the Employee, and any action in violation of this provision shall be void. No member of the Company Group shall be required to segregate any funds or other assets to be used for the payment of the Transaction Bonus or any other payment under this Letter, and no record or other notation on any member of the Company Group’s books of the obligations created by this Letter with respect to the Transaction Bonus or any other payment shall be considered as evidence of the creation of a trust fund, an escrow or any other segregation of assets for the benefit of the Employee. Any obligation to pay the Transaction Bonus or any other compensation or amounts are unsecured contractual obligations only, and the Employee shall not have any beneficial or preferred interest by way of trust, escrow, lien or otherwise in and to any specific assets or funds of any member of the Company Group. The Employee specifically acknowledges and agrees that (i) any rights Employee may have to the Transaction Bonus or any other payment pursuant to the terms of this Letter (except for Stock issued under Paragraph B above) are not securities of any person or entity and do not create any right in the equity or capital of any member of the Company Group, and (ii) receipt of the Transaction Bonus, if any, or other compensation or amounts payable pursuant to this Letter, may constitute ordinary income for federal and state income tax purposes and shall be subject to all applicable payroll, income tax and other withholding obligations. No Member of the Company Group other than Wagon and DFRG shall be liable for, and the Employee shall


Mr. Jon Howie

Page 5

 

look solely to the general credit of Wagon and DFRG for satisfaction of, any obligations due or to become due under this Letter with respect to a Transaction Bonus, or any other payment, resulting from a Sale. No Member of the Company Group other than Wagon shall be liable for, and the Employee shall look solely to the general credit of Wagon for satisfaction of, any obligations due or to become due under this Letter with respect to a Transaction Bonus, or any other payment, resulting from a Qualified Public Offering or Secondary Public Offering. If any member of the Company Group should, in its sole discretion, earmark or set aside any funds or other assets to pay amounts hereunder, the same shall, nevertheless, remain and be regarded as part of the general assets of such member, as applicable, subject to the claims of its general creditors (and shall not be considered to be held in a fiduciary capacity for the benefit of the Employee), and the Employee shall not have any legal, beneficial, security or other property interest herein. Nothing herein shall be deemed as a waiver of any rights of the Employee or Employee’s heirs or estate in the event of Employee’s death.

F. Notwithstanding anything to the contrary contained in this Letter, in the event that any Transaction Bonus is paid to the Employee before any portion of the Employee’s Existing IA Compensation (if any) is paid, then such Transaction Bonus shall be paid in accordance with the terms of this Letter and the future payment of the Existing IA Compensation (if any) shall be reduced by the aggregate amount of all Transaction Bonuses paid to the Employee prior to the payment of any Existing IA Compensation. If any portion of the Employee’s Existing IA Compensation is paid before any Transaction Bonus is paid to Employee, then such Transaction Bonus and, to the extent necessary, all future Transaction Bonuses payable to Employee shall be reduced by the aggregate Existing IA Compensation payable to the Employee under the Existing Investment Agreements. For the avoidance of doubt, the Employee’s rights under and pursuant to the Existing Investment Agreements (including the Employee’s “Class B Interests” (as defined in the Existing Investment Agreements)) shall not be limited by anything in this Letter. The parties hereto agree that the provisions of this Paragraph F shall be binding and effective against them notwithstanding anything to the contrary contained in the Existing Investment Agreements. Without limiting the foregoing, if and to the extent anything in this Letter constitutes an amendment to the Existing Investment Agreements, the parties’ signatures hereto shall constitute their consent to such amendment.

G. All payments and benefits under this Letter are intended to comply with Section 409A of the Internal Revenue Code of 1986, as amended, and the United States Treasury Regulations and Internal Revenue Service guidance published thereunder or with respect thereto (collectively, “ Section 409A ”) and, accordingly, to the maximum extent permitted, this Letter shall be interpreted to be in compliance therewith. Notwithstanding such intent or anything to the contrary contained in this Letter, in no event whatsoever shall any member of the Company Group be liable for any additional tax, interest or penalty that may be imposed on Employee by Section 409A or damages for failing to comply with Section 409A.

H. All determinations under this Letter of the Employee’s Transaction Bonus Amount, Transaction Bonus, the Existing IA Compensation and any other amounts payable under or relevant to the determination of any Transaction Bonus provided for herein, and all decisions, interpretations and determinations with regard to any question or matter arising under this Letter, will be made in the good faith discretion of Wagon.

I. As used herein:

Aggregate Value ” shall mean: either (1) in the case of a Sale, the total net purchase price paid to CCH in respect of its assets or to the equity holders of DFRG or CCH in respect of their equity


Mr. Jon Howie

Page 6

 

interests, as the case may be (as adjusted for working capital and other purchase price adjustments pursuant to the applicable Sale documents), or (2) in the case of a Qualified Public Offering or Secondary Public Offering, the implied aggregate common equity value of the Public Company based on such Qualified Public Offering or Secondary Public Offering issuance price, as the case may be.

Applicable Qualified Offering Percentage ” shall mean the excess of (i) the percentage of the aggregate common equity of the Public Company held directly or indirectly by Wagon immediately prior to the first Qualified Public Offering consummated after the date of this Letter (determined on an as converted, fully diluted basis) over (ii) the percentage of the aggregate common equity of the Public Company held directly or indirectly by Wagon immediately after such Qualified Public Offering (determined on an as converted, fully diluted basis). Notwithstanding the foregoing, the portion, if any, of the excess described immediately above that results from the compensatory grant or compensatory issuance of common equity or of options or similar rights to acquire common equity in connection with such Qualified Public Offering shall be added back to the amount described in clause (ii) above for purposes of determining the Applicable Qualified Offering Percentage with respect to such Qualified Public Offering.

Applicable Secondary Offering Percentage ” shall mean with respect to any Secondary Public Offering, the excess of (i) the percentage of the aggregate common equity of the Public Company held directly or indirectly by Wagon immediately prior to such Secondary Public Offering over (ii) the percentage of the aggregate common equity of the Public Company held directly or indirectly by Wagon immediately after such Secondary Public Offering. Notwithstanding the foregoing, the portion, if any, of the excess described immediately above that results from the grant or issuance (whether or not compensatory) by the Public Company of common equity or of warrants or options to acquire common equity, or the sale by the Public Company of newly issued common equity or of securities or other instruments convertible into common equity, in connection with such Secondary Public Offering, shall be added back to the amount described in clause (ii) above for purposes of determining the Applicable Secondary Offering Percentage with respect to such Secondary Public Offering.

Cause ” shall have the meaning set forth in the Employment Agreement.

Company ” shall mean, collectively, DFRG, together with each of its subsidiaries (including, but not limited to, CCH) and its and their successors and assigns.

DFRG ” shall mean Del Frisco’s Restaurant Group, LLC, a Delaware limited liability company, together with its successors and assigns.

Disability ” shall have the meaning set forth in the Employment Agreement.

Employment Agreement ” shall mean Employee’s Executive Employment Agreement of even date herewith with CCH (which term shall include, for purposes of this Letter, any successor or acquirer of the Company’s business), as from time to time amended, supplemented, restated, or otherwise modified.


Mr. Jon Howie

Page 7

 

Existing Investment Agreements ” shall mean (i) the Subscription Agreement executed by Employee in favor of Wagon dated as of April 30, 2007, (ii) the Amended and Restated Limited Liability Company Agreement of LSF5 Wagon Holdings, LLC, dated as of February 5, 2007 (as the same may be amended from time to time), and (iii) any and all letter agreements, pledge agreements, promissory notes, and other agreements executed by Employee in connection therewith or relating directly or indirectly thereto.

Existing IA Compensation ” shall mean the aggregate amount payable to the Employee in respect of his “Class C Interests” (as that term is defined in the Existing Investment Agreements).

Fair Market Value ” means:

(i) If the Public Company’s common equity shares are listed on any established stock exchange or a national market system, or are regularly quoted on an automated quotation system (including the OTC Bulletin Board and the “Pink Sheets” published by the National Quotation Bureau, Inc.) or by a recognized securities dealer, the average of the closing sales prices per share over the 30-day period ending on the date of determination, as reported in The Wall Street Journal or such other source as Wagon deems reliable; or

(ii) In the absence of an established market for the shares described in (i) above, the issuance price used in the most recent Qualified Public Offering or Secondary Public Offering to have been consummated.

Good Reason ” shall have the meaning set forth in the Employment Agreement.

Public Company ” shall mean whichever of DFRG or CCH is the issuer in the first Qualified Public Offering to be consummated after the date hereof.

Qualified Public Offering ” shall mean a firm commitment underwritten public offering of common equity securities for gross cash proceeds to the issuer of at least $30 Million where the shares of DFRG’s or CCH’s common equity securities that are registered under the Securities Act of 1933, as amended, are listed on a national securities exchange or are quoted on NASDAQ.

Sale ” shall mean a sale or transfer of all or substantially all of the assets of CCH in one transaction or series of transactions, the sale, exchange, or other disposition of a majority of the equity interests in or of DFRG or CCH, or any transaction having a similar effect (including, without limitation, a merger or consolidation), but excluding (i) a Qualified Public Offering or Secondary Public Offering or (ii) any sales, transfers or other transactions to or with subsidiaries or affiliates of any member of the Company Group or Wagon’s equity holders, or any transaction with an entity that is entered into by any member of the Company Group, or their subsidiaries or affiliates, or Wagon’s equity holders, as part of a reorganization, restructuring or conversion of one or more members of the Company Group.

Secondary Public Offering ” shall mean a registered public offering of the same class of equity securities that were sold in the first Qualified Public Offering consummated after the date of this Letter, but only if Wagon receives proceeds from such offering due to a reduction in Wagon’s direct or indirect ownership percentage in the common equity of the Public Company.


Mr. Jon Howie

Page 8

 

Wagon ” means LSF5 Wagon Holdings, LLC, a Delaware limited liability company, together with its successors and assigns.

 

 

This Letter shall be governed by and construed in accordance with the laws of the State of Texas and shall be subject to Section 6 of the Employment Agreement in all respects. In order for the Transaction Bonus opportunity described above to be effective, you are required to promptly countersign and deliver to Wagon (i) the enclosed copy of this Letter (you may keep the original for your records) and (ii) the accompanying Employment Agreement.

This Letter may be executed in any number of counterparts with the same effect as if all parties hereto had signed the same document. All counterparts shall be construed together and shall constitute one agreement. This Letter and any amendments hereto, to the extent signed and delivered by means of a facsimile machine or electronic transmission, shall be treated in all manner and respects as an original Letter and shall be considered to have the same binding legal effect as if it were the original signed version thereof delivered in person. At the request of any party hereto the other parties hereto shall re-execute original forms thereof and deliver them to such requesting party. No party hereto shall raise the use of a facsimile machine or electronic transmission to deliver a signature or the fact that any signature was transmitted or communicated through the use of facsimile machine or electronic transmission as a defense to the formation of a contract and each such party forever waives any such defense.

[Signature page follows.]


Mr. Jon Howie

Page 9

 

Should you have any questions, please contact the undersigned.

Sincerely,

 

LSF5 WAGON HOLDINGS, LLC
By:   /s/ Marc L. Lipshy
 

Name: Marc L. Lipshy

Title:   President

 

DEL FRISCO’S RESTAURANT GROUP, LLC
By:   /s/ Steven R. Shearer
 

Name: Steven R. Shearer

Title:   Vice President

I hereby acknowledge receipt and agree to the terms of this Letter and the accompanying Employment Agreement this 7th day of February, 2011.

 

/s/ Jon W. Howie
Name: Jon Howie

 


Mr. Jon Howie

Page 10

 

Schedule A

Computation of Employee’s Transaction Bonus Amount

Jon Howie

 

Transaction Bonus Program

Aggregate Value

 

Bonus

Share

%

 

Bonus Pool

Min

($MM)

 

Max

($MM)

   

Min

($000)

 

Max

($000)

< 228.0

  —     0.0%   0.0   0.0

 

 

 

 

 

 

 

 

 

³ 228.0

  £ 260.2   0.5%   1,140.0   1,301.0

 

 

 

 

 

 

 

 

 

>260.2

  £ 277.8   1.0%   2,603.0   2,778.0

 

 

 

 

 

 

 

 

 

>277.8

  <292.5   1.5%   4,168.5   4,386.0

 

 

 

 

 

 

 

 

 

³ 292.5

    5,850.0 + 5% of anything over 292.5MM

 

 

 

 

 

General Rule: If the Aggregate Value with respect to a particular Transaction is less than $292,500,000, the Employee’s Transaction Bonus Amount with respect to such Transaction shall be calculated using the following formula:

A X B X C, where:

A = 15%*

B = Aggregate Value from the subject Transaction

C = The Aggregate Value’s applicable Bonus Share % from the chart above

Exception: If the Aggregate Value with respect to a particular Transaction is $292,500,000 or greater, the Employee’s Transaction Bonus Amount with respect to such Transaction shall be calculated using the following formula:

A X [$5,850,000 + (C X (B – $292,500,000))], where:

A = 15%*

B = Aggregate Value from the subject Transaction

C = 5%

* Subject to the right of the Company, in its sole and absolute discretion, to increase the specified percentage by up to five (5) percentage points.

Exhibit 10.19

LSF5 WAGON HOLDINGS, LLC

2711 N. Haskell Avenue, Suite 1700

Dallas, Texas 75204

February 14, 2011

Mr. Jon Howie

1413 Cherry Blossom Lane

Keller, Texas 76248

Dear Jon:

Reference is made to that certain Amended and Restated Limited Liability Company Agreement of LSF5 Wagon Holdings, LLC, dated as of February 5, 2007 (as the same may be amended from time to time, the “ LLC Agreement ”), and to that certain transaction bonus letter agreement among you, Wagon and DFRG, dated as of February 7, 2011 (the “ TBA ”). Capitalized terms used but not defined in this letter shall have the meanings ascribed thereto in the TBA.

This letter (this “ Letter ”) will confirm our agreement that in the event of (i) a Qualified Public Offering or Secondary Public Offering as a result of which the percentage of the aggregate common equity of the Public Company held directly or indirectly by Wagon is no longer greater than 50% or (ii) a Sale, you shall have the right (but not the obligation), upon your written request dated and delivered to Wagon no later than five (5) days after such event (the “ Election Notice ”), to require Wagon to purchase from you all (but not less than all) of the Class B Interests (as such term is defined in the LLC Agreement) you then hold, if any (the “ Subject Interests ”), for an amount (the “ Purchase Price ”) equal to the sum of (i) $250,000 minus (ii) all distributions of Available Cash (as defined in the LLC Agreement), if any, paid to you on or before the date on which such purchase is consummated. The Purchase Price shall be paid to you in cash or by wire transfer to an account designated by you no later than seventy-five (75) days after the date Wagon receives the Election Notice, subject to the following:

 

  (a) You must comply with all requirements as to the execution and delivery of the Release (defined below) provided for below; and

 

  (b) No purchase shall be required and the Purchase Price shall not be paid if your employment with CCH is terminated by CCH for Cause or by you without Good Reason prior to payment of the Purchase Price.

In addition to any other requirements set forth in this Letter, payment of the Purchase Price shall be contingent upon, and shall be payable to you if, and only if, you execute and deliver to Wagon a release agreement in favor of each member of the Company Group, their respective direct and indirect equity owners (including Wagon, DFRG and their direct and indirect equity owners), and their respective affiliates, in form and substance reasonably satisfactory to Wagon (the “ Release ”), provided that the Release shall not release any obligations to make any payments to, or to cause payments to be made to, you required under this Letter or the TBA, and such Release remains in effect following the expiration of any applicable notice, review and/or revocation periods.


Mr. Jon Howie

Page 2

The rights provided to you herein may not be transferred by you, nor shall you have any right to anticipate, alienate, assign, dispose of, pledge or encumber the same, nor shall the same be subject to attachment, garnishment, execution following judgment or other legal process instituted by your creditors, and any action in violation of this provision shall be void. Upon its receipt of your Election Notice, Wagon shall have the right, in its sole discretion, to assign to any one or more of its Class A Member(s) the obligation to purchase the Subject Interests for such Class A Member(s)’ own account upon tender of the Purchase Price and thereby satisfy in full all of Wagon’s obligations hereunder. Notwithstanding anything to the contrary contained herein, no Member of the Company Group other than Wagon shall be liable for, and you shall look solely to the general credit of Wagon for satisfaction of, any obligations due or to become due under this Letter.

This Letter shall be governed by and construed in accordance with the internal laws of the State of Delaware, without reference to conflict of laws principles.

 

LSF5 WAGON HOLDINGS, LLC
By:   /s/ Marc L. Lipshy
  Name: Marc L. Lipshy
  Title:   President

Exhibit 10.20

SEPARATION AGREEMENT AND RELEASE

This SEPARATION AGREEMENT (this Agreement ”) is entered into by and between Center Cut Hospitality, Inc. (the Company ”) and Jon Howie (“ Executive ”) (the Company and Executive are collectively referred to herein as the Parties ”).

WHEREAS, the Company and Executive are parties to an Employment Agreement effective February 7, 2011 (the “Employment Agreement” ); and

WHEREAS, Executive’s employment with the Company terminated without Cause effective May 4, 2011; and

WHEREAS the Parties wish for Executive to receive certain severance benefits to which he is not otherwise entitled but for his entry into this Agreement.

NOW, THEREFORE, in consideration of the promises and benefits set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by Executive and the Company, the Parties agree as follows:

1. Termination of Employment. Executive’s employment with the Company terminated effective as of May 4, 2011 ( “Termination Date” ). Executive will be paid his salary through the Termination Date and, no later than May 25, 2011, his accrued, unused vacation or paid time off. Executive agrees and acknowledges that such payment will be in full satisfaction of any and all wages owed through the Termination Date and that Executive is not owed any additional compensation or payment by virtue of his employment or termination of employment beyond this amount except as expressly provided for herein or that he may be entitled to under the certain letter from LSF5 Wagon Holdings, L.L.C. to Executive dated February 7, 2011 (“Transaction Bonus Agreement”) or the Cpmpany’s welfare and pension benefit plans.

2. Severance Benefits . Provided that Executive executes and does not revoke this Agreement, the Company shall:

(a) Pay Executive the gross sum of $85,000 in one lump sum, on the 10th day following the Effective Date.

(b) Continue Executive’s current salary for a period of twelve months, commencing on the first normal payroll date following the 45th day after the Termination Date, consistent with the Company’s normal payroll practices and reduced by withholdings for applicable taxes.

(c) Provided Executive elects continuation coverage under COBRA, pay the medical premiums for such continuation coverage for a period of 12 months following the Date of Termination.

3. Release.

(a) Executive agrees to fully, finally, generally, completely and forever release, acquit, and discharge the Company, the Company’s investors, owners, members, managers, stockholders, shareholders, directors, officers, subsidiaries, affiliates, predecessors, successors, representatives, employees, agents, and attorneys, if any, together with all persons controlling any of the foregoing


(the Released Parties ”), from any and all claims, potential counterclaims, demands, actions, liabilities, obligations and causes of action of whatever kind or character, whether known or unknown, liquidated or unliquidated, based in tort, contract or statute allegedly incurred or suffered by Executive in connection with his employment relationship with the Company , the termination of his employment relationship with the Company, and any other claim that Executive has or might claim to have against any Released Party for any and all injuries, harm, damages (actual, consequential and punitive), penalties, costs, losses, expenses, attorneys’ fees or liability or other detriment, if any. This Paragraph 3 includes any and all claims for violation or breach of (i) the common law (tort, contract or other) of any jurisdiction including the common law of the State of Texas; (ii) the Age Discrimination in Employment Act ( “ADEA” ), 29 U.S.C. § 621 et seq.; (iii) the Employment Agreement; (iv) any other agreements between Executive and the Company; and (v) any other federal, state and local statute, ordinance, and regulation governing employment including but not limited to those prohibiting discrimination or retaliation in employment upon the basis of age, race, sex, national original, religion, disability, or any other protected characteristic. This release extends to any of the foregoing claims brought by any organization, governmental agency, or person on behalf of Executive or as a class action under which Executive may otherwise have a right or benefit and Executive agrees that he is not entitled to and will not accept any such relief.

(b) Executive’s release of claims under the ADEA does not extend to any claims that arise after the execution of this Agreement and does not prevent him from challenging the validity of his release of age discrimination claims.

(c) This release does not extend to any rights Executive may have, now or in the future, (i) under the Transaction Bonus Agreement; (ii) under any Deferred Compensation Plan maintained by the Company or any of its affiliates; or (iii) to unemployment benefits.

4. Rights Regarding Age Discrimination Claims under the ADEA. Executive acknowledges and agrees that:

(a) he has had 21 days to consider this Agreement before accepting;

(b) he has been advised in writing by the Company to consult with an attorney regarding the terms of this Agreement before accepting;

(c) if he accepts this Agreement, that he has seven days following the execution of this Agreement to revoke this Agreement;

(d) this Agreement shall not become effective or enforceable until the revocation period has expired;

(e) he is receiving, pursuant to this Agreement, consideration in addition to anything of value to which he is already entitled; and

(f) he does not Waive any claims or rights that may arise after the date he executes this Agreement.


5. Affirmation of Continuing Duties.

(a) Executive expressly acknowledges and agrees that, in connection with his employment with the Company, he has been provided with the Company’s trade secrets and Confidential Information, as that term is defined in the Employment Agreement. Accordingly, Executive reaffirms the covenants set forth in Paragraph 4 of the Employment Agreement, expressly acknowledges their validity and continuing, binding effect, and agrees to abide by them in their entirety. Executive acknowledges that violation of these or any other ongoing obligations he has to the Company will terminate the Company’s obligation to pay him severance under this Agreement.

(b) The Company acknowledges and agrees that it remains obligated under Paragraph 7(i) of the Employment Agreement. Accordingly, the Company reaffirms the commitment set forth in Paragraph 7(i) (which includes asserted or alleged claims, if any, made against Executive that are related to the SEC’s investigation of trading in shares of Lone Star Steakhouse & Saloon, Inc. n/k/a Center Cut Hospitality, Inc.) and expressly acknowledges its validity and continuing, binding effect, and agrees to abide by it. The Company further agrees that it will act with all reasonable diligence and speed to remove Executive’s name from any liquor licenses held by the Company and that it will defend, indemnify, and hold Executive harmless for any and all claims or occurrences that are asserted against Executive by reason of his name being on such licenses excepting any such claim that arises from Executive’s willful misconduct.

6 . Cooperation. Executive agrees that, as a condition precedent to receipt of the benefits set forth in Paragraph 2 of this Agreement, for a period of 90 days following the Date of Termination, he will consult with the Company at the request from time to time of the Company with respect the following matters: (a) assisting the Company with the transitioning of Executive’s duties, projects, and assignments; (b) advising the Company as to the status of all work product, in whatever stage it may be, that was in progress as of the Termination Date; and (c) any other matter related to Executive’s former position with the Company.

7. Non-Disparagement.

(a) Executive will not take any action or make any statement, written or oral, that disparages or criticizes the Company, or its officers, directors, agents, owners, investors, or management and business practices, or that disrupts or impairs the Company’s normal operations. The provisions of this Paragraph 7(a) shall not apply to any truthful statement required to be made by Executive in any legal proceeding or governmental or regulatory investigation.

(b) The Company agrees that it, in its corporate capacity or through its executive leadership, will not take any action or make any statement, written or oral, that disparages or criticizes Executive, or that impairs Executive’s reputation. The provisions of this Paragraph 7(b) shall not apply to any truthful statement required to be made by the Company or its employees in any legal proceeding or governmental or regulatory investigation.

8. No Waiver. No failure by either party hereto at any time to give notice of any breach by the other party of, or to require compliance with, any condition or provision of this Agreement shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time.


9. Applicable Law. This Agreement is entered into under, and shall be governed for all purposes by, the laws of the State of Texas without reference to the principles of conflicts of law thereof.

10. Severability. To the extent permitted by applicable law, the Company and Executive hereby agree that any term or provision of this Agreement that renders such term or provision or any other term or provision hereof invalid or unenforceable in any respect shall be modified to the extent necessary to avoid rendering such term or provision invalid or unenforceable, and such modification shall be accomplished in the manner that most nearly preserves the benefit of the Company and Executive’s bargain hereunder.

11. Withholding of Taxes and Other Employee Deductions. The Company may withhold from any benefits and payments made pursuant to this Agreement all federal, state, local, and other taxes and withholdings as may be required pursuant to any law or governmental regulation or ruling.

12. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which together will constitute one and the same Agreement.

13. Assignment. This Agreement shall be binding upon and inure to the benefit of the Company and any successor of the Company, by merger or otherwise. The Company may assign its rights hereunder to an affiliate. Except as set forth in the previous two sentences, and except that any payments due Executive under this Agreement shall be assignable by the Executive by will or the laws of descent and distribution, this Agreement and the rights and obligations of the Parties hereunder are personal and neither this Agreement nor any right, benefit or obligation of either party hereto shall be subject to voluntary or involuntary assignment, alienation or transfer, whether by operation of law or otherwise, without the prior written consent of the other party.

14. Amendment; Entire Agreement. This Agreement may not be changed orally but only by an agreement in writing agreed to and signed by both parties. The provisions of this Agreement amend and supersede any contrary provision of the Employment Agreement; to the extent there is any conflict between the Employment Agreement and this Agreement, this Agreement governs and is binding upon the Parties.

IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of May 26, 2011.

 

Center Cut Hospitality, Inc.
By:   /s/ Marc L. Lipshy
Name:   Marc L. Lipshy
Title:   President
EXECUTIVE
/s/ Jon W. Howie
JON HOWIE

Exhibit 10.21

EQUITY SURRENDER

AND RELEASE AGREEMENT

This Equity Surrender and Release Agreement (this “Agreement” ) is entered into as of May 26, 2011 (the “Effective Date” ), by and between LSF5 COI Holdings, LLC, a Delaware limited liability company (“COI”) , and Jon Howie (“Employee”).

W I T N E S S E T H:

WHEREAS, Employee is currently employed by Center Cut Hospitality, Inc., a Delaware corporation (“CCH”) and an indirect subsidiary of LSF5 Wagon Holdings, LLC, a Delaware limited liability company (the “Company” );

WHEREAS, pursuant to that certain Subscription Agreement (the “Subscription Agreement” ) by and between the Company and Employee dated April 30, 2007, Employee purchased certain Class B Interests in the Company (the “Class B Interests” ), subject to the terms and conditions of the Company’s Amended and Restated Limited Liability Company Agreement dated as of February 5, 2007, as amended from time to time (the “LLC Agreement” );

WHEREAS, in connection with Employee’s purchase of the Class B Interests, Employee received a corresponding percentage of Class C Interests in the Company (the “Class C Interests” ) subject to the terms and conditions of the LLC Agreement;

WHEREAS, Employee’s employment with CCH will terminate as of the Effective Date; and

WHEREAS, effective as of the Effective Date, COI, a member of the Company, and Employee desire to provide for Employee’s surrender and relinquishment to COI of all of Employee’s right, title and interest in and to the Class B Interests, the Class C Interests and any other equity interests in the Company held by Employee (collectively, the “Interests” ) in exchange for the cash payment described herein on the terms and conditions set forth below.

NOW, THEREFORE, in consideration of the foregoing and the mutual promises contained herein, the parties, intending to be legally bound hereby, agree as follows:

1. Surrender and Relinquishment of the Interests . Employee hereby acknowledges and agrees that, as of the Effective Date, notwithstanding anything to the contrary in the Subscription Agreement, the LLC Agreement or any other agreement between Employee and the Company or any of its subsidiaries or affiliates, including, without limitation, Employee’s severance agreement with LSF5 Wagon Investments, LLC and Employee’s employment agreement with Center Cut Hospitality, Inc. (collectively, the “Relevant Agreements” ), Employee hereby (a) surrenders and relinquishes to COI all of Employee’s right, title and interest in and to the Interests, whether vested or unvested, and (b) waives all notice requirements and other actions required to be taken by the Company or any of its affiliates under the Relevant Agreements in order to repurchase the Interests.


2. Consideration . In exchange for the surrender and relinquishment of the Interests, subject to Sections 3 and 4 below, COI shall, on the date that is 90 days after the Effective Date (or if such payment date does not fall on a business day of COI, the next following business day of COI), pay a cash payment (or cause a cash payment to be paid) to Employee in the amount of $356,294 (the “Payment ).

3. Surrender of Agreements . Employee further agrees that the Subscription Agreement, the LLC Agreement and any other agreements between the Company and Employee relating to the Interests (collectively, the “Surrendered Agreements” ) are hereby surrendered as of the Effective Date with no further rights of Employee or obligations of the Company or any of its affiliates thereunder except as provided herein. In recognition of the foregoing, Employee acknowledges and agrees that, as a condition precedent to receipt of the Payment, Employee shall return the Surrendered Agreements to the Company on or before the seventh day following the Effective Date.

4. Execution of Separation Agreement and Cooperation . Employee acknowledges and agrees that, as a condition precedent to receipt of the Payment, (a) Employee must execute, deliver and not revoke that certain Separation Agreement by and between Employee and CCH entered into as of the Effective Date and (b) for a period of 90 days following the Effective Date, he must consult with CCH and its affiliates at the request from time to time of CCH or one of its affiliates with respect the following matters: (i) assisting CCH and its affiliates with the transitioning of Employee’s duties, projects, and assignments; (ii) advising CCH and its affiliates as to the status of all work product, in whatever stage it may be, that was in progress as of the Effective Date; and (iii) any other matter related to Employee’s former employment with CCH.

5. Release . Employee hereby releases, acquits and forever discharges, COI, the Company, CCH and their respective subsidiaries and affiliates, and all officers, directors, stockholders, shareholders, partners, members, managers, agents, employees, consultants and other representatives, including legal counsel, accountants and advisors, and all predecessors, purchasers, successors and assigns of the foregoing (collectively, the “Released Parties” ) from all actions, causes of action, suits, arbitrations, hearings, audits, investigations, debts, liens, contracts, agreements, obligations, promises, liabilities, claims of any nature, whatsoever (whether in tort, contract, under laws or statutes), rights, demands, damages, losses, costs and expenses (including, without limitation, attorneys’ fees, court costs or other costs or expenses actually incurred) of any nature whatsoever, known or unknown, suspected or unsuspected, fixed or contingent, that have accrued or which may accrue on account of, arising out of, or in any way related to the Interests or the surrender and relinquishment of the Interests as provided in this Agreement. Employee further acknowledges and agrees that he shall have no further right, interest or claim to, or based upon, the Interests or the LLC Agreement or any provisions in any of the Relevant Agreements relating to the Interests.

6. Employee Representations and Additional Agreements .

(a) Employee represents and warrants to COI that (i) this Agreement and the terms of this Agreement have been freely made and without duress, (ii) as of the Effective Date, Employee is the lawful owner of, and has good title to, the Interests, (iii) the Interests are free and clear of all liens, encumbrances, and adverse claims, (iv) Employee has not heretofore

 

-2-


assigned, transferred, sold, delivered, mortgaged, pledged, granted options or rights to purchase, or encumbered the Interests, (v) Employee has the right, power, and authority to enter into this Agreement, and (vi) this Agreement has been duly executed by, and constitutes a legal, valid, binding and enforceable obligation of, Employee.

(b) Employee acknowledges that this Agreement is supported by good and valuable consideration and that once Employee has accepted the Payment, Employee has irrevocably ratified the terms and conditions of the release set forth in Section 5 above and is forever precluded from contesting the terms of such release.

(c) Employee agrees and covenants that Employee shall not in the future assert, file, or prosecute any claim, demand or cause of action that is released by this Agreement against any of the Released Parties to recover any damages or injunctive relief, whether on Employee’s own behalf or on behalf of an entity that is not a party to this Agreement. If Employee breaches this covenant-not-to-sue, the Released Party sued by Employee shall be entitled to recover from Employee all attorneys fees and costs incurred by it as a result of such breach.

(d) Employee agrees to indemnify and hold harmless each of the Released Parties from and against the full amount of any and all liabilities, losses, damages, or expenses (including costs and reasonable attorneys’ fees) or judgments suffered or incurred by the Released Parties in connection with any claim, demand or cause of action released by this Agreement brought by Employee or any person or entity under assignment or title derivative from Employee.

(e) Once the Payment has been paid to Employee, a subsequent dispute among the parties shall not affect the validity and enforceability of the releases, the covenants-not-to-sue, or the indemnities granted by Employee in favor of COI and the Released Parties.

7. Acknowledgement. Employee acknowledges that he has read and understands this Agreement, is fully aware of its legal effect, and agrees that he is not relying upon any written or oral statement or representation of COI, the Company, CCH or any Released Party, or any failure of COI, the Company, CCH or any Released Party to disclose information, or any written or oral statements or representations or failure to disclose information by any employee, representative or agent of COI, the Company, CCH or any Released Party. Employee acknowledges and agrees that, in deciding to enter into this Agreement, Employee is relying on his or her own judgment and the judgment of the professionals of Employee’s choice with whom Employee has consulted.

8. F urther Assurances . Employee agrees to execute and deliver, after the Effective Date, without additional consideration, any additional documents, and to take any further actions, deemed by COI, in its sole discretion, to be reasonably necessary or desirable to fulfill the intent of this Agreement and the transactions contemplated hereby.

9 . Binding Nature. This Agreement shall be binding upon and shall inure to the benefit of COI and Employee and, in the case of Employee, shall also be binding upon and shall inure to the benefit of Employee’s spouse, heirs, predecessors, successors, assigns, representatives or agents.

 

-3-


10. Severability . If any provision of this Agreement is held to be illegal, invalid or unenforceable for any reason, such provision shall be fully severable and this Agreement shall be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a portion of this Agreement; and the remaining provisions of this Agreement shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance from this Agreement. Furthermore, in lieu of such illegal, invalid or unenforceable provisions, there shall be added automatically as part of this Agreement a provision as similar in terms to such illegal, invalid or unenforceable provision as may be possible and be legal, valid and enforceable.

11. Counterparts . This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same Agreement.

12. Headings . The Section headings in this Agreement have been inserted for purposes of convenience and shall not be used for interpretive purposes.

13. Controlling Law . This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware, without giving effect to the principles of conflicts of law thereo f .

14. Entirety . This Agreement contains the entire agreement of the parties and supersedes all prior negotiations and understandings with respect to the subject matter hereof.

[Signatures begin on next page.]

 

-4-


IN WITNESS WHEREOF, COI has caused this Agreement to be duly executed, and Employee has executed this Agreement, effective for all purposes as of the Effective Date.

 

LSF5 COI HOLDINGS, LLC
By:   /s/    Marc L. Lipshy        
  Name: Marc L. Lipshy
  Title: President
EMPLOYEE
/s/    Jon W. Howie        
Jon Howie

S IGNATURE P AGE

TO

E QUITY S URRENDER AND R ELEASE AGREEMENT

Exhibit 10.22

 

     

Mr. John R. Kinzer

Director

2711 N, Haskell Avenue, Suite 100

Dallas, TX 75204

May 11, 2010

Ms. Edie Amos

2127 North Cleveland

Chicago, IL 60614

Dear Edie,

On behalf of Del Frisco’s Restaurant Group, it’s with great pleasure that we extend to you an offer for the position of Chief Operating Officer, reporting to Mark Mednansky, the CEO. The Board and I believe you have the personal and professional qualifications to make significant contributions to the continued success of the Company as we continue our growth and expansion of the Del Frisco’s and Sullivan’s brands.

Here are the general terms of our offer:

 

   

Title of Chief Operating Officer

 

   

Annual Salary of $290,000 to commence on a date that is still to be determined between you and the Company

 

   

Bonus Potential:

 

   

Bonus Potential of up to 50% of annul salary

 

   

Details of Bonus Plan are approved annually by the Board of Directors

 

   

You are eligible for a full bonus plan for 2010

 

   

Paid vacation of four weeks to accrue annually from employment date with no carry over to following calendar year without approval.

 

   

Option to participate in Del Frisco’s Restaurant Group health insurance program at no cost to employee.

 

   

Car allowance of $1,000 per month and the reimbursement of all fuel costs.

 

   

Option to participate in company’s Deferred Compensation Plan which includes a Company match of 50% of the employee’s contributions up to 20% of the employee’s salary.

 

   

Opportunity to participate is a long term incentive compensation plan currently being developed that will generate an estimated stock and cash interest in DFRG of greater that $800,000 assuming a sale and company valuation of approximately $295,000 , 000.

 

Page 1


Del Frisco Restaurant Group

 

   

Severance of one year if terminated for any reason other than cause which will be outlined in your employment agreement.

 

   

The Company will pick-up moving expenses in accordance with Company policy for C- level executives which includes among other things:

 

   

The cost of moving your household items from your current home to a location in or around Southlake,

 

   

Three paid trips to the Southlake area to search for a new home and

 

   

Reimbursement of real estate broker commission on selling your old home.

 

   

Three months of temporary housing

I’m excited about your enthusiasm to join our team. I look forward to a long and profitable relationship. If you are in agreement with the terms listed above, please sign and return a copy of this letter via email to me or call me so we can discuss further.

 

Sincerely,
/s/    John Kinzer
John Kinzer
Board Member
Del Frisco’s Restaurant Group

 

cc: Mark Mednansky

Chief Executive Officer

Jon W. Howie

Chief Financial Officer

This will acknowledge my acceptance of the terms of employment set forth in this offer of employment and my voluntarily agreement to them:

 

B Y :    

/s/    Edie Ames

 

Date :

 

5-12-10

   
  Edie Ames      

 

Page 2

Exhibit 10.23

EXECUTIVE EMPLOYMENT AGREEMENT

This Executive Employment Agreement (this “ Agreement ”) is made as of the 7th day of February, 2011 (the “ Effective Date ”) between Edie Ames (“ Executive ”), an individual, and Center Cut Hospitality, Inc., a Delaware corporation (the “ Company ”). Capitalized terms used herein shall have the meanings given to them in Section 5 below.

In consideration of the mutual promises expressed herein, Executive and the Company have agreed as follows:

 

  1. E MPLOYMENT .

(a) Effective Date and Term . This Agreement shall be effective as of the Effective Date and will continue indefinitely thereafter unless Executive’s employment terminates earlier in accordance with Section 3.

(b) Duties . Executive shall be employed as chief operating officer or such other comparable position to which Executive and the Company may agree. Executive agrees to devote Executive’s full time and best efforts to the performance of the duties attendant to Executive’s executive position with the Company. The duties of Executive’s position with the Company shall be in accordance with industry standards and shall be set forth in a job description. Unless otherwise agreed to by Executive, Executive shall report directly to the chief executive officer.

 

  2. C OMPENSATION AND B ENEFITS .

(a) Annual Salary . Executive’s salary shall be $290,000 per year, less applicable taxes and withholdings, to be paid in accordance with the Company’s regular payroll practices for similarly situated executives; provided, however, Executive’s salary shall be reviewed annually in the first quarter and may be increased by the Company’s Board of Directors (the “Board” ) or its designee, in its sole discretion.

(b) Annual Incentive Bonus . Executive shall be entitled to participate in all bonus compensation plans that the Company may offer, in accordance with the terms of any such plans. The target for Executive’s annual bonus shall be at least fifty percent (50%) of Executive annual salary. Executive’s entitlement to an annual incentive bonus under this subparagraph 2(b), and the amount of such bonus shall be determined by the Company in its good faith discretion; provided, however, if the terms of a written annual incentive bonus plan do not include provisions regarding the time of payment for an annual incentive bonus, payment of any such bonus shall occur before March 15th of the calendar year following the calendar year to which the bonus relates. Executive’s annual bonus for 2010 shall not be pro-rated for a partial year of employment with the Company.

 

E MPLOYMENT A GREEMENT   PAGE 1


(c) Benefits .

 

  (i) Standard Employee Benefits . Executive shall be eligible for all employee benefits extended, from time to time, to all full-time employees of the Company, subject to the terms and conditions of the Company’s policies and employee benefit plans, as those policies and plans are amended or terminated. The Company shall pay 100% of the medical insurance premium for the medical insurance coverage elected by Executive under the Company’s ERISA medical plan.

 

  (ii) Executive Benefits . Executive shall also be entitled to participate in all benefit programs that are maintained by the Company and available to its executive officers generally (including, but not limited to, any and all deferred compensation plans and the Transaction Bonus Agreement). Executive acknowledges that Executive shall have no vested rights under or in respect to Executive’s participation in any such program except as expressly provided under the terms thereof.

 

  (iii) Business Expenses . Executive shall be authorized to incur reasonable expenses for promoting the business of the Company, including expenses for entertainment, travel, and similar items. Company shall reimburse Executive for all such expenses upon the presentation by Executive, from time to time, of an itemized account of such expenditures.

 

  (iv) Vacations . Executive shall be entitled to the greater of (x) annual paid vacation commensurate with the Company’s established vacation policy for executive officers or (y) four (4) weeks of annual paid vacation that shall otherwise be subject to the Company’s established vacation policy for executive officers. The timing of paid vacations shall be scheduled in a reasonable manner by Executive.

 

  (v) Use of Automobile . During the term of employment, the Company shall provide, at the option of Executive, the use of an automobile for business and personal use or an allowance not to exceed $1,000 per month. If the Company provides an automobile, the Company shall pay all reasonable expenses of operating, maintaining, and repairing such automobile and shall procure and maintain automobile liability insurance in respect thereof, with such coverage insuring Executive for bodily injury and property damage. Any reimbursement payment due to Executive pursuant to this Section 2(c)(v) shall be paid to Executive on or before the last day of Executive’s taxable year following the taxable year in which the related expense was incurred. Executive agrees to provide prompt notice to the Company of any such expenses (and any other documentation that the Company may reasonably require to substantiate such expenses) in order to facilitate the Company’s timely reimbursement of the same. The reimbursements pursuant to this Section 2(c)(v) are not subject to liquidation or exchange for another benefit and the amount of such reimbursements and benefits that Executive receives in one taxable year shall not affect the amount of such reimbursements or benefits that Executive receives in any other taxable year.

 

E MPLOYMENT A GREEMENT   PAGE 2


  (vi) Life Insurance . The Company shall purchase a term life insurance policy on the life of Executive, which shall be owned by Executive, in the amount of $1,000,000.

 

  3. T ERMINATION AND S EVERANCE .

(a) Executive’s employment may be terminated in accordance with the following provisions:

 

  (i) Death . Executive’s employment shall terminate upon Executive’s death.

 

  (ii)

Disability . If Executive incurs a Disability, the Company may give the Executive written notice of its intention to terminate Executive’s employment; provided that such written notice may only be given after the expiration of the time period required under the definition of Disability below. In that event, Executive’s employment with the Company shall terminate effective on the later of (x) the fifteenth (l5 th ) day after receipt of such notice by Executive or (y) the date specified in such notice, provided that within the fifteen (15) days after such receipt, Executive shall not have returned to full-time performance of Executive’s duties.

 

  (iii) Termination by the Company without Cause . The Company may terminate Executive’s employment without Cause (as defined below) at any time upon written notice to Executive.

 

  (iv) Termination by the Company for Cause . The Company may terminate Executive’s employment for Cause at any time upon written notice to Executive, and such notice shall contain a statement noting the reason(s) for the Cause termination. To the extent required by Section 5(a), and if such failure(s) are curable, Executive shall be given an opportunity to cure the failure(s) noted in such written notice as the reason(s) for the Cause termination.

 

  (v) Termination by Executive for Good Reason . Executive may terminate Executive’s employment for Good Reason (as defined below) upon thirty (30) days’ written notice to the Company; provided, however, that the Date of Termination (as defined below) due to Good Reason shall not automatically occur on the date set forth in Executive’s written notice to the Company, but will instead be determined by the Company following the Company’s allowed “cure” period as described in Section 5(e) below.

 

  (vi) Voluntary Termination by Executive Not Involving Good Reason . Executive may terminate Executive’s employment voluntarily for any reason other than a Good Reason upon sixty (60) days’ written notice to

 

E MPLOYMENT A GREEMENT   PAGE 3


the Company (such 60-day period is herein referred to as the “Notice Period ). During the Notice Period, Executive shall continue to be employed by the Company subject to Section 1(b); provided, however, that (x) the Company shall have the right to shorten or eliminate the Notice Period in its good faith discretion and (y) if the Company shortens or eliminates the Notice Period, such action by the Company shall constitute neither (1) a termination of Executive’s employment by Executive pursuant to Section 3(a)(v) nor (2) a termination of Executive’s employment by the Company pursuant to Section 3(a)(ii), Section 3(a)(iii), or Section 3(a)(iv). In the event that the Company shortens or eliminates the Notice Period, the Company shall pay Executive’s salary for the entire Notice Period and shall also pay Executive the same bonuses and incentive payments that Executive would have been paid if Executive had remained employed through the end of Notice Period.

(b) Severance Benefits.

 

  (i) Termination without Cause ; Termination for Good Reason. If Executive’s employment terminates pursuant Section 3(a)(iii) or Section 3(a)(v), the Company agrees to provide Executive, as severance benefits, the following:

 

  (A) Payment of Executive’s base monthly salary in effect at the time of Executive’s Date of Termination during the Severance Period (defined below); and

 

  (B) Payment of Executive’s medical premiums during the Severance Period for the medical coverage that Executive had elected to receive under the Company’s ERISA medical plan and that was in effect as of the Date of Termination, but only to the extent that Executive receives COBRA coverage during the Severance Period.

“Severance Period” means the twelve (12) consecutive months immediately following the Date of Termination; provided, however, if Executive’s employment is terminated pursuant to Section 3(a)(iii) or Section 3(a)(v) at any time within the one-hundred eighty (180) day period following a Change of Control, then “Severance Period” means the eighteen (18) consecutive months immediately following the Date of Termination. Unless delayed pursuant to Section 3(c), monthly severance payments pursuant to Section 3(b)(i)(A) will be paid to Executive in equal installments, beginning on the first pay date occurring after the 75 th day following the Date of Termination. All of the severance benefits pursuant to this Subsection (b)(i) are conditioned upon the Executive entering into a separation agreement and general release of all claims in favor of the Company and its affiliates (the “Release” ), within the prescribed time period set forth therein, and Executive’s non-revocation of the Release during the revocation period prescribed therein. The Company shall

 

E MPLOYMENT A GREEMENT   PAGE 4


provide Executive with the Release within fourteen (14) business days after the Date of Termination. Time is of the essence so that the prescribed time periods therein expire within the seventy-five (75) day period following the Date of Termination.

 

  (ii) Termination due to Disability . If Executive’s employment with the Company terminates due to Disability, the Company shall pay Executive an amount equal to fifty percent (50%) of Executive’s annual salary (in addition to any disability insurance benefits received pursuant to the Company’s employee benefit plans The amount paid pursuant to this Subsection (b)(ii) shall be paid semi-monthly in twelve (12) equal installments.

 

  (iii) Termination for any other Reason . If Executive’s employment terminates pursuant to any provision of this Agreement other than pursuant to Section 3(a)(ii), Section 3(a)(iii), Section 3(a)(v), or Section 3(a)(vi) of this Agreement, the Company has no obligation to pay Executive any severance or other termination benefits.

(c) Timing; Form of Payments . All benefits provided to Executive pursuant to Section 3(b)(i) and (ii) (the “Severance Benefits” ) will be made in accordance with the regular payroll practices of the Company and will be subject to applicable federal and state income tax and employment tax withholdings and deductions and any other applicable withholdings and deductions. Notwithstanding anything else herein, to the extent any of the Severance Benefits are treated as nonqualified deferred compensation subject to Section 409A of the Internal Revenue Code of 1986 as amended (the “Code” ), then (1) no such payment shall be made to Executive unless Executive’s termination of employment constitutes a “separation from service” with the Company (as such term is defined in Treasury Regulation Section 1.409A-1(h) and any successor provision thereto), and (ii) if Executive is determined by the Company to be a “specified employee” for purposes of Code § 409A(a)(2)(B)(i) and the Company determines that delayed commencement of any portion of the Severance Benefits is required in order to avoid a prohibited distribution under Code § 409A(a)(2)(B)(i), commencement of such portion of the Severance Benefits will be delayed for six (6) months following Executive’s “separation from service” pursuant to Code § 409A. Delayed Severance Benefits (if any) shall be payable in a lump sum on the first business day following the expiration of such six (6) month period, and any remaining Severance Benefits due shall be paid as otherwise provided in Section 3(b). Notwithstanding the foregoing, to the maximum extent permitted by applicable law, payment of the Severance Benefits shall be made in reliance upon Treasury Regulation § 1.409A-1(b)(9) (with respect to separation pay plans) or Treasury Regulation § 1.409A-1(b)(4). The Severance Benefits shall be treated as a right to a series of separate payments. The provisions of this Agreement are intended to comply with the applicable requirements of Code § 409A and shall be limited, construed, and interpreted in accordance with such intent.

(d) Consequences of Violation of Promises . Executive acknowledges and agrees that the Company’s obligation to provide and Executive’s entitlement to receive the Severance Benefits shall cease immediately upon any violation by Executive of Executive’s obligations under Section 4 of this Agreement. Executive further agrees to repay the Company, on a pro

 

E MPLOYMENT A GREEMENT   PAGE 5


rata basis, any Severance Benefits received during the period of time in which Executive was in violation of Executive’s obligations under Section 4 of this Agreement, as determined by the Company in its good faith discretion. In the event the Company determines Executive has a repayment obligation pursuant to this Section 3(d), the Company will send notice to Executive identifying the reason(s) Executive’s repayment obligation has been triggered.

(e) Later Determined Cause . Notwithstanding any other provision of this Agreement, if Executive’s employment with the Company is terminated such that Executive is entitled to severance from the Company and the Company determines within no later than one-hundred eighty (180) days after the Date of Termination that Cause existed on, prior to, or after the Date of Termination, then Executive shall not be entitled to any Severance Benefits from the Company, and any and all Severance Benefits and reimbursements from the Company to Executive shall cease.

4. E XECUTIVE S COVENANTS

(a) Confidential Information and Trade Secrets . Executive acknowledges that the Company has trade, business, and financial secrets and other confidential and proprietary information regarding the Company and its business, in whatever form, tangible or intangible (collectively, the “Confidential Information” ), and that, during the term of this Agreement, Executive will receive Confidential Information Executive acknowledges that the Confidential Information that Executive will receive during the term of this Agreement will be in addition to that which Executive has already received during Executive’s employment with the Company. Executive further acknowledges and agrees that Executive’s use of Confidential Information in the conduct of business on behalf of a competitor of the Company would constitute unfair competition with the Company and would adversely affect the business goodwill of the Company. Confidential Information includes, but is not limited to , sales materials, technical information, processes, compilations of information, records, specifications, information, concerning customers and prospective customers, customer and prospective customer lists, and information regarding methods of doing business. As defined herein, Confidential Information shall not include information that is: (i) obtained by Executive from a source other than the Company or its affiliates, which source is not under a duty of non-disclosure in regard to such information; or (ii) becomes generally available to the public other than through disclosure by Executive in violation of the provisions of this Agreement. For purposes of clarity, the parties understand and agree that Confidential Information also does not include general know-how and/or general processes, systems, and procedures (such as general sales processes and best practices) that Executive has gained or gains by virtue of his experience working for the Company and/or within the “white-tablecloth restaurant” and/or “fine dining establishment” industries.

Executive is aware of those policies implemented by the Company to keep its Confidential Information secret, including those policies limiting the disclosure of information on a need-to-know basis and requiring the keeping of information in secure areas. Executive acknowledges that the Confidential Information has been developed or acquired by the Company through the expenditure of substantial time, effort, and money and provides the Company with an advantage over competitors who do not know or use such Confidential Information.

 

E MPLOYMENT A GREEMENT   PAGE 6


During and following Executive’s employment by the Company, Executive shall hold in confidence and not directly or indirectly disclose, use (for Executive’s commercial advantage or otherwise), copy, make lists of, or make available to others any Confidential Information except in Executive’s good faith performance of Executive’s duties to the Company as an executive of the Company or to the extent authorized in writing by the Board or required by law or compelled by legal process. Executive agrees to use reasonable efforts to give the Company notice of any and all attempts to compel disclosure of any Confidential Information, in such a manner so as to provide the Company with written notice at least five (5) days before disclosure or within three (3) business days after Executive is informed that such disclosure is being or shall be compelled, whichever is earlier. Such written notice shall include a description of the information to be disclosed, the court, government agency, or other forum through which the disclosure is sought, and the date by which the information is to be disclosed, and shall contain a copy of the subpoena, order, or other process used to compel disclosure.

Executive further agrees not to use any confidential Information for the benefit of any person or entity other than the Company, its subsidiaries and affiliates, and any Protected Company.

Executive agrees that all Confidential Information and other files, documents, materials, records, notebooks, customer lists, business proposals, contracts agreements, and other repositories containing information concerning the Company or the business of the Company, in whatever form, tangible or intangible (including all copies thereof), that Executive shall prepare, use, or be provided with as a result of Executive’s employment with the Company, shall be and remain the sole property of the Company. Upon termination of Executive’s employment hereunder, Executive agrees that all Confidential Information and other files, documents, materials, records, notebooks, customer lists, business proposals, contracts, agreements, and other repositories containing information concerning the Company or the business of the Company (including all copies thereof) in Executive’s possession, custody, or control, whether prepared by Executive or others, shall remain with or be returned to the Company promptly (within 48 hours) after the Date of Termination.

Notwithstanding anything herein to the contrary, Executive may disclose to Executive’s spouse and any personal tax or financial advisor the United States Federal income tax treatment and tax structure of the transactions contemplated in this Agreement and all materials of any kind (including opinions and other tax analyses) that are provided to Executive relating to such tax treatment and tax structure. For this purpose, “tax structure” is limited to facts relevant to the United States Federal income tax treatment of the transactions contemplated in this Agreement and does not include information relating to the identity of the parties hereto.

(b) Non-Competition. Executive acknowledges and agrees that the nature of the Confidential Information that the Company commits to provide to Executive during Executive’s employment by the Company would make it unlikely that Executive would be able to perform in a similar capacity for a Competing Business (as defined below) without disclosing or utilizing the Confidential Information. Executive further acknowledges and agrees that the Company’s business is conducted in a highly competitive market. Accordingly. Executive agrees that during the Non-Competition Period (as defined below), Executive will not (other than for the benefit of the Company, its subsidiaries and affiliates, and any Protected Company pursuant to this

 

E MPLOYMENT A GREEMENT   PAGE 7


Agreement) directly or indirectly, individually or as an officer, director, employee, shareholder, consultant, contractor, partner, joint venturer, agent, equity owner, or in any capacity whatsoever, (i) regardless of the reason for termination, work for, engage in, or operate any restaurant business or restaurant operating or management company that (x) features the sale of steak where the sale of steak exceeds thirty percent (30%) of the restaurant’s revenues from food sales and (y) which is, or owns or operates restaurants, located within thirty (30) miles of any Del Frisco’s Double Eagle Steak House restaurant, any Del Frisco’s Grill restaurant, or any Sullivan’s Steakhouse restaurant (a “ Competing Business ”),or (ii)(x) hire, attempt to hire, contact with respect to hiring, or solicit with respect to hiring any employee of any Protected Company; (y) solicit, divert, or take away any customers or customer leads of any Protected Company with whom Executive had, whether directly or indirectly, contact or business relations during the period of time that Executive was employed by the Company or its predecessors-in- interest or its affiliates (herein, the “ Employment Period ”) or about whom Executive possesses Confidential Information; or (z) solicit, encourage or influence any suppliers or vendors of any Protected Company to cease doing business with any Protected Company or change the terms and conditions upon which they conduct their business with any Protected Company where Executive had, whether directly or indirectly, contact during the Employment Period or business relations during the Employment Period with such vendors or suppliers, or about whom Executive possesses Confidential Information.

For purposes of this Section “ Non-Competition Term ” means the Employment Period and, (a) if Severance Benefits are not owed under Section 3(b)(i), a period of eighteen (18) consecutive months immediately following the Date of Termination and, (b) if Severance Benefits are owed under Section 3(b)(i), the 12-month or 18-month period that is the Executive’s Severance Period.

If any court determines that any portion of this Section 4(b) is invalid or unenforceable, the remainder of this Section 4(b) shall not thereby be affected and shall be given full effect without regard to the invalid provisions. If any court construes any of the provisions of this Section 4(b), or any part thereof, to be unreasonable because of the duration or scope of such provision, such court shall have the power to reduce the duration or scope of such provision and to enforce such provision as so reduced.

(c) Irreparable Harm. Executive acknowledges that Executive’s violation of the provisions of Section 4(a) or Section 4(b) of this Agreement will cause irreparable harm to the Company, and Executive agrees that the Company shall be entitled as a matter of right to an injunction restraining any violation or further violation of such provisions by Executive or others acting on Executive’s behalf, without any showing of irreparable harm and without any showing that the Company does not have an adequate remedy at law. Executive further covenants and warrants that Executive will not dispute in any proceeding that any given violation or further violation of the covenants contained in Section 4(a) or Section 4(b): (i) will result in irreparable harm to the Company; or (ii) could not be remedied adequately at law. The Company’s right to injunctive relief shall be cumulative and in addition to any other remedies provided by law or equity.

 

E MPLOYMENT A GREEMENT   PAGE 8


(d) Reasonableness of Restrictions . Executive understands and acknowledges that the Company has made substantial investments to develop its Confidential Information, goodwill, and other legitimate business interests. Executive agrees that such investments are worthy of protection, and that the Company’s need for the protection afforded by Section 4(b) is greater than any hardship Executive might experience by complying with its terms. Executive agrees that the limitations as to time, geographic area, and scope of activity to be restrained contained in this Agreement are reasonable and are not greater than necessary to protect the Confidential Information, goodwill, and other legitimate interests of the Company. Executive specifically agrees that, given the senior executive nature of Executive’s position and national operations of the Company, any restriction other than on the basis specified in Section 4(b) would be inadequate to protect the company’s Confidential Information. Executive further agrees that the restrictions contained in Section 4(b) allow Executive an adequate number and variety of employment alternatives, based on Executive’s varied skills and abilities. Accordingly, Executive covenants and warrants that Executive will not dispute in any proceeding that: (i) the restraints contained in Section 4(b) are reasonable and not greater than necessary to protect proprietary information and/or the goodwill or other business interests of the Company; or (ii) the scope of the restraints contained in Section 4(b) should be reformed so as to make them enforceable, if it is judicially determined that they are unenforceable as drafted.

5. D EFINITIONS .

(a) Cause . “ Cause ” shall mean any or all of the following.

 

  (i) Failure by Executive to substantially perform material duties hereunder or to devote Executive’s full time and effort to Executive’s position with the Company, other than any failure resulting from death, illness or injury, or Disability, which, to the extent such failure is curable, Executive does not cure within a period of thirty (30) days after written notice of such failure is provided to Executive by the Company;

 

  (ii) Failure by Executive to comply materially with the policies of the Company, which, to the extent such failure is curable, Executive does not cure within a period of thirty (30) days after written notice of such failure is provided to Executive by the Company;

 

  (iii) Commission by Executive of any material illegal act or any act that is not in the ordinary course of Executive’s responsibilities that exposes the Company to a significant level of undue liability; provided, however, a violation due to use by the Company of the Executive’s liquor license shall not constitute Cause;

 

  (iv) Executive’s conviction of or plea of guilty or nolo contendere to any felony; or

 

  (v) Any breach of Executive’s obligations under Section 4 of this Agreement.

(b) Change of Control . “Change of Control” shall mean either (i) the closing of a Qualified Public Offering (as defined in the Transaction Bonus Agreement) or (ii) the closing of a Sale (as defined in the Transaction Bonus Agreement).

 

E MPLOYMENT A GREEMENT   PAGE 9


(c) Date of Termination . “Date of Termination” shall mean the date on which the Executive’s termination of employment with the Company occurs; provided, however, to the extent that Executive is receiving compensation due to such termination of employment and such compensation is subject to Code § 409A, “Date of Termination” shall mean the date of Executive’s “separation from service” (within the meaning of Treasury Regulation § 1.409A- 1(h)).

(d) Disability . “Disability” shall mean shall mean Executive’s inability to perform, with or without reasonable accommodation, the essential functions of Executive’s position hereunder for a total of three (3) months during any six (6) month period as a result of incapacity due to mental or physical illness as determined by a physician selected by the Company or its insurers and acceptable to Executive or Executive’s legal representative, such agreement as to acceptability not to be unreasonably withheld or delayed.

(e) Good Reason . “Good Reason” shall mean that any of the following events occurs without Executive’s consent:

 

  (i) The Company requires Executive to be based from a location that is outside of a fifty (50) mile radius of the Company office where the Executive is based as of the Effective Date;

 

  (ii) The Company materially decreases Executive’s annual salary (other than a general reduction in base salary that affects all salaried employees of the Company proportionately, which reduction shall not be more than ten percent (10%) of Executive’s annual salary

 

  (iii) A material breach by the Company of this Agreement; or

 

  (iv) A material diminution caused by the Company in the title and/or duties, responsibilities, or authority of Executive.

Provided, however, for all of the events described in clauses (i), (ii), (iii), and (iv) immediately above, Good Reason will not exist (x) unless Executive has provided the Company with written notice of the circumstances that Executive believes constitute Good Reason within thirty (30) days after Executive knows, or through reasonable diligence, should know of such events and circumstances and (y) the Company has failed to cure within thirty (30) days of such notice. Failure to present the circumstances that Executive believes constitutes Good Reason within thirty (30) days of the Employee’s first knowledge of such circumstances waives any right by Executive to assert that Executive has Good Reason for termination and constitutes acceptance by Executive as new terms of Executive’s employment. Resignation by the Executive following the Company’s cure of identified circumstances or before the expiration of the 30-day “cure” period referred to above shall constitute a voluntary termination under Section 3(a)(vi). In the event the Company does not cure the identified circumstances on or before the expiration of the 30-days “cure” period referred to above, then Executive must terminate employment for Good Reason within fifteen (15) days of the end of such cure period, or any later termination of employment by Executive will not constitute Good Reason based upon the same previously identified circumstances. Notwithstanding anything else herein, the Company and Executive may agree, in writing, to extend the 15-day period during which the Executive must terminate employment for Good Reason.

 

E MPLOYMENT A GREEMENT   PAGE 10


(f) Protected Company . “Protected Company” shall mean, individually, each of Del Frisco’s Restaurant Group, LLC (together with its successors and assigns, “DFRG”) and all subsidiaries of DFRG (together with each successor and assign of such subsidiaries).

(g) Transaction Bonus Agreemen t. “Transaction Bonus Agreement” shall mean that certain letter agreement between Executive and LSF5 Wagon Holdings, LLC dated February 7, 2011, which provides Executive with the opportunity to earn additional compensation in connection with the sale or public offering of Del Frisco’s Restaurant Group, LLC and its subsidiaries, successors, and assigns.

6. Arbitration; Waiver of Right to Jury Trial.

(a) In the event any claim, demand, cause of action dispute, controversy, or other matter in question (in this Section 6, a “Claim” ) arises out of this Agreement (or its termination) or the Transaction Bonus Agreement, whether arising in contract, tort, or otherwise and whether provided by statute, equity, or common law, that the Company may have against Executive or that Executive may have against the Company, or any of the Company’s subsidiaries or affiliates, or any of the foregoing entines respective officers, directors, employees, or agents in their capacity as such or otherwise, all such Claims shall be submitted to binding arbitration. Any arbitration shall be conducted in accordance with the Federal Arbitration Act (“FAA”) and, to the extent an issue is not addressed by the FAA or the FAA does not apply, with the then-current National Rules for the Resolution of Employment Disputes of the American Arbitration Association (“AAA”) . The arbitrator shall apply the substantive law of Texas (excluding Texas choice-of-law principles that might call for the application of some other state’s law) or federal law, or both as applicable to the Claims asserted. The arbitrator shall have exclusive authority to resolve any dispute relating to the interpretation, applicability, or enforceability of this Section 6(a), including any Claim that all or part of this Agreement is void or voidable and any Claim that an issue is not subject to arbitration. The results of arbitration will be binding and conclusive on the parties hero to and judgment upon the award resulting from arbitration may be entered in any court of competent jurisdiction. Venue for arbitration, and for any disputes relating to the enforceability of this Section 6(a) will be in Dallas County, Texas. All proceedings conducted pursuant to this Section 6(a), including any order decision or award of the arbitrator, shall be kept confidential by all parties. Where permitted by law, the Company and Executive shall equally share the costs and expenses of the arbitration that are actually incurred by the parties, excluding attorney’s fees and expenses and expert witness fees, which shall remain the sole responsibility of each party, respectively.

(b) Notwithstanding any of the foregoing or any other provision of this Agreement, Executive and the Company may petition a court for an injunction to maintain the status quo pending resolution of any Claim under Section 6(a), and Section 6(a) shall not require the arbitration of an application for emergency or temporary injunctive relief by either party pending arbitration; provided, however, that the remainder of any such dispute beyond the application for emergency or temporary injunctive relief shall be subject to arbitration Under Section 6(a).

 

E MPLOYMENT A GREEMENT   PAGE 11


(c) Executive and the Company agree that, in the event that the arbitration provision set forth in Section 6(a) is unenforceable, that all Claims shall be decided by trial before the court and not by a jury trial. The venue for any such trial shall be Dallas County, Texas.

(d) Executive acknowledges that by signing this Agreement, Executive is waiving any right that Executive may have to a jury trial in connection with, or relating, a Claim.

7. M ISCELLANEOUS .

(a) Entire Agreement . This Agreement embodies the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior agreements and understandings, if any, between the parties regarding the subject matter hereof.

(b) Modification, Severability, and Waiver . Both parties agree that neither has the authority to modify or amend this Agreement unless the modification or amendment is in writing and signed by both of them. If any provision of this Agreement is declared or found to be illegal, unenforceable, or void, the remainder of this Agreement shall remain valid and enforceable to the extent feasible. Any waiver of any term of this Agreement by the Company shall not operate as a waiver of any other term of this Agreement, nor shall any failure to enforce any provision of this Agreement operate as a waiver of the right of the Company to enforce any other provision of this Agreement.

(c) Notice to the Company . Notice to the Company shall have occurred and be effective when a written notice is delivered via certified mail to then-current address of the Company’s principal office and to the attention of the Chief Executive Officer of the Company.

(d) Withholding . The Company may withhold from any amounts payable under this Agreement such Federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation.

(e) Survival and Construction. Executive’s obligations under this Agreement will be binding upon Executive’s heirs, executors, assigns, and administrators and will inure to the benefit of the Company, its subsidiaries, successors, and assigns. The Company’s obligations under this Agreement will be binding upon the Company’s successors assigns and will inure to the benefit of the Executive and Executive’s heirs, executors, and administrators. The language of this Agreement shall in all cases be construed as a whole according to its fair meaning, and not strictly for or against any of the parties. The paragraph headings used in this Agreement are intended solely for convenience of reference and shall not in any manner amplify, limit, modify, or otherwise be used in the interpretation of any of the provisions hereof. Executive may not assign, pledge, grant a security interest in, hypothecate, or otherwise transfer any of its rights, duties, or obligations hereunder.

(f) [intentionally reserved].

(g) No Miligation. Executive shall not be required to mitigate damages or the amount of any payment provided for under this Agreement by seeking other employment or otherwise, nor shall the amount of any payment provided for under this Agreement be reduced by any compensation earned by Executive as the result of employment by another employer after Executive’s Date of Termination.

 

E MPLOYMENT A GREEMENT   PAGE 12


(h) Other Contractual Rights. Except as otherwise provided in Subsection (f), the provisions of this Agreement, and any payment provided for hereunder, shall not reduce any amount otherwise payable, or in any way diminish Executive’s existing rights, or right which would accrue solely as a result of passage of time under any employee benefit plan or other contract, plan, or arrangement of which Executive is a beneficiary or in which Executive participates.

(i) Indemnification. The Company covenants and agrees to indemnify, defend and hold Executive harmless from any and all losses, claims, costs, liabilities, penalties, fines, damages, and expenses (including legal fees) suffered or incurred by Executive, either directly or indirectly, as a result of any asserted or alleged claim made against Executive by a third party in connection with Executive’s employment with Company, excepting only such claims arising solely out of Executive’s willful misconduct.

[signature page follows]

 

E MPLOYMENT A GREEMENT   PAGE 13


I N W ITNESS W HEREOF , Executive and the Company have executed this Agreement as of the Effective Date.

 

C ENTER C UT  H OSPITALITY , I NC .       E XECUTIVE :
By:     /s/    Marc L. Lipshy       /s/    Edie Ames
  Printed Name: Marc L. Lipshy       Printed Name: Edie Ames
  Title: President      

 

E MPLOYMENT A GREEMENT   PAGE 14

Exhibit 10.24

LSF5 WAGON HOLDINGS, LLC

2711 N. Haskell Avenue, Suite 1700

Dallas, Texas 75204

February 7, 2011

Ms. Edie Ames

1206 Club House Court

Southlake, Texas 76092

Dear Edie:

As a highly valued senior executive of Center Cut Hospitality, Inc., a Delaware corporation (together with its successors and assigns, “ CCH ”), you (also referred to herein as “ Employee ”) are being given the opportunity to earn bonus compensation tied to a successful Sale (as defined below) or Qualified Public Offering (as defined below). This letter agreement (this “ Letter ”) sets forth the terms of this opportunity, which have been designed so that you will not be required to make any future financial investment in Wagon, DFRG, CCH, or the Company (including any Public Company) (collectively, the “ Company Group ”) or incur an immediate tax obligation in connection with the award of this opportunity. This opportunity is designed to align your interests with the interests of the Company’s investors, and, except as specifically provided below in this Letter, is provided in addition to, and not in lieu of, any existing equity, bonus, or other compensation plan arrangement you currently have or in which you currently participate with the Company. Definitions of certain capitalized terms used herein are set forth at the end of this Letter.

Subject to the terms and conditions set forth below, following consummation of a Sale, a Qualified Public Offering or a Secondary Public Offering (each as defined below and each, a “ Transaction ”), and provided that, in each case, the Employee is actively employed with CCH on the date such Transaction is consummated (the “ Transaction Date ”), then the Employee shall be eligible to earn a bonus (a “ Transaction Bonus ”) in an amount determined as set forth below and based on the Employee’s Transaction Bonus Amount with respect to such Transaction, as calculated in accordance with the methodology set forth on Schedule A hereto (the amount so calculated in accordance with Schedule A with respect to any Transaction, the “ Employee’s Transaction Bonus Amount ”).

For purposes hereof, if Employee’s employment with CCH is terminated within the 180-day period ending with any Transaction Date (i) solely due to Employee’s Disability, (ii) by CCH without Cause, or (iii) by Employee for Good Reason, Employee shall be considered actively employed with CCH on such Transaction Date.

A. In the event of a Transaction that is a Sale, one-hundred per cent (100%) of the Employee’s Transaction Bonus Amount shall be payable to the Employee no later than seventy-five (75) days after the applicable Transaction Date, subject to the following:

 

  (a) The Employee must comply with all requirements as to the execution and delivery of the Release (defined below) and award termination instruments provided for below;


Ms. Edie Ames

Page 2

 

  (b)

If the seventy-fifth (75 th ) day following the Transaction Date is in a different calendar year than the first (1 st ) day following the Transaction Date, such payment shall be made in the calendar year in which the 75 th day falls (but no later than such 75 th day); and

 

  (c) The Transaction Bonus shall not be paid if the Employee’s employment with CCH (which term shall include, for purposes of this subparagraph, any successor or acquirer of the Company’s business) is terminated by CCH for Cause or by the Employee without Good Reason prior to payment of the Transaction Bonus.

Any portion of a Transaction Bonus otherwise payable pursuant to this Paragraph A that is attributable to consideration which is deferred or contingent shall not be paid until the applicable seller(s) receive such deferred or contingent portion of the consideration and to the extent that a portion of the consideration paid to the applicable seller(s) is in a form other than cash, Wagon shall have the right to pay a corresponding portion of the Transaction Bonus to the Employee in the same form of consideration.

B. In the event of a Transaction that is a Qualified Public Offering, an amount equal to the product of the Applicable Qualified Offering Percentage (as defined below) multiplied by the Employee’s Transaction Bonus Amount with respect to such Qualified Public Offering shall be payable to the Employee in cash no later than seventy-five (75) days after the applicable Transaction Date; provided, however, if the seventy-fifth (75 th ) day following the Transaction Date is in a different calendar year than the first (1 st ) day following the Transaction Date, such payment shall be made in the calendar year in which the 75 th day falls (but no later than such 75 th day). In addition, if (x) the Employee is entitled to a Transaction Bonus with respect to such Qualified Public Offering and (y)Wagon’s direct or indirect ownership percentage in the common equity of the Public Company is not reduced to zero as a result of such Qualified Public Offering, then following each subsequent Secondary Public Offering (until Wagon’s direct or indirect ownership percentage in the common equity of the public Company is reduced to zero), and provided that (i) except as specifically provided herein, the Employee is actively employed with CCH (which term shall include, for all purposes of this Paragraph B, any successor or acquirer of the Company’s business) on the date such Secondary Public Offering is consummated (also a “ Transaction Date ”), (ii) the Employee has not breached or violated any provision of the Employment Agreement or any other obligation to the Company, (iii) the Employee complies with all requirements as to the execution and delivery of the Release and award termination instruments provided for below, and (iv) the Employee was entitled to a Transaction Bonus with respect to all previous Secondary Public Offerings (if any), then the Employee shall be entitled to receive an additional bonus (also a “ Transaction Bonus ”) in an amount equal to the product of the Employee’s Transaction Bonus Amount with respect to such Secondary Public Offering, multiplied by the Applicable Secondary Offering Percentage (as defined below) with respect to such Secondary Public Offering. Any Transaction Bonus payable with respect to a Secondary Public Offering shall be paid in cash no later than seventy-five (75) days after the Transaction Date for such Secondary Public Offering; provided, however, if the seventy-fifth (75th) day following such Transaction Date is in a different calendar year than the first (1st) day following such Transaction Date, such payment shall be made in the calendar year in which the 75th day falls (but no later than 75th day).

Notwithstanding anything to the contrary contained in this Letter, if (i) Employee is eligible hereunder for a Transaction Bonus in connection with a Qualified Public Offering, (ii) Employee remains actively employed with CCH at all times through the date that is 21 months after the Transaction Date of such Qualified Public Offering, and (iii) Employee has not breached or violated any provision of the


Ms. Edie Ames

Page 3

 

Employment Agreement or any other obligation to the Company during such 21-month period, then Employee shall not forfeit his or her eligibility to receive a Transaction Bonus with respect to any Secondary Public Offering that is consummated after such 21-month period solely because Employee is not actively employed with CCH on the Transaction Date of such Secondary Public Offerin;, provided, however, that this sentence shall not be applicable, and no Transaction Bonus shall be payable, from and after the date (if ever) that Employee is terminated for Cause or voluntarily resigns under circumstances where Cause exists.

Notwithstanding anything to the contrary contained in this Letter, if at any time the percentage of the aggregate common equity of the Public Company held directly or indirectly by Wagon is greater than zero but not greater than 50% (determined on an as converted, fully diluted basis), Wagon shall have the right, but not the obligation, by written notice to Employee, to pay to Employee a bonus equal to the product of (i) the percentage of the aggregate common equity of the Public Company held directly or indirectly by Wagon at the time of such notice (determined on an as converted, fully diluted basis) multiplied by (ii) the amount that would be the Employee’s Transaction Bonus Amount (calculated in accordance with Schedule A hereto) if at the time of such notice the Public Company consummated a Secondary Public Offering at a per share issuance price equal to 105% of the Fair Market Value (as defined below) of one share of the Public Company’s common equity securities as of such date. Any such bonus shall be payable, at Wagon’s election, in any combination of cash and/or the Public Company’s common stock (“ Stock ”) (valued as of the date of grant and with registration rights as set forth above) no later than 75 days after the date of such notice. Following the exercise of this right, no additional Transaction Bonus will be payable under this letter with respect to any subsequent Transaction.

C. Notwithstanding anything to the contrary contained in this Letter:

 

  (a) Any portion of a Transaction Bonus otherwise payable that is attributable to that part of Aggregate Value which is deferred or contingent shall not be paid until the Company Group and/or the equity owners of any member(s) of the Company Group receive such deferred or contingent portion of Aggregate Value and to the extent that a portion of Aggregate Value is paid to the Company or its equity owners in non-marketable securities, Wagon shall have the right to pay, or to cause the payment of, a corresponding portion of the Transaction Bonus to the Employee in the same form of consideration, unless otherwise agreed to by the parties;

 

  (b) Except as specifically set forth above with respect to Disability, if Employee’s employment with CCH terminates upon the Employee’s death or Disability, then, thereafter, Employee (or his or her heirs and estate) shall not become entitled to any further payments hereunder (but Employee (and Employee’s heirs and estate) shall remain entitled to any payments hereunder to which Employee is otherwise entitled as of the date of such termination);

 

  (C) The Employee shall not be eligible to earn or receive, and shall have no right, entitlement or earned or vested interest in or to any Transaction Bonus (i) until the consummation of a Sale or Qualified Public Offering or Secondary Public Offering or (ii) except as specifically set forth above, based on any Transaction that is consummated after the termination of the Employee’s employment with CCH for any reason; and


Ms. Edie Ames

Page 4

 

  (d) The Employee shall not be eligible to earn or receive a Transaction Bonus, and the Employee shall forfeit all right in and to any Transaction Bonus, if Employee’s employment with CCH shall terminate for any reason prior to a Transaction (except as specifteally) set forth above).

 

  (e) Payment of the Transaction Bonus to which the Employee is otherwise entitled shall be contingent upon, and shall be earned and payable to the Employee if, and only if: (i) a Transaction is consummated; and (ii) no later than sixty (60) days after the Transaction Date the Employee executes and delivers to Wagon a separation and release agreement (or, in the event the Employee’s employment with CCH does not terminate upon consummation of the Transaction, a release agreement) in favor of each member of the Company Group, their respective direct and indirect equity owners (including Wagon, DFRG and their direct and indirect equity owners), and their respective affiliates in form and substance reasonably satisfactory to Wagon (the “ Release ”), provided that the Release shall not release any obligations to make any payments to, or to cause payments to be made to, the Employee required under this Letter, and such Release remains in effect following the expiration of any applicable notice, review and/or revocation periods. Wagon shall be required to deliver to the Employee its required form of Release within fourteen (14) days after the Transaction Date.

D. For the avoidance of doubt, the Employee’s rights, if any with respect to a Transaction Bonus in the event of a Qualified Public Offering shall apply only with respect to the first Qualified Public Offering consummated after the date of this Letter and, but only to the extent specifically provided for herein, each subsequent Secondary Public Offering, and no Transaction Bonus shall be paid or payable with respect to any subsequent sale or Qualified Public Offering (other than the portion of any subsequent public offering that constitutes a Secondary Public Offering). In addition, if prior to a Qualified Public Offering there is a Sale, then no Transaction Bonus shall be paid or payable with respect to any subsequent sale of any other assets of the Company or Qualified Public Offering.

E. The Employee shall not have any transferable right or interest in the Transaction Bonus or other compensation or amounts payable pursuant to this Letter, nor any right to anticipate, alienate, assign, dispose of, pledge or encumber the same, nor shall the same be subject to attachment, garnishment, execution following judgment or other legal process instituted creditors of the Empoloyee, and any action in violation of this provision shall be void. No member of the Company Group shall be required to segregate any funds or other assets to be used for the payment of the Transaction Bonus or any other payment under this Letter, and no record or other notation on any member of the Company Group’s books of the obligations created by this Letter with respect to the Transaction Bonus or any other payment shall be considered as evidence of the creation of a trust fund, an escrow or any other segregation of assets for the benefit of the Employee. Any obligation to pay the Transaction Bonus or any other compensation or amounts are unsecured contractual obligations only, and the Employee shall not have any beneficial or preferred interest by way of trust, escrow, lien or otherwise in and to any specific assets or funds of any member of the Company Group.The Employee specifically acknowledges and agrees that (i) any rights Employee may have to the Transaction Bonus or any other Payment pursuant to the terms of this Letter (except for Stock issued under Paragraph B above) are not securities of any person or entity and do not create any right in the equity or capital of any member of the Company Group ,and (ii) receipt of the Transaction Bonus, if any, or other compensation or amounts payable pursuant to this Letter, may constitute ordinary income for federal and state income tax purposes and shall be subject to all applicable payroll, income tax and other withholding obligation. No Member of the Company Group other than Wagon and DFRG shall be liable for, and the Employee shall


Ms. Edie Ames

Page 5

 

look solely to the general credit of Wagon and DFRG for satisfaction of, any obligations due or to become due under this Letter with respect to a Transaction Bonus, or any other payment, resulting from a Sale. No Member of the Company Group other then Wagon shall be liable for, and the Employee shall look solely to the general credit of Wagon for satisfaction of, any obligations due or to become due under this Letter with respect to a Transaction Bonus, or any other payment, resulting from a Qualified Public Offering or Secondary Public Offering. If any member of the Company Group should, in its sole discretion , earmark or set aside any funds or other assets to pay amounts hereunder, the same shall, nevertheless, remain and be regarded as part of the general assets of such member, as applicable, subject to the claims of its general creditors (and shall not be considered to be held in a fiduciary capacity for the benefit of the Employee), and the Employee shall not have any legal, beneficial, security or other property interest herein. Nothing herein shall be deemed as a waiver of any rights of the Employee or Employee’s heirs or estate in the event of Employee’s death.

F. [Intentionally omitted.]

G. All payments and benefits under this Letter are intended to comply with Section 409A of the Internal Revenue Code of 1986, as amended, and the United States Treasury Regulations and Internal Revenue Service guidance published thereunder or with respect thereto (collectively “ Section 409A”) and, accordingly, to the maximum extent permitted, this Letter shall be interpreted to be in compliance therewith. Notwithstanding such intent or anything to the contrary contained in this Letter, in no event whatsoever shall any member of the Company Group be liable for any additional tax, interest or penalty that may be imposed on Employee by Section 409A or damages for failing to comply with Section 409A.

H. All determinations under this Letter of the Employee’s Transaction Bonus Amount, Transaction Bonus, the Existing IA Compensation and any other amounts payable under or relevant to the determination of any Transaction Bonus provided for herein, and all decisions, interpretations and determinations with regard to any question or matter arising under this Letter, will be made in the good faith discretion of Wagon.

I. As used herein

Aggregate Value ” shall mean: either (1) in the case of a Sale, the total net purchase price paid to CCH in respect of its assets or to the equity holders of DFRG or CCH in respect or their equity interests, as the case may be (as adjusted for working capital and other purchase price adjustments pursuant to the applicable Sale documents), or (2) in the case of a Qualified Public Offering or Secondary Public Offering, the implied aggregate common equity value of the Public Company based on such Qualified Public Offering or Secondary Public Offering issuance price, as the case may be.

Applicable Qualified Offering Percentage ” shall mean the excess of (i) the percentage of the aggregate common equity of the Public Company held directly or indirectly be Wagon immediately prior to the first Qualified Public Offering consummated after the date of this Letter (determined on an as converted, fully diluted basis) over (ii) the percentage of the aggregate common equity of the Public Company held directly or indirectly by Wagon immediately after such Qualified Public Offering (determined on an as converted, fully diluted basis). Notwithstanding the foregoing, the portion, if any of the excess described immediately above that results from the compensatory grant or compensatory issuance of common equity or of options or similar rights to acquire common equity in connection with such Qualified Public Offering shall be added back to the amount described in clause (ii) above for purposes of determining the Applicable Qualified Offering Percentage with respect to such Qualified Public Offering.


Ms. Edie Ames

Page 6

 

Applicable Secondary Offering Percentage ” shall mean with respect to any Secondary Public Offering, the excess of (i) the percentage of the aggregate common equity of the Public Company held directly or indirectly by Wagon immediately prior to such Secondary Public Offering over (ii) the percentage of the aggregate common equity of the Public Company held directly or indirectly by Wagon immediately after such Secondary Public Offering. Notwithstanding the foregoing, the portion, if any, of the excess described immediately above that results from the grant or issuance (whether or not compensatory) by the Public Company of common equity or of warrants or options to acquire common equity, or the sale by the Public Company of newly issued common equity or of securities or other instruments convertible into common equity, in connection with such Secondary Public Offering, shall be added back to the amount described in clause (ii) above for purposes of determining the Applicable Secondary Offering Percentage with respect to such Secondary Public Offering.

Cause ” shall have the meaning set forth In the Employment Agreement.

Company ” shall mean, collectively, DFRG, together with each of its subsidiaries (including, but not limited to, CCH) and its and their successors and assigns.

DFRG ” shall mean Del Frisco’s Restaurant Group, LLC, a Delaware limited liability company, together with its successors and assigns.

Disability ” shall have the meaning set forth in the Employment Agreement.

Employment Agreement ” shall mean Employee’s Executive Employment Agreement of even date herewith with CCH (which term shall include, for purposes of this Letter, any successor or acquirer of the Company’s business), as from time to time amended, supplemented, restated, or otherwise modified.

Fair Market Value ” means:

(i) If the Public Company’s common equity shares are listed on any established stock exchange or a national market system, or are regularly quoted on an automated quotation system (including the OTC Bulletin Board and the “Pink Sheets” published by the National Quotation Bureau, Inc.) or by a recognized securities dealer, the average of the closing sales prices per share over the 30-day period ending on the date of determination, as reported in The Wall Street Journal or such other source as Wagon deems reliable; or

(ii) In the absence of an established market for the shares described in (i) above, the issuance price used in the most recent Qualified Public Offering or Secondary Public Offering to have been consummated.

Good Reason ” shall have the meaning set forth in the Employment Agreement.


Ms. Edie Ames

Page 7

 

Public Company ” shall mean whichever of DFRG or CCH is the issuer in the first Qualified Public Offering to be consummated after the date hereof.

Qualified Public Offering ” shall mean a firm commitment underwritten public offering of common equity securities for gross cash proceeds to the issuer of at least $30 Million where the shares of DFRG’s or CCH’s common equity securities that are registered under the Securities Act of 1933, as amended, are listed on a national securities exchange or are quoted on NASDAQ.

Sale ” shall mean a sale or transfer of all or substantially all of the assets of CCH in one transaction or series of transactions, the sale, exchange, or other disposition of a majority of the equity interests in or of DFRG or CCH, or any transaction having a similar effect (including, without limitation, a merger or consolidation), but excluding (i) a Qualified Public Offering or Secondary Public Offering or (ii) any sales, transfers or other transactions to or with subsidiaries or affiliates of any member of the Company Group or Wagon’s equity holders, or any transaction with an entity that is entered into by any member of the Company Group, or their subsidiaries or affiliates, or Wagon’s equity holders, as part of a reorganization, restructuring or conversion of one or more members of the Company Group.

Secondary Public Offering ” shall mean a registered public offering of the same class of equity securities that were sold in the first Qualified Public Offering consummated after the date of this Letter, but only if Wagon receives proceeds from such offering due to a reduction in Wagon’s direct or indirect ownership percentage in the common equity of the Public Company.

Wagon ” means LSF5 Wagon Holdings, LLC, a Delaware limited liability company, together with its successors and assigns.

 

 

This Letter shall be governed by and construed in accordance with laws of the State of Texas and shall be subject to Section 6 of the Employment Agreement in all respects . In order for the Transaction Bonus opportunity described above to be effective, you are required to promptly countersign and deliver to Wagon (i) the enclosed copy of this Letter (you may keep the original for your records) and (ii) the accompanying Employment Agreement.

This Letter may be executed in any number of counterparts with the same effect as if all parties hereto had signed the same document. All counterparts shall be construed together and shall constitute one agreement. This Letter and any amendments hereto, to the extent signed and delivered by means of a facsimile machine or electronic transmission, shall be treated in all manner and respects as an original Letter and shall be considered to have the same binding legal effect as if it were the original signed version thereof delivered in person. At the request of any party hereto the other parties hereto shall re-execute original forms thereof and deliver them to such requesting party. No party hereto shall raise the use of a facsimile machine or electronic transmission to deliver a signature or the fact that any signature was transmitted or communicated through the use of facsimile machine or electronic transmission as a defense to the formation of a contract and each such party forever waives any such defense.

[ Signature page follows. ]


Ms. Edie Ames

Page 8

 

Should you have any questions, please contact the undersigned,

Sincerely,

 

LSF5 WAGON HOLDINGS, LLC
By:   /s/    Marc L. Lipshy
  Name: Marc L. Lipshy
  Title: President

 

DEL FRISCO’S RESTAURANT GROUP, LLC
By:   /s/    Steven R. Shearer
  Name: Steven R. Shearer
  Title: Vice President

I hereby acknowledge receipt and agree to the terms of this Letter and the accompanying Employment

Agreement this 7 th day of January, 2011.

 

/s/    Edie Ames
Name: Edie Ames


Ms. Edie Ames

Page 9

 

Schedule A

Computation of Employee’s Transaction Bonus Amount

Edie Ames

 

Transaction Bonus Program

Aggregate Value

 

Bonus

Share

%

 

Bonus Pool

  Min

($MM)

 

Max

($MM)

   

Min

($000)

 

Max

($000)

< 228.0

  —     0.0%   0.0   0.0

³ 228.0

  £  260.2   0.5%   1,140.0   1,301.0

>260.2

  £ 277.8   1.0%   2,603.0   2,778.0

>277.8

  < 292.5   1.5%   4,168.5   4,386.0

³ 292.5

    5,850.0 + 5% of anything over 292.5MM

General Rule: If the Aggregate Value with respect to a particular Transaction is less than $292,500,000, the Employee’s Transaction Bonus Amount with respect to such Transaction shall be calculated using the following formula:

A X B X C, where:

A = 20%*

B = Aggregate Value from the subject Transaction

C = The Aggregate Value’s applicable Bonus Share % from the chart above

Exception: If the Aggregate Value with respect to a particular Transaction is $292,500,000 or greater, the Employee’s Transaction Bonus Amount with respect to such Transaction shall be calculated using the following formula:

A X [$5,850,000 + (C X (B – $292,500,000))], where:

A = 20%*

B = Aggregate Value from the subject Transaction

C = 5%

* Subject to the right of the Company, in its sole and absolute discretion, to increase the specified percentage by up to five (5) percentage points.

EXHIBIT 21.1

SUBSIDIARIES OF REGISTRANT

 

Name of Subsidiary

 

State of Incorporation
or Organization

California Sullivan’s, Inc.

  California

CBG Delaware, Inc.

  Delaware

Center Cut Hospitality, Inc.

  Delaware

Center Cut Marketing, LLC Limited Liability Company

  Indiana

Colorado Sullivan’s, Inc.

  Colorado

Crocket Beverage Corporation

  Texas

CWA Delaware, Inc.

  Delaware

Del Frisco’s Grille of Dallas, LLC

  Texas

Del Frisco’s Grille of New York, LLC

  New York

Del Frisco’s of Arizona, Inc.

  Arizona

Del Frisco’s of Boston, LLC

  Massachusetts

Del Frisco’s of Colorado, Inc.

  Colorado

Del Frisco’s of Illinois, Inc.

  Illinois

Del Frisco’s of Nevada, Inc.

  Nevada

Del Frisco’s of New York, LLC

  New York

Del Frisco’s of North Carolina, Inc.

  North Carolina

Del Frisco’s of Philadelphia, Inc.

  Pennsylvania

Del Frisco’s of Washington D.C., Inc.

  District of Columbia

Del Frisco – Dallas, L.P.

  Texas

Del Frisco – Fort Worth, L.P.

  Texas

Irwin J. Grossnerr Foundation, Inc.

  Texas


Lone Star Finance, LLC

   Delaware

Louisiana Steakhouse, Inc.

   Louisiana

Massachusetts Sullivan’s, Inc.

   Massachusetts

North Philadelphia Sullivan’s, Inc.

   Pennsylvania

Post Oak Beverage Corp.

   Texas

Romo Holding, LLC

   Delaware

Steak Concepts Delaware, Inc.

   Delaware

Sullivan’s of Alabama, Inc.

   Alabama

Sullivan’s of Alaska, Inc.

   Alaska

Sullivan’s of Arizona, Inc.

   Arizona

Sullivan’s of Arkansas, Inc.

   Arkansas

Sullivan’s of Baltimore, Inc.

   Maryland

Sullivan’s of Delaware, Inc.

   Delaware

Sullivan’s of Georgia, Inc.

   Georgia

Sullivan’s of Illinois, Inc.

   Illinois

Sullivan’s of Indiana, Inc.

   Indiana

Sullivan’s of Kansas, Inc.

   Kansas

Sullivan’s of Miami, LLC

   Florida

Sullivan’s of Michigan, Inc.

   Michigan

Sullivan’s of Missouri, Inc.

   Missouri

Sullivan’s of New York, Inc.

   New York

Sullivan’s of North Carolina, Inc.

   North Carolina

Sullivan’s of Ohio, Inc.

   Ohio

Sullivan’s of Tennessee, Inc.

   Tennessee

Sullivan’s of Virginia, Inc.

   Virginia


Sullivan’s of Washington, LLC

   Washington

Sullivan’s Restaurants of Nebraska, Inc.

   Nebraska

Sullivan’s – Austin, L.P.

   Texas

Tollway Beverage Corporation

   Texas

Travis Beverage Corporation

   Texas

Village Beverage Corporation

   Texas

Westheimer Beverage Corporation

   Texas

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

We consent to the reference to our firm under the caption “Experts” and to the use of our reports dated March 28, 2011 (except for Note 15 as to which the date is January 23, 2012), in the Registration Statement to be filed on Form S-1 on January 24, 2012 and related Prospectus of Del Frisco’s Restaurant Group, LLC for the registration of shares of its common stock.

/s/ Ernst & Young LLP

Dallas, Texas

January 23, 2012

EXHIBIT 99.1

CONSENT TO BE NAMED

I hereby confirm my consent to being named as a person who will become a director of Del Frisco’s Restaurant Group, Inc., a Delaware corporation (the “ Company ”) in the Registration Statement on Form S-1, including any all amendments and post-effective amendments thereto and any amendments filed under Rule 462(b) increasing the number of shares for which registration is sought (collectively, the “ Registration Statement ”), relating to the proposed initial public offering of common stock of the Company. This consent may be filed as an exhibit to the Registration Statement.

DATED: December 28, 2011

 

  /s/ Mark S. Mednansky         
  (Signature)

EXHIBIT 99.2

CONSENT TO BE NAMED

I hereby confirm my consent to being named as a person who will become a director of Del Frisco’s Restaurant Group, Inc., a Delaware corporation (the “ Company ”) in the Registration Statement on Form S-1, including any all amendments and post-effective amendments thereto and any amendments filed under Rule 462(b) increasing the number of shares for which registration is sought (collectively, the “ Registration Statement ”), relating to the proposed initial public offering of common stock of the Company. This consent may be filed as an exhibit to the Registration Statement.

DATED: January 4, 2012

 

  /s/ Samuel D. Loughlin         
  (Signature)

EXHIBIT 99.3

CONSENT TO BE NAMED

I hereby confirm my consent to being named as a person who will become a director of Del Frisco’s Restaurant Group, Inc., a Delaware corporation (the “ Company ”) in the Registration Statement on Form S-1, including any all amendments and post-effective amendments thereto and any amendments filed under Rule 462(b) increasing the number of shares for which registration is sought (collectively, the “ Registration Statement ”), relating to the proposed initial public offering of common stock of the Company. This consent may be filed as an exhibit to the Registration Statement.

DATED: January 3, 2012

 

  /s/ Norman J. Abdallah         
  (Signature)

EXHIBIT 99.4

CONSENT TO BE NAMED

I hereby confirm my consent to being named as a person who will become a director of Del Frisco’s Restaurant Group, Inc., a Delaware corporation (the “ Company ”) in the Registration Statement on Form S-1, including any all amendments and post-effective amendments thereto and any amendments filed under Rule 462(b) increasing the number of shares for which registration is sought (collectively, the “ Registration Statement ”), relating to the proposed initial public offering of common stock of the Company. This consent may be filed as an exhibit to the Registration Statement.

DATED: December 28, 2011

 

  /s/ David B. Barr         
  (Signature)

EXHIBIT 99.5

CONSENT TO BE NAMED

I hereby confirm my consent to being named as a person who will become a director of Del Frisco’s Restaurant Group, Inc., a Delaware corporation (the “ Company ”) in the Registration Statement on Form S-1, including any all amendments and post-effective amendments thereto and any amendments filed under Rule 462(b) increasing the number of shares for which registration is sought (collectively, the “ Registration Statement ”), relating to the proposed initial public offering of common stock of the Company. This consent may be filed as an exhibit to the Registration Statement.

DATED: January 13, 2012

 

/s/ Jodi L. Cason        
(Signature)

EXHIBIT 99.6

CONSENT TO BE NAMED

I hereby confirm my consent to being named as a person who will become a director of Del Frisco’s Restaurant Group, Inc., a Delaware corporation (the “ Company ”) in the Registration Statement on Form S-1, including any all amendments and post-effective amendments thereto and any amendments filed under Rule 462(b) increasing the number of shares for which registration is sought (collectively, the “ Registration Statement ”), relating to the proposed initial public offering of common stock of the Company. This consent may be filed as an exhibit to the Registration Statement.

DATED: January 2, 2012

 

/s/ Richard L. Davis        
(Signature)

EXHIBIT 99.7

CONSENT TO BE NAMED

I hereby confirm my consent to being named as a person who will become a director of Del Frisco’s Restaurant Group, Inc., a Delaware corporation (the “ Company ”) in the Registration Statement on Form S-1, including any all amendments and post-effective amendments thereto and any amendments filed under Rule 462(b) increasing the number of shares for which registration is sought (collectively, the “ Registration Statement ”), relating to the proposed initial public offering of common stock of the Company. This consent may be filed as an exhibit to the Registration Statement.

DATED: January 6, 2012

 

/s/ Melissa S. Hubbell        
(Signature)

EXHIBIT 99.8

CONSENT TO BE NAMED

I hereby confirm my consent to being named as a person who will become a director of Del Frisco’s Restaurant Group, Inc., a Delaware corporation (the “ Company ”) in the Registration Statement on Form S-1, including any all amendments and post-effective amendments thereto and any amendments filed under Rule 462(b) increasing the number of shares for which registration is sought (collectively, the “ Registration Statement ”), relating to the proposed initial public offering of common stock of the Company. This consent may be filed as an exhibit to the Registration Statement.

DATED: January 13, 2012

 

/s/ Leigh P. Rea        
(Signature)