Exhibit 10.13
September 25, 1998
The Xxxxxx Company
000 Xxxxxxxxx Xxxxxx
Xxxxxx, XX 00000
Attention: Xx. Xxxxxxx X. Xxxxxxxxxx
Chief Financial Officer and Vice President
The Erie County Investment Company
000 Xxxxxxxxx Xxxxxx
Xxxxxx, XX 00000
Attention: Xx. Xxxxx X. Xxxxxx
President
Re: FFCA and Safeco Loan Guaranties
Gentlemen:
This letter will set forth the agreement between Good Times Restaurants Inc.
("Good Times"), The Xxxxxx Company ("Xxxxxx") and The Erie County Investment Co.
("Erie") with respect to the guaranties by Xxxxxx of loans to be obtained by
Good Times from Franchise Finance Corporation of America ("FFCA") and the
guaranties by Xxxxxx and Erie of loans to be obtained by Good Times from
Safeco Credit Company, Inc. ("Safeco"). Xxxxxx and Erie are hereinafter
together referred to as "Xxxxxx/Erie."
1. Good Times intends to obtain a series of loans from FFCA and Safeco
with each loan constituting a separate borrowing for the development of a
separate Good Times restaurant, with such loans from FFCA to be guaranteed by
Xxxxxx and with such loans from Safeco to be guaranteed by Xxxxxx/Erie, and with
all such guaranties being pursuant to the terms and conditions of this letter
agreement and pursuant to the terms and conditions of agreements with FFCA and
Safeco. The aggregate amount of such guaranteed loans from FFCA shall not
exceed $5,700,000 and the aggregate amount of such guaranteed loans from
Safeco shall not exceed $3,000,000. Such guaranteed loans from FFCA and
Safeco are hereinafter referred to as the "FFCA Loans" and the "Safeco Loans"
and together are referred to as the "Loans." Notwithstanding anything to the
contrary contained in the foregoing, the aggregate principal amount of the Loans
guaranteed by Xxxxxx/Erie shall not at any one time exceed $6,000,000. Good
Times may in its sole discretion determine whether a borrowing for the
development of a particular restaurant shall be a FFCA Loan or a Safeco Loan.
2. Subject to the terms and conditions of this letter agreement and of
agreements with FFCA and Safeco, Xxxxxx shall guarantee the repayment of the
FFCA Loans and Xxxxxx/Erie shall guarantee the repayment of the Safeco Loans
(the "Guaranties"). The terms and conditions of the FFCA Loans, and of the
Guaranties thereof, shall be subject to the mutual approval of Good Times and
Xxxxxx and the terms and conditions of the Safeco Loans, and of the Guaranties
thereof, shall be subject to the mutual approval of Good Times and Xxxxxx/Erie.
The location and development plans for each Good Times restaurant to be
financed by one of the FFCA Loans shall also be subject to the approval of
Xxxxxx and of each Restaurant to be financed by one of the Safeco Loans shall be
subject to the approval of Xxxxxx/Erie. The required approvals of Good Times
and Xxxxxx/Erie set forth in this paragraph 2 shall not be unreasonably
withheld. Notwithstanding anything to the contrary contained in the foregoing,
Xxxxxx/Erie may withhold any of the Guaranties on account of the financial
condition of Good Times or for any other reason in the sole discretion of
Xxxxxx/Erie.
3. (a) Good Times shall pay to Xxxxxx and to Xxxxxx/Erie quarterly
percentage fees for the Guaranties based upon the average outstanding principal
and interest of the Loans guaranteed by them during each calendar quarter. Good
Times may elect to pay each such fee in cash or in shares of common stock of
Good Times ("Guarantee Stock") or partly in each. To the extent that such
quarterly fees are paid in cash, the fees shall be .5 percent of the average
outstanding principal and interest of the Loans guaranteed during such quarter
and to the extent that such quarterly fees are paid in Guarantee Stock, the fees
shall be .75 percent of such average outstanding principal and interest
guaranteed during such quarter. All such fees shall be paid within five
business days after the end of each calendar quarter.
(b) To the extent that Good Times elects to pay any of the fees
described in subparagraph (a) above in Guarantee Stock, such shares shall be
valued for such purpose at the average published closing price of Good Times
common stock during the twenty trading days immediately preceding the end of
such calendar quarter. The Guarantee Stock and any common stock issued to
Xxxxxx pursuant to exercise of the warrant provided for by paragraph 8 below
(the "Warrant Stock") shall be deemed to constitute additional shares of
"Restricted Stock" under the May 31, 1996 Registration Rights Agreement
(the "Registration Rights Agreement") between Good Times and Xxxxxx and be
entitled to the registration rights accorded Restricted Stock under the
Registration Rights Agreement. Clause (ii) of Section 13(f) of the Registration
Rights Agreement is hereby amended to read "the date Xxxxxx/Erie is permitted
pursuant to Rule 144 to sell all of its Restricted Stock." Xxxxxx/Erie
understand that any shares of Good Times common stock issued to them pursuant to
this paragraph 3 will not have been registered under the Securities Act of 1933,
as amended, pursuant to an exemption thereunder; that such shares must be held
indefinitely unless a subsequent disposition thereof is so registered or is
exempt from such registration; that certificates representing such shares shall
be endorsed with an appropriate legend; and that such shares shall constitute
restricted stock under Rule 144 of such Act.
4. The documents for the Loans and for the Guaranties shall include the
following provisions:
(a) Upon any required performance by Xxxxxx of the Guaranties
of the FFCA Loans, Xxxxxx shall thereafter be subrogated to and otherwise
entitled to all, or if applicable to share with FFCA, the rights and remedies of
FFCA with respect to such FFCA Loans as to Good Times and as to the assets of
Good Times securing such Loans. In the event of any required performance by
Xxxxxx/Erie of the Guaranties of the Safeco Loans, Xxxxxx/Erie shall be entitled
to share with Safeco all the rights and remedies of Safeco with respect to such
Safeco Loans and as to Good Times and as to the assets of Good Times securing
such Safeco Loans.
(b) Good Times shall indemnify and hold harmless Xxxxxx/Erie
with respect to any loss, liability or cost and expense incurred by Xxxxxx/Erie
with respect to the Guaranties. The foregoing indemnification liability of Good
Times shall be secured by a pledge in favor of Xxxxxx/Erie of all of the
properties and assets of Good Times securing the Loans, which pledge shall be
secondary and subordinate to the pledge of such properties and assets to FFCA or
Safeco. Xxxxxx/Erie shall have rights as an unsecured creditor as to the
remaining properties and assets of Good times with respect to the foregoing
indemnification liability.
(c) Good Times shall have reasonable and customary grace and
cure periods under the documents for the Loans and the Guaranties.
5. Good Times shall not incur any indebtedness for borrowed money other
than the Loans unless during the 12 calendar months preceding such additional
borrowing Good Times' total debt coverage ratio exceeds 125 percent. In that
event, Good Times may incur additional borrowing, and pledge its properties and
assets to secure such additional borrowing, subject to the pledges of
properties and assets for the Loans and for the indemnification liability of
Good Times with respect to the Guaranties, to the extent that such additional
borrowings and the net profits to be realized from any properties and assets to
be acquired with the proceeds of such additional borrowings will not, in the
reasonable judgment of Good Times and Xxxxxx/Erie, result in its debt coverage
ratio becoming less than 125 percent. For purposes of this paragraph 5, debt
coverage ratio shall be defined as net profits (exclusive of extraordinary
profits and losses not realized or incurred in the ordinary course of business)
before interest, taxes, depreciation and amortization divided by total principal
and interest payments. In the event of any disagreement between Good Times
and Xxxxxx/Erie with respectto the debt coverage ratio of Good Times, such debt
coverage ratio shall be determined by the regular independent certified public
accountants of Good Times.
6. So long as the Guaranties are outstanding or for so long as Good
times may be indebted to Xxxxxx or Erie as a result of the Guaranties,
Good Times shall:
(a) Comply with the covenants of Article VI of the Series A
Convertible Preferred Stock Purchase Agreement between Good Times and Xxxxxx
dated May 31, 1996, as amended, whether or not such preferred stock is
outstanding, except the covenants in Sections 6.02 and 6.03 of Article VI with
respect to the preemptive rights of the preferred stock and the reservation of
common stock for the conversion of preferred stock which Sections shall apply
only for so long as the preferred stock is outstanding. Without limiting the
generality of the foregoing, a representative of Xxxxxx shall be entitled to
attend meetings of the Board of Directors and of the Compensation Committee of
the Company pursuant to the provisions of Sections 6.10 and 6.11 of Article VI
for so long as any of the Guaranties are outstanding and with respect to Section
6.10 for so long as any of the Guarantee Stock or the Warrant Stock is held by
Xxxxxx;
(b) Not liquidate, dissolve or wind up and not consolidate or
merge into or with any other entity or entities or sell, lease, abandon,
transfer or otherwise dispose of in excess of 51 percent of Good Times' total
assets (including intellectual property rights);
(c) Not pay any dividend on any shares of its capital stock,
except for dividends payable solely in the form of additional shares of common
stock, and not redeem or otherwise acquire any shares of its capital stock
except for the purchase of shares of common stock from former employees
pursuant to contractual rights relating to the termination of their employment;
and
(d) Not acquire the stock or assets of any person or entity
except in the ordinary course of its business.
7. Effective as of August 31, 1998, Xxxxxx has converted the shares of
Good Times Series A Convertible Preferred Stock owned by Xxxxxx into shares of
Good Times common stock pursuant to the terms of the May 31, 1996 Series
Convertible Preferred Stock Purchase Agreement between Good Times and Xxxxxx, as
amended. So long as Xxxxxx/Erie owns not less than two-thirds of the aggregate
of the Good Times common stock acquired pursuant to this paragraph 7, the
Guarantee Stock and the Warrant Stock:
(a) Good Times shall not increase the number of Directors
constituting its Board of Directors to a number in excess of seven;
(b) Xxxxxx/Erie shall have the right to elect two Directors to
the Board of Directors of Good Times one of whom shall have the right, in the
discretion of Xxxxxx/Erie, to serve as the Chairman of the Board; and
(c) Good Times shall not amend, alter or repeal its Certificate
of Incorporation or Bylaws.
8. In consideration for the Guaranties, upon the closing of the first
of the Loans, Good Times shall issue to Xxxxxx a warrant to purchase at $.0001
per share 426,667 shares of Good Times common stock which shall be exercisable
by Xxxxxx in the event of the initiation by Good Times of any bankruptcy
petition or upon the initiation of any other comparable insolvency or
liquidation proceeding by Good Times or in the event of any involuntary
bankruptcy adjudication of Good Times. Such warrant shall contain standard and
customary provisions approved by Xxxxxx, which approval shall not be
unreasonably withheld, including without limitation anti-dilution provisions.
9. In the event of any breach of this letter agreement by Good Times,
in addition to all rights and remedies under law and equity available as a
result thereof to Xxxxxx/Erie, Xxxxxx/Erie shall not be required thereafter to
provide any Guaranties.
10. Good Times and Xxxxxx/Erie shall from time to time execute such
additional documents as may reasonably be required in order to carry out the
intention and provisions of this letter agreement.
11. The terms and conditions of this letter agreement shall bind and
inure to the benefit of Good Times and Xxxxxx/Erie and their respective
successors and assigns.
12. Good Times and Xxxxxx/Erie acknowledge that the provisions of this
letter agreement have been unanimously approved by the Board of Directors of
Good Times at a meeting in which Directors representing Xxxxxx/Erie did not
participate.
If this letter correctly sets forth our agreement, please sign and return
the attached copy hereof.
Very truly yours,
GOOD TIMES RESTAURANTS INC.
By: /s/ Xxxx X. Xxxxxx
___________________
President and Chief Executive Officer
Agreed to this 5th day of October, 1998
THE XXXXXX COMPANY
By: /s/ Xxxxxxxx Xxxxxx
___________________
General Manager
THE ERIE COUNTY INVESTMENT COMPANY
By: /s/ Xxxxx X. Xxxxxx
___________________
President
