EXHIBIT 10.3
GOOD TIMES RESTAURANTS INC.
000 Xxxxxxxxx Xxxxxx
Xxxxxx, XX 00000
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
The Xxxxxx Company
The Erie County Investment Company
September 25, 1998
Page 2
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
The Xxxxxx Company
The Erie County Investment Company
September 25, 1998
Page 3
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
The Xxxxxx Company
The Erie County Investment Company
September 25, 1998
Page 4
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 respect to 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
The Xxxxxx Company
The Erie County Investment Company
September 25, 1998
Page 5
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.
The Xxxxxx Company
The Erie County Investment Company
September 25, 1998
Page 6
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
The Xxxxxx Company
The Erie County Investment Company
September 25, 1998
Page 7
Agreed to this 5th day of October, 1998
THE XXXXXX COMPANY
By Xxxxxxxx X. Xxxxxx
------------------
General Manager
THE ERIE COUNTY INVESTMENT COMPANY
By /s/ Xxxxx X. Xxxxxx
-------------------
President
