EX-10.2



 





Exhibit 10.2




FIRST AMENDMENT TO NOTE PURCHASE AGREEMENT




     THIS FIRST AMENDMENT TO NOTE PURCHASE AGREEMENT (“Amendment”), is entered into as of the
26th day of October, 2007, is made by and between Max & Erma’s Restaurants, Inc., a
Delaware corporation (the “Company”), and the Purchasers party hereto (the “Purchasers”).



WITNESSETH:




     WHEREAS, the Company and the Purchasers, are parties to that certain Note Purchase Agreement
dated May 5, 2006, (the “Note Purchase Agreement”); and



     WHEREAS, the Company has requested that the Purchasers amend certain provisions of the Note
Purchase Agreement, and the Purchasers have agreed to the Company’s requested amendments to the
Note Purchase Agreement on the terms and conditions set forth herein.



     NOW, THEREFORE, in consideration of the matters set forth in the recitals and the covenants
and provisions set forth herein, and other valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:




	1.	 	Defined Terms. Capitalized terms used but not defined herein shall have the meanings
ascribed to them in the Note Purchase Agreement or the other Purchaser Documents.






	2.	 	Amendments to Agreement. Upon satisfaction of the conditions set forth in Section 3
hereof, the Note Purchase Agreement is hereby amended as follows.






	 	2.1.	 	A new Section 3.2(e) is hereby added to the Note Purchase Agreement as follows:






     “(e) Notwithstanding the provisions of Sections 3.2(a) and 3.2(b) to the
contrary, for the Quarterly Interest Payment Dates of December 31, 2007 and March
31, 2008, the Company may elect to pay interest on each Note at a Cash Rate equal to
the Modified Cash Rate and increase the outstanding principal amount of each Note on
each such Quarterly Interest Payment Date by an amount equal to the difference
between the Cash Rate and the Modified Cash Rate set forth in Section 3.2(a) (with
such amounts added to the principal amount of each Note to be treated as Principal
Increases hereunder) together with such Principal Increases in respect of interest
accruing at the PIK Rate. In each quarter that the Company elects to pay cash
interest at the Modified Cash Rate, the Default Rate of Interest pursuant to Section
3.2(d) shall be in effect and the incremental interest shall be added to the
principal amount of each Note as Principal Increases. Principal Increases added to
the Notes pursuant to this Section 3.2(e) on December 31, 2007 are, collectively,
the “December PIK Interest.” Any cash payments made by the Company to redeem the
Principal Increases specified in this Section 3.2(e) shall be deemed to be regularly scheduled payments of
interest.”



 









 






	 	2.2.	 	Section 3.3 of the Note Purchase Agreement is hereby amended by deleting the word “All”
from the first sentence thereof and substituting the words “Except as provided in Section
3.2(e),” therefor.
	 
	 	2.3.	 	A new Section 7.2(d) is hereby added to the Note Purchase Agreement as follows:






     “(d) On the second Banking Day of each week, the Company shall furnish the
Purchasers with an updated 13-week cash flow forecast with a reconciliation of
actual cash flow to forecasted cash flows for the prior week, with such cash flow
forecast to be in form and substance acceptable to the Purchasers in their sole
discretion. “




	 	2.4.	 	A new Section 7.28 is hereby added to the Note Purchase Agreement as follows:






     “7.28 Equity Increase or Sale. The Company shall engage an investment
bank of national standing, acceptable to the Purchasers in their sole discretion
(the “Investment Bank”) and will diligently pursue an effort to raise equity or to
sell the Company (each, a “Capital Transaction”) prior to June 30, 2008. KeyBank
Capital Markets is acceptable to the Purchasers as Investment Bank. The Purchasers
shall have the right to terminate the Amendment Period and exercise any available
remedies under the Purchaser Documents if, at any time, the Purchasers determine in
their discretion that (x) the Company is not diligently pursuing the effort to
consummate a Capital Transaction, or (y) the amount of equity proposed to be raised
by the Company is insufficient; provided, however, that the modification of
financial covenants pursuant to Section 8.2(l) shall survive and remain effective
until March 31, 2009 notwithstanding termination of the Amendment Period pursuant to
this Section 7.28. If the Company does not consummate an Capital Transaction prior
to June 30, 2008, then the Company will immediately commence an effort to refinance
the Notes.”




	 	2.5.	 	A new Section 7.29 is hereby added to the Note Purchase Agreement as follows:






     “7.29 Access. The Company shall provide to the Purchasers prompt
access to (i) the Investment Bank and any other consultant or investment banker
retained by the Company, on at least a semi-monthly basis, and (ii) all opinions,
reports and other communications provided by the Investment Bank or any other
consultant or investment banker retained by the Company; provided,
however, that the Company may redact from any such materials, opinions,
reports and other communications provided to the Purchasers any information
contained therein solely to the extent such information is reasonably determined by
the Company’s counsel to be subject to the attorney-client privilege;
provided, further, that upon the Company’s reasonable request, the
Purchasers shall enter into a reasonable non-reliance agreement as a condition to its receipt of any
such materials, opinions, reports and other communications.”



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	 	2.6.	 	A new Section 7.30 is hereby added to the Note Purchase Agreement as follows:






     “7.30 Malenick Bridge Loan. The Purchasers consent to the obtaining by
the Company of a $2,000,000 loan from the Investor on or prior to November 5, 2007
on terms and conditions satisfactory to the Purchasers in their sole discretion (the
“Malenick Loan”). The Company will use the proceeds of the Malenick Loan only for
working capital purposes. The Purchasers consent to the Malenick Loan being secured
by a maximum of $1,050,000 in the Company’s right to receive a construction
allowance payment of approximately $1,200,000 from South Strabane, LLC for
reimbursement of tenant construction improvements to a store in Washington,
Pennsylvania (the “Landlord Receivable”), provided that for purposes of clarity,
such security interest is limited to $1,050,000 and limited to the Landlord
Receivable. Obligations under the Malenick Loan shall be subordinated to
obligations under the Note Purchase Agreement and the other Purchaser documents by a
subordination agreement consistent with this Amendment and in form and substance
acceptable to the Purchasers. The terms and conditions in the documents evidencing
the Malenick Loan, attached hereto as Exhibits B and C, are satisfactory to the
Purchasers.”




	 	2.7.	 	Section 8.1(i) of the Note Purchase Agreement is hereby amended by adding the following
at the end thereof:






“Notwithstanding the foregoing, the Company may make the following payments on the
Malenick Loan: (a) upon receipt by the Company of any cash installment of the
Landlord Receivable, the Company may pay amounts on account of the Malenick Loan
equal to such cash installments, up to an aggregate of One Million Dollars
($1,000,000.00) (the “Initial Malenick Payment”) plus interest that accrues in
respect of Initial Malenick Payment at a rate of 8.50% per annum, (b) thereafter,
the Company may make regular cash interest payments of 8.50% per annum interest on
the remaining outstanding principal amount of the Malenick Loan, provided that there
does not exist an Event of Default hereunder or under the Senior Debt Documents and
an Event of Default hereunder or under the Senior Debt Documents would not exist
after giving effect to such payment (based on a pro forma calculation using the most
recently delivered financial statements required pursuant to Section 7.2 and taking
such payment into account), and (c) provided that there does not exist an Event of
Default hereunder or under the Senior Debt Documents and an Event of Default
hereunder or under the Senior Debt Documents would not exist after giving effect to
such payment (based on a pro forma calculation using the most recently delivered
financial statements required pursuant to Section 7.2 and taking such payment into
account), the Company may pay the remaining outstanding principal on the earlier of
(i) April 16, 2009 or (ii) the consummation of a transaction for the sale of the Company or additional equity of the Company pursuant to which the Senior Debt
and the Notes have been paid in full.”



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	 	2.8.	 	Sections 8.2(b) and (f) of the Note Purchase Agreement are hereby deleted in their
entirety and replaced in each case with “[intentionally omitted]”.






	 	2.9.	 	A new Section 8.2(l) shall be added to the Note Purchase Agreement which shall read as
follows:






“(l) During the Amendment Period, the Borrower shall not be required to comply with
the financial covenants set forth in Sections 8.2(a)-(k) provided that during such
period (1) the Company shall continue to deliver the quarterly compliance
certificate pursuant to Section 7.4, including, without limitation, calculation of
the financial ratios in 8.2(d) and 8.2(e), and (2) the Company shall maintain a
minimum Adjusted EBITDA of (a) $750,000 for the fiscal quarter ending on October 28,
2007, (b) $2,200,000 for the fiscal quarter ending on February 17, 2008 and (c)
$1,500,000 for each of the fiscal quarters ending on May 11, 2008, August 3, 2008
and October 26, 2008. For purposes of this paragraph, “Adjusted EBITDA” will
include an add-back for pre-opening expenses, in addition to the other add-backs
included in the definition of “Adjusted EBITDA” set forth in the Note Purchase
Agreement. For the avoidance of doubt, after the termination of the Amendment
Period for any reason other than pursuant to Section 7.28, the financial covenants
set forth in Sections 8.2(a), (c) through (e), and (g) through (k) shall apply, and
if the Amendment Period is terminated due to an Event of Default (or an Event of
Default under the Senior Credit Agreement), such termination of the Amendment Period
shall not operate as a waiver of such Event of Default.




	 	2.10.	 	Section 8.2(k) of the Note Purchase Agreement is hereby amended by adding he following
at the end thereof:






“The Company shall not permit Capital Expenditures during the fiscal year ended
October 26, 2008 to exceed $2,600,000, exclusive of $800,000 already committed for
the remodeling of three restaurants and exclusive of landlord remodeling
allowances. From October 27, 2008 until March 31, 2009, the Company shall not
permit Capital Expenditures to exceed $1,083,333, exclusive of landlord remodeling
allowances.”




	 	2.11.	 	Section 8.5 of the Note Purchase Agreement is hereby amended by adding the following
at the end thereof:






“Between the First Amendment Effective Date and March 31, 2009, the Company shall
not commit to open any new restaurants.”




	 	2.12.	 	Section 10 is hereby amended by deleting the word “and” at the end of clause (o) and
inserting new clauses (q) and (r) as follows::




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     “(q) Senior Forbearance. The Senior Lender shall terminate the
Forbearance Period (as defined in the Forbearance Agreement) prior to March 31,
2009; and




     (r) Intercreditor Agreement. The Investor shall breach any of the
terms or conditions of the Intercreditor Agreement.”




	 	2.13.	 	Section 12 of the Note Purchase Agreement is amended by inserting the following
definitions in the proper alphabetical order therein:






“Amendment Period” means the period commencing on the First Amendment
Effective Date and ending on the earliest of (i) October 27, 2008, (ii) the
occurrence of an Event of Default under the Note Purchase Agreement, and (iii) the
occurrence of an Event of Default under the Senior Credit Agreement.




“First Amendment” means that certain First Amendment to Note Purchase
Agreement, by and among the Company and the Purchasers party thereto, dated as of
the First Amendment Effective Date.




“First Amendment Effective Date” means October 26, 2007.




“Forbearance Agreement” shall mean that certain Forbearance Agreement, dated
as of the date hereof, between the Senior Lender and the Company.




“Intercreditor Agreement” shall mean that certain Intercreditor Agreement
among the Purchasers, the Senior Lender, the Company and the Investor, as the same
may be amended from time to time in accordance with the terms therein.




“Investor” shall mean Donal H. Malenick.




“Modified Cash Rate” shall mean the three month London interbank offered
rate (“Libor”), as published in the “Money Rates” section of the Wall Street
Journal, on the first day of any quarterly interest period, plus one percent
(1.00%), per annum; provided, however, that Libor shall be 5.00% for the period from
October 1, 2007 to December 31, 2007.




	3.	 	Amendment Fee. On the First Amendment Effective Date, the Company shall pay an
amendment fee (“Amendment Fee”) of 1.00% of the outstanding principal amount of each Note, pro
rata to the Purchasers, which Amendment Fee shall be fully earned as of the First Amendment
Effective Date and may be paid in cash or, at the Company’s election, by adding such fee to
the outstanding principal amount of each Note, on a pro rata basis as Principal Increases. On
March 31, 2008, the Company shall pay an additional amendment fee (the “Incremental Amendment
Fee”) of 3.00% of the outstanding principal amount of each Note, pro rata to the Purchasers,
which Incremental Amendment Fee shall be fully earned as of March 31, 2008 and may be paid in
cash or, at the Company’s election, by adding such fee to
the outstanding principal amount of each Note, on a pro rata basis, as Principal Increases,
provided that, the Purchasers shall be deemed to have waived their right to
payment of the Incremental Amendment Fee in the event that either (x) the Company, pursuant to
Section 




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	 	 	3.1(a), repays the Notes in full in cash on or before March 31, 2008 or (y) the Company
pays the December PIK Interest and the March 31, 2008 quarterly interest payment shall
be made at the Cash Rate. In the event that the Company elects to add either the Amendment Fee
or Incremental Amendment Fee to the outstanding principal amount of each Notes as provided
herein, such amounts shall be treated and payable as Principal Increases pursuant to the terms
of the Note Purchase Agreement.






	4.	 	Conditions. The effectiveness of this Amendment is subject to the following
conditions precedent:






	 	4.1.	 	the execution and delivery of this Amendment by the Company and the Purchasers;
	 
	 	4.2.	 	the execution and delivery of the Forbearance Agreement among the Company and the
Senior Lender, substantially in the form attached hereto as Exhibit “A”;
	 
	 	4.3.	 	the execution and delivery of the Convertible Promissory Note, dated as of the date
hereof, issued by the Company and payable to the Investor, substantially in the form
attached hereto as Exhibit “B”;
	 
	 	4.4.	 	the execution and delivery of the Security Agreement, dated as of the date hereof,
between the Company and the Investor, substantially in the form attached hereto as Exhibit
“C”;
	 
	 	4.5.	 	the execution and delivery of the Intercreditor Agreement by the parties thereto,
substantially in the form attached hereto as Exhibit “D”;
	 
	 	4.6.	 	evidence satisfactory to the Purchasers of the receipt by the Company of not less than
$2 million in cash in immediately available funds from the Investor;
	 
	 	4.7.	 	the Company shall have paid all reasonable fees, costs and expenses of the Purchasers
in connection with this Amendment, including, without limitation, the fees, costs and
expenses of Proskauer Rose, LLP.






	5.	 	Representations and Warranties. The Company hereby represents and warrants to each
Purchaser as follows:






	 	5.1.	 	the outstanding principal amount of the Notes as of October 1, 2007 is $7,043,500.
	 
	 	5.2.	 	the Company is duly organized, validly existing and in good standing under the laws of
the jurisdiction of its formation;
	 
	 	5.3.	 	the Company has the power and authority to execute, deliver and perform its obligations
under this Agreement;
	 
	 	5.4.	 	the execution, delivery and performance by the Company of this Agreement have been duly
authorized by all necessary corporate action and do not and will not require any
registration with, consent or approval of, notice to or action by, any Person (including
any governmental agency);




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	 	5.5.	 	this Amendment, the Note Purchase Agreement and the other Purchaser Documents to which
the Company is a party constitute the legal, valid and binding obligation of the Company,
enforceable against such Person in accordance with their terms;
	 
	 	5.6.	 	no Default or Event of Default exists or shall exist immediately following the
consummation of the transactions contemplated hereby;
	 
	 	5.7.	 	all representations and warranties by the Company contained in the Note Purchase
Agreement that are qualified by materiality or Material Adverse Effect are true and correct
and that are not so qualified are true and correct in all material respects as of the date
hereof, except to the extent made as of a specific date, in which case each such
representation and warranty shall be true and correct as of such date; and
	 
	 	5.8.	 	by its signatures below, the Company agrees that it shall constitute an Event of
Default if any representation or warranty made herein should be false or misleading in any
material respect.






	6.	 	No Waiver. Nothing contained herein shall be deemed to constitute a waiver of
compliance with any term or condition contained in the Note Purchase Agreement or any of the
other Purchaser Documents and nothing contained herein shall constitute a course of conduct or
dealing among the parties hereto. Except as expressly stated herein, each Purchaser reserves
all rights, privileges and remedies under the Purchaser Documents. Except as amended hereby,
the Note Purchase Agreement and the other Purchaser Documents remain unmodified and in full
force and effect. All references in the Purchaser Documents to the Note Purchase Agreement
shall be deemed to be references to the Note Purchase Agreement as amended hereby.






	7.	 	Counterparts. This Amendment may be executed by one or more of the parties to this
Amendment and any number of separate counterparts, each of which when so executed, shall be
deemed an original and all said counterparts when taken together shall be deemed to constitute
but one and the same instrument.






	8.	 	Successors and Assigns. This Amendment shall be binding upon and inure to the
benefit of the Company and its successors and assigns and the Purchasers and their successors
and permitted assigns.






	9.	 	Further Assurance. The Company hereby agrees from time to time, as and when
requested by the Purchasers, to execute and deliver or cause to be executed and delivered, all
such documents, instruments and agreements and to take or cause to be taken such further or
other action as the Purchasers may reasonably deem necessary or desirable in order to carry
out the intent and purposes of this Amendment, the Note Purchase Agreement and the Purchaser
Documents.






	10.	 	GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND SHALL BE CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND
PERFORMED IN SUCH STATE.






	11.	 	Severability. Wherever possible, each provision of this Amendment shall be
interpreted in such manner as to be effective and valid under applicable law, but if any
provision of this




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	 	 	Amendment shall be prohibited by or invalid under such law, such provision shall be ineffective
to the extent of such prohibition or invalidity without invalidating the remainder of such
provision or the remaining provisions of this Amendment.






	12.	 	Reaffirmation. The Company hereby ratifies and reaffirms all of its payment and
performance obligations, contingent or otherwise, under each of the Purchaser Documents to
which it is a party (after giving effect hereto). The Company hereby consents to this
Amendment and acknowledges that each of the Purchaser Documents remains in full force and
effect and is hereby ratified and reaffirmed. Except as expressly set forth herein, the
execution of this Amendment shall not operate as a waiver of any right, power or remedy of the
Purchasers, constitute a waiver of any provision of any of the Purchaser Documents or serve to
effect a novation of the obligations under the Note Purchase Agreement.






	13.	 	Acknowledgment of Rights; Release of Claims. The Company hereby acknowledges that:
(a) it has no defenses, claims or set-offs to the enforcement by any Purchaser of the
liabilities, obligations and agreements of the Company under the Note Purchase Agreement or
other Purchaser Documents on the date hereof; (b) to its knowledge, each Purchaser has fully
performed all undertakings and obligations owed to it as of the date hereof; (c) except to the
limited extent expressly set forth in this Amendment, no Purchaser waives, diminishes or
limits any term or condition contained in the Note Purchase Agreement or any of the other
Purchaser Documents; and (d) the Purchasers may enforce the payment of the liabilities and the
performance of the obligations of the Company as set forth in the Purchaser Documents and as
provided by applicable law. All rights and remedies available to the Purchasers either under
the Purchaser Documents, at law or in equity, are preserved. In consideration of the
Purchasers’ agreements contained in this Amendment, the Company hereby irrevocably releases
and forever discharges each Purchaser (in such capacity) and their respective Affiliates, and
each such Person’s respective directors, officers, employees, agents, attorneys and
representatives (each, a “Released Person”) of and from all damages, losses, claims,
demands, liabilities, obligations, actions or causes of action whatsoever which the Company
may now have or claim to have against any Released Person for or because of any matter or
thing done, omitted or suffered to be done or omitted by any of the Released Persons prior to
and including the date hereof and on account of or in any way concerning, arising out of or
founded upon the Note Purchase Agreement or any other Purchaser Document, whether presently
known or unknown and of every nature and extent whatsoever. The provisions of this Paragraph
14 shall survive the termination of the Note Purchase Agreement and payment in full of the
obligations thereunder.






	14.	 	Negotiations. The Company stipulates and agrees that each of the Purchaser Documents
and this Amendment are products of and result from arms-length negotiations between the
parties and that neither the Purchasers nor any other party has exerted or attempted to exert
improper or unlawful pressure in connection with the execution or delivery of this Amendment
or any of the Purchaser Documents. Without in any way limiting the foregoing, each of the
parties hereto stipulates and agrees that at all times during the course of the negotiations
surrounding the execution and delivery of the Purchaser Documents and this Amendment, such
party has, to the extent deemed necessary or advisable in its sole discretion, been advised
and assisted by competent counsel of its own choosing, and that counsel has been present and
actively participated in the negotiations surrounding the Purchaser Documents and this
Amendment.




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     The parties hereto have caused this Amendment to be duly executed by their respective duly
authorized officers as of the date first written above.



	 	 	 	 	 
	 	COMPANY:




MAX & ERMA’S RESTAURANTS, INC.

 	 
	 	By:  	/s/ William C. Niegsch, Jr. 	 
	 	 	Name:  	William C. Niegsch, Jr. 	 
	 	 	Title:  	Chief Financial Officer 	 
	 



[First Amendment to Note Purchase Agreement]




 









 








	 	 	 	 	 
	 	PURCHASERS:



FM MEZZANINE PARTNERS LLC 



	 
	 	By: 	GSO Debt Funds Management LLC

as Subadvisor to FriedbergMilstein LLC

 	 
	 	By:  	/s/ Lee M. Shaiman 	 
	 	 	Name:  	Lee M. Shaiman 	 
	 	 	Title:  	Authorized Signatory 	 
	 



[First Amendment to Note Purchase Agreement]