THIRD AMENDMENT TO CREDIT AGREEMENT


     This Third  Amendment to Credit  Agreement  (this  "Amendment") is made and
entered into as of February 26, 1999 between Avado Brands,  Inc. (formerly known
as Apple  South,  Inc.) (the  "Borrower")  and First  Union  National  Bank (the
"Lender").

                              W I T N E S S E T H:

     WHEREAS,  the  Borrower  and the  Lender  have made and  entered  into that
certain  Credit  Agreement,  dated as of May 8,  1998,  as amended  (as  further
amended,  modified,  supplemented,  or restated  from time to time,  the "Credit
Agreement";  capitalized  terms used herein and not otherwise defined shall have
the meanings assigned thereto in the Credit Agreement);

     WHEREAS,  pursuant to the Credit Agreement,  the Lender has extended to the
Borrower a revolving loan facility in the principal amount of up to $30,000,000;

     WHEREAS,  the  Borrower  wishes  to  extend  the  termination  date  of the
revolving loan facility and to amend certain provisions of the Credit Agreement,
as set forth herein;

     WHEREAS,  the Lender is willing to agree to the  foregoing  on the terms as
set forth herein;

     NOW  THEREFORE,  for  and in  consideration  of the  foregoing  and for ten
dollars  ($10.00)  and other good and  valuable  consideration,  the receipt and
adequacy of which are hereby acknowledged, the parties hereto agree as follows:

                                    ARTICLE 1
                              Existing Definitions

     Capitalized  terms not otherwise  defined  herein shall have the meaning or
meanings ascribed to them in the Credit Agreement.

                                    ARTICLE 2
                         Amendments to Credit Agreement

     Section 2.1 The definitions of "Note,"  "Stockholder's  Equity," and "Total
Funded  Debt" in Section 1.1 of the Credit  Agreement  is hereby  amended in its
entirety to read in its entirety as follows:

     "Note"  shall mean the renewal  promissory  note,  dated as of February 26,
1999,  from  the  Borrower  to the  Bank in the  original  principal  amount  of
$30,000,000,  together  with  all  amendments,  consolidations,   modifications,
renewals,  and  supplements  thereto,  which note evidences all of the Revolving
Loans.

     "Stockholders'  Equity" means, at any time, the stockholders' equity of the
Borrower  and its  Consolidated  Subsidiaries,  as set forth or reflected on the
most recent  consolidated  balance  sheet of the Borrower  and its  consolidated
Subsidiaries  prepared in accordance  with GAAP,  but  excluding any  Redeemable
Preferred  Stock  of the  Borrower  or any  of  its  Consolidated  Subsidiaries.
Shareholders'  Equity generally would include, but not be limited to (i) the par
or stated value of all outstanding  Capital Stock,  (ii) capital surplus,  (iii)
retained earnings, and (iv) various deductions such as (A) purchases of treasury
stock,  (B) valuation  allowances,  (C)  receivables  due from an employee stock
ownership  plan,  and (D) employee  stock  ownership  plan debt  Guarantees.  In
determining  "Stockholders'  Equity," however,  the amount of any Equity Forward
Contracts, pending settlement, shall be excluded therefrom.

     "Total Funded Debt" shall mean that portion of the total liabilities of the
Borrower and its Consolidated Subsidiaries at any date equal to the sum (without


                                       1
<PAGE>
duplication)   of:  (i)  all  indebtedness  for  borrowed  money  at  such  date
(including,  for  this  purpose,  indebtedness  in  respect  of any  outstanding
bankers' acceptances);  plus (ii) all Capitalized Lease Obligations  outstanding
at such date;  plus  (iii) all  debts,  liabilities  and  obligations  which are
Guaranteed by the Borrower or any Consolidated  Subsidiary as of such date; plus
(iv) all debts,  liabilities or obligations at such date to any seller  incurred
to pay the  deferred  price of property or services  having a deferred  purchase
price of One Million  Dollars  ($1,000,000)  or more,  excepting,  in any event,
trade accounts  payable  arising in the ordinary course of business and purchase
options prior to their exercise; plus (v) all debts, liabilities and obligations
outstanding  at  such  date  in  respect  of  any  Synthetic  Leases,  excluding
therefrom,  however, any debts, liabilities or obligations under the DR Holdings
Lease up to a maximum thereof of Twenty-Eight Million Dollars  ($28,000,000.00),
it being  understood  and agreed  that,  subject to such  limitation,  no debts,
liabilities or obligations (including any constituting  Guaranteed  Obligations)
under the DR Holding  Lease shall be included in the  definition of Total Funded
Debt. In  determining  "Total Funded  Debt,"  however,  the amount of any Equity
Forward Contracts, pending settlement, shall be excluded therefrom.

     Section 2.2 The definition of "Equity Forward  Contract" is hereby added to
Section 1.1 of the Credit Agreement to read in its entirety as follows:

     "Equity Forward Contract" shall mean any contract, whether now or hereafter
existing,  whereby the Borrower or any of its Consolidated  Subsidiaries agrees,
directly or indirectly,  to purchase Capital Stock of the Borrower on any future
date at a fixed price.

     Section 2.3 The  reference in Section  2.7.1(i) of the Credit  Agreement to
"March 1, 1999" is hereby  amended to read "May 1, 1999" and all  references  in
the Loan Documents to the "Termination Date" shall be deemed to be references to
May 1, 1999.

     Section 2.4 Section 5.4 of the Credit  Agreement  is hereby  amended in its
entirety (effective as of January 3, 1999) to read in its entirety as follows:

                   SECTION 5.4. Minimum Stockholders' Equity.

     Stockholders'  Equity  will  at no  time  be  less  than  the  sum  of  (i)
$210,000,000, beginning with the last day of the Fiscal Quarter ended closest to
January 4, 1999.

     Section 2.5 Section  5.18(xi) of the Credit  Agreement is hereby amended in
its entirety to read in its entirety as follows:

     (xi)  Other  Restaurant  Concepts.  Make  investments  in other  restaurant
concepts,  besides  "Applebee's,"  so  long  as the  total  amount  of all  such
investments  made  subsequent to the Closing Date does not exceed Twelve Million
Five Hundred Thousand Dollars ($12,500,000).

     Section 2.6 Section 5.18(xiii) of the Credit Agreement is hereby amended in
its entirety to read in its entirety as follows:

     (xiii) Other Advances. Make loans or advances to Affiliates,  shareholders,
directors,  officers or employees, in addition to those described in clauses (i)
through  (xii)  hereinabove,  in an aggregate  amount,  as to all such loans and
advances at any one time  outstanding to all such Persons,  not to exceed Twelve
Million  Dollars  ($12,000,000),  so long as, and provided that, (A) no Event of
Default  then exists and (B) each such loan or advance is repaid,  in full,  not
later than two (2) years from the date of its disbursement.

     Section 2.7 The  following  new Sections  5.23 and 5.24 are hereby added to
the Credit Agreement to read in their entirety as follows:

     5.23 Stock  Purchases,  Etc. The Borrower will not, and will not permit any
Consolidated  Subsidiary of the  Borrower,  to purchase any Capital Stock of the


                                       2
<PAGE>
Borrower,  whether  in a  "spot"  transaction,  pursuant  to an  Equity  Forward
Contract or  otherwise,  except in respect of shares of Capital  Stock which are
subject to Equity Forward Contracts pending settlements as of December 31, 1998;
nor will  Borrower  enter into, or permit any  Consolidated  Subsidiary to enter
into, any Equity Forward Contract or amend or modify any Equity Forward Contract
in effect on December 31, 1998 so as to increase the amount of, or price of, any
shares of Capital Stock which are subject to Equity  Forward  Contracts  pending
settlement as of December 31, 1998.

     5.24 Prepayment of Senior Debt. The Borrower will not prepay,  and will not
permit any Consolidated Subsidiary to prepay, the principal amount of any of the
Borrower's Senior Notes.

                                    ARTICLE 3
                           Conditions to Effectiveness

     Section 3.1 Effective  Date.  The  amendments  to the Credit  Agreement set
forth in this  Amendment  shall become  effective  as of the date first  written
above,  other than Section  2.4,  which shall be effective as of January 3, 1999
(the  "Effective  Date"),  after all the  conditions  set forth in Sections  3.2
through 3.5 shall have been satisfied.

     Section 3.2 Execution of this  Amendment.  This  Amendment  shall have been
executed and delivered by the Borrower.

     Section 3.3 Amendment of Liquidity  Agreement  and Master Lease  Agreement.
Borrower  shall have entered into  amendments  to the  Liquidity  Agreement  and
Master Lease Agreement effecting  substantially the same changes as are effected
to the Credit  Agreement by Article 2 hereof,  true and correct  copies of which
shall have been provided to the Lender, and which shall be satisfactory in form,
scope and substance to Lender.

     Section  3.4  Wachovia  Credit  Agreement  Reduction.  Borrower  shall have
provided to Lender  evidence that the balance of the Wachovia  Credit  Agreement
has been reduced to $1.00 and that Borrower is entitled to no further borrowings
thereunder.

     Section 3.5 Compliance with Warranties No Default

     (a) As of the Effective Date, the  representations and warranties set forth
in the Credit Agreement,  as amended by this Amendment,  and the representations
and warranties set forth in each of the Loan Documents shall be true and correct
in all material respects;

     (b) As of the  Effective  Date,  no Default or Event of Default  shall have
occurred and be continuing;

     (c) Lender shall have received from the Borrower a  certificate,  dated the
Effective Date,  certifying matters set forth in subsections (a) and (b) of this
Section 3.5.

                                    ARTICLE 4
                                  Miscellaneous

     Section  4.1  Entire  Agreement.  This  Amendment,  together  with the Loan
Documents,  reflects the entire understanding of the parties with respect to the
subject matter contained herein, and, other than the Loan Documents,  supersedes
any prior agreements, whether written or oral.

     Section 4.2 Cross  References.  References in this Amendment to any article
or section are, unless otherwise  specified,  to such article or section of this
Amendment.

     Section 4.3 No Cure or Waiver.  This  Amendment  is not intended to be, and
shall not be deemed or construed to be, a  satisfaction,  novation or release of


                                       3
<PAGE>
the Credit Agreement or any of the other Loan Documents.

     Section 4.4 Governing Law. This  Amendment  shall be construed and enforced
in  accordance  with  and  governed  by  all of the  provisions  of the  Uniform
Commercial  Code of  Georgia  and by the  other  internal  laws (as  opposed  to
conflicts of law provisions) of the State of Georgia.

     Section 4.5 Costs.  Borrower  shall pay all costs and expenses of Lender in
connection with the preparation, negotiation and documentation of this Amendment
and any other documents executed in connection herewith,  including all fees and
expenses of Lender's counsel.  Borrower  authorizes Lender to pay any such costs
as a Revolving  Loan advance if not paid  reasonably  promptly by Borrower  upon
receipt of an invoice  therefor  (notwithstanding  any limitation on the minimum
size of any such advance).

     Section 4.6  Captions.  Titles or captions of articles and sections  hereof
are for convenience only and neither limit nor amplify the provisions hereof.

     Section 4.7 No Other  Changes.  Except as  expressly  amended  hereby,  all
representations,  warranties,  terms,  covenants  and  conditions  of the Credit
Agreement and the other Loan Documents  shall remain  unamended and unwaived and
shall continue in full force and effect.

     Section 4.8  Successors and Assigns.  This Amendment  shall be binding upon
and inure to the benefit of the parties hereto and their  respective  successors
and assigns.



















                                       4
<PAGE>

     WITNESS the hand and seal of each of the  undersigned  as of the date first
written above.

                       "Borrower"

                       AVADO BRANDS, INC. (formerly known as APPLE SOUTH, INC.)

                       By:
                       Its authorized officer

                       Attest:
                       Its authorized officer

                                                 [SEAL]

                       "Lender"

                       FIRST UNION NATIONAL BANK

                       By:
                       Its authorized officer
















                                       5