**Exhibit4.0**

 

Loan No. 06717

Lawrenceville, GA

 

**PROMISSORYNOTE**

 

| $1,500,000.00 |   | Date: March 23, 1998 |
|---------------|--------|----------------------|

 

**PROMISETO PAY.**For value received, **THE WESTERN SIZZLIN STORES, INC.,**aVirginia corporation, (“Borrower”) promises to pay to **CAPTEC FINANCIAL GROUP FUNDINGCORPORATION,**a Michigan corporation (together with its successors,assigns and transferees, “Lender”), or order, One Million Five Hundred ThousandDollars and 00/100 Dollars ($1,500,000.00), or so much of such sum as has beenadvanced under this Note, as follows:

 

Interest only from and after the date on which funds are disbursed byLender hereunder (“Effective Date”) through the last day of the month in whichthe Effective Date occurs shall be due and payable on the first day of the nextmonth following the Effective Date; provided that if the Effective Date occursafter the fifteenth (15th) day of a month, the interest which would accrue,based on the actual number of days, through the end of such month shall be dueand payable in advance on the Effective Date. Installments of principal andinterest in the amount of Sixteen Thousand One Hundred Eighty Four and 00/100Dollars ($16,184.00) are due and payable on the first day of each month (each a“Payment Date”), commencing May 1, 1998; until April 1, 2013 (“Due Date”), whenthe outstanding principal balance, plus accrued interest, is due and payable(unless the indebtedness evidenced by this Note is accelerated, in which case,the Due Date is the date of acceleration). The amortization period for this Note,for purposes of calculating the monthly installments of principal and interest,is fifteen (15) years.

 

All payments under this Note shall be made at Lender’s principal officeat 24 Frank Lloyd Wright Drive, Lobby L, 4th Floor, P.O. Box 544, Ann Arbor, Michigan48106-0544, or at such other address as Lender may designate in writing, or byelectronic funds withdrawal made by Lender upon written authorization thereforfrom Borrower, which authorization shall not be revocable by Borrower withoutthe consent of Lender. Payments due and payable on a day on which Lender is notopen for business are due on the next succeeding business day. Payments will beapplied first to accrued interest and then to principal.

 

**INTERESTRATE.**The outstanding principal balance of this Note willbear interest at a fixed rate equal to ten and seven hundredths percent(10.07%) per annum (the “Stated Rate”), until the Due Date (whether byacceleration or otherwise), and thereafter at a rate which is three percent(3%) above the Stated Rate (“Default Rate”).

 

Interest will be computed on the basis of a year consisting of twelve(12) months of thirty (30) days each. In no event, however, shall the interestrate exceed the maximum rate allowed by law. Notwithstanding anything to thecontrary contained herein, at no time shall the interest payable under thisNote be greater than the maximum rate permitted by applicable law (“LegalRate”). If any obligation under this Note shall result in Lender receiving anamount deemed to be interest under applicable law in excess of the Legal Rate,then the amount which would be excessive interest shall be applied to thereduction of the principal balance of this Note and not to payment of interest.If such excessive interest exceeds the unpaid principal balance of this Note,the excess shall be refunded to Borrower.

 

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**PREPAYMENT.**Borrower shall not have any right, except as otherwise specifically provided,to prepay the principal balance of this Note until two (2) loan years haveelapsed. The first “loan year” shall commence on the date of the closing of theloan evidenced by this Note, and subsequent loan years shall commence on theanniversaries of such date. Commencing with the third (3rd) loan year and if noEvent of Default (as hereinafter defined) then exists, Borrower shall have theright to prepay all, but not merely a portion of, the principal balance of thisNote together with accrued interest thereon on any Payment Date; provided,however, that Borrower shall provide no less than thirty (30) days priorwritten notice to Lender of Borrower’s intention to prepay (the “PrepaymentNotice”). Once given, the Prepayment Notice may not be withdrawn, and thefailure to prepay in accordance with the Prepayment Notice shall constitute anEvent of Default.

 

Borrower acknowledges and agrees that Lender is makingthe loan evidenced by this Note in consideration of the receipt by Lender ofall interest and other benefits intended to be conferred by this Note, and ifpayments of principal are made to Lender prior to the regularly scheduled duedate of such payments, for whatever reason (whether voluntarily orinvoluntarily), Lender will not receive all such interest and other benefitsand may incur additional costs. For these reasons, and to induce Lender to makethe loan, Borrower expressly waives any right to prepay this Note except asspecifically provided herein.

 

Lender shall not be required to accept any tender of prepayment of theprincipal balance of this Note at any time when the “Reinvestment Rate” (ashereinafter defined) is lower than the Stated Rate, less eighty-five basispoints, unless such tender also includes a sum of money (the “PrepaymentPremium”) equal to the present value (computed at the Reinvestment Rate) of thedifference between a stream of monthly payments necessary to amortize theoutstanding principal balance of this Note at the Stated Rate and a stream ofmonthly payments necessary to amortize the outstanding principal balance ofthis Note at the Reinvestment Rate (the “Differential”). In the event theDifferential is less than zero, no Prepayment Premium will be required. Forpurposes of this Note, the “Reinvestment Rate” is the yield on a United StatesTreasury obligation of a constant maturity rate maturing closest in time but priorto the maturity date of this Note, as reported in Federal Reserve StatisticalRelease H. 15 (519) (or any comparable successor publication) on the fifth(5th) business day preceding the prepayment date.

 

In addition to the Prepayment Premium, if any, every tender ofprepayment of the principal balance of this Note shall be accompanied by apayment equal to (x) all accrued but unpaid interest and other charges to thedate of prepayment and (y) an administrative fee equal to one half of onepercent (0.5%) of the outstanding principal balance of this Note; provided,however, that the administrative fee shall not be less than One Thousand and00/100 Dollars ($1,000.00) (collectively, the “Other Charges”).

 

If the outstanding principal balance of this Note is accelerated byreason of an Event of Default, such acceleration shall be deemed to be aprepayment and Borrower shall pay to Lender, in addition to all sums due as aresult of the acceleration, any applicable Prepayment Premium and OtherCharges. In the event of an acceleration of this Note in the first or secondloan year, Borrower shall be required to pay a Prepayment Premium equal to fivepercent (5%) of the outstanding principal balance of this Note together withany Other Charges. In the event that this Note is partially prepaid fromcasualty insurance proceeds or condemnation awards (as provided in the SecurityDeed, defined below), no Prepayment Premium or Other Charges shall be due andpayable with respect to such prepayment, and each monthly installmentthereafter shall be reduced to an amount which will amortize the then unpaidprincipal balance of this Note at the Stated Rate over the then remaining termof this Note.

 

**LATE PAYMENT CHARGE.**In the event that any payment under this Note is not received by Lender withinfifteen (15) days of the date when due, a late charge of five percent (5%) ofthe amount of such payment will be due. Borrower agrees that the late charge isa reasonable estimate of the administrative costs which Lender will incur in processingthe delinquency. Lender’s acceptance of a late payment and/or of the latepayment charge will not waive any default under this Note or affect theacceleration of this Note (if this Note has been accelerated).

 

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**COLLATERAL.**This Note and the other obligations of Borrower to Lender contained in thedocuments securing this Note are secured by and in accordance with the terms ofthat certain Security Deed, effective March 31, 1998, executed by Borrower forthe benefit of Lender (the “Security Deed”; together with any other documentssecuring payment under this Note, the "Loan ”). All property securing theIndebtedness *(*as defined in theSecurity Deed) is referred to as the “Collateral”.

 

**DEFAULT.**Any ofthe following events shall, for purposes of this Note, constitute an “Event ofDefault”:

 

(a)            Failureby Borrower to pay any amount owing on or with respect to the Indebtedness whendue, whether by maturity, acceleration or otherwise, which failure continuesfor five (5) business days.

 

(b)            Anyfailure by Borrower (or any guarantor of all or any part of the Indebtedness)to comply with any of the non-monetary terms, provisions, warranties orcovenants of this Note, the Security Deed or the other Loan Documents, whichfailure continues for fifteen (15) days after the date of written notice toBorrower (or any guarantor) from Lender of such default; provided, however,that if: (i) the nature of Borrower’s (or any guarantor’s) noncompliance issuch that more than fifteen (15) days are reasonably required for its cure,(ii) Borrower (or any guarantor) has commenced such cure within said fifteen(15) day period, (iii) Borrower (or any guarantor) diligently prosecutes suchcure to completion, (iv) Borrower (or any guarantor) provides Lender withwritten notice of the noncompliance, AND (v) Borrower (or any guarantor)furnishes reserves or a security bond, in an amount satisfactory to Lender inits sole discretion, then Borrower (or any guarantor) shall not be in default.

 

(c)             Institution offoreclosure proceedings or other exercise of rights and remedies by the holderof any mortgage, deed of trust, security interest or other lien against theCollateral (or any portion thereof); provided, however, if there is a goodfaith dispute by Borrower or Guarantor as to the validity or reasonableness ofthe claim which is the basis for such proceedings, then no Event of Defaultshall have occurred under this clause (c) if Borrower or Guarantor providesLender with written notice of the proceedings and furnishes reserves or asecurity bond for the proceedings satisfactory to Lender.

 

(d)            Insolvency ofBorrower (or any guarantor) or the admission in writing of Borrower’s (or anyguarantor’s) inability to pay debts as they mature.

 

(e)             Any statement,representation or information made or furnished by or on behalf of Borrower (orany guarantor) to Lender in connection with or to induce Lender to provide oradvance any of the Indebtedness shall prove to be false or materially misleadingwhen made or furnished.

 

(f)             Institution ofbankruptcy, reorganization, insolvency or other similar proceedings by oragainst Borrower (or any guarantor), unless, in the case of a petition filedagainst Borrower (or any guarantor), the same is dismissed within sixty (60)days of the date of filing.

 

(g)            The issuance orfiling of any judgment, attachment, levy, garnishment or the commencement ofany related proceedings or the commencement of any other judicial process uponor in respect to Borrower (or any guarantor) or the Collateral in which theamount in controversy exceeds One Hundred Thousand Dollars ($100,000) and isnot covered by the insurance of Borrower (or any guarantor), unless satisfied,or Borrower (or any guarantor) furnishes reserves or a security bond in anamount satisfactory to Lender in its sole discretion, released or dischargedwithin sixty (60) days after the date of such issuance, filing or commencement.

 

(h)            Sale or otherdisposition by Borrower (or any guarantor) of any substantial portion of itsassets or property.

 

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(i)              Death,dissolution, merger, consolidation, termination of existence, insolvency,business failure or assignment for the benefit of creditors of or by Borrower (orany guarantor); without the prior written consent of Lender, which consentshall not be unreasonably withheld.

 

(j)              Any failure byBorrower (or any guarantor) to pay any indebtedness (other than to Lender) inexcess of One Hundred Thousand Dollars ($100,000) (and exclusive of trade debtincurred in the ordinary course of business) when due, or any failure in theobservance or performance of any term, covenant or condition in any documentevidencing, securing or relating to such indebtedness, which failure continuesbeyond any applicable cure period.

 

(k)             Receipt byBorrower of a notice of termination of the Management and Licensing Agreementfrom The WesterN SizzliN Corporation, a Tennessee corporation, for the GreatAmerican Steak & Buffet Company Restaurant franchised restaurant operationlocated at 655 Hwy. 20 North, Lawrenceville, Georgia (“Franchised Operation”).

 

(l)              If this Note, theSecurity Deed and the other Loan Documents have not been assigned to the Trust(as defined in the Security Deed), the default by Borrower which continuesbeyond any applicable grace or cure period under the Retained Obligations (asdefined in the Security Deed); provided, however, if this Note, the SecurityDeed and the other Loan Documents are assigned to the Trust, this Clause (l)shall be of no force and effect during the term of such assignment.

 

(m)            In the event thatthis Note, the Security Deed and the other Loan Documents are assigned to theTrust, the default by Borrower which continues beyond any applicable grace orcure period under the Trust Obligations (as defined in the Security Deed).

 

Upon an occurrence of an Event of Default, Lender shall have the optionto declare all or part of the Indebtedness (including this Note) immediatelydue and payable. If this Note is not paid at maturity (whether by accelerationor otherwise), Lender shall have all of the rights and remedies provided at lawor equity or by agreement, including, without limit, the right to sell orliquidate all or any part of the Collateral. The remedies of Lender arecumulative and not exclusive.

 

**EXAMINATION OF RECORDS.**Borrower shall at all times keep full and accurate records of its businessand of the Collateral, which records shall be open to inspection and copying byLender at all reasonable times.

 

**LIABILITY OF SIGNATORIES.**Borrower, and all guarantors and endorsers, and any other party liable for theIndebtedness evidenced by this Note: (i) severally waive presentment, demand,protest, notice of dishonor, notice of non-payment and notice of accelerationof this Note; and (ii) agree that no extension or postponement of the time forpayment, or waiver, or indulgence or forbearance granted to Borrower (withoutlimit as to number or period) or any modification of this Note, or anysubstitution, or exchange or release of all or part of the Collateral, oraddition of any party to this Note, or release or discharge of, or suspensionof any rights and remedies against any party liable on this Note, shall reduceor affect the obligation of any other party liable for the payment of thisNote.

 

**NON-WAIVER.**Nodelay by Lender in the exercise of any right or remedy shall operate as awaiver. No single or partial exercise by Lender of any right or remedy shallpreclude any future exercise of such right or remedy or the exercise of anyother right or remedy. No waiver or indulgence by Lender of any default orEvent of Default shall be effective unless in writing and signed by Lender, norshall a waiver on one occasion be construed as a bar to any right or remedy, orwaiver of any default or Event of Default on any future occasion.

 

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**REIMBURSEMENT OF EXPENSES.**Borrower shall reimburse Lender for all costs and expenses, includingreasonable attorneys’ fees, incurred by Lender in enforcing the rights ofLender under this Note. Such costs and expenses shall include, withoutlimitation, costs or expenses incurred by Lender in any bankruptcy,reorganization, insolvency or other similar proceeding. Any reference in thisNote to attorneys’ fees shall mean fees, charges, costs and expenses ofin-house and/or outside counsel and paralegals, whether or not a suit orproceeding is instituted, and whether incurred at the trial court level, onappeal, in a bankruptcy, administrative or probate proceeding, in consultationwith counsel, or otherwise.

 

**WAIVEROF JURY TRIAL. BORROWER AND LENDER ACKNOWLEDGE THAT THE RIGHTTO TRIAL BY JURY IS A CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED. EACHPARTY, AFTER CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSELOF THEIR CHOICE, KNOWINGLY AND VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT,WAIVES ANY RIGHT TO TRIAL BY JURY IN THE EVENT OF LITIGATION REGARDING THEPERFORMANCE OR ENFORCEMENT OF, OR IN ANY WAY RELATED TO, THIS NOTE OR THEINDEBTEDNESS.**

 

**ASSIGNMENT.**This Note is freely assignable, in whole or in part, by Lender withoutprior notice to or consent of Borrower; provided, however, that Lender (or itsassignee) shall provide written notice of such assignment to Borrower in theevent that Lender (or such assignee) desires to designate a new person orentity as payee and/or a new place of payment for the obligations under thisNote. Borrower may not, in whole or in part, directly or indirectly, assignthis Note or its rights hereunder or delegate its duties hereunder without, ineach instance, the specific prior written consent of Lender, which consent maybe withheld or delayed in Lender’s sole discretion. Lender shall be fullydischarged from all responsibility accruing hereunder from and after theeffective date of any such assignment. Lender’s assignee shall, to the extentof the assignment, be vested with all the powers and rights of Lenderhereunder, and to the extent of such assignment the assignee may fully enforce suchrights and powers, and all references to Lender shall mean and refer to suchassignee. Lender shall retain all rights and powers hereby given not soassigned, transferred and/or delivered. Borrower hereby waives all defenseswhich Borrower may be entitled to assert against Lender’s assignee with respectto liability accruing hereunder prior to the effective date of any assignmentof Lender’s interest herein.

 

**SECURITIZATION.**Borrower understands and agrees that Lender may, from time to time, assignits rights and powers under this Note, the Security Deed and any other LoanDocuments, in whole or in part, in connection with a securitization program.Borrower agrees to enter into an amendment to this Note, the Security Deed andany other Loan Documents if such amendments are required by a nationallyrecognized rating agency in connection with a securitization program sponsoredby Lender and in which this Note, the Security Deed and any other LoanDocuments are to be included; provided that Borrower shall not be obligated toenter into any amendment which adversely affects Borrower or otherwiseadversely alters any of the financial terms of this Note, the Security Deed andany other Loan Documents.

 

**MISCELLANEOUS.**The terms and provisions of this Note shall be governed by and construed inaccordance with the laws of the State of Georgia. Lender and Borrower agreethat any dispute which may arise between them with regard to this Note shall beresolved by litigation in state or federal court. Litigation may be initiatedby Lender or its assignee, at its discretion, in the State of the principalplace of business of Lender or its assignee, the State of the principal placeof business of Borrower, or the State where the Collateral is located. **BORROWERHEREBY KNOWINGLY AND IRREVOCABLY WAIVES ANY OBJECTIONS ON THE GROUNDS OFIMPROPER JURISDICTION OR VENUE TO AN ACTION INITIATED AS SET FORTH ABOVE ANDAGREES THAT EFFECTIVE SERVICE OF PROCESS MAY BE MADE UPON BORROWER BYREGISTERED MAIL RETURN RECEIPT REQUESTED.**The terms and provisionsof this Note may only be changed in writing, executed by Borrower and Lender.

 

**THE WESTERN SIZZLIN STORES, INC.**

 
| By:    | Victor F. Foti |   |
|--------|----------------|--------|
|   |           | Its:   | President |   |
|        |                |        |  |  |  |

Address: P.O. Box 12167

Roanoke, Virginia 24023-2167 

Tax I.D. No. 54-1787907

 

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Pay to the order of

without warranty orrecourse.

Captec Financial Group Funding Corporation
| By : | [ILLEGIBLE] |   |
|------|-------------|--------|
| Its: |        |   |

 

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When Recorded Return To:

 

Liggie V. Perkins

Captec Financial Group Funding Corporation

24 Frank Lloyd Wright Drive

Lobby L, Fourth Floor

P.O. Box 544

Ann Arbor, Michigan 48106-0544

 

Loan Number: 06717

Lawrenceville,Gwinnett County, Georgia

 

 

DEED TO SECUREDEBT, SECURITY AGREEMENT AND

ASSIGNMENT OFLEASES AND RENTS

 

THIS DEED TO SECURE DEBT, SECURITY AGREEMENT AND ASSIGNMENT OF LEASESAND RENTS (“Security Deed”) is made this 23 day of March 1998, by **THE WESTERNSIZZLIN STORES, INC.,**a Virginia corporation, whose address is P. O.Box 12167, Roanoke, Virginia 24023-2167 (“Borrower”), for the benefit of **CAPTECFINANCIAL GROUP FUNDING CORPORATION,**a Michigan corporation, whoseaddress is 24 Frank Lloyd Wright Drive, Lobby L, 4th Floor, P.O. Box 544, AnnArbor, Michigan 48106-0544 (together with its successors, assigns andtransferees, “Lender”). This instrument shall become effective on March 31,1998.

 

PRELIMINARYSTATEMENT

 

This Security Deed is made to secure payment in the sum of One MillionFive Hundred Thousand and 00/100 Dollars ($1,500,000.00), together withinterest, costs and all other sums due under that certain promissory note madeas of the date hereof in favor of Lender (the “Note”), to be paid by Borrowerto Lender (the “Indebtedness”). This Security Deed is given to secure an obligationincurred by Borrower for the purpose of financing certain improvements on theReal Estate, which obligation may include the acquisition cost of the RealEstate.

 

GRANTING CLAUSE

 

To secure the Indebtedness and as security for the purposes stated elsewherein this Security Deed, Borrower does hereby grant, bargain, sell, convey,assign, transfer and set over unto Lender, its successors and assigns, all ofthe following described land and interests in land, estates, easements, rights,improvements, personal property, fixtures, equipment, furniture, furnishings,appliances and appurtenances (collectively, “Deeded Property”):

 

1.             The parcel(s) ofreal estate commonly known as 655 Hwy. 20 North located in the City ofLawrenceville, Gwinnett County, Georgia and particularly described on ScheduleA attached to this Security Deed (“Real Estate”).

 

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2.             All buildings,structures and improvements now located, or subsequently constructed or placedupon the Real Estate, including, without limit, all building materials andbuilding equipment located on the Real Estate;

 

3.             All machinery,apparatus, equipment, goods, fittings, fixtures and articles of personalproperty of every kind and nature located or subsequently located on the RealEstate (individually and collectively, “Equipment”), and all of the right,title and interest of Borrower in and to any Equipment which may be subjectedto any title retention or security agreement superior in lien to the lien of thisSecurity Deed.  It is agreed that allEquipment is part and parcel of the Deeded Property and appropriated to the useof the Real Estate and, whether affixed or not, unless Lender shall otherwiseelect, be deemed to be real estate and granted under this Security Deed;

 

4.             All easements,rights-of-way, licenses, privileges and appurtenances relating to the RealEstate;

 

5.             All rents, issues,profits, revenues, proceeds, accounts and general intangibles arising from theReal Estate or relating to any business conducted by Borrower on the RealEstate, under present or future leases, usufructs, reservation and/or purchaseagreements, licenses or otherwise, which are specifically assigned andtransferred to Lender;

 

6.             All right, titleand interest of Borrower in and to the land lying in the bed of any street,road, avenue, alley or walkway, opened or proposed or vacated, adjoining theReal Estate;

 

7.             Any and all awardsor payments, including, without limit, interest on any awards or payments, andthe right to receive them, which may be made with respect to the DeededProperty as a result of: (a) the exercise of the right of eminent domain, (b)the alteration of the grade of any street, (c) any loss of or damage to anybuilding or other improvement on the Real Estate, (d) any other injury to ordecrease in the value of the Deeded Property, (e) any refund due on account ofthe payment of real estate taxes, assessments or other charges levied againstor imposed upon the Deeded Property, or (f) any refund of utility deposits orright to any tenant deposit;

 

8.             All substitutions,replacements, extensions, renewals, additions and accessories for or to any ofthe foregoing.

 

TO HAVE AND TO HOLD the Deeded Property and all parts, rights, membersand appurtenances thereof, to the use and benefit of Lender, its successors andassigns, IN FEE SIMPLE forever; and Borrower covenants that Borrower islawfully seized and possessed of the Deeded Property and has good right toconvey the same, that the same are unencumbered except for the Permitted Liens(as that term is defined in subsection l(b) hereinbelow), and that Borrowerdoes warrant and will forever defend the title thereto against the claims ofall persons whomsoever, except as to the Permitted Liens.

 

This Security Deed is intended (i) to constitute a security agreementas required under the Uniform Commercial Code of Georgia, and (ii) to operateand is to be construed as a deed passing the title to the Deeded Property toLender and is made under those provisions of the existing laws of the State ofGeorgia relating to deeds to secure debt, and not as a mortgage, and is givento secure the payment of the Indebtedness.

 

**1.             COVENANTS AND WARRANTIES. **Borrower covenants andwarrants to Lender as follows:

 

(a)           **Authority; No Conflict.**Borrower has the power and authority to execute, deliver and perform itsobligations under this Security Deed. The execution, delivery and performanceof this Security Deed by Borrower does not, and will not violate or conflictwith any provision of its organizational or charter documents or any agreement,court order or consent decree to which Borrower is a party or by which Borrowermay be bound.

 

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(b)           **Title to Deeded Property.**Borrower isthe owner and is lawfully seized and possessed of the Deeded Property.  Borrower has good right, full power andauthority to grant the Deeded Property to the Lender in accordance with theterms of this Security Deed. The Deeded Property is and shall remain free andclear of any liens and encumbrances excepting only Permitted Liens.  For purposes of this Security Deed,“Permitted Liens” shall mean the current zoning requirements for the DeededProperty and those liens or encumbrances shown on a loan policy of title insuranceaccepted in writing by Lender.

 

(c)           **Payment of Indebtedness.**Borrower willpay and perform the Indebtedness when due, whether by maturity, acceleration orotherwise.

 

(d)           **Maintenance of Deeded Property; Waste.**Borrowershall preserve and maintain the Deeded Property in good repair, working orderand condition, excepting ordinary wear and tear, and shall not commit or permitthe commission of waste against the Deeded Property.  Failure, refusal or neglect of Borrower to pay any taxes orassessment or any utility rates levied, assessed or imposed upon the DeededProperty, and/or nonpayment of any premiums for insurance, shall constitutewaste, and shall entitle Lender to exercise the remedies provided in**this Security Deed, as well as thoseafforded by law.

 

(e)           **Payment of Taxes; Discharge of Liens.**

 

(i)               Borrower shall pay when due, andbefore any interest, collection fees or penalties accrue, all taxes,assessments, encumbrances, liens, mortgages, water or sewer charges and othercharges and impositions (individually and collectively, “Imposition(s)”)levied, assessed or existing with respect to the Deeded Property, or any partof it, and Borrower will deliver to Lender receipts showing payment of theImposition(s). Borrower shall have the right, at its sole cost and expense, tocontest the amount or validity, in whole or in part, of Impositions byappropriate proceedings diligently conducted in good faith, but no such contestshall be carried on or maintained by Borrower after the time limit for paymentof any Impositions unless Borrower, at its option, shall either pay the amountinvolved under protest, or shall deposit with Lender one hundred twenty-fivepercent (125%) of the contested amount or such other reasonable security as maybe demanded by Lender to insure payment of the contested Impositions and allpenalties, interest, costs and expenses which may accrue during the period ofthe contest. Upon the termination of any such proceedings, Borrower shall paythe Impositions or part thereof as finally determined together with anypenalties or other liabilities in connection therewith; provided, however, thatif Borrower has deposited cash or its equivalent with Lender as security,Lender shall arrange to pay such Impositions in the manner set forth in Sectionl(e)(ii) below and any funds remaining after payment of the Impositions byLender shall be refunded to Borrower. If Borrower fails to pay any of theImposition(s), Lender may, at its option, pay such Imposition(s) and the moniespaid shall be a lien upon the Deeded Property, added to the amount secured bythis Security Deed, and payable immediately by Borrower to Lender, withinterest at the higher of (i) the interest rate, if any, charged by theparticular entity levying or assessing the Imposition(s), or (ii) the highestrate charged by Lender on any of the Indebtedness (but in either case not toexceed the maximum interest rate permitted by law).

 

(ii)              Upon the occurrence of an Event ofDefault (as hereinafter defined), at the option of Lender, Borrower shall payto Lender, in advance on the first day of each month, a pro rata portion (asdetermined by Lender) of all Imposition(s) levied, assessed or existing on theDeeded Property. In the event that sufficient funds have been deposited with Lenderto cover the amount of these Imposition(s) when they become due and payable,Lender shall pay them. In the event that sufficient funds have not beendeposited to cover the amount of these Imposition(s) at least thirty (30) daysprior to the time when they become due and payable, Borrower shall immediatelypay the amount of the deficiency to Lender. Lender shall not be required tokeep a separate account or to pay Borrower any interest on the funds held byLender for the payment of the Imposition(s) pursuant to this Section l(e) orfor the payment of insurance premiums under Section l(g) below, or on any otherfunds deposited with Lender in connection with this Security Deed, unless theaggregate amount of such funds is in excess of Fifty Thousand Dollars ($50,000),at which time Lender will place such funds in an interest bearing account.

 

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The funds on deposit withLender are further security for the Indebtedness and if an Event of Defaultoccurs under this Security Deed, any funds remaining on deposit with Lender maybe applied against the Indebtedness at any time after the Event of Defaultoccurs, and without notice to Borrower.

 

(f)            **Saleor Transfer. **Borrowerwill not sell or transfer all or any interest in the Deeded Property or inBorrower without the prior written consent of Lender. For purposes of thisSection l(f), a “transfer” of Borrower shall include, without limitation, anysale (involving either all or any portion of the equity interest in Borrower orall or substantially all of Borrower’s assets), merger, consolidation, changein control or termination of existence of Borrower.  Notwithstanding the foregoing, Lender’s consent shall not berequired for transfers of shares of stock of Borrower for estate planningpurposes, provided that such transfers, in the aggregate, shall not result in achange in control of Borrower.  In theevent ownership of the Deeded Property, or any part, becomes vested in any person(s)other than Borrower, Lender may deal with and may enter into any contract oragreement with the successor(s) in interest with reference to this SecurityDeed in the same manner as with Borrower, without discharging or otherwiseaffecting the lien of this Security Deed or Borrower’s obligations under thisSecurity Deed.

 

(g)           **Insurance.**

 

(i)               Borrower shall keep the buildingsand all other improvements on the Deeded Property insured for the benefit ofLender against fire and other hazards and risks. Borrower covenants and agreesthat Borrower will carry and maintain, at its sole cost and expense, thefollowing types of insurance, in the amounts specified: (A) comprehensivegeneral liability insurance with initial limits of not less than Two MillionDollars ($2,000,000) for death or injuries to one person and not less than TwoMillion Dollars ($2,000,000) for death or injuries to two or more persons inone occurrence, and not less than One Million Dollars ($1,000,000) for damageto property; (B) fire and extended coverage insurance on a replacement formwith inflation-guard, vandalism and malicious mischief endorsements; (C) rentloss or business interruption insurance covering a period of not less thantwelve (12) months; (D) flood insurance (if the Deeded Property is situated inan area which is considered a flood risk area by the United States Departmentof Housing and Urban Development, and for which flood insurance is availableunder the National Flood Insurance Act of 1968, as amended); (E) builder’s riskinsurance (if Borrower is constructing buildings or improvements on the DeededProperty) in an amount not less than 100% of their full insurable replacementcost; and (F) such other insurance and in such amounts as may be reasonablyrequired from time to time by Lender. All insurance shall be in forms and withcompanies satisfactory to Lender. Borrower shall deliver to Lender the policies(or, alternatively, originally executed certificates of insurance therefor)evidencing the required insurance with premiums fully paid for one year in advance,and with standard mortgagee clauses (making all losses payable to Lender).Renewals of the required insurance (together with evidence of premiumprepayment for one (1) year in advance) shall be delivered to Lender at leastthirty (30) days before the expiration of any existing policies.  All policies and renewals shall provide thatthey may not be canceled or amended without giving Lender thirty (30) daysprior written notice of cancellation or amendment.

 

(ii)              Should Borrower fail to insure orfail to pay the premiums on any required insurance or fail to deliver thepolicies or renewals as provided above, Lender may have the insurance issued orrenewed (and pay the premiums on it for the account of Borrower) in amounts andwith companies and at premiums as Lender deems appropriate. If Lender elects tohave insurance issued or renewed to insure Lender’s interest, Lender shall haveno duty or obligation of any kind to also insure Borrower’s interest or tonotify Borrower of Lender’s actions. Any sums paid by Lender for insurance, asprovided above, shall be a lien upon the Deeded Property, added to the amountsecured by this Security Deed, and payable immediately by Borrower to Lender,as the case may be, with interest on those sums at the highest rate charged byLender on any of the Indebtedness (but not to exceed the maximum interest ratepermitted by law).

 

(iii)             In the event of loss or damage tothe Deeded Property, the proceeds of all required insurance shall be paid toLender.   No loss or damage shall itselfreduce the Indebtedness.

 

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Lender or any of itsemployees is each irrevocably appointed attorney-in-fact for Borrower and isauthorized to adjust and compromise each loss without the consent of Borrower,to collect, receive and receipt for the insurance proceeds in the name ofLender and Borrower and to endorse Borrower’s name upon any check in payment ofthe loss.

 

(iv)             Lender shall apply such proceeds tothe repair and restoration of the Deeded Property subject to the followingconditions:

 

(1)                                  thereshall be no Event of Default existing hereunder;

 

(2)                                  plansfor repair and restoration shall be reviewed and approved by Lender, whichapproval shall not be unreasonably withheld or delayed;

 

(3)                                  repairand restoration of the Deeded Property to a viable, economic unit (asdetermined by Lender) can practicably be completed prior to the Due Date setforth in the Note;

 

(4)                                  Borrowershall have deposited with Lender funds equal to the positive difference, ifany, between the cost of repair, restoration and completion, and the amount of the insurance proceeds;and

 

(5)                                  disbursementswill be made by Lender or, at Lender’s option, a title insurance companyacceptable to Lender, pursuant to procedures necessary  or appropriate to keep the  Deeded Property  free of mechanics’ liens and to ensure that funds are properlyapplied.

 

Provided that noEvent of Default exists, if there are insurance proceeds in the amount ofTwenty-Five Thousand Dollars ($25,000) or less remaining after the repair andrestoration of the Deeded Property as required hereunder, such proceeds shallbe paid to Borrower. Provided that no Event of Default exists, if there areinsurance proceeds in excess of Twenty-Five Thousand Dollars ($25,000)remaining after the repair and restoration of the Deeded Property as requiredhereunder, such proceeds shall be applied toward payment of the Indebtedness(or any portion thereof) without premium or other applicable charges, whetheror not then due or payable, in whatever order of maturity as Lender may elect.Application of proceeds by Lender toward later maturing installments of theIndebtedness shall not excuse Borrower from making the regularly scheduledinstallment payments nor shall such application extend or reduce the amount ofany of these payments.

 

(v)              Notwithstanding Section l(g)(iv)above, if a substantial portion (fifty percent [50%] or more) of the DeededProperty is damaged or destroyed during the last twenty-four (24) months of theterm of the Note, and provided that no Event of Default then exists hereunder,either Borrower or Lender may elect not to rebuild and to apply the insuranceproceeds toward payment of the Indebtedness (or any portion thereof) withoutpremium or other applicable charges, whether or not then due or payable, inwhatever order of maturity as Lender may elect. Application of proceeds byLender toward later maturing installments of the Indebtedness shall not excuseBorrower from making the regularly scheduled installment payments nor shallsuch application extend or reduce the amount of any of these payments.

 

(vi)             In the event of a foreclosure ofthis Security Deed, or the giving of a deed in lieu of foreclosure, or theexercise of the power of sale or other proceeding relating to the DeededProperty, the purchaser or grantee of the Deeded Property shall succeed to allof the rights of Borrower under the insurance policies including, withoutlimit, any right to unearned premiums and to receive the proceeds.

 

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(vii)            Upon the occurrence of an Event ofDefault hereunder, at the option of Lender, Borrower shall pay to Lender, inadvance on the first day of each month, a pro rata portion of the annualpremiums due (as estimated by Lender) on the required insurance. In the eventthat sufficient funds have been deposited with Lender to cover the amount ofthe insurance premiums when the premiums become due and payable, Lender shallpay the premiums. In the event that sufficient funds have not been depositedwith Lender to pay the insurance premiums at least thirty (30) days prior tothe time when they become due and payable, Borrower shall immediately pay theamount of the deficiency to Lender.

 

(h)           **Compliance With Law and Other Matters.**Borrower will comply with all federal, state and local laws, ordinances,rules, regulations and restrictions relating to the ownership, use, occupancyand operation of the Deeded Property. Borrower shall be solely responsible toapply for and secure any building permit or permission of any duly constitutedauthority for the purpose of doing any of the things which Borrower is requiredor permitted to do under the provisions of this Security Deed. Further,Borrower will comply with, perform Borrower’s obligations under, and enforcethe obligations of all other parties to all building and use restrictions,ground leases, leases, reservation and/or purchase agreements, condominiumdocuments and/or other instruments affecting or relating to the use and/oroccupancy of the Deeded Property.

 

(i)            **Alteration of Improvements.**

 

(i)       Without the priorwritten consent of Lender, Borrower will not remove any building, structure orother improvement forming part of the Deeded Property.

 

(ii)      Borrower may from time totime make alterations, replacements, additions, changes, and improvements(collectively, “Alterations”) in and to the Deeded Property as Borrower mayfind necessary or convenient for its purposes; provided, however, that no suchAlterations shall decrease the value of the Deeded Property. All work withrespect to any Alteration shall be done in a good and workmanlike manner byproperly qualified and licensed personnel, and such work shall be diligentlyprosecuted to completion.

 

(iii)     Borrower shall pay thecosts of any Alterations done on the Deeded Property, and shall keep the DeededProperty free and clear of liens of any kind. Borrower shall indemnify anddefend Lender from and against any liability, loss, damage, costs, attorneys’fees, and any other expense incurred as a result of claims of lien by anyperson performing work or furnishing materials or supplies for Borrower or anyperson claiming under Borrower.

 

(iv)     No Alteration shall beundertaken until Borrower shall have procured and paid for all required permitsand authorizations of all municipal departments and governmental subdivisionshaving jurisdiction. Any Alteration involving an estimated cost of more thanTwenty-Five Thousand and 00/100 Dollars ($25,000.00) shall be conducted underthe supervision of a licensed architect or engineer selected by Borrower andsatisfactory to Lender and shall be made in accordance with detailed plans andspecifications (“Plans and Specifications”) and cost estimates prepared by sucharchitect or engineer and approved in writing in advance by Lender. AnyAlteration shall be made promptly and in a good workmanlike manner and incompliance with all applicable permits and authorizations and building andzoning laws and all laws and in accordance with the orders, rules andregulations of the Board of Fire Insurance Underwriters and any other bodyhereafter exercising similar functions having or asserting jurisdiction overthe Deeded Property.

 

(v)      In connection with anyAlteration involving an estimated cost in excess of Twenty-Five Thousand and00/100 Dollars ($25,000.00), Lender shall have the right to require Borrower topost a bond or other security reasonably satisfactory to Lender to insure thecompletion of such Alteration.

 

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(j)            **Obligation to Rebuild.**

 

(i)           If any portion ofthe Deeded Property is damaged or destroyed by fire or other casualty, subjectto Section l(g)(iv) above, Borrower shall, at its sole cost and expense,forthwith repair, restore, rebuild or replace the damaged or destroyedimprovements, fixtures or equipment, and complete the same as soon asreasonably possible, to the condition they were in prior to such damage ordestruction, except for such changes in design or materials as may then be requiredby law or are approved by Lender in Lender’s reasonable discretion. Lender, insuch event, shall, to the extent the proceeds of the insurance are madeavailable to Lender and within a reasonable amount of time after receipt ofsuch proceeds by Lender, reimburse Borrower for the costs of making suchrepairs, restoration, rebuilding and replacements on such terms as Lender mayreasonably require. To the extent, if any, that the proceeds of insurance madeavailable as aforesaid are insufficient to pay the entire cost of making suchrepairs, restoration, rebuilding and replacements, Borrower shall pay theamount by which such costs exceed the insurance proceeds made available asaforesaid.

 

(ii)          Notwithstanding theforegoing, in the event that Borrower fails to commence the repair orrestoration of the Deeded Property pursuant to this Section l(j) within sixty(60) days after the casualty, or if Borrower abandons or fails to diligentlypursue completion of such repair or restoration (as determined in Lender’sreasonable judgment), then Lender shall be entitled to apply the insuranceproceeds first towards reimbursement of all costs and expenses of Lender incollecting the proceeds (including, without limit, court costs and reasonableattorneys’ fees), and then toward any payment of the Indebtedness or anyportion of it, whether or not then due or payable and in whatever order ofmaturity as Lender may elect. Application of proceeds by Lender toward latermaturing installments of the Indebtedness shall not excuse Borrower from makingthe regularly scheduled installment payments nor shall such application extendor reduce the amount of any of these payments.

 

(k)           **Recording.**Borrower will cause this Security Deed, any supplemental security deed and anyfinancing and continuation statements required by the applicable UniformCommercial Code to be recorded and filed at Borrower’s expense in such mannerand in such place as may, in Lender’s opinion, be necessary or proper.

 

(1)           **AdditionalAssurances.** Borrower will execute and deliver additionalinstruments and take additional actions as Lender may reasonably request tocarry out the terms and conditions of this Security Deed.

 

(m)          **Booksand Records; Inspection Rights.** Borrower will at all timesmaintain accurate and complete books and records and copies of all building anduse restrictions, ground leases, leases, reservation and/or purchaseagreements, condominium documents, contracts and/or other instruments withrespect to the Deeded Property. Lender may inspect and make copies of thosebooks and records and any other data relating to the Deeded Property. Lendermay inspect the Deeded Property at such reasonable times as Lender shalldetermine. Borrower will promptly provide to Lender reports concerning theincome, expenses and financial and other conditions of the Deeded Property asmay be required from tune to time by Lender.

 

(n)           **EnvironmentalRepresentation. Warranty and Indemnification.** Notwithstandinganything in this Security Deed to the contrary, Borrower represents, covenantsand warrants to Lender as follows:

 

(i)           At all times sinceBorrower has acquired any interest or rights in the Deeded Property, whetherthrough lease, land contract, deed or otherwise and, to Borrower’s knowledge,after due inquiry (including, without limitation, the Phase I EnvironmentalAssessment dated February 18, 1998, prepared by Secor InternationalIncorporated and identified as Job No. QO345-003-01 [“Assessment”]), at alltimes prior to Borrower’s acquisition of such interest or rights in the DeededProperty: there are no and have been no violations of the RelevantEnvironmental Laws (as hereinafter defined) at the Deeded Property and noconsent orders have been entered with respect the Deeded Property; there are noand have been no Hazardous Materials (as hereinafter defined) or Asbestos (ashereinafter defined) either at, upon, under or within, or discharged or emittedat or from, the Deeded Property; no Hazardous Materials or Asbestos have flown,blown or otherwise become present at the Deeded Property

 

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from neighboring land; and no Hazardous Materials or Asbestos have beenremoved from the Deeded Property.

 

(ii)          Borrower, after  due inquiry (including,  without limitation, the Assessment), is notaware of any claims of litigation, and has not received any communication,concerning the presence or possible presence of Hazardous Materials or Asbestosat the Deeded Property or concerning any violation or alleged violation of the RelevantEnvironmental Laws respecting the Deeded Property. Borrower shall promptlynotify Lender of any such claims and shall furnish Lender with a copy of anysuch communications received after the date of this Security Deed.

 

(iii)         Borrower shallensure that the Deeded Property complies in all respects with the RelevantEnvironmental Laws and shall notify Lender promptly and in reasonable detail inthe event that Borrower becomes aware of the presence of Hazardous Materials orAsbestos or a violation of the Relevant Environmental Laws at the DeededProperty.

 

(iv)         Should Borrower useor permit the Deeded Property to be used or maintained so as to subjectBorrower, Lender or the use of the Deeded Property to a claim of violation ofthe Relevant Environmental Laws (unless contested in good faith by appropriateproceedings satisfactory to Lender), Borrower shall immediately remedy andfully cure, at its own cost and expense, any conditions arising therefrom.

 

(v)          Borrower shall payimmediately when due the cost of compliance with the Relevant EnvironmentalLaws. Further, Borrower shall keep the Deeded Property free of any lien imposedpursuant to the Relevant Environmental Laws.

 

(vi)         In the event thatBorrower fails to comply with the requirements of clauses (i) through (v) inthis Section l(n), after notice to Borrower and the earlier of the expirationof any applicable cure period under this Security Deed or the expiration of thecure period permitted under the Relevant Environmental Laws, if any, Lender may,but in no event shall be obligated to, exercise its right to do one or more ofthe following: (A) elect that such failure constitutes an Event of Defaultunder this Security Deed; and/or (B) take any and all actions, at Borrower’sexpense, that Lender deems necessary or desirable to cure such failure ofcompliance. Any costs incurred pursuant to this clause (vi) or clause (vii) inthis Section l(n), shall become immediately due and payable without notice andwith interest thereon at a rate equal to the highest interest rate charged onthe Indebtedness (but not to exceed the maximum interest rate permitted bylaw), and such amount, including interest, shall, if incurred prior to theforeclosure of this Security Deed or the delivery of a deed in lieu of foreclosure,or the exercise of the power of sale or other proceeding relating to the DeededProperty, be added to amounts owing under the Indebtedness and shall be securedby this Security Deed.

 

(vii)        Lender shall not beliable for and Borrower shall immediately pay to and indemnify, defend and holdLender harmless from and against, all loss, cost, liability, damage and expense(including, without limit, attorneys’ fees and costs incurred in theinvestigation, defense and settlement of claims) that Lender may suffer orincur (as holder of this Security Deed, as mortgagee in possession or assuccessor in interest to Borrower as owner of the Deeded Property by virtue offoreclosure or acceptance of a deed in lieu of foreclosure or the exercise ofthe power of sale or other proceeding relating to the Deeded Property) as aresult of or in connection in any way with Borrower’s failure to comply withthe terms and provisions of this Section l(n).

 

(viii)       The provisions ofclauses (i) through (vii) of this Section l(n) shall survive the repayment ofthe Indebtedness and the performance of all duties and obligations relatedthereto, the foreclosure of this Security Deed, the delivery of a deed in lieuof foreclosure, or the exercise of the power of sale or other proceedingrelating to the Deeded Property and/or the discharge of this Security Deed.

 

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“RelevantEnvironmental Laws” shall mean all applicable federal, state and local laws,rules, regulations, orders, judicial determinations and decisions ordeterminations by any judicial, legislative or executive body of anygovernmental or quasi-governmental entity, whether in the past, the present orthe future, with respect to: (i) the installation, existence or removal of, orexposure to, Asbestos on the Deeded Property; (ii) the existence on, dischargefrom, or removal from the Deeded Property of Hazardous Materials; and/or (iii)the effects on the environment of the Deeded Property or of any activity now,previously, or hereafter conducted on the Deeded Property.

 

“Asbestos” shallhave the meanings provided under the Relevant Environmental Laws, and shallinclude, without limitation, asbestos fibers and friable asbestos, as suchterms are defined under the Relevant Environmental Laws.

 

“HazardousMaterials” shall mean any of the following (as defined by the RelevantEnvironmental Laws): solid wastes; toxic or hazardous substances, wastes, orcontaminants (including, without limit, polychlorinated biphenyls, paintcontaining lead, and/or urea formaldehyde foam insulation; and discharges ofsewage or effluent.

 

(o)**           ReportingRequirements.**Borrower hereby covenants and agrees to deliver toLender, or to cause The WesterN SizzliN Corporation, a Tennessee corporation(“Guarantor”) to deliver to Lender, the following:

 

(i)            Management prepared and certifiedconsolidated quarterly financial statements for Guarantor within forty-five(45) days after the end of the first three (3) quarters of each fiscal year ofGuarantor;

 

(ii)           Annual consolidated financialstatements for Guarantor audited by an independent certified public accountantwithin one hundred twenty (120) days after the end of each fiscal year ofGuarantor;

 

(iii)          Management prepared and certified unitlevel profit and loss statements relating to the operation of the GreatAmerican Steak & Buffet Company franchised restaurant operation located onthe Deeded Property (“Franchised Operation”) within forty-five (45) days afterthe end of each fiscal year of Borrower;

 

Such financial statements shall be true and correct in all respects,shall be prepared in accordance with generally accepted accounting principles,and shall fairly represent the respective financial conditions of the subjectsthereof as of the respective dates thereof. If Borrower’s financial statementsare prepared on a consolidated basis, Borrower hereby covenants and agrees toprepare financial statements specifically relating to the operation of theFranchised Operation. At the request of Lender, Borrower shall obtain theconsent of Borrower’s accountant(s) to the inclusion of Borrower’s most recentfinancial statement in any regulatory filing or report to be filed by Lender.

 

(p)           **Indemnification.**Borrowershall appear in and defend any suit, action or proceeding that might in any wayand in the sole judgment of Lender affect the value of the Deeded Property, thevalidity, enforceability and priority of this Security Deed or the rights andpowers of Lender. Borrower shall, at all times, indemnify, defend, hold harmlessand on demand, reimburse Lender for any and all loss, damage, expense or cost,including cost of evidence of title and attorneys’ fees, arising out of orincurred in connection with any such suit, action or proceeding, and the sum ofsuch expenditures shall be secured by this Security Deed and shall bearinterest at the highest rate accruing on the Indebtedness, not to exceed themaximum rate permitted by law, and shall be due and payable on demand. Borrowershall pay cost of suit, cost of evidence of title and reasonable attorneys’fees in any proceeding or suit, including appellate proceedings, brought byLender to foreclose or otherwise enforce this Security Deed.

 

(q)           **Estoppel Certificates.**Borrowershall, within ten (10) days after written request therefor

 

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from Lender, furnish to Lender, or such other personsor entities as Lender shall designate, a duly acknowledged written statementsetting forth the amount of the debt secured by this Security Deed, and statingeither that no setoffs or defenses exist against such debt, or, if such setoffsor defenses are alleged to exist, the nature thereof, that no Event of Defaultthen exists, and no event has occurred, which with notice or the passage of time,or both, would constitute and Event of Default.

 

(r)            **Management Agreement.**Borrower is afranchisee in good standing with The WesterN SizzliN Corporation, a Tennesseecorporation (“Franchisor”), and is not in default under its Management andLicensing Agreement with Franchisor relating to the Franchised Operation(“Management Agreement”). Borrower agrees to comply with the terms of theManagement Agreement and to take all actions necessary or required to keep theManagement Agreement in full force and effect. Borrower will not encumber itsrights under the Management Agreement except to Lender. Borrower agrees topromptly provide Lender with a copy of any notice to Borrower of a defaultunder the Management Agreement. Further, Borrower agrees to promptly provideLender with a copy of any notice to Borrower of the existence of any breachwhich, with notice or passage of time, or both, would entitle Franchisor toterminate the Management Agreement.

 

(s)           **Fixed Charge Coverage Ratio.** Borrowershall maintain a Fixed Charge Coverage Ratio (as hereinafter defined) of notless than 1.2 to 1.0 for Borrower’s business operations generally and not lessthan 1.2 to 1.0 for the Franchised Operation. “Fixed Charge Coverage Ratio”shall mean Borrower’s Operating Cash Flow divided by its Fixed Charges (each asdefined below). The Fixed Charge Coverage Ratios shall be calculated byBorrower from time to time and dates as determined by Lender, and Borrowershall submit such information as Lender may require to confirm and approveBorrower’s calculation of the Fixed Charge Coverage Ratios.

 

(i)            “Fixed Charges” shall mean the sumof the following items set forth on a pro forma basis separately stated forboth Borrower’s business operations generally and for the Franchised Operation,in each case, for the applicable twelve (12) month operating period:

 

(A)          current portion of long-term debt(defined as the current portion of long-term debt due to mature during the nexttwelve (12) month operating period, as stated in Borrower’s applicablefinancial statement, plus, if not already included therein, the current portionof principal payments imputed on all capital leases), *plus*

 

(B)           interest expense (defined as theinterest expense as stated on Borrower’s applicable financial statement, plus,if not already included therein, the interest expense imputed on all capitalleases), *plus*

 

(C)           the current portion of operatingleases (defined as the amount of rent due under operating leases for the nexttwelve (12) month operating period).

 

(ii)           “Operating Cash Flow” shall mean thesum or subtraction of the following items separately stated for both Borrower’sbusiness operations generally and for the Franchised Operation, in each case,for the applicable prior twelve (12) month operating period:

 

(A)          net income (defined as the net incomestated on Borrower’s applicable financial statement), *plus*

 

(B)           depreciation and amortization(defined as the depreciation and amortization expense as stated on Borrower’sapplicable financial statement), *plus*

 

(C)           interest expense (as defined above), *plus*

 

(D)          operating lease expense (defined asthe amount of rental expense paid under operating leases, as stated onBorrower’s applicable financial statements), *plus or minus*

 

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(E)           non-recurring items (defined as itemswhich, when computing cash flow, should in Lender’s reasonable businessjudgment, be added back to or subtracted from net income to normalize results).

 

**2.             APPLICATION OF CONDEMNATIONAWARDS.**

 

(a)           **Condemnation Award.**  Any eminent domain or condemnation proceedsshall be paid directly to Lender and applied toward reimbursement of allLender’s costs and expenses incurred in connection with collecting the award(including, without limit, court costs and reasonable attorneys’ fees), and thebalance applied upon the Indebtedness whether or not then due or payable inwhatever manner Lender deems advisable. Application by Lender of anycondemnation award or portion of it toward the last maturing installments ofthe Indebtedness shall not excuse Borrower from making the regularly scheduledpayments nor extend or reduce the amount of these payments.

 

(b)           **Appointment of Lender.** Lender or any ofits employees is each irrevocably appointed attorney-in-fact for Borrower andis authorized to receive, receipt for, discharge and satisfy any condemnationaward or judgment, whether joint or several, on behalf of Borrower, Borrower’slegal representatives, successors and assigns; provided, however, that Lendershall not be liable for failure to collect any condemnation award.

 

**3.             ADDITIONAL SECURITY.**

 

**(a)           Security Interest.**

 

(i)            This Security Deed,as to any Equipment, fixtures, accounts, general intangibles and other personalproperty included within the definition of Deeded Property (collectively,“Personal Property”), shall constitute a security agreement within the meaningof the Uniform Commercial Code and Borrower grants to Lender a securityinterest in the Personal Property. Borrower agrees, upon request of Lender, topromptly furnish a list of Personal Property owned by Borrower and subject tothis Security Deed and, upon request by Lender, to immediately execute, deliverand/or file any amendments to this Security Deed, any separate securityagreement and any financing statements to evidence and perfect the securityinterest in such Personal Property contemplated by this Section. Lender or anyof its employees are each irrevocably appointed artomey-in-fact and areauthorized to execute, deliver and/or file any of such amendments to thisSecurity Deed, any separate security agreement and any financing statements.

 

(ii)           Upon the occurrenceof any Event of Default under this Security Deed, Lender shall have all of therights and remedies of a secured party under the Uniform Commercial Code orotherwise provided by law or by this Security Deed including, without limit,the right to require Borrower to assemble the Personal Property and make itavailable to Lender at a place to be designated by Lender which is reasonably convenientto such parties, the right to collect all accounts receivable, the right totake possession of the Personal Property with or without demand and with orwithout process of law and the right to sell and dispose of it and distributethe proceeds according to law. Borrower agrees that any requirement ofreasonable notice, if any, shall be met if Lender sends notice to Borrower atleast five (5) days prior to the date of sale, disposition or other eventgiving rise to the required notice. Borrower agrees that the proceeds of anydisposition of the Personal Property may be applied by Lender first to Lender’sreasonable expenses in connection with the disposition including, withoutlimit, reasonable attorneys’ fees and legal expenses, and then to payment ofthe Indebtedness.

 

(b)           **Licenses and Permits.**   As additional security for the Indebtednessand to the extent permitted by their terms, Borrower assigns to Lender all ofBorrower’s rights and interest in all licenses or permits affecting the DeededProperty. This assignment shall not impose upon Lender any obligations withrespect to any license or permit. Borrower shall not cancel or amend any of thelicenses or permits assigned (nor permit any of

 

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them to terminate if they are necessary or desirable for the operationof the Deeded Property) without first obtaining the written approval of Lender.

 

(c)           **Assignment of Rents and Leases.**

 

(i)            As additionalsecurity for the payment of the Indebtedness and performance of this SecurityDeed, Borrower assigns to Lender all of Borrower’s right, title and interest inand to all written and oral leases, usufructs and occupancy agreements (the“Leases”), now or later existing, covering the Deeded Property or any part ofit (but without an assumption by Lender of liabilities of Borrower under any ofthese leases, usufructs or occupancy agreements by virtue of this assignment),and Borrower assigns to Lender the leases, rents, issues and profits(collectively, the “Rents”) of the Deeded Property. Borrower acknowledges andconfirms that Lender has a present absolute assignment of Leases and Rents.Notwithstanding the foregoing, Lender grants to Borrower a revocable license tocollect the Rents. At any time upon or after an Event of Default the licensegranted to Borrower herein may be revoked by Lender.

 

(ii)           At least annually,and more frequently if requested by Lender, Borrower shall provide Lender witha certified rent roll and such other information regarding the leases and/oroccupancy agreements as Lender may reasonably require.

 

(iii)          If an Event ofDefault occurs under this Security Deed, Lender may receive and collect therents, issues and profits personally, or through a receiver, so long as theEvent of Default exists and during the pendency of any foreclosure proceedingsor the exercise of the power of sale or other proceeding and during anyredemption period. Borrower consents to the appointment of a receiver.

 

(iv)          Lender shall at notime have any obligation whatever to attempt to collect rent or other amountsfrom any tenant of the Deeded Property. Further, Lender shall have noobligation to enforce any other obligations owed by tenants of the DeededProperty. No action taken by Lender under this Security Deed shall make Lendera “party or mortgagee in possession.”

 

(v)           Borrower shall notcollect advance rent under any lease or occupancy agreement pertaining to theDeeded Property in excess of one month (other than as a security deposit) andLender shall not be bound by any rent prepayment made or received in violationof this prohibition.

 

(vi)          At the option ofLender, this Security Deed shall become subordinate, in whole or in part (butnot with respect to priority as to insurance proceeds or any condemnation award)to any or all leases and/or occupancy agreements of all or part of the DeededProperty upon the execution and recording by Lender of an affidavit to thateffect.

** **

**4.            EVENTSOF DEFAULT AND REMEDIES.**

 

(a)           **Events of Default.**Any of the followingevents shall, for purposes of this Security Deed, constitute an “Event ofDefault”:

 

(i)            Failure by Borrowerto pay any amount owing on or with respect to the Indebtedness when due,whether by maturity, acceleration or otherwise, which failure continues forfive (5) business days.

 

(ii)           Any failure byBorrower (or any Guarantor) to comply with any of the non-monetary terms,provisions, warranties or covenants of the Note, this Security Deed or theother Loan Documents, which failure continues for fifteen (15) days after thedate of written notice to Borrower (or any Guarantor) from Lender of suchdefault; provided, however, that if: (i) the nature of Borrower’s (or

 

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any Guarantor’s)noncompliance is such that more than fifteen (15) days are reasonably requiredfor its cure, (ii) Borrower (or any Guarantor) has commenced such cure withinsaid fifteen (15) day period, (iii) Borrower (or any Guarantor) diligentlyprosecutes such cure to completion, (iv) Borrower (or any Guarantor) providesLender with written notice of the noncompliance, AND (v) Borrower (or anyGuarantor) furnishes reserves or a security bond, in an amount satisfactory toLender in its sole discretion, then Borrower (or any Guarantor) shall not be indefault.

 

(iii)          Institution offoreclosure proceedings or other exercise of rights and remedies under anymortgage, security deed or other lien against the Deeded Property (or anyportion thereof); provided, however, if there is a good faith dispute by Borroweror Guarantor as to the validity or reasonableness of the claim which is thebasis for such proceedings, then no Event of Default shall have occurred underthis clause (iii) if Borrower or Guarantor provides Lender with written noticeof the proceedings and furnishes reserves or a security bond for theproceedings satisfactory to Lender.

 

(iv)          Insolvency ofBorrower (or any Guarantor) or the admission in writing of Borrower’s (or anyGuarantor’s) inability to pay debts as they mature.

 

(v)           Any statement,representation or information made or furnished by or on behalf of Borrower (orany Guarantor) to Lender in connection with or to induce Lender to provide oradvance any of the Indebtedness shall prove to be false or materiallymisleading when made or furnished.

 

(vi)          Institution ofbankruptcy, reorganization, insolvency or other similar proceedings by oragainst Borrower (or any Guarantor), unless, in the case of a petition filedagainst Borrower (or any Guarantor) the same is dismissed within sixty (60)days) of the date of filing.

 

(vii)         The issuance orfiling of any attachment, levy, garnishment or the commencement of any relatedproceedings or the commencement of any other judicial process upon or inrespect to Borrower (or any Guarantor) or the Deeded Property in which theamount in controversy exceeds One Hundred Thousand Dollars ($100,000) and isnot covered by the insurance of Borrower (or any Guarantor), unless satisfied,or Borrower (or any Guarantor) furnishes reserves or a security bond in anamount satisfactory to Lender in its sole discretionreleased or dischargedwithin sixty (60) days after the date of such issuance, filing or commencement.

 

(viii)        Sale or otherdisposition by Borrower (or any Guarantor) of any substantial portion of its assetsor property.

 

(ix)           Death, dissolution,merger, consolidation, termination of existence, insolvency, business failureor assignment for the benefit of creditors of or by Borrower (or anyGuarantor); without the prior written consent of Lender, which consent shallnot be unreasonably withheld.

 

(x)            Any failure byBorrower (or any Guarantor) to pay any indebtedness (other than to Lender) inexcess of One Hundred Thousand Dollars ($100,000) (and exclusive of trade debtincurred in the ordinary course of business) when due, or any failure in theobservance or performance of any term, covenant or condition contained in anydocument evidencing, securing or relating to such indebtedness, which failurecontinues beyond any applicable cure period.

 

(xi)           Receipt by Borrowerof a notice of termination of the Management Agreement.

 

(xii)          The default byBorrower under the terms and conditions of any other loans to Borrower fromLender, Captec Financial Group, Inc., a Michigan corporation, or Captec LeasingCompany, a California corporation, now or hereafter existing (collectively, the“Other Loans”) as such

 

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Other Loans may beassigned from time to time, to Captec Loan Receivables Trust-1996A or any otheraffiliate of Lender.

 

(b)           **Remedies Upon Event of Default.**Uponthe occurrence of any Event of Default, Lender shall have the following rights:

 

(i)            Declare all or partof the Indebtedness immediately due and payable, time being of the essence ofthis Security Deed.

 

(ii)           Demand thatBorrower immediately surrender the possession of the Deeded Property to Lender,and Borrower consents to Lender taking possession of the Deeded Property andthe books and records relating to the Deeded Property.

 

(iii)          Lease the Deeded Propertyand may collect rents for the account of Borrower.

 

(iv)          When theIndebtedness secured hereby shall become due, whether by acceleration orotherwise, Lender, at its option, may sell the Deeded Property or any part ofthe Deeded Property at one or more public sale or sales before the door of thecourthouse of the county in which the Deeded Property or any part of the DeededProperty is situated, to the highest bidder for cash. The time, place and termsof such sale shall be advertised once a week for four (4) consecutive weeks,immediately prior to the sale (but without regard to the number of days elapsedintervening between the date of publication of the first advertisement and thedate of sale) in the newspaper in which Sheriffs sales are advertised in saidcounty. From the proceeds of the sale, Lender shall pay the Indebtednesssecured hereby and accrued interest thereon and insurance premiums, liens,assessments, taxes and charges, including utility charges, if any, with accruedinterest thereon, and all expenses of the sale and all proceedings inconnection therewith, including reasonable attorneys’ fees and any and alltransfer taxes and recording costs incident to the execution and delivery ofthe conveyance pursuant to such sale. Lender may bid and purchase at such saleor sales. In case of a sale as provided herein, Borrower or any person inpossession of the Deeded Property under Borrower shall be deemed a tenantholding over and shall forthwith deliver possession to the purchaser at any suchsale, or be summarily dispossessed in accordance with the provisions of lawapplicable to tenants holding over.

 

(v)           At any such publicsale, Lender may execute and deliver to the purchaser a conveyance of theDeeded Property or any part of the Deeded Property in fee simple, with orwithout warranties of title and to this end, Borrower hereby constitutes andappoints Lender the agent and attorney-in-fact of Borrower to make such saleand conveyance, and thereby divest Borrower of all right, title or equity thatBorrower may have in and to the Deeded Property and to vest the same in thepurchaser or purchasers at such sale or sales, and all the acts and doings ofsaid agent and attomey-in-fact are hereby ratified and confirmed and anyrecitals in said conveyance or conveyances as to facts essential to a validsale shall be binding upon Borrower. In case of any sale under this SecurityDeed by virtue of the exercise of the powers herein granted, pursuant to anyorder in any judicial proceeding or otherwise, the Deeded Property may be soldat one or more successive sales in themanner provided by the Uniform Commercial Code of Georgia. The aforesaid powerof sale and agency hereby granted are coupled with an interest and areirrevocable by death or otherwise, and are granted as cumulative of the otherremedies provided by law for collection of the Indebtedness and shall not beexhausted by one exercise thereof but may be exercised until full payment ofall sums secured hereby.

 

(vi)          Collect and receiveall rents, profits and other amounts that are due or shall subsequently becomedue under the terms of any leases, land contract, or other agreements by whichBorrower is leasing or selling the Deeded Property or any interest in theDeeded Property. Lender may also exercise any other rights or remedy ofBorrower under any such lease, land contract or other agreement. However,Lender shall have no obligation to make any demand or inquiry as to the natureor

 

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sufficiency of anypayment received or to present or file any claim or take any other action tocollect or enforce the payment of any amounts to which Lender may becomeentitled under this Security Deed. Similarly, Lender shall not be liable forany of Borrower’s obligations under any such lease, land contract or otheragreement.

 

(vii)         Exercise all rights,remedies and privileges afforded a “secured party” under Article 9 of theUniform Commercial Code.

 

(viii)        Enter upon theDeeded Property and take other actions as Lender deems appropriate to performBorrower’s obligations under this Security Deed to inspect, repair, protect orpreserve the Deeded Property, to investigate or test for the presence of anyHazardous Materials and/or to appraise the Deeded Property.

 

(ix)           Pursue any otheravailable remedy at law or equity to enforce the payment of the Indebtedness.

 

**(c)           RemediesGenerally.**

 

(i)            All remediesprovided for in Section 4(b) shall be available to the extent not prohibited bylaw. Each remedy shall be cumulative and additional to any other remedy ofLender at law, in equity or by statute. No delay or omission to exercise anyright or power accruing upon any default or Event of Default shall impair anysuch right or power or shall be construed to be a waiver of, or acquiescencein, any such default or Event of Default.

 

(ii)           Lender may waiveany Event of Default and may rescind any declaration of maturity of payments onthe Indebtedness. In case of such waiver or recision Borrower and Lender shallbe restored to their former positions and rights under this Security Deed. Anywaiver by Lender of any default or Event of Default shall be in writing andshall be limited to the particular default waived and shall not be deemed towaive any other default.

 

(d)           **Receivers.**Upon an Event of Default and the exercise of the rights of Lender under thisSecurity Deed, or upon the commission of waste against the Deeded Property,Lender shall be entitled to the appointment of a receiver or receivers of theDeeded Property and of the rents, issues and profits of the Deeded Property,without notice to Borrower.

 

(e)           **Application of Proceeds.**    Anyproceeds received by Lender from the exercise of remedies pursuant to Section4(b) of this Security Deed shall be applied as follows:

 

(i)            First, to pay allcosts and expenses incidental to the leasing, foreclosure, exercise of thepower of sale granted hereunder or other disposition of the Deeded Property.These costs and expenses shall include, without limit, any costs and expensesincurred by Lender (including, without limit, attorneys’ fees anddisbursements), and any taxes and assessments or other liens and encumbrancesprior to the lien of this Security Deed.

 

(ii)           Second, to all sumsexpended or incurred by Lender directly or indirectly in carrying out any term,covenant or agreement under this Security Deed or any related document,together with interest as provided in this Security Deed.

 

(iii)          Third, to thepayment of the Indebtedness.  If theproceeds are insufficient to fully pay the Indebtedness, then application shallbe made first to late charges and interest accrued and unpaid, then to anyapplicable prepayment premiums, then to unpaid fees and other charges and thento the outstanding principal balance.

 

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(iv)          Fourth, any  surplus remaining shall be paid to Borroweror to whomsoever may be lawfully entitled.

 

(f)            **Marshalling. **In the event of foreclosure of this Security Deed or theenforcement by Lender of any other rights and remedies under this SecurityDeed, Borrower waives any right in respect to marshalling of assets whichsecure the Indebtedness or to require Lender to pursue its remedies against anyother assets or any other party which may be liable for any of the Indebtedness.

 

(g)           **Further Actions. **Promptly upon the request of Lender, Borrower shall execute,acknowledge and deliver any and all further conveyances, documents, mortgages,deeds of trust, security deeds and assurances, and do or cause to be done allfurther acts as Lender may require to confirm and protect the lien of thisSecurity Deed or otherwise to accomplish the purposes of this Security Deed.

 

(h)           **Attorneys Fees.**Any reference in thisSecurity Deed to attorneys’ fees shall refer to fees, charges, costs andexpenses of in-house and outside attorneys and paralegals, whether or not asuit or proceeding is instituted, and whether incurred at the trial courtlevel, on appeal, in a bankruptcy, administrative or probate proceeding, inconsultation with counsel, or otherwise. All costs, expenses and fees of anynature for which Borrower is obligated to reimburse or indemnify Lender arepart of the Indebtedness secured by this Security Deed and are payable upondemand, unless expressly provided otherwise, with interest until repaid at thehighest rate charged on any of the Indebtedness (but not to exceed the maximumrate permitted by law).

 

**5.                             MISCELLANEOUS.**

 

(a)            **Governing Law.**This Security Deed shallbe construed in accordance with the laws of the State of Georgia.

 

(b)           **Successors and Assigns.**This SecurityDeed shall be binding upon the successors and assigns of Borrower including,without limit, any debtor in possession or trustee in bankruptcy for Borrower,and the rights and privileges of Lender under this Security Deed shall inure tothe benefit of their respective successors and assigns. This shall not bedeemed a consent by Lender to a conveyance by Borrower of all or any part ofthe Deeded Property or of any ownership interest in Borrower.

 

(c)**            Notices.**Noticefrom one party to another relating to this Security Deed shall be deemedeffective if made in writing (including telecommunications) and delivered tothe recipient’s address, telex number or telecopier number set forth in thisSecurity Deed by any of the following means: (i) hand delivery, (ii) registeredor certified mail, postage prepaid, (iii) express mail or other overnightcourier service, or (iv) telecopy, telex or other wire transmission withrequest for assurance of receipt in a manner typical with respect tocommunications of that type. Notice made in accordance with these provisionsshall be deemed delivered on receipt if delivered by hand or wire transmission,on the third business day after mailing if mailed by registered or certified mail,or on the next business day after mailing or deposit with the postal service oran overnight courier service if delivered by express mail or overnightcourier.   Borrower’s telecopier numberis (540) 345-0831 and Lender’s telecopier number is (734) 994-1376.

 

(d)           **Entire Agreement: Amendments.  **This Security Deed and any agreement towhich it refers state all rights and obligations of the parties and supersedeall other agreements (oral or written) with respect to the lien granted by thisSecurity Deed.   Any amendment of thisSecurity Deed shall be in writing and shall require the signature of Borrowerand Lender.

 

(e)            **Partial Invalidity.**The invalidity orunenforceability of any provision of this Security Deed shall not affect thevalidity or enforceability of the remaining provisions of this Security Deed.

 

(f)            **Inspections.**Any inspection, audit,appraisal or examination by Lender or its agents of the Deeded Property or ofinformation or documents pertaining to the Deeded Property is for the solepurpose of

 

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protectingLender’s interests under this Security Deed and is not for the benefit orprotection of Borrower or any third party.

 

(g)           **Joint and Several Liability.**In theevent that more than one person or entity executes this Security Deed, theobligations of each person or entity shall be joint and several.

 

(h)           **Automatic Reinstatement.**Notwithstandingany prior revocation, termination, surrender or discharge of this SecurityDeed, the effectiveness of this Security Deed shall automatically continue orbe reinstated, as the case may be, in the event that:

 

(i)            Any paymentreceived or credit given by Lender in respect of the Indebtedness is determinedto be a preference, impermissible setoff, fraudulent conveyance, diversion oftrust funds, or otherwise required to be returned to Borrower for the benefitof Borrower or any third party under any applicable state or federal law,including, without limit, laws pertaining to bankruptcy or insolvency, in whichcase this Security Deed shall be enforceable as if any such payment or credithad not been received or given, whether or not Lender relied upon this paymentor credit or changed its position as a consequence of it.

 

(ii)           Any liability isimposed, or sought to be imposed, against Lender relating to the environmentalcondition of, or the presence of Hazardous Materials on, in or about the RealEstate, whether this condition is known or unknown, now exists or subsequentlyarises (excluding only conditions which arise after any acquisition by Lenderof any such property, by foreclosure, in lieu of foreclosure, by exercise ofthe power of sale granted herein or otherwise, to the extent due to thewrongful acts or omissions of Lender), in which case this Security Deed shallbe enforceable to the extent of all liability, costs and expenses (includingwithout limit reasonable attorneys fees) incurred by Lender as the direct orindirect result of any environmental condition or Hazardous Materials.

 

(iii)          In the event ofcontinuation or reinstatement of this Security Deed, Borrower agrees upondemand by Lender to execute and deliver to Lender those documents which Lenderdetermines are appropriate to further evidence (in the public records orotherwise) this continuation or reinstatement, although the failure of Borrowerto do so shall not affect in any way the reinstatement or continuation. IfBorrower does not execute and deliver to Lender upon demand such documents,Lender and each officer of such Lender is irrevocably appointed (whichappointment is coupled with an interest) the true and lawful attorney ofBorrower (with full power of substitution) to execute and deliver suchdocuments in the name and on behalf of Borrower.

 

(i)**            WAIVER OF JURY TRIAL.   BORROWER AND LENDER ACKNOWLEDGE THAT THERIGHT TO TRIAL BY JURY IS A CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED. EACHPARTY, AFTER CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSELOF THEIR CHOICE, KNOWINGLY AND VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT,WAIVES ANY RIGHT TO TRIAL BY JURY IN THE EVENT OF LITIGATION REGARDING THEPERFORMANCE OR ENFORCEMENT OF, OR IN ANY WAY RELATED TO, THIS SECURITY DEED ORTHE INDEBTEDNESS.**

 

(j)**            Consumer Credit.**Notwithstandinganything in this Security Deed to the contrary, this Security Deed shall notsecure any portion of the Indebtedness which is deemed to be consumer creditunder the Truth in Lending Act.

 

(k)**           Assignment.**ThisSecurity Deed is freely assignable, in whole or in part, by Lender withoutnotice to or consent of Borrower. Lender shall be fully discharged from allresponsibility accruing hereunder from and after the effective date of any suchassignment; provided, however, that Lender (or its assignee) shall providewritten notice of such assignment to Borrower in the event that Lender (or suchassignee) desires to designate a new person or entity as payee and/or a newplace of payment for the obligations under the Note.

 

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Lender’s assigneeshall, to the extent of the assignment, be vested with all the powers andrights of Lender hereunder (including those granted under Section 4 hereof orotherwise with respect to the Deeded Property), and to the extent of suchassignment the assignee may fully enforce such rights and powers, and allreferences to Lender shall mean and refer to such assignee. Lender shall retainall rights and powers hereby given not so assigned, transferred and/ordelivered. Borrower hereby waives all defenses which Borrower may be entitledto assert against Lender’s assignee with respect to liability accruinghereunder prior to the effective date of any assignment of Lender’s interestherein. Borrower may not, in whole or in part, directly or indirectly, assignthis Security Deed or its rights hereunder or delegate its duties hereunderwithout, in each instance, the specific prior written consent of Lender, whichconsent may be withheld or delayed in Lender’s sole discretion.

 

(1)**           Securitization**.Borrower understands and agrees that Lender may, from time to time, assign itsrights and powers under the Note, this Security Deed and any other LoanDocuments, in whole or in part, in connection with a securitization program.Borrower agrees to enter into an amendment to the Note, this Security Deed andany other Loan Documents if such amendments are required by a nationallyrecognized rating agency in connection with a securitization program sponsoredby Lender and in which the Note, this Security Deed and any other LoanDocuments are to be included; provided that Borrower shall not be obligated toenter into any amendment which adversely affects Borrower or otherwiseadversely alters any of the financial terms of the Note, this Security Deed andany other Loan Documents.

 

(m)**          Subrogation**.To the full extent of the Indebtedness, Lender is hereby subrogated to theliens, claims and demands, and to the rights of the owners and holders of eachand every claim, demand and other encumbrance on the Deeded Property which ispaid or satisfied, in whole or in part, out of the proceeds of theIndebtedness, and the respective liens, claims, demands and other encumbrancesshall be, and each of them is hereby, preserved and shall pass to and be heldby Lender as additional collateral and further security for the Indebtedness,to the same extent they would have been preserved and would have been passed toand held by Lender, had they been duly and legally assigned, transferred, setover and delivered unto Lender by assignment, notwithstanding the fact that anyinstrument providing public notice of the same may be satisfied and canceled ofrecord.

 

(n)**          ****Cancellation of Deed**.If all of the obligations are paid as they become due and payable and all ofthe covenants, warranties, undertakings and agreements made in this SecurityDeed are kept and performed, and all obligations, if any, of Lender for furtheradvances have been terminated, then, and in that event only, this Security Deedshall be canceled and surrendered by Lender in due form at Borrower’s cost.

 

(o)**           WAIVEROF NOTICE AND HEARING**. BORROWER HEREBY WAIVES ANY RIGHTIT MAY HAVE UNDER THE CONSTITUTION OF THE STATE OF GEORGIA OR THE CONSTITUTIONOF THE UNITED STATES OF AMERICA TO NOTICE OR TO A JUDICIAL HEARING PRIOR TO THEEXERCISE OF ANY RIGHT OR REMEDY PROVIDED BY THIS SECURITY DEED AND BORROWERWAIVES ANY RIGHTS, IF ANY, TO SET ASIDE OR INVALIDATE ANY SALE DULY CONSUMMATEDIN ACCORDANCE WITH THE PROVISIONS OF THIS SECURITY DEED ON THE GROUND (IF SUCHBE THE CASE) THAT THE SALE WAS CONSUMMATED WITHOUT A PRIOR JUDICIAL HEARING.ALL WAIVERS BY BORROWER IN THIS PARAGRAPH HAVE BEEN MADE VOLUNTARILY,INTELLIGENTLY AND KNOWINGLY, AFTER BORROWER HAS BEEN FIRST INFORMED BY COUNSELOF ITS OWN CHOOSING AS TO POSSIBLE ALTERNATIVE RIGHTS, AND HAVE BEEN MADE AS ANINTENTIONAL RELINQUISHMENT AND ABANDONMENT OF A KNOWN RIGHT AND PRIVILEGE.

 

 

[SIGNATURE PAGE FOLLOWS]

 

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**SCHEDULE A**

 

THIS SCHEDULEATTACHED TO AND MADE A PART OF THAT CERTAIN DEED TO SECURE DEBT, SECURITYAGREEMENT AND ASSIGNMENT OF LEASES AND RENTS, EXECUTED BY THE WESTERN SIZZLINSTORES, INC. FOR THE BENEFIT OF CAPTEC FINANCIAL GROUP FUNDING CORPORATION.

 

Land in the City of Lawrenceville, Gwinnett County, Georgia, describedas:

 

ALL THAT TRACT or parcelof land lying and being in Land Lot 11 of the 7th District, Gwinnett County,Georgia, in the City of Lawrenceville, and being more particularly described asfollows:

 

TO FIND THE POINT OFBEGINNING, commence at the intersection of the northwest right of way of Ga.Hwy. #316 and the southeast right of way of Reynolds Road; thence South 18degrees 23 minutes 58 seconds West a distance of 421.11 feet to a point on thesoutheast right of way of Ga. Hwy. #316; thence South 38 degrees 45 minutes 18seconds West a distance of 201.38 feet to a point; thence south 04 degrees 46minutes 56 seconds West a distance of 193.63 feet to an iron pin found on theeasterly right of way of State Route 20, WHICH IS THE PLACE OR POINT OFBEGINNING; from said beginning point as thus established, run North 75 degrees04 minutes 24 seconds East a distance of 50.59 feet to an iron pin found;thence South 85 degrees 13 minutes 04 seconds East a distance of 32.80 feet toa nail set; thence North 75 degrees 51 minutes 32 seconds East a distance of101.84 feet to an iron pin found; thence South 04 degrees 46 minutes 56 secondsWest a distance of 48.52 feet to an iron pin found; thence South 05 degrees 36minutes 14 seconds West a distance of 263.89 feet to an iron pin found; thenceSouth 79 degrees 37 minutes 55 seconds West a distance of 198.56 feet to aniron pin found on the easterly right of way of State route #20; thence alongsaid easterly right of way along a curve to the left, a distance of 285.57feet, having a radius of 2153.48 feet, and a chord of North 08 degrees 32minutes 12 seconds East a distance of 285.36 feet to an iron pin found; thencecontinuing along said easterly right of way of State Route #20, North 04degrees 46 minutes 56 seconds East a distance of 29.44 feet to an iron pinfound, WHICH IS THE PLACE OR POINT OF BEGINNING.

 

The above describedproperty contains 1.282 acres as shown on an As Built Survey for The WesternSizzlin Corp. and Captec Financial Group Funding Corp. by Cofer TechnicalServices, Inc., certified by William D. Shaw, Georgia Registered Land SurveyorNo. 2162, dated February 14, 1998.

 

A-1

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IN WITNESSWHEREOF, Borrower has executed this Security Deed under seal as of the day andyear first noted above.

 

 

Signed , sealed anddelivered in the presence of:

 
| [ILLEGIBLE]                      |   | **THE  WESTERN SIZZLIN STORES, INC.** |
|----------------------------------|--------|---------------------------------------|
| Witness:                         |   |                                  |
|                             |   | By:                                   | /s/ Victor F. Foti,  President |
| /s/ Richard R. Sayers            |   |                                  |
| Notary Public: Richard  R Sayers |   | Attest:                               | /s/ Robyn B. Mabe |
|                             |   |                                  | Name: | Robyn B. Mabe |
| (Notarial Seal)                  |   |                                  | Its: | Corporate Secretary |
|                             |   |                                  |
| My Commission Expires:           |   | (Corporate Seal)                      |
| February 28, 1999                |   |                                  |
|                             |   |                                  |
|                             |   |                                  |
|                             |   |                                  |
|                             |   |                                  |
|                             |   |                                  |
|                             |   |                                  |
|                                  |        |                                       |  |  |  |

 

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Loan No. 06717

Lawrenceville, GA

 

**GUARANTY**

 

THE WESTERN SIZZLIN CORPORATION, a Tennessee corporation and THEWESTERN SIZZLIN STORES OF LITTLE ROCK, INC., an Arkansas corporation (each a“Guarantor”), as a material inducement to and in consideration of CAPTECFINANCIAL GROUP FUNDING CORPORATION, a Michigan corporation, whose address is24 Frank Lloyd Wright Drive, Lobby L, Ann Arbor, Michigan 48106 (together withits successors, assigns and transferees, “Lender”), making a loan in theoriginal principal amount of One Million Five Hundred Thousand and 00/100Dollars ($1,500,000.00) as evidenced by a Promissory Note, dated March**23, 1998 (“Note”), made byTHE WESTERN SIZZLIN STORES, INC., a Virginia corporation (“Borrower”), whichNote is secured by the instruments referenced therein (together with the Note,“Loan Documents”), hereby jointly and severally, unconditionally andirrevocably, personally guarantees to and for the benefit of Lender, andLender’s successors and assigns, the full and timely payment and performance ofall of the Borrower’s duties, obligations and covenants under the LoanDocuments. This is a guaranty of payment and performance and not of collection.

 

This Guaranty shall not be affected by Lender’s failure or delay toenforce any of its rights.

 

Guarantor’s obligations are independent of Borrower’s obligations. IfBorrower defaults under the Loan Documents, Lender can proceed immediatelyagainst Guarantor or Borrower, or both, or Lender can enforce against Guarantoror Borrower, or both, any rights that it has under the Loan Documents orpursuant to applicable laws. If any lien created by the Loan Documentsterminates and Lender has any rights it can enforce against Borrower aftertermination, Lender can enforce those rights against Guarantor without givingprevious notice to Borrower or Guarantor or without making any demand on eitherof them.

 

To the extent permitted by law, Guarantor waives the benefit of anystatute of limitations affecting Guarantor’s liability under this Guaranty.Guarantor waives the right to require Lender to first or concurrently: (1)proceed against Borrower; (2) proceed against or exhaust any security thatLender holds from Borrower; or (3) pursue any other remedy in Lender’s power.The liability of Guarantor shall not be affected or exonerated by anyindulgence, compromise, settlement or variation of terms which may be extendedby Lender to Borrower, or agreed upon by Lender or Borrower, and, unless agreedto in writing by Lender, shall not be affected or exonerated by any assignmentby Borrower of its interest in any one or more of the Loan Documents, nor shallthe liability of the Guarantor be affected or exonerated by the insolvency,bankruptcy (voluntary or involuntary), or reorganization of Borrower, nor bythe voluntary or involuntary liquidation, sale or other disposition of all orsubstantially all of the assets of Borrower, or by the release of any otherGuarantor. Lender and Borrower, without notice to or consent by Guarantor, mayat any time or times enter into such modifications, extensions, amendments orother covenants of the Loan Documents as they may deem appropriate, andGuarantor shall not be released nor its liability exonerated thereby but shallcontinue to be fully liable for the payment and performance of all obligationsand duties of Borrower under the Loan Documents as so modified, extended oramended.

 

Guarantor further agrees (1) to indemnify and hold harmless Lender fromand against any claims, damages, expenses or losses, including to the extentpermitted by law, all reasonable attorneys’ fees incurred by counsel ofLender’s choice (whether or not litigation is commenced), resulting from orarising out of any breach of any provision of the Loan Documents by Borrower orby reason of Borrower’s failure to perform any of its obligations thereunder,and (2) to the extent permitted by law, to pay all costs and expenses,including reasonable attorneys’ fees (whether or not litigation is commenced),incurred by Lender in enforcing this Guaranty.

 

Until all of Borrower’s obligations to Lender have been discharged infull, Guarantor has no right of subrogation against Borrower. Guarantor assumesthe responsibility to remain informed of the financial condition of Borrowerand of all other circumstances bearing upon the risk of Borrower’s default,which reasonable inquiry

 

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would reveal, andagrees that Lender shall have no duty to advise Guarantor of information knownto it regarding such condition or any such circumstances. Lender shall not berequired to inquire into the powers of Borrower or the officers, employees,partners or agents acting or purporting to act on its behalf, and anyindebtedness made or created in reliance upon the professed exercise of suchpowers shall be guaranteed under this Guaranty. Each Guarantor herebyrepresents and warrants to Lender that such Guarantor has received a copy ofeach of the Loan Documents, has read or had the opportunity to read each of theLoan Documents, and understands the terms of the Loan Documents. The provisionsin the Loan Documents relating to the execution of additional documents, legalproceedings by Lender against Borrower, severability of the provisions of theLoan Documents, interpretation of the Loan Documents, notices, waivers(including waiver of a jury trial), limitation on right of recovery against Lender,disclaimer of individual liability, and the applicable laws which govern theinterpretation of the Loan Documents are incorporated herein in their entiretyby this reference and made a part hereof as though set forth in full herein;any reference in those provisions to “Borrower” shall mean each Guarantor andany reference in those provisions to the “Loan Documents” shall mean thisGuaranty.

 

To the extent permitted by law, Guarantor waives its right to enforceany remedies that Borrower now has, or later may have, against Lender.Guarantor waives any right to participate in any security now or later held byLender. Guarantor waives notice of acceptance of this Guaranty, and all othernotices in connection with this Guaranty or in connection with the liabilities,obligations and duties guaranteed hereby, including notices to Guarantor ofdefault by the Borrower under the Loan Documents. Guarantor hereby waivesdiligence, presentment, demand for performance, notice of nonperformance,protest, notice of protest, notice of dishonor, and notice of acceptance ofthis Guaranty, and waives all notices of toe existence, creation, or incurringof new or additional obligations.

 

If there is more than one Guarantor, the liability of each Guarantorshall be joint and several. Guarantor’s obligations under this Guaranty shallbe binding on Guarantor’s legal representatives, heirs, successors and assigns.

 

If Borrower disposes of its interest in the property secured by theLoan Documents, “Borrower”, as used in this Guaranty, shall mean Borrower’ssuccessors or assigns. Assignment of the Loan Documents by Lender (as permittedby the Loan Documents) shall not affect this Guaranty. In the event of anassignment of the Loan Documents by Lender, the term “Lender” as used in thisGuaranty shall mean Lender’s successors or assigns.

 

Guarantor hereby covenants and agrees to deliver to Lender thefollowing: (a) management prepared and certified consolidated quarterlyfinancial statements for Guarantor within forty-five (45) days after the end ofthe first three (3) quarters of each fiscal year of Guarantor, and (b) annualconsolidated financial statements for Guarantor audited by an independentcertified public accountant within one hundred twenty (120) days after the endof each fiscal year of Guarantor. Such financial statements shall be true andcorrect in all respects, shall be prepared in accordance with generallyaccepted accounting principles, and shall fairly represent the respectivefinancial conditions of the subjects thereof as of the respective datesthereof. At the request of Lender, Guarantor shall obtain the consent ofGuarantor’s accountant(s) to the inclusion of Guarantor’s most recent financialstatement in any regulatory filing or report to be filed by Lender.

 

If any one or more of the provisions of this Guaranty shall be held tobe invalid, illegal or unenforceable in any respect, such invalidity,illegality or unenforceability shall not affect any other provision of thisGuaranty, and this Guaranty shall be construed as if such invalid, illegal orunenforceable provision had never been contained herein.

 

This Guaranty shall be construed according to the laws of the State ofGeorgia. Guarantor agrees that any dispute which may arise between Lender andGuarantor with regard to this Guaranty shall be resolved by litigation in stateor federal court. Litigation may be initiated by Lender or its assignee, at itsdiscretion, in the State of the principal place of business of Lender or itsassignee, the State of the principal place of business of Guarantor, or theState where the Collateral (as defined in the Loan Documents) is located.

 

2

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**GUARANTORHEREBY KNOWINGLY AND IRREVOCABLY WAIVES ANY OBJECTIONS ON THE GROUNDS OFIMPROPER JURISDICTION OR VENUE TO AN ACTION INITIATED AS SET FORTH ABOVE ANDAGREES THAT EFFECTIVE SERVICE OF PROCESS MAY BE MADE UPON GUARANTOR BYREGISTERED MAIL RETURN RECEIPTREQUESTED. GUARANTOR WAIVES, TO THE EXTENT PERMITTED BY LAW, TRIAL BY JURY INANY ACTION BETWEEN THE PARTIES.**

 

This Guaranty shall become effective on March 31, 1998.

 

**THE WESTERN SIZZLIN CORPORATION**

 
| By:    | Victor F. Foti |   |
|--------|----------------|--------|
|   |           |   |
| Its:   | President      |   |

 

 

**THE WESTERN SIZZLIN STORES OF LITTLEROCK, INC.**

 
| By:    | Victor F. Foti |   |
|--------|----------------|--------|
|   |           |   |
| Its:   | President      |   |

 

3

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Loan No. 06717

Lawrenceville, GA

 

**CERTIFICATE OF BORROWER**

 

THE WESTERN SIZZLIN STORES, INC., a Virginia corporation (“Borrower”),for the benefit of CAPTEC FINANCIAL GROUP FUNDING CORPORATION, a Michigancorporation (together with its successors, assigns and transferees, “Lender”),warrants, represents, covenants and agrees that the following are true andcorrect as of the date hereof:

 

1.             Allwarranties and representations of Borrower contained in this Certificate shallsurvive the execution of this Certificate and any advances made in accordancewith the Promissory Note executed by Borrower, in favor of Lender, datedMarch   23, 1998, in the original principalamount of One Million Five Hundred Thousand and 00/100 Dollars ($1,500,000.00)(“Note”).

 

2.             Borrowerhas good, indefeasible and marketable title to the property (“Premises”)described on Schedule A attached to that certain Security Deed, SecurityAgreement and Assignment of Leases and Rents (“Security Deed”) executed byBorrower in favor of Lender, dated March 31, 1998, free and clear of all liens,matters, agreements and encumbrances other than the Permitted Liens (as definedin the Security Deed). Except for the Security Deed and Permitted Liens, thereare no instruments, matters or agreements, and Borrower is not a party to anyinstrument, matter or agreement, which will in any way encumber, bind orotherwise affect the Premises or Lender. Borrower has neither done nor failedto do anything, nor has suffered anything to be done, as a result of which thePremises or any part thereof has been or will be encumbered or title theretohas been or will be affected in any way and no person, firm or entity has anypresent, conditional or contingent rights to acquire all or any portion of thePremises.

* *

3*.            *The survey prepared byCofer Technical Services, Inc. and identified as Job No. MISC-616 satisfies therequirements set forth in Lender’s commitment letter dated November 7, 1997.

 

4.             Borroweris a corporation duly organized and validly existing in good standing under thelaws of the Commonwealth of Virginia and is qualified to do business in theState of Georgia.   The person orpersons executing the Note, the Security Deed and the other Loan Documents (asdefined in the Security Deed) and all related documents have full power andcomplete authority to execute the Note, the Security Deed and the other LoanDocuments and, when executed, the Note, the Security Deed and the other LoanDocuments will be legal, valid and binding obligations of Borrower, enforceablein accordance with their terms.

 

5.             Asof the date hereof, Borrower is not “insolvent” within the meaning of Section548(a)(2)(B) of the United States Bankruptcy Code.

 

6.             Borroweris in the business of owning and operating Great American Steak & BuffetCompany Restaurants. Borrower’s chief executive office is 416 South JeffersonStreet, Roanoke, Virginia, and the Premises are located at 655 Hwy. 20 North,Lawrenceville, Georgia.

 

7.             Borrowerhas furnished to Lender its most recent annual audited financial statements andmost recent management prepared and certified quarterly financial statements,which statements were prepared in accordance with generally accepted accountingprinciples and are correct and complete and accurately present the financialcondition of Borrower on the dates thereof. Further, there has been no material adverse change in the business,property or condition of Borrower since the date of the most recent financialstatements.

 

8.             ThePremises is free of any liens, except as set forth on the Title Commitment andapproved by Lender and there are no outstanding amounts due any third partythat could give rise to a lien on the Premises if not fully paid when due; tothe best of Borrower’s knowledge, the Premises have been constructed inaccordance

 

----

 

with anyapplicable restrictive covenants; there are no structural defects in theProject; and the anticipated use complies with applicable zoning ordinances,regulations and restrictive covenants affecting the Premises.

 

9.             Borrowerhas complied and will continue to comply with all applicable laws, rules,regulations and orders relating to Borrower or any aspect of Borrower’sbusiness or assets, including, without limit, all environmental laws, rules,regulations and orders. Borrower agrees to indemnify and hold Lender harmlessagainst and from all claims, losses and costs resulting from any and allviolations by Borrower of any laws, rules, regulations and/or orders.

 

10.           Borrowerhas not received any written notice of, and, to the best knowledge of Borrower,neither Borrower nor the Premises are in violation of any law, municipalordinance or other governmental requirement of any governmental authority.

 

11.           Theredo not exist:   (a) any pending or, tothe best knowledge of Borrower, any contemplated annexation or condemnationproceedings, or private purchase hi lieu thereof, affecting or which may affectthe Premises, or any part thereof, (b) any pending, or, to the best knowledgeof Borrower, any proposed proceeding to change or redefine the zoningclassification of all or any part of the Premises, (c) any pending or, to thebest knowledge of Borrower, any proposed special assessments affecting thePremises or any portion thereof, (d) any penalties or interest due with respectto real estate taxes assessed against the Premises and (e) to the bestknowledge of Borrower, any proposed change(s) in any road patterns or gradeswith respect to the roads providing ingress and egress to the Premises.

 

12.           Thereare no circumstances, state of facts or other matters which, with the passageof time or the giving of notice, or both, would constitute an Event of Defaultunder the terms of the Note, the Security Deed or the other Loan Documents.

 

13.           Borrowerhas filed all federal, state and local income and other tax returns and otherreports required to be filed prior to the date of this Certificate and Borrowerhas paid all taxes, assessments, withholdings and other governmental chargesthat are due and payable prior to the date of this Certificate.

 

14.           Alltaxes and all installments of assessments and all other charges of any kindimposed or levied by any governmental authority against either Borrower or thePremises which are due and payable or constitute a lien at or prior to the dateof this Certificate, together with all interest and penalties due thereon, havebeen paid in full.

 

15.           ThePremises are legally occupied by Borrower, and all required certificates ofoccupancy, building permits, certificates of environmental impact approval, allzoning, building, housing, safety, fire and health approvals and all permitsand licenses required by any governmental authority and necessary or advisableto operate, occupy or use the Premises for the purposes permitted under theSecurity Deed have been issued, are unexpired, permanent and unconditional,and, without cost or risk to Lender, are hereby assigned, to the extentassignable, to Lender.

 

16.           Thereis now fully paid and enforceable fire, liability and other forms of insurancein such amounts and covering such risks as are required under the SecurityDeed.

 

17.            Thereare no disputes, litigation or other such proceedings pending or, to the bestof Borrower’s knowledge, threatened against or related to Borrower, thePremises, the operation or the zoning thereof, nor does Borrower know of anybasis for any such action.

 

18.            Allconstruction on or at the Premises has been (or will be) performed in a goodand workmanlike manner and has been (or will be) completed and paid for in allrespects and in accordance with the requirements of all governmentalauthorities and all applicable governmental and insurance rating board rules,requirements and regulations.

 

2

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19.           All public utilitiesincluding, but not limited to, electric, gas, sewer, water, telephone and otherutilities required for the operation of the Premises either enter the Premisesthrough adjoining public streets, or, if they pass through adjoining privateland, do so in accordance with valid public easements or private easements. Allsuch public utilities are installed and operating, and all installation andconnection charges have been fully paid. Access to the Premises is overpublicly dedicated streets or through valid, indefeasible easements of record.

 

20.           Inconsideration of the loan evidenced by the Note and secured by the SecurityDeed and the other Loan Documents, Borrower agrees to indemnify and hold Lenderharmless against all claims, liabilities, losses, deficiencies and damages aswell as reasonable expenses (including attorney’s fees), interest and penaltiesrelated thereto, asserted by any third party against, or incurred by Lender, byreason of or resulting from any breach, inaccuracy, incompleteness ornonfulfillment of the covenants, representations and/or warranties of Borrowercontained in this Certificate.

 

21.           CommencingMay 1, 1998 and on the first day of each following month, Lender is authorizedto initiate an electronic funds transfer to pay the monthly installment paymentowing under the Loan from the account designated below, and to receive paymentsfrom such account. This authorization will remain in effect unless theundersigned requests a modification that is agreed to by the FinancialInstitution and Lender; provided, however, that Lender and its successors,assigns and transferees may modify the place of payment to be made by Borrowerwithout the consent of the Financial Institution.

 

Financial Institution:

FinancialInstitution 

  Address: 

Routing/Transit #: 

Account #:

 

This Certificate shallbecome effective on                          , 1998.

 
|   | **THE  WESTERN SIZZLIN STORES, INC.** |
|--------|---------------------------------------|
|   |                                  |
|   | By                                    | /s/Victor F. Foti |   |
|   |                                  | Its | President |   |
|        |                                       |  |  |  |  |

 

3

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Loan No. 06717

Lawrenceville, GA

 

**CERTIFICATE OF GUARANTOR**

 

THE WESTERN SIZZLIN CORPORATION, a Tennessee corporation (“Guarantor”),for the benefit of CAPTEC FINANCIAL GROUP FUNDING CORPORATION, a Michigancorporation (together with its successors, assigns and transferees, “Lender”),warrants, represents, covenants and agrees that the following are true andcorrect as of the date hereof:

 

1.             Guarantorhas received a copy of that certain Promissory Note, dated March 23 1998 in theoriginal principal amount of One Million Five Hundred Thousand and 00/100Dollars ($1,500,000.00) (“Note”) made by THE WESTERN SIZZLIN STORES, INC., aVirginia corporation (“Borrower”). Guarantor has also received a copy of theinstruments securing the Note, as referenced therein (together with the Note,the “Loan Documents”). The Loan Documents create a lien with respect to certainreal and personal property located at 655 Hwy. 20 North, Lawrenceville, Georgia(“Premises”).

 

2.             Guarantorhas had the opportunity to review the Certificate of Borrower, dated evenherewith, made by Borrower for the benefit of Lender, and confirms that thewarranties and representations set forth therein are true and correct as of thedate hereof.

 

3.             Guarantorhas full power and authority to enter into that certain Guaranty executed byGuarantor in favor of Lender, dated as of the date of this Certificate(“Guaranty”) and to assume and perform all of Guarantor’s obligations under theGuaranty in accordance with all of the terms and conditions of the Guaranty.The execution and delivery of the Guaranty and the performance by Guarantor ofGuarantor’s obligations under the Guaranty and under all documents contemplatedby the Guaranty require no further action or approval.   The Guaranty and all other documentscontemplated by the Guaranty are fully binding and enforceable obligations ofGuarantor.

 

4.             Thereare no circumstances, state of facts or other matters which, with the passageof time or the giving of notice, or both, would constitute an event of defaultunder the terms of the Guaranty, or to the best of the Guarantor’s knowledge,under the Loan Documents.

 

5.             Thereare no disputes, litigation or other such proceedings pending or, to the bestof the Guarantor’s knowledge, threatened against or related to the Guarantor orthe Premises, nor does Guarantor know of any basis for any such action, exceptas disclosed to Lender on Exhibit A hereto.

 

6.             Guarantorhas furnished to Lender its most recent annual audited consolidated financialstatements and most recent management prepared and certified quarterlyconsolidated financial statements, which statements were prepared in accordancewith generally accepted accounting principles and are correct and complete andaccurately present the financial condition of Guarantor on the datesthereof.  Further, there has been nomaterial adverse change in the business, property or condition of Guarantorsince the date of the most recent financial statements.

 

7.             Inconsideration of the loan evidenced by the Note and secured, in part, by theLoan Documents, the receipt and sufficiency of which Guarantor acknowledges,and in order to induce Lender to make such loan, Guarantor agrees to indemnifyand hold Lender harmless against all claims, liabilities, losses, deficienciesand damages as well as reasonable expenses (including attorney’s fees),interest and penalties related thereto, asserted by any third party against, orincurred by Lender, by reason of or resulting from any breach, inaccuracy,incompleteness or nonfulfillment of the covenants, representations and/orwarranties of Guarantor contained in this Certificate.

 

----

 

This Certificateshall become effective on March 31,1998.

 
|   | **THE  WESTERN SIZZLIN CORPORATION** |
|--------|--------------------------------------|
|   |                                 |
|   | By                                   | /s/ Victor F. Foti |   |
|   |                                 | Its | President |   |
|        |                                      |  |  |  |  |

 

2

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Loan No. 06717

Lawrenceville, GA

 

**CERTIFICATE OF GUARANTOR**

 

THE WESTERN SIZZLIN STORES OF LITTLE ROCK, INC., an Arkansascorporation (“Guarantor”), for the benefit of CAPTEC FINANCIAL GROUP FUNDING CORPORATION,a Michigan corporation (together with its successors, assigns and transferees,“Lender”), warrants, represents, covenants and agrees that the following aretrue and correct as of the date hereof:

 

1.             Guarantorhas received a copy of that certain Promissory Note, dated March 23, 1998 in the originalprincipal amount of One Million Five Hundred Thousand and 00/100 Dollars($1,500,000.00) (“Note”) made by THE WESTERN SIZZLING STORES, INC., a Virginiacorporation (“Borrower”). Guarantor has also received a copy of the instrumentssecuring the Note, as referenced therein (together with the Note, the “LoanDocuments”). The Loan Documents create a lien with respect to certain real andpersonal property located at 655 Hwy. 20 North, Lawrenceville, Georgia(“Premises”).

 

2.             Guarantorhas had the opportunity to review the Certificate of Borrower, dated evenherewith, made by Borrower for the benefit of Lender, and confirms that thewarranties and representations set forth therein are true and correct as of thedate hereof.

 

3.             Guarantorhas full power and authority to enter into that certain Guaranty executed byGuarantor in favor of Lender, dated as of the date of this Certificate(“Guaranty”) and to assume and perform all of Guarantor’s obligations under theGuaranty in accordance with all of the terms and conditions of the Guaranty.The execution and delivery of the Guaranty and the performance by Guarantor ofGuarantor’s obligations under the Guaranty and under all documents contemplatedby the Guaranty require no further action or approval.   The Guaranty and all other documentscontemplated by the Guaranty are fully binding and enforceable obligations ofGuarantor.

 

4.             Thereare no circumstances, state of facts or other matters which, with the passageof time or the giving of notice, or both, would constitute an event of defaultunder the terms of the Guaranty, or to the best of the Guarantor’s knowledge,under the Loan Documents.

 

5.             There are nodisputes, litigation or other such proceedings pending or, to the best of theGuarantor’s knowledge, threatened against or related to the Guarantor, nor doesGuarantor know of any basis for any such action.

 

6.             Guarantorhas furnished to Lender its most recent annual audited consolidated financialstatements and most recent management prepared and certified quarterlyconsolidated financial statements, which statements were prepared in accordancewith generally accepted accounting principles and are correct and complete andaccurately present the financial condition of Guarantor on the datesthereof.  Further, there has been nomaterial adverse change in the business, property or condition of Guarantorsince the date of the most recent financial statements.

 

7.             Inconsideration of the loan evidenced by the Note and secured, in part, by theLoan Documents, the receipt and sufficiency of which Guarantor acknowledges,and in order to induce Lender to make such loan, Guarantor agrees to indemnifyand hold Lender harmless against all claims, liabilities, losses, deficienciesand damages as well as reasonable expenses (including attorney’s fees),interest and penalties related thereto, asserted by any third party against, orincurred by Lender, by reason of or resulting from any breach, inaccuracy,incompleteness or nonfulfillment of the covenants, representations and/orwarranties of Guarantor contained in this Certificate.

 

----

 

This Certificate shall become effective on March 31, 1998.

 
|   | **THE  WESTERN SIZZLIN STORES OF LITTLE ROCK, INC.** |
|--------|------------------------------------------------------|
|   |                                                 |
|   | By                                                   | /s/ Victor F. Foti |   |
|   |                                                 | Its | President |   |
|        |                                                      |  |  |  |  |

 

2

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Loan No. 06717

655 Hwy. 20 North,Lawrenceville, Georgia

 

**CONSENT AND SUBORDINATION AGREEMENT**

 

THIS CONSENT AND SUBORDINATION AGREEMENT (“Agreement”) is made andentered into as of the 9 day of May 2002, by and among Linda M, Low and SteveYu Lam (collectively, the “tenant” ); Western Sizzlin Stores, Inc., a Virginiacorporation (“Borrower); and WELLS FARGO BANK MINNESOTA NATIONAL ASSOCIATION,national banking association, as the Indenture Trustee on behalf of the holdersof FRANCHISE LOAN TRUST 1998-1, a Delaware business trust and issuer of theFRANCHISE LOAN NOTES SERIES 1998-1 (“Lender”) whose address is c/o CaptecFinancial Group, Inc., 24 Frank Lloyd Wright Drive, Lobby L, 4th Floor, P.O.Box 544, Ann Arbor, Michigan 48106-0544. This instrument shall become effectiveupon execution.

 

**PRELIMINARY STATEMENT**

 

In order to secure a loan of $1,500,000 from a predecessor-in-interestto Lender, Borrower has executed a Deed to Secure Debt, Security Agreement andAssignment of Leases (the “Mortgage/Trust Deed”), dated March 23, 1998 andrecorded at Book 15762, page 215 in the office of the Clerk of the SuperiorCourt in Gwinnett County in the State of Georgia, granting that certain parcelof real property and the improvements thereon owned by it located at 655 Hwy.20 North, Lawrenceville, Georgia as moreparticularly described in Exhibit A attached hereto, the “Property”) to CaptecFinancial Funding Corporation.

 

Lender has succeeded to the interest of Captec Financial FundingCorporation under the Mortgage/Trust Deed.

 

The Mortgage/Trust Deed requires Borrower to obtain the consent ofLender to that certain lease, dated October 1, 2000, pursuant to which Tenantleases the property from Borrower (as attached hereto as Exhibit B, the“Lease”)

 

Lender has agreed to consent to the Lease, provided that Tenant confirmthat the Lease is subordinate to the lien of the Mortgage/Trust Deed, consentto the collateral assignment of the Lease by Borrower in favor of Lender, andagree to certain additional notice and rental payment requirements.

 

FOR VALUABLE CONSIDERATION, the receipt and sufficiency of which isacknowledged, the parties agree as follows:

 

1.               **CONSENTS**.Lender hereby consents to the Lease from Borrower to Tenant in the formattached hereto as Exhibit B. Tenant hereby consents to the collateralassignment of the Lease to Lender by Borrower.

 

2.               **SUBORDINATION.**  The Lease, and the rights of Tenant in, toand under the Lease and the Property, are hereby made subject, junior andsubordinate in all respects to the Mortgage/Trust Deed and to all renewals,modifications, consolidations, replacements and extensions of me Mortgage/TrustDeed and to the rights of Lender, its successors and assigns under the Mortgage/TrustDeed, as if all such instruments had been executed, delivered and recordedprior to the execution of the Lease. This clause shall be self-operative, andno further instrument shall be required. However, Tenant covenants and agreesthat if requested by Lender, Tenant will promptly execute, acknowledge anddeliver any instrument or document reasonably requested by Lender to confirmthe foregoing subordination of the Lease.

 

3.               **ADVANCERENTAL PAYMENT**. Notwithstanding any provision, term or condition of the Lease, Tenanthereby agrees that it shall not pay any rental amounts due under the Lease morethan thirty (30) days in advance of the due date for such payment under theLease.

 

4.               **PRESERVATIONOF LEASE COLLATERAL**. Notwithstanding any provision, termor condition of the Lease, Tenant hereby agrees that it will not assign,mortgage, pledge, hypothecate or use the Lease

 

A-1

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as collateralwithout the express written consent of Lender, In addition, Tenant acknowledgesand agrees that it shall in no event permit any contractor or subcontractorsengaged on its behalf to place or attain mechanics liens on the leasehold orfee interest in the Property and Tenant hereby indemnifies and holds harmlessBorrower and Leader from (i) any and all claims made by any contractor orsubcontractor in connection with such liens against either of them (ii) allcosts or expenses (including reasonable attorneys’ fees) actually incurred byeither or both of them to remove or pay off such liens. Finally, Tenant agreesto provide Lender with copies of all notice sent by Tenant to Borrower underthe Lease (including without limitation any notices of default or termination).

 

4                **TERMINATIONOF LEASE.** In the event that Lender forecloses upon the Propertyor takes a deed in lieu of foreclosure, the Lease shall terminate concurrently.Notwithstanding the foregoing, Lender may, at its option, elect to enter into anew lease agreement with Tenant for the Property for a term equal to the termof the Lease before giving effect to the termination, and on such other termsas Lender may require in its sole and absolute discretion.

 

5.               **CONFLICT**.The terms of this Agreement shall control in the event of any conflict betweenthe terms of this Agreement and the terms of the Lease.

 

6.             **Miscellaneous.**Borrower and Lender further agree as follows:

 

(a)                                                                               **GoverningLaw.**This Agreement shall be construed according to the laws ofthe State of Georgia

 

(b)                                                                              **Successorsand Assigns**. Except as otherwise provided herein, thisAgreement shall be binding upon and shall inure to the benefit of the permittedsuccessors and assigns of each party to this Agreement.

 

(c)         **Notices**. Noticefrom one party to another relating to this Agreement shall be deemed effectiveif made in writing (including telecommunications) and delivered to therecipient’s address, telex number or telecopier number set forth in thisAgreement by any of the following means: (i)hand delivery, (ii) registered orcertified mail, postage prepaid, (iii) express mail or other overnight courierservice, or (iv) telecopy, telex or other wire transmission with request forassurance of receipt in a manner typical with respect to communications of thattype. Notice made in accordance with these provisions shall be deemed deliveredon receipt if delivered by hand or wire transmission, on the third business dayafter mailing if mailed by registered or certified mail, or on the nextbusiness day after mailing or deposit with the postal service or an overnight courierservice if delivered by express mail or overnight courier.   Tenant’s telecopier number is (   ) 995-7969 Borrower’s telecopier number is(540) 345-0831 and Lender’s telecopier number is (734) 994-1376.

 

(d)           **Amendments**. Anyamendment of this Agreement shall be in writing and shall require the signatureof Tenant, Borrower and Lender,

 

(e)           **Partial Invalidity**.The invalidity or unenforceability of any provision of this Agreement shall notaffect the validity or enforceabiljty of the remaining provisions of thisAgreement.

 

*(f)           ***Fees andExpenses**. Borrower or Tenant, as the case may be, shallpay to Lender all of Lender’s expenses, including reasonable attorneys’ feesand expenses, and disbursements for title searches, appraisals, credit reportsand other expenses, related to the preparation and/or enforcement of thisAgreement and any otber document evidencing and/or securing the Loan.

 

**(g)           WAIVER OF JURY TRIAL.  TENANT, BORROWER  AND LENDER ACKNOWLEDGETHAT THE RIGHT TO TRIAL BY JURY IS A CONSTITUTIONAL ONE, BUT THAT IT MAY BEWAIVED.  EACH PARTY, AFTER CONSULTING(OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF THEIR CHOICE,KNOWINGLY AND VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT, WAIVES ANY RIGHT TO TRIALBY JURY IN THE EVENT OF LITIGATION REGARDING THE PERFORMANCE OR ENFORCEMENT OF,OR IN ANY WAY RELATED TO, THIS AGREEMENT.**

 

A-2

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(g)           **Assignment**.This Agreement is freely assignable, in whole or in part, by Lender withoutnotice to or consent of Borrower or Tenant. Lender shall be fully dischargedfrom all responsibility accruing hereunder from and after the effective date ofany such assignment. Lender’s assignee shall, to the extent of the assignment,be vested with all the powers and rights of Lender hereunder, and to the extentof such assignment the assignee may fully enforce such rights and powers, andall references to Lender shall mean and refer to such assignee. Lender shallretain all rights and powers hereby given not so assigned, transferred and/ordelivered. Borrower and Tenant hereby waive all defenses which Borrower orTenant may be entitled to assert against Lender’s assignee with respect toliability accruing hereunder prior to the effective date of any assignment ofLender’s interest herein.  NeitherBorrower nor Tenant may, in whole or in part, directly or indirectly, assignthis Agreement or their respective rights hereunder or delegate theirrespective duties hereunder without, in each instance, the specific priorwritten consent of Lender, which consent may be withheld or delayed in Lender’ssole discretion.

 

(h)           **Securitization.**Borrower and Tenant understand and agree that Lender may, from time to time,assign its rights and powers under this Agreement, in whole or in part, in connectionwith a securitization program.  Borrowerand Tenant agree to enter into an amendment to the Agreement if such amendmentsare required by a nationally recognized rating agency in connection with asecuritization program sponsored by Lender and in which this Agreement is to beincluded.

 

A-3

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IN WITNESS WHEREOF, the parties have executed this Agreement as of theday and year noted above.

 
| WITNESSES:            |         | **TENANT**       |   |
|-----------------------|--------------|------------------|--------|
|                  |         |             |   |
| /s/  [ILLEGIBLE] |         | /s/ Linda M. Low |   |
|                  |         | Linda M. Low     |   |
|                  |         |             |   |
| /s/ [ILLEGIBLE]       |         | /s/ Steve Yu Lam |   |
|                  | Steve Yu Lam |             |

 

 
|                   |                          | BORROWER: |            |
|------------------------|-------------------------------|-----------|-----------------|
|                   |                          |      |            |
|                   | WESTERN S1ZZLIN STORES,  INC. |
|                   |                          |      |            |
| /s/ [ILLEGIBLE]        |                          |      | /s/ Victor Foti |   |
|                   |                          | Its:      | Pres. & CEO |   |
|                   |                          |      |            |   |
|                   |                          |      |            |   |
| /s/ Renee L. Luckhardt |                          |      |            |   |
| Renee L. Luckhardt     |                          |      |            |   |
|                   |                          |      |            |   |
| /s/ Siobhan Lyle       |                          |      |            |   |
| Siobhan Lyle           |                          |      |            |   |
|                        |                               |           |                 |  |  |  |  |

 

 

 
|   | LENDER:                                                                                                                                                                                                                                                                                                                                   |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                      |
|   | **WELLS FARGO BANK MINNESOTA, NATIONAL ASSOCIATION,**a  National banking association, as the Indenture Trustee on behalf of the  holders of FRANCHISE LOAN TRUST 1998-1, a Delaware business trust and issuer  of the FRNACHISE LOAN NOTES SERIES I998-1, by BNY ASSET SOLUTIONS LLC, a  Delaware limited liability company, Its Servicer |
|   |                                                                                                                                                                                                                                                                                                                                      |
|   | By: Captec Financial  Group, Inc., a Michigan Corporation   its Attorney-in-Fact                                                                                                                                                                                                                                                          |
|   |                                                                                                                                                                                                                                                                                                                                      |
|   | By                                                                                                                                                                                                                                                                                                                                        | /s/ Gary A Bruder |
|   |                                                                                                                                                                                                                                                                                                                                      | Gary A Bruder |
|   |                                                                                                                                                                                                                                                                                                                                      |   |
|   | **Its:**                                                                                                                                                                                                                                                                                                                                  | **Vice President** |

 

A-4

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| COMMONWEALTH OF VIRGINIA | )      |   |
|--------------------------|--------|--------|
|                     | )      |   |
| COUNTY OF                |   | )      |   |
|                          |        |        |  |

 

I,*                         * ,**anotary public in and for the State and County aforesaid, do certify that SteveYu Lam and Linda M. Low, whose names are signed to the writing above, bearingdate on the         day of            ,2002 have acknowledged the samebefore me in my county aforesaid.

 

Given under my hand andofficial seal this        day of                       , 2002.

 

My term of office expires on the          day of                   

 

Notary Public [Notary Public’s Seal] 

Notary Public [Notary Public’s Seal]

 
| COMMONWEALTH OF  VIRGINIA | )      |   |
|---------------------------|--------|--------|
|                      | )      |   |
| CITY OF ROANOKE           | )      |   |
|                      |   |   |

 

I, Melody J.Shockley, a notary public in and for the State and County aforesaid, do certifythat Victor F. Foti, whose name, as Pres & CEO of The Western SizzlinStores, Inc., is signed to the writing above, bearing date on the 9th day ofJanuary, 2002 has acknowledged the same before me in my county aforesaid.

 

Given under myhand and official seal this 9th day of January 2002.

 

My term of officeexpires February 29,2004

 

                                                                                                                                                
| Notary Public               | /s/ Melody J. Schockley |
|-----------------------------|-------------------------|
| [Notary Public’s Seal] |
|                        |

 
| STATE OF MICHIGAN   | )      |
|---------------------|--------|
|                | ) ss.  |
| COUNTY OF WASHTENAW | )      |
|                |   |

 

                Theforegoing instrument was acknowledged before me this 9 day of May 2002, by GaryA. Bruder, the Vice President of Captec Financial Group, Inc., a Michigancorporation, as the attorney-in-fact for BNY Asset Solutions LLC, a Delawarelimited liability company as Servicer for Wells Fargo Bank Minnesota, N.A., anational banking association, as Indenture Trustee on behalf of the holders ofFranchise Loan Trust 1998-1, a Delaware business trust and issuer of theFranchise Loan Notes Series 1998-1 .

 
|   | /s/ Jennifer L. Tingley           |   |
|--------|-----------------------------------|--------|
|   | Jennifer L. Tingley Notary Public |
|   | Washtenaw County, Michigan        |
|   | My Commission Expires:            |

 

A-5

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Loan No. 06717

655 Hwy. 20 North

Lawrenceville,Georgia

 

**COLLATERAL ASSIGNMENT OF LEASE**

 

THIS COLLATERAL ASSIGNMENT OF LEASE AND OPTION RIGHTS(“Assignment”) is made as of the 9day of May 2002, by THE WESTERN SIZZLIN STORES, INC., a Virginia corporation,whose address is P. O. Box 12167, Roanoke, VA 24023-2167 (“Assignor”), in favorof NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION (N.K.A. WELLS FARGO BANKMINNESOTA, NATIONAL ASSOCIATION) as the Indenture Trustee on behalf of theholders of Franchise Loan Trust 1998-1, a Delaware business trust and issuer ofthe Franchise Loan Notes Series 1998-1, (“Assignee”) whose address is c/oCaptec Financial Group Funding Corporation, 24 Frank Lloyd Wright Drive, LobbyL, 4th Floor, P.O. Box 544, Ann Arbor, Michigan 48106-0544. This instrumentshall become effective on May 9, 2002.

 

WHEREAS, Assignor, as lessor, and Steve Yu Lam and Linda M. Low, aslessees (together, the “Lessee”) entered in that certain leases (the “Lease”)dated as of October 1, 2001, respecting the premises commonly known as 655 Hwy.20 North, Lawrenceville, Georgia (the “Premises”).

 

WHEREAS, Assignor executed that certain Promissory Note (the “Note”),dated March 23, 1998, in favor of the Assignee in the original principal amountof One Million Five Hundred Thousand and 00/100 Dollars ($1,500,000.00).

 

WHEREAS, in order to secure the consent of the Assignee to the Lease,Assignor has agreed, among other things, to collaterally assign its interest inthe Lease as security for its indebtedness under the Note.

 

NOW THEREFORE, the Assignor and Assignee agree as follows:

 

For good and valuable consideration, the receipt and sufficiency ofwhich is hereby acknowledged, Assignor presently assigns to Assignee all ofAssignor’s right, title and interest in and to the Lease. This Assignment isfor collateral purposes only, and except as specified herein, Assignee shallhave no liability or obligation of any kind whatsoever arising from or inconnection with this Assignment or the Lease unless Assignee shall takepossession of the Premises and assume the obligations of Assignor thereunder.

 

Assignor represents and warrants to Assignee that (i) a true, correctand complete copy of the Lease is attached to this Assignment as Exhibit A andmade a part hereof and (ii) it has full power and authority to so assign theLease and its interest therein and that Assignor has not previously, and is notobligated to, assign or transfer any of its interest in the Lease or thePremises.

 

Assignor shall send Assignee a copy of any and all notices sent byAssignor as lessor under the Lease.

 

If an “Event of Default” occurs under the Note or under any documentsor instruments securing the Note, Assignee shall have the right and is herebyempowered to take possession of the Premises and expel Assignor therefrom. Insuch event, Assignor shall have no further right, title or interest in theLease, but shall remain liable to Assignee for all past due amounts under theLease.

 

Assignor agrees that it will not suffer or permit any surrender,termination, amendment or modification of the Lease without the prior writtenconsent of Assignee, which consent shall not be unreasonably withheld. At therequest of Assignee, Assignor shall provide Assignee with rent payment or suchother information regarding the Lease as Assignee shall reasonably require.

 

This Assignment shall be governed by the laws of the Commonwealth ofVirginia.

 

This Assignment may be executed in one or more counterparts, each ofwhich shall constitute an original and all of which together shall constituteone and the same instrument.

 

[SIGNATURE PAGE FOLLOWS]

 

----

 

IN WITNESSWHEREOF, Assignor has executed this Assignment as of the day and year notedabove.

 

** **

 
| Witnesses: | **ASSIGNOR:**                         |               |
|------------|---------------------------------------|--------------------|
|       |                                  |               |
|       | **THE  WESTERN SIZZLIN STORES, INC.** |               |
|       |                                  |               |   |
|       | By:                                   | /s/ Victor F. Foti |   |
|       |                                  |
|       | Its:                                  | Pres. & CEO    |   |
|            |                                       |                    |  |  |  |  |

 
| COMMONWEALTH OF VIRGINIA | ) |
|--------------------------|---|
|                     | ) |
| City of Roanoke          | ) |

 

I, MelodyShockley, a notary public in and for the State and County aforesaid, do certifythat Victor F. Foti, whose name. as Pres. & CEO  of The Western Sizzlin Stores, Inc., is signed to the writingabove, bearing date on the 9th day of January has acknowledged the same beforeme in my county aforesaid.

 

Given under my hand and official seal this 9th day of January, 2002.

 

My Commission Expires February 29, 2004

 

My term of office expires on the        day of

 

|   | Notary Public          | /s/ Melody Shockley |   |
|--------|------------------------|---------------------|--------|
|   | [Notary Public's Seal] |

 

 

2

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EXHIBIT A

 

Land situated inLawrenceville, Georgia, described as follows:

 

[LEGALDESCRIPTION]

 

----

 

EXHIBIT B

 

LEASE

 

----

 

Loan No. 06717

 

AFFIRMATION OF GUARANTY

 

May 9  ,2002

 

The undersigned guarantor (“Guarantor”) hereby acknowledges and agreesthat it executed a guaranty, dated March 23, 1998 (the “Guaranty”) in favor ofCaptec Financial Group Funding Corporation (“Original Lender”), its successorsand assigns of the loan obligations of The Western Sizzlin Stores, Inc.(“Borrower”) in connection with certain loan from Original Lender to Borrowerin the original amount of $1,500,000 made pursuant to a Promissory Note datedMarch 23, 1998. The Guarantor certifies to Original Lender, its successors andassigns, that (i) a true, correct and complete copy of the Guaranty is attachedhereto as Exhibit A, (ii) the undersigned Guarantor has notice of, and consentsto, the terms and conditions of the Letter of Credit, dated as of November 20,2001 issued by Branch Banking and Trust Company of Virginia in favor of WellsFargo Bank Minnesota, National Association, a national banking association, asthe Indenture Trustee on behalf of the holders of Franchise Loan Trust 1998-1,a Delaware business trust and issuer of the Franchise Loan Notes Series 1998-1and Captec Fmancial Group, Inc., (collectively, “Lender”), and (iii) theGuarantor hereby irrevocably ratifies, confirms and acknowledges its continuingobligations to Lender under the Guaranty.

 
|   | GUARANTOR:                                      |
|--------|-------------------------------------------------|
|   |                                            |
|   | The Western Sizzlin Stores of Little Rock, Inc. |
|   | By:                                             | /s/ Victor F. Foti |
|   |                                            | Name: | Victor F. Foti |
|   |                                            | Title: | Pres. & C. E. O. |
|        |                                                 |  |  |  |

 

 

----

 

Exhibit A

Guaranty

 

 

C-1

----

 

Loan No. 06717

Lawrenceville, GA

 

**GUARANTY**

 

THE WESTERN SIZZLIN CORPORATION, a Tennessee corporation and THEWESTERN SIZZLIN STORES OF LITTLE ROCK, INC., an Arkansas corporation (each a“Guarantor”), as a material inducement to and in consideration of CAPTECFINANCIAL GROUP FUNDING CORPORATION, a Michigan corporation, whose address is24 Frank Lloyd Wright Drive, Lobby L, Ann Arbor, Michigan 48106 (together withits successors, assigns and transferees, “Lender”), making a loan in theoriginal principal amount of One Million Five Hundred Thousand and 00/100Dollars ($1,500,000.00) as evidenced by a Promissory Note, dated March 23 1998(“Note”), made by THE WESTERN SIZZLIN STORES, INC., a Virginia corporation(“Borrower”), which Note is secured by the instruments referenced therein(together with the Note, “Loan Documents”), hereby jointly and severally,unconditionally and irrevocably, personally guarantees to and for the benefitof Lender, and Lender’s successors and assigns, the full and timely payment andperformance of all of the Borrower’s duties, obligations and covenants underthe Loan Documents. This is a guaranty of payment and performance and not ofcollection.

 

This Guaranty shall not be affected by Lender’s failure or delay toenforce any of its rights.

 

Guarantor’s obligations are independent of Borrower’s obligations. IfBorrower defaults under the Loan Documents, Lender can proceed immediatelyagainst Guarantor or Borrower, or both, or Lender can enforce against Guarantoror Borrower, or both, any rights that it has under the Loan Documents orpursuant to applicable laws. If any lien created by the Loan Documentsterminates and Lender has any rights it can enforce against Borrower aftertermination, Lender can enforce those rights against Guarantor without givingprevious notice to Borrower or Guarantor or without making any demand on eitherof them.

 

To the extent permitted by law, Guarantor waives the benefit of anystatute of limitations affecting Guarantor’s liability under this Guaranty.Guarantor waives the right to require Lender to first or concurrently: (1)proceed against Borrower; (2) proceed against or exhaust any security thatLender holds from Borrower; or (3) pursue any other remedy in Lender’s power.The liability of Guarantor shall not be affected or exonerated by anyindulgence, compromise, settlement or variation of terms which may be extendedby Lender to Borrower, or agreed upon by Lender or Borrower, and, unless agreedto in writing by Lender, shall not be affected or exonerated by any assignmentby Borrower of its interest in any one or more of the Loan Documents, nor shallthe liability of the Guarantor be affected or exonerated by the insolvency,bankruptcy (voluntary or involuntary), or reorganization of Borrower, nor bythe voluntary or involuntary liquidation, sale or other disposition of all orsubstantially all of the assets of Borrower, or by the release of any otherGuarantor. Lender and Borrower, without notice to or consent by Guarantor, mayat any time or times enter into such modifications, extensions, amendments orother covenants of the Loan Documents as they may deem appropriate, andGuarantor shall not be released nor its liability exonerated thereby but shallcontinue to be fully liable for the payment and performance of all obligationsand duties of Borrower under the Loan Documents as so modified, extended oramended.

 

Guarantor further agrees (1) to indemnify and hold harmless Lender fromand against any claims, damages, expenses or losses, including to the extentpermitted by law, all reasonable attorneys’ fees incurred by counsel ofLender’s choice (whether or not litigation is commenced), resulting from orarising out of any breach of any provision of the Loan Documents by Borrower orby reason of Borrower’s failure to perform any of its obligations thereunder,and (2) to the extent permitted by law, to pay all costs and expenses,including reasonable attorneys’ fees (whether or not litigation is commenced),incurred by Lender in enforcing this Guaranty.

 

Until all of Borrower’s obligations to Lender have been discharged hifull, Guarantor has no right of subrogation against Borrower. Guarantor assumesthe responsibility to remain informed of the financial condition of Borrowerand of all other circumstances bearing upon the risk of Borrower’s default,which reasonable inquiry

 

----

 

would reveal, andagrees that Lender shall have no duty to advise Guarantor of information knownto it regarding such condition or any such circumstances. Lender shall not berequired to inquire into the powers of Borrower or the officers, employees,partners or agents acting or purporting to act on its behalf, and anyindebtedness made or created in reliance upon the professed exercise of suchpowers shall be guaranteed under this Guaranty. Each Guarantor herebyrepresents and warrants to Lender that such Guarantor has received a copy ofeach of the Loan Documents, has read or had the opportunity to read each of theLoan Documents, and understands the terms of the Loan Documents. The provisionsin the Loan Documents relating to the execution of additional documents, legalproceedings by Lender against Borrower, severability of the provisions of theLoan Documents, interpretation of the Loan Documents, notices, waivers(including waiver of a jury trial), limitation on right of recovery againstLender, disclaimer of individual liability, and the applicable laws whichgovern the interpretation of the Loan Documents are incorporated herein intheir entirety by this reference and made a part hereof as though set forth infull herein; any reference in those provisions to “Borrower” shall mean eachGuarantor and any reference in those provisions to the “Loan Documents” shallmean this Guaranty.

 

To the extent permitted by law, Guarantor waives its right to enforceany remedies that Borrower now has, or later may have, against Lender.Guarantor waives any right to participate in any security now or later held byLender. Guarantor waives notice of acceptance of this Guaranty, and all othernotices in connection with this Guaranty or in connection with the liabilities,obligations and duties guaranteed hereby, including notices to Guarantor ofdefault by the Borrower under the Loan Documents. Guarantor hereby waivesdiligence, presentment, demand for performance, notice of nonperformance,protest, notice of protest, notice of dishonor, and notice of acceptance ofthis Guaranty, and waives all notices of the existence, creation, or incurringof new or additional obligations.

 

If there is more than one Guarantor, the liability of each Guarantorshall be joint and several. Guarantor’s obligations under this Guaranty shallbe binding on Guarantor’s legal representatives, heirs, successors and assigns.

 

If Borrower disposes of its interest in the property secured by theLoan Documents, “Borrower”, as used in this Guaranty, shall mean Borrower’ssuccessors or assigns. Assignment of the Loan Documents by Lender (as permittedby the Loan Documents) shall not affect this Guaranty. In the event of anassignment of the Loan Documents by Lender, the term “Lender” as used in thisGuaranty shall mean Lender’s successors or assigns.

 

Guarantor hereby covenants and agrees to deliver to Lender thefollowing: (a) management prepared and certified consolidated quarterlyfinancial statements for Guarantor within forty-five (45) days after the end ofthe first three (3) quarters of each fiscal year of Guarantor, and (b) annualconsolidated financial statements for Guarantor audited by an independentcertified public accountant within one hundred twenty (120) days after the endof each fiscal year of Guarantor. Such financial statements shall be true andcorrect in all respects, shall be prepared in accordance with generallyaccepted accounting principles, and shall fairly represent the respective financialconditions of the subjects thereof as of the respective dates thereof. At therequest of Lender, Guarantor shall obtain the consent of Guarantor’saccountant(s) to the inclusion of Guarantor’s most recent financial statementin any regulatory filing or report to be filed by Lender.

 

If any one or more of the provisions of this Guaranty shall be held tobe invalid, illegal or unenforceable in any respect, such invalidity,illegality or unenforceability shall not affect any other provision of this Guaranty,and this Guaranty shall be construed as if such invalid, illegal orunenforceable provision had never been contained herein.

 

This Guaranty shall be construed according to the laws of the State ofGeorgia. Guarantor agrees that any dispute which may arise between Lender andGuarantor with regard to this Guaranty shall be resolved by litigation in stateor federal court. Litigation may be initiated by Lender or its assignee, at itsdiscretion, in the State of the principal place of business of Lender or itsassignee, the State of the principal place of business of Guarantor, or theState where the Collateral (as defined hi the Loan Documents) is located.

 

2

----

 

**GUARANTORHEREBY KNOWINGLY AND IRREVOCABLY WAIVES ANY OBJECTIONS ON THE GROUNDS OFIMPROPER JURISDICTION OR VENUE TO AN ACTION INITIATED AS SET FORTH ABOVE ANDAGREES THAT EFFECTIVE SERVICE OF PROCESS MAY BE MADE UPON GUARANTOR BYREGISTERED MAIL RETURN RECEIPT REQUESTED. GUARANTOR WAIVES, TO THE EXTENTPERMITTED BY LAW, TRIAL BY JURY IN ANY ACTION BETWEEN THE PARTIES.**

 

This Guaranty shall become effective on  March 31, 1998.

 
| **THE WESTERN SIZZLIN CORPORATION**                  |               |      |
|------------------------------------------------------|--------------------|-----------|
|                                                 |               |      |
|                                                 | By: Victor F. Foti |      |   |   |
|                                                 | Its: President     |      |   |   |
|                                                 |               |      |
| **THE  WESTERN SIZZLIN STORES OF LITTLE ROCK, INC.** |               |      |
|                                                 |               |      |
|                                                 | /s/ Victor F. Foti |      |   |   |
|                                                 |               |      |   |
|                                                 | Its:               | President |   |   |
|                                                      |                    |           |  |  |  |  |  |  |  |

 

3

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Loan No. 06717

 

AFFIRMATION OF GUARANTY

 

May 9,    2002

 

The undersigned guarantor (“Guarantor”) hereby acknowledges and agreesthat it executed a guaranty, dated March 23, 1998 (the “Guaranty”) in favor ofCaptec Financial Group Funding Corporation (“Original Lender”), its successorsand assigns of the loan obligations of The Western Sizzlin Stores, Inc.(“Borrower”) in connection with certain loan from Original Lender to Borrowerin the original amount of $1,500,000 made pursuant to a Promissory Note datedMarch 23, 1998. The Guarantor certifies to Original Lender, its successors andassigns, that (i) a true, correct and complete copy of the Guaranty is attachedhereto as Exhibit A, (ii) the undersigned Guarantor has notice of, and consentsto, the terms and conditions of the Letter of Credit, dated as of November 20,2001 issued by Branch Banking and Trust Company of Virginia in favor of Wells FargoBank Minnesota, National Association, a national banking association, as theIndenture Trustee on behalf of the holders of Franchise Loan Trust 1998-1, aDelaware business trust and issuer of the Franchise Loan Notes Series 1998-1and Captec Financial Group, Inc. (collectively, “Lender”), and (iii) theGuarantor hereby irrevocably ratifies, confirms and acknowledges its continuingobligations to Lender under the Guaranty.

 
|   | GUARANTOR:                       |                     |
|--------|----------------------------------|--------------------------|
|   |                             |                     |
|   | The Western Sizzlin  Corporation |                     |
|   | By:                              |  /s/ Victor F. Foti |   |
|   |                             | Name:                    | Victor F. Foti |   |   |
|   |                             | Title :                  | PRES. & C.E.O. |   |   |
|        |                                  |                          |  |  |  |  |  |

 

----

 

Exhibit A

 

Guaranty

 

 

 

C-1

----

 

Loan No. 06717

Lawrenceville, GA

 

**GUARANTY**

 

THE WESTERN SIZZLINCORPORATION, a Tennessee corporation and THE WESTERN SIZZLIN STORES OF LITTLEROCK, INC., an Arkansas corporation (each a “Guarantor”), as a materialinducement to and in consideration of CAPTEC FINANCIAL GROUP FUNDINGCORPORATION, a Michigan corporation, whose address is 24 Frank Lloyd WrightDrive, Lobby L, Ann Arbor, Michigan 48106 (together with its successors,assigns and transferees, “Lender”), making a loan in the original principalamount of One Million Five Hundred Thousand and 00/100 Dollars ($1,500,000.00)as evidenced by a Promissory Note, dated *March 23*1998 (“Note”), made by THEWESTERN SIZZLIN STORES, INC., a Virginia corporation (“Borrower”), which Noteis secured by the instruments referenced therein (together with the Note, “LoanDocuments”), hereby jointly and severally, unconditionally and irrevocably,personally guarantees to and for the benefit of Lender, and Lender’s successorsand assigns, the full and timely payment and performance of all of theBorrower’s duties, obligations and covenants under the Loan Documents. This isa guaranty of payment and performance and not of collection.

 

This Guaranty shall not be affected by Lender’s failure or delay toenforce any of its rights.

 

Guarantor’s obligations are independent of Borrower’s obligations. IfBorrower defaults under the Loan Documents, Lender can proceed immediatelyagainst Guarantor or Borrower, or both, or Lender can enforce against Guarantoror Borrower, or both, any rights that it has under the Loan Documents orpursuant to applicable laws. If any lien created by the Loan Documents terminatesand Lender has any rights it can enforce against Borrower after termination,Lender can enforce those rights against Guarantor without giving previousnotice to Borrower or Guarantor or without making any demand on either of them.

 

To the extent permitted by law, Guarantor waives the benefit of anystatute of limitations affecting Guarantor’s liability under this Guaranty.Guarantor waives the right to require Lender to first or concurrently: (1)proceed against Borrower; (2) proceed against or exhaust any security thatLender holds from Borrower; or (3) pursue any other remedy in Lender’s power.The liability of Guarantor shall not be affected or exonerated by anyindulgence, compromise, settlement or variation of terms which may be extendedby Lender to Borrower, or agreed upon by Lender or Borrower, and, unless agreedto in writing by Lender, shall not be affected or exonerated by any assignmentby Borrower of its interest in any one or more of the Loan Documents, nor shallthe liability of the Guarantor be affected or exonerated by the insolvency,bankruptcy (voluntary or involuntary), or reorganization of Borrower, nor bythe voluntary or involuntary liquidation, sale or other disposition of all orsubstantially all of the assets of Borrower, or by the release of any otherGuarantor. Lender and Borrower, without notice to or consent by Guarantor, mayat any time or times enter into such modifications, extensions, amendments orother covenants of the Loan Documents as they may deem appropriate, andGuarantor shall not be released nor its liability exonerated thereby but shallcontinue to be fully liable for the payment and performance of all obligationsand duties of Borrower under the Loan Documents as so modified, extended oramended.

 

Guarantor further agrees (1) to indemnify and hold harmless Lender fromand against any claims, damages, expenses or losses, including to the extentpermitted by law, all reasonable attorneys’ fees incurred by counsel ofLender’s choice (whether or not litigation is commenced), resulting from orarising out of any breach of any provision of the Loan Documents by Borrower orby reason of Borrower’s failure to perform any of its obligations thereunder,and (2) to the extent permitted by law, to pay all costs and expenses,including reasonable attorneys’ fees (whether or not litigation is commenced),incurred by Lender in enforcing this Guaranty.

 

Until all of Borrower’s obligations to Lender have been discharged infull, Guarantor has no right of subrogation against Borrower. Guarantor assumesthe responsibility to remain informed of the financial condition of Borrowerand of all other circumstances bearing upon the risk of Borrower’s default,which reasonable inquiry

 

----

 

would reveal, andagrees that Lender shall have no duty to advise Guarantor of information knownto it regarding such condition or any such circumstances. Lender shall not berequired to inquire into the powers of Borrower or the officers, employees,partners or agents acting or purporting to act on its behalf, and anyindebtedness made or created in reliance upon the professed exercise of suchpowers shall be guaranteed under this Guaranty. Each Guarantor herebyrepresents and warrants to Lender that such Guarantor has received a copy ofeach of the Loan Documents, has read or had the opportunity to read each of theLoan Documents, and understands the terms of the Loan Documents. The provisionsin the Loan Documents relating to the execution of additional documents, legalproceedings by Lender against Borrower, severability of the provisions of theLoan Documents, interpretation of the Loan Documents, notices, waivers(including waiver of a jury trial), limitation on right of recovery againstLender, disclaimer of individual liability, and the applicable laws whichgovern the interpretation of the Loan Documents are incorporated herein intheir entirety by this reference and made a part hereof as though set forth infull herein; any reference in those provisions to “Borrower” shall mean eachGuarantor and any reference in those provisions to the “Loan Documents” shallmean this Guaranty.

 

To the extent permitted by law, Guarantor waives its right to enforceany remedies that Borrower now has, or later may have, against Lender.Guarantor waives any right to participate in any security now or later held byLender. Guarantor waives notice of acceptance of this Guaranty, and all othernotices in connection with this Guaranty or in connection with the liabilities,obligations and duties guaranteed hereby, including notices to Guarantor ofdefault by the Borrower under the Loan Documents. Guarantor hereby waivesdiligence, presentment, demand for performance, notice of nonperformance,protest, notice of protest, notice of dishonor, and notice of acceptance ofthis-Guaranty, and waives all notices of the existence, creation, or incurringof new or additional obligations.

 

If there is more than one Guarantor, the liability of each Guarantorshall be joint and several. Guarantor’s obligations under this Guaranty shall bebinding on Guarantor’s legal representatives, heirs, successors and assigns.

 

If Borrower disposes of its interest in the property secured by theLoan Documents, “Borrower”, as used in this Guaranty, shall mean Borrower’ssuccessors or assigns. Assignment of the Loan Documents by Lender (as permittedby the Loan Documents) shall not affect this Guaranty. In the event of anassignment of the Loan Documents by Lender, the term “Lender” as used in thisGuaranty shall mean Lender’s successors or assigns.

 

Guarantor hereby covenants and agrees to deliver to Lender thefollowing: (a) management prepared and certified consolidated quarterlyfinancial statements for Guarantor within forty-five (45) days after the end ofthe first three (3) quarters of each fiscal year of Guarantor, and (b) annualconsolidated financial statements for Guarantor audited by an independentcertified public accountant within one hundred twenty (120) days after the endof each fiscal year of Guarantor. Such financial statements shall be true andcorrect in all respects, shall be prepared in accordance with generallyaccepted accounting principles, and shall fairly represent the respectivefinancial conditions of the subjects thereof as of the respective datesthereof. At the request of Lender, Guarantor shall obtain the consent ofGuarantor’s accountant(s) to the inclusion of Guarantor’s most recent financialstatement in any regulatory filing or report to be filed by Lender.

 

If any one or more of the provisions of this Guaranty shall be held tobe invalid, illegal or unenforceable in any respect, such invalidity,illegality or unenforceability shall not affect any other provision of thisGuaranty, and this Guaranty shall be construed as if such invalid, illegal orunenforceable provision had never been contained herein.

 

This Guaranty shall be construed according to the laws of the State ofGeorgia. Guarantor agrees that any dispute which may arise between Lender andGuarantor with regard to this Guaranty shall be resolved by litigation in stateor federal court. Litigation may be initiated by Lender or its assignee, at itsdiscretion, in the State of the principal place of business of Lender or itsassignee, the State of the principal place of business of Guarantor, or theState where the Collateral (as defined in the Loan Documents) is located.

 

2

----

 

**GUARANTORHEREBY KNOWINGLY AND IRREVOCABLY WAIVES ANY OBJECTIONS ON THE GROUNDS OFIMPROPER JURISDICTION OR VENUE TO AN ACTION INITIATED AS SET FORTH ABOVE ANDAGREES THAT EFFECTIVE SERVICE OF PROCESS MAY BE MADE UPON GUARANTOR BYREGISTERED MAIL RETURN RECEIPT REQUESTED. GUARANTOR WAIVES, TO THE EXTENTPERMITTED BY LAW, TRIAL BY JURY IN ANY ACTION BETWEEN THE PARTIES.**

 

This Guaranty shall becomeeffective on March 31, 1998.

 

 
| **THE WESTERN SIZZLIN CORPORATION**                  |               |      |
|------------------------------------------------------|--------------------|-----------|
|                                                 |               |      |
| By:                                                  | /s/ Victor F. Foti |      |   |
|                                                 | Its:          | President |   |   |
|                                                 |               |      |   |
|                                                 |               |      |
|                                                 |               |      |
| **THE WESTERN SIZZLIN STORES OF  LITTLE ROCK, INC.** |               |      |
|                                                 |               |      |
| By:                                                  | /s/ Victor F. Foti |      |   |
|                                                 | Its:          | President |   |
|                                                      |                    |           |  |  |  |  |  |

 

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Loan No. 06718

8365 Sudley Rd.

Manassas, Virginia

 

**PROMISSORYNOTE**

 

| $500,000.00 |   | Date: March 23, 1998 |
|-------------|--------|----------------------|

 

PROMISE TO PAY. For value received,THE WESTERN SIZZLIN STORES, INC., a Virginia corporation, (“Borrower”) promisesto pay to CAPTEC FINANCIAL GROUP FUNDING CORPORATION, a Michigan corporation(together with its successors, assigns and transferees, “Lender”), or order,Five Hundred Thousand and 00/100 Dollars ($500,000.00), or so much of such sumas has been advanced under this Note, as follows:

 

Interest only from and after the date on which funds are disbursed byLender hereunder (“Effective Date”) through the last day of the month in whichthe Effective Date occurs shall be due and payable on the first day of the nextmonth following the Effective Date; provided that if the Effective Date occursafter the fifteenth (15th) day of a month, the interest which would accrue,based on the actual number of days, through the end of such month shall be dueand payable in advance on the Effective Date. Installments of principal andinterest in the amount of Eight Thousand Two Hundred Sixty-Two and 00/100Dollars ($8,262.00) are due and payable on the first day of each month (each a“Payment Date”), commencing May 1, 1998; until April 1, 2005 (“Due Date”), whenthe outstanding principal balance, plus accrued interest, is due and payable(unless the indebtedness evidenced by this Note is accelerated, in which case,the Due Date is the date of acceleration). The amortization period for thisNote, for purposes of calculating the monthly installments of principal andinterest, is eighty-four (84) months.

 

All payments under this Note shall be made at Lender’s principal officeat 24 Frank Lloyd Wright Drive, Lobby L, 4th Floor, P.O. Box 544, Ann Arbor,Michigan 48106-0544, or at such other address as Lender may designate inwriting, or by electronic funds withdrawal made by Lender upon writtenauthorization therefor from Borrower, which authorization shall not berevocable by Borrower without the consent of Lender. Payments due and payableon a day on which Lender is not open for business are due on the nextsucceeding business day. Payments will be applied first to accrued interest andthen to principal.

 

INTEREST RATE. The outstandingprincipal balance of this Note will bear interest at a fixed rate equal to nineand eighty-five hundredths percent (9.85%) per annum (the “Stated Rate”), untilthe Due Date (whether by acceleration or otherwise), and thereafter at a ratewhich is three percent (3%) above the Stated Rate (“Default Rate”).

 

Interest will be computed on the basis of a year consisting of twelve(12) months of thirty (30) days each. In no event, however, shall the interestrate exceed the maximum rate allowed by law. Notwithstanding anything to thecontrary contained herein, at no time shall the interest payable under thisNote be greater than the maximum rate permitted by applicable law (“LegalRate”). If any obligation under this Note shall result in Lender receiving anamount deemed to be interest under applicable law in excess of the Legal Rate,then the amount which would be excessive interest shall be applied to thereduction of the principal balance of this Note and not to payment of interest.If such excessive interest exceeds the unpaid principal balance of this Note,the excess shall be refunded to Borrower.

 

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PREPAYMENT. Borrower shall not haveany right, except as otherwise specifically provided, to prepay the principalbalance of this Note until two (2) loan years have elapsed. The first “loanyear” shall commence on the date of the closing of the loan evidenced by thisNote, and subsequent loan years shall commence on the anniversaries of suchdate. Commencing with the third (3rd) loan year and if no Event of Default (ashereinafter defined) then exists, Borrower shall have the right to prepay all,but not merely a portion of, the principal balance of this Note together withaccrued interest thereon on any Payment Date; provided, however, that Borrowershall provide no less than thirty (30) days prior written notice to Lender of Borrower’sintention to prepay (the “Prepayment Notice”). Once given, the PrepaymentNotice may not be withdrawn, and the failure to prepay in accordance with thePrepayment Notice shall constitute an Event of Default.

 

Borrower acknowledges and agrees that Lender is making the loanevidenced by this Note in consideration of the receipt by Lender of allinterest and other benefits intended to be conferred by this Note, and ifpayments of principal are made to Lender prior to the regularly scheduled duedate of such payments, for whatever reason (whether voluntarily orinvoluntarily), Lender will not receive all such interest and other benefitsand may incur additional costs. For these reasons, and to induce Lender to makethe loan, Borrower expressly waives any right to prepay this Note except asspecifically provided herein.

 

Lender shall not be required to accept any tender of prepayment of theprincipal balance of this Note at any time when the “Reinvestment Rate” (ashereinafter defined) is lower than the Stated Rate, less eighty-five basispoints, unless such tender also includes a sum of money (the “PrepaymentPremium”) equal to the present value (computed at the Reinvestment Rate) of thedifference between a stream of monthly payments necessary to amortize theoutstanding principal balance of this Note at the Stated Rate and a stream ofmonthly payments necessary to amortize the outstanding principal balance ofthis Note at the Reinvestment Rate (the “Differential”). In the event theDifferential is less than zero, no Prepayment Premium will be required. Forpurposes of this Note, the “Reinvestment Rate” is the yield on a United StatesTreasury obligation of a constant maturity rate maturing closest in time butprior to the maturity date of this Note, as reported in Federal ReserveStatistical Release H.15 (519) (or any comparable successor publication) on thefifth (5th) business day preceding the prepayment date.

 

In addition to the Prepayment Premium, if any, every tender ofprepayment of the principal balance of this Note shall be accompanied by apayment equal to (x) all accrued but unpaid interest and other charges to thedate of prepayment and (y) an administrative fee equal to one half of onepercent (0.5%) of the outstanding principal balance of this Note; provided,however, that the administrative fee shall not be less than One Thousand and00/100 Dollars ($1,000.00) (collectively, the “Other Charges”).

 

If the outstanding principal balance of this Note is accelerated byreason of an Event of Default, such acceleration shall be deemed to be aprepayment and Borrower shall pay to Lender, in addition to all sums due as aresult of the acceleration, any applicable Prepayment Premium and OtherCharges. In the event of an acceleration of this Note in the first or secondloan year, Borrower shall be required to pay a Prepayment Premium equal to fivepercent (5%) of the outstanding principal balance of this Note together withany Other Charges. In the event that this Note is partially prepaid fromcasualty insurance proceeds (as provided in the Security Agreement, definedbelow), no Prepayment Premium or Other Charges shall be due and payable withrespect to such prepayment, and each monthly installment thereafter shall bereduced to an amount which will amortize the then unpaid principal balance ofthis Note at the Stated Rate over the then remaining term of this Note.

 

LATE PAYMENT CHARGE. In the eventthat any payment under this Note is not received by Lender within fifteen (15)days of the date when due, a late charge of five percent (5%) of the amount ofsuch payment will be due. Borrower agrees that the late charge is a reasonableestimate of the administrative costs which Lender will incur in processing thedelinquency. Lender’s acceptance of a late payment and/or of the late paymentcharge will not waive any default under this Note or affect the acceleration ofthis Note (if this Note has been accelerated).

 

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**COLLATERAL**.This Note and the other obligations of Borrower to Lender contained in thedocuments securing this Note are secured by and in accordance with the terms ofthat certain Security Agreement, effective March 31, 1998, executed by Borrower for the benefit of Lender(the “Security Agreement”; together with any other documents securing paymentunder this Note, the “Loan Documents”). All property securing the Indebtedness(as defined in the Security Agreement) is referred to as the “Collateral”.

 

**DEFAULT.** Any ofthe following events shall, for purposes of this Note, constitute an “Event ofDefault”:

 

(a)             Failure byBorrower to pay any amount owing on or with respect to the Indebtedness whendue, whether by maturity, acceleration or otherwise, which failure continuesfor five (5) business days.

 

(b)             Any failure byBorrower (or any guarantor of all or any part of the Indebtedness) to complywith any of the non-monetary terms, provisions, warranties or covenants of thisNote, the Security Agreement or the other Loan Documents, which failurecontinues for fifteen (15) days after the date of written notice to Borrower(or any guarantor) from Lender of such default; provided, however, that if: (i)the nature of Borrower’s (or any guarantor’s) noncompliance is such that morethan fifteen (15) days are reasonably required for its cure, (ii) Borrower (orany guarantor) has commenced such cure within said fifteen (15) day period,(iii) Borrower (or any guarantor) diligently prosecutes such cure tocompletion, (iv) Borrower (or any guarantor) provides Lender with writtennotice of the noncompliance, AND (v) Borrower (or any guarantor) furnishesreserves or a security bond, in an amount satisfactory to Leader in its solediscretion, then Borrower (or any guarantor) shall not be in default.

 

(c)             Institution of foreclosureproceedings or other exercise of rights and remedies by the holder of anymortgage, deed of trust, security interest or other lien against the Collateral(or any portion thereof); provided, however, if there is a good faith disputeby Borrower (or any guarantor) as to the validity or reasonableness of theclaim which is the basis for such proceedings, then no Event of Default shallhave occurred under this clause (c) if Borrower (or any guarantor) providesLender with written notice of the proceedings and furnishes reserves or asecurity bond for the proceedings satisfactory to Lender.

 

(d)             Insolvency ofBorrower (or any guarantor) or the admission in writing of Borrower’s (or anyguarantor’s) inability to pay debts as they mature.

 

(e)             Any statement,representation or information made or furnished by or on behalf of Borrower (orany guarantor) to Lender in connection with or to induce Lender to provide oradvance any of the Indebtedness shall prove to be false or materiallymisleading when made or furnished.

 

(f)              Institution ofbankruptcy, reorganization, insolvency or other similar proceedings by oragainst Borrower (or any guarantor), unless, in the case of a petition filedagainst Borrower (or any guarantor), the same is dismissed within sixty (60)days of the date of filing.

 

(g)             The issuance orfiling of any judgment, attachment, levy, garnishment or the commencement ofany related proceedings or the commencement of any other judicial process uponor in respect to Borrower (or any guarantor) or the Collateral in which theamount in controversy exceeds One Hundred Thousand Dollars ($100,000) and isnot covered by the insurance of Borrower (or any guarantor), unless satisfied,or Borrower (or any guarantor) furnishes reserves or a security bond in anamount satisfactory to Lender in its sole discretion, released or dischargedwithin sixty (60) days after the date of such issuance, filing or commencement.

 

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(h)             Sale or otherdisposition by Borrower (or any guarantor) of any substantial portion of itsassets or property.

 

(i)              Death,dissolution, merger, consolidation, termination of existence, insolvency,business failure or assignment for the benefit of creditors of or by Borrower(or any guarantor); without the prior written consent of Lender, which consentshall not be unreasonably withheld.

 

(j)              Any failure byBorrower (or any guarantor) to pay any indebtedness (other than to Lender) inexcess of One Hundred Thousand Dollars ($100,000) (and exclusive of trade debtincurred in the ordinary course of business) when due, or any failure in theobservance or performance of any term, covenant or condition in any documentevidencing, securing or relating to such indebtedness, which failure continuesbeyond any applicable cure period.

 

(k) Receipt by Borrower of a notice of termination of the Managementand Licensing Agreement from The WesterN SizzliN Corporation, a Tennesseecorporation (“Franchisor”), for the Great American Steak & Buffet CompanyRestaurant located at 8365 Sudley Rd., Manassas, Virginia 22110 (“FranchisedOperation”).

 

(1)             If this Note, theSecurity Agreement and the other Loan Documents have not been assigned to theTrust (as defined in the Security Agreement), the default by Borrower whichcontinues beyond any applicable grace or cure period under the RetainedObligations (as defined in the Security Agreement); provided, however, if thisNote, the Security Agreement and the other Loan Documents are assigned to theTrust, this Clause (1) shall be of no force and effect during the term of suchassignment.

 

(m) In the event that this Note, the Security Agreement and the otherLoan Documents are assigned to the Trust, the default by Borrower whichcontinues beyond any applicable grace or cure period under the TrustObligations (as defined in the Security Agreement).

 

(n)             Any default byBorrower under the Lease between Combined Properties Limited Partnership, aMaryland limited partnership, as landlord, and Borrower, as tenant, dated April20, 1990 (“Lease”), which default is not cured within any applicable cureperiod set forth in such Lease.

 

Upon an occurrence of an Event of Default, Lender shall have the optionto declare all or part of the Indebtedness (including this Note) immediatelydue and payable. If this Note is not paid at maturity (whether by accelerationor otherwise), Lender shall have all of the rights and remedies provided at lawor equity or by agreement, including, without limit, the right to sell orliquidate all or any part of the Collateral. The remedies of Lender arecumulative and not exclusive.

 

**EXAMINATION OF RECORDS.**Borrower shall at all times keep full and accurate records of its business andof the Collateral, which records shall be open to inspection and copying by Lenderat all reasonable times.

 

**LIABILITY OF SIGNATORIES.**Borrower, and all guarantors and endorsers, and any other party liable for theIndebtedness evidenced by this Note: (i) severally waive presentment, demand,protest, notice of dishonor, notice of non-payment and notice of accelerationof this Note; and (ii) agree that no extension or postponement of the time forpayment, or waiver, or indulgence or forbearance granted to Borrower (withoutlimit as to number or period) or any modification of this Note, or anysubstitution, or exchange or release of all or part of the Collateral, oraddition of any party to this Note, or release or discharge of, or suspensionof any rights and remedies against any party liable on this Note, shall reduceor affect the obligation of any other party liable for the payment of thisNote.

 

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**NON-WAIVER.**Nodelay by Lender in the exercise of any right or remedy shall operate as awaiver. No single or partial exercise by Lender of any right or remedy shallpreclude any future exercise of such right or remedy or the exercise of anyother right or remedy. No waiver or indulgence by Lender of any default orEvent of Default shall be effective unless in writing and signed by Lender, norshall a waiver on one occasion be construed as a bar to any right or remedy, orwaiver of any default or Event of Default on any future occasion.

 

**REIMBURSEMENTOF EXPENSES.**Borrower shall reimburse Lender for allcosts and expenses, including reasonable attorneys’ fees, incurred by Lender inenforcing the rights of Lender under this Note. Such costs and expenses shallinclude, without limitation, costs or expenses incurred by Lender in anybankruptcy, reorganization, insolvency or other similar proceeding. Anyreference in this Note to attorneys’ fees shall mean fees, charges, costs andexpenses of in-house and/or outside counsel and paralegals, whether or not asuit or proceeding is instituted, and whether incurred at the trial courtlevel, on appeal, in a bankruptcy, administrative or probate proceeding, inconsultation with counsel, or otherwise.

 

**WAIVEROF JURY TRIAL. BORROWER AND LENDER ACKNOWLEDGE THAT THE RIGHTTO TRIAL BY JURY IS A CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED. EACHPARTY, AFTER CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSELOF THEIR CHOICE, KNOWINGLY AND VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT,WAIVES ANY RIGHT TO TRIAL BY JURY IN THE EVENT OF LITIGATION REGARDING THEPERFORMANCE OR ENFORCEMENT OF, OR IN ANY WAY RELATED TO, THIS NOTE OR THEINDEBTEDNESS.**

 

**ASSIGNMENT.**ThisNote is freely assignable, in whole or in part, by Lender without prior noticeto or consent of Borrower; provided, however, that Lender (or its assignee)shall provide written notice of such assignment to Borrower in the event thatLender (or such assignee) desires to designate a new person or entity as payeeand/or a new place of payment for the obligations under this Note. Borrower maynot, in whole or in part, directly or indirectly, assign this Note or itsrights hereunder or delegate its duties hereunder without, in each instance,the specific prior written consent of Lender, which consent may be withheld ordelayed in Lender’s sole discretion. Lender shall be fully discharged from allresponsibility accruing hereunder from and after the effective date of any suchassignment. Lender’s assignee shall, to the extent of the assignment, be vestedwith all the powers and rights of Lender hereunder, and to the extent of suchassignment the assignee may fully enforce such rights and powers, and allreferences to Lender shall mean and refer to such assignee. Lender shall retainall rights and powers hereby given not so assigned, transferred and/ordelivered. Borrower hereby waives all defenses which Borrower may be entitledto assert against Lender’s assignee with respect to liability accruinghereunder prior to the effective date of any assignment of Lender’s interestherein.

 

**SECURITIZATION.**Borrowerunderstands and agrees that Lender may, from time to time, assign its rightsand powers under this Note, the Security Agreement and any other LoanDocuments, in whole or in part, in connection with a securitization program.Borrower agrees to enter into an amendment to this Note, the Security Agreementand any other Loan Documents if such amendments are required by a nationallyrecognized rating agency in connection with a securitization program sponsoredby Lender and in which this Note, the Security Agreement any other LoanDocuments are to be included; provided that Borrower shall not be obligated toenter into any amendment which adversely affects Borrower or otherwiseadversely alters any of the financial terms of this Note, the SecurityAgreement and any other Loan Documents.

 

**MISCELLANEOUS.**Theterms and provisions of this Note shall be governed by and construed inaccordance with the laws of the State of Virginia. Lender and Borrower agreethat any dispute which may arise between them with regard to this Note shall beresolved by litigation in state or federal court. Litigation may be initiatedby Lender or its assignee, at its discretion, in the State of the principalplace of business of Lender or its assignee, the State of the principal placeof business of Borrower, or the State where the Collateral is located. **BORROWER HEREBY KNOWINGLY AND IRREVOCABLY WAIVES ANYOBJECTIONS ON THE**

 

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**GROUNDS OF IMPROPER JURISDICTION OR VENUE TO AN ACTION INITIATED AS SET FORTH ABOVE AND AGREES THAT EFFECTIVESERVICE OF PROCESS MAY BE MADE UPON BORROWER BY REGISTERED MAIL RETURN RECEIPTREQUESTED.**The terms and provisions of this Note may only bechanged in writing, executed by Borrower and Lender.

** **
| **THE  WESTERN SIZZLIN STORES, INC.** |                     |
|---------------------------------------|--------------------------|
|                                  |                     |
| By:                                   | /s/ Victor  F. Foti |   |   |
|                                  |                     |   |   |
|                                  | Its                      | President |   |
|                                       |                          |  |  |  |  |  |

 

Address:

 

P.O. Box 12167

Roanoke, VA 24023-2167

 

Tax I.D. No. 54-1787907

 

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Pay to the order of                             

without warranty or recourse.

Captec FinancialGroup Funding Corporate

 
| BY:    | /s/ [ILLEGIBLE] |   |
|--------|-----------------|--------|
|   |
| Its:   |            |   |
|        |                 |        |  |

 

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Loan No. 06718

8365 Sudley Rd.

Manassas, Virginia

 

**COLLATERAL ASSIGNMENT OF LEASE ANDOPTION RIGHTS**

 

THIS COLLATERAL ASSIGNMENT OF LEASE AND OPTION RIGHTS (“Assignment”) ismade as of the 23 day of March, 1998, by **THE WESTERN SIZZLIN STORES, INC.,**aVirginia corporation, whose address is P. O. Box 12167, Roanoke, VA 24023-2167(“Assignor”), in favor of **CAPTEC FINANCIAL GROUP FUNDING CORPORATION,**aMichigan corporation, whose address is 24 Frank Lloyd Wright Drive, Lobby L,4th Floor, P.O. Box 544, Ann Arbor, Michigan 48106-0544 (“Assignee”). Thisinstrument shall become effective onMarch 31,**1998.

 

For good and valuable consideration, the receipt and sufficiency ofwhich is hereby acknowledged, Assignor presently assigns to Assignee all ofAssignor’s right, title and interest in and to its lessee’s interest in thatcertain lease with **Combined Properties Limited Partnership, a Marylandlimited partnership,**(“Lessor”) dated as of April 20, 1990, a copyof which is attached hereto as Exhibit A (the “Lease”) respecting the premisescommonly known as the Great American Steak & Buffet Company Restaurantlocated at 8365 Sudley Rd., Manassas, Virginia (“Premises”). This Assignment isfor collateral purposes only, and except as specified herein, Assignee shallhave no liability or obligation of any kind whatsoever arising from or inconnection with this Assignment or the Lease unless Assignee shall takepossession of the Premises and assume the obligations of Assignor thereunder.

 

Assignor represents and warrants to Assignee that it has full power andauthority to so assign the Lease and its interest therein and that Assignor hasnot previously, and is not obligated to, assign or transfer any of its interestin the Lease or the Premises.

 

Throughout the term of the Lease, Assignor covenants and agrees toexercise all options to extend or renew the term of the Lease not less thanninety (90) days prior to the last day upon which any such option may beexercised, but in no event less than six (6) months prior to of the term of theLease, unless Assignee otherwise agrees in writing. Assignor shall sendAssignee a copy of the notice of exercise concurrently with Assignor’s exerciseof the option. Upon the failure of Assignor to so elect or renew the Lease asaforesaid (and the failure of Assignee to otherwise agree in writing), Assigneeshall have the right, but not the obligation, to exercise such extension orrenewal option on behalf of Assignor, and Assignor hereby appoints Assignee (orany of its employees) as its attorney-in-fact for the purpose of exercisingsuch extension or renewal option.

 

If an “Event of Default” occurs under the Promissory Note, dated March23, 1998, in the  original principalamount of Five Hundred Thousand and 00/100 Dollars ($500,000.00), by Assignorin favor of Assignee (the “Note”) or under any documents or instrumentssecuring the Note, Assignee shall have the right and is hereby empowered totake possession of the Premises, expel Assignor therefrom, and, in such event,Assignor shall have no further right, title or interest in the Lease and shallremain liable to Assignee for all past due rents Assignee shall be required topay to the Lessor under the Lease to effectuate this Assignment.

 

Assignor agrees that it will not suffer or permit any surrender,termination, amendment or modification of the Lease without the prior writtenconsent of Assignee, which consent shall not be unreasonably withheld. At therequest of Assignee, Assignor shall provide Assignee with rent payment or suchother information regarding the Lease as Assignee shall reasonably require.

 

This Assignment shall be governed by the laws of the Commonwealth ofVirginia.

 

This Assignment may be executed in one or more counterparts, each ofwhich shall constitute an original and all of which together shall constituteone and the same instrument.

 

[SIGNATURE PAGE FOLLOWS]

 

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IN WITNESS WHEREOF, Assignor has executedthis Assignment as of the day and year noted above.

 
|            | **assignor:**                        |   |
|-----------------|--------------------------------------|--------|
| Witnesses:      |                                 |   |
|            |                                 |   |
|            | **the western sizzlin stores, inc.** |   |
|            |                                 |   |
| /s/ [ILLEGIBLE] |                                 | By:    | /s/ Victor F. Foti |   |   |
|            |                                 |   |   |   |
| /s/ [ILLEGIBLE] |                                 | Its:   | President |   |
|                 |                                      |        |  |  |  |  |  |  |

 

 

| COMMONWEALTH OF  VIRGINIA | ) |
|---------------------------|---|
|                      | ) |
| COUNTY OF ROANOKE         | ) |

 

 

I, Richard R. Sayers, a notary public in and for theState and County aforesaid, do certify that Victor F. Foti, whose name, asPresident of The WesterN SizzliN Stores, Inc., is signed to the writing above,bearing date on the 23rd day of March 1998 has acknowledged the samebefore me in my county aforesaid.

 

Given under my hand and official seal this 23rdday of March 1998.

My term of office expires on the 28th day of February1999.

 
|   | /s/ Richard L. Sayers       |   |
|--------|-----------------------------|--------|
|   | Notary Public               |
|   | [Notary Public’s Seal] |

 

 

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Loan No. 06718

8365 Sudley Rd.

Manassas, Virginia

 

**GUARANTY**

 

THE WESTERN SIZZLINCORPORATION, a Tennessee corporation and THE WESTERN SIZZLIN STORES OF LITTLEROCK, INC., an Arkansas corporation (each a “Guarantor”), as a materialinducement to and in consideration of CAPTEC FINANCIAL GROUP FUNDINGCORPORATION, a Michigan corporation, whose address is 24 Frank Lloyd WrightDrive, Lobby L, Ann Arbor, Michigan 48106 (together with its successors,assigns and transferees, “Lender”), making a loan in the original principalamount of Five Hundred Thousand and 00/100 Dollars ($500,000.00) as evidencedby a Promissory Note, dated March 23, 1998 (“Note”), made by THE WESTERNSIZZLIN STORES, INC., a Virginia corporation (“Borrower”), which Note issecured by the instruments referenced therein (together with the Note, “LoanDocuments”), hereby jointly and severally, unconditionally and irrevocably,personally guarantees to and for the benefit of Lender, and Lender’s successorsand assigns, the full and timely payment and performance of all of theBorrower’s duties, obligations and covenants under the Loan Documents. This isa guaranty of payment and performance and not of collection.

 

This Guaranty shall notbe affected by Lender’s failure or delay to enforce any of its rights.

 

Guarantor’s obligationsare independent of Borrower’s obligations. If Borrower defaults under the LoanDocuments, Lender can proceed immediately against Guarantor or Borrower, orboth, or Lender can enforce against Guarantor or Borrower, or both, any rightsthat it has under the Loan Documents or pursuant to applicable laws. If anylien created by the Loan Documents terminates and Lender has any rights it canenforce against Borrower after termination, Lender can enforce those rightsagainst Guarantor without giving previous notice to Borrower or Guarantor orwithout making any demand on either of them.

 

To the extent permittedby law, Guarantor waives the benefit of any statute of limitations affectingGuarantor’s liability under this Guaranty. Guarantor waives the right torequire Lender to first or concurrently: (1) proceed against Borrower; (2)proceed against or exhaust any security that Lender holds from Borrower; or (3)pursue any other remedy in Lender’s power. The liability of Guarantor shall notbe affected or exonerated by any indulgence, compromise, settlement orvariation of terms which may be extended by Lender to Borrower, or agreed uponby Lender or Borrower, and, unless agreed to in writing by Lender, shall not beaffected or exonerated by any assignment by Borrower of its interest in any oneor more of the Loan Documents, nor shall the liability of the Guarantor beaffected or exonerated by the insolvency, bankruptcy (voluntary orinvoluntary), or reorganization of Borrower, nor by the voluntary orinvoluntary liquidation, sale or other disposition of all or substantially allof the assets of Borrower, or by the release of any other Guarantor. Lender andBorrower, without notice to or consent by Guarantor, may at any time or timesenter into such modifications, extensions, amendments or other covenants of theLoan Documents as they may deem appropriate, and Guarantor shall not bereleased nor its liability exonerated thereby but shall continue to be fullyliable for the payment and performance of all obligations and duties ofBorrower under the Loan Documents as so modified, extended or amended.

 

Guarantor further agrees(1) to indemnify and hold harmless Lender from and against any claims, damages,expenses or losses, including to the extent permitted by law, all reasonableattorneys’ fees incurred by counsel of Lender’s choice (whether or notlitigation is commenced), resulting from or arising out of any breach of anyprovision of the Loan Documents by Borrower or by reason of Borrower’s failureto perform any of its obligations thereunder, and (2) to the extent permittedby law, to pay all costs and expenses, including reasonable attorneys’ fees(whether or not litigation is commenced), incurred by Lender in enforcing thisGuaranty.

 

Until all of Borrower’sobligations to Lender have been discharged in full, Guarantor has no right ofsubrogation against Borrower. Guarantor assumes the responsibility to remaininformed of the financial condition of Borrower and of all other circumstancesbearing upon the risk of Borrower’s default, which reasonable inquiry

 

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would reveal, and agrees that Lender shall have noduty to advise Guarantor of information known to it regarding such condition orany such circumstances. Lender shall not be required to inquire into the powersof Borrower or the officers, employees, partners or agents acting or purportingto act on its behalf, and any indebtedness made or created in reliance upon theprofessed exercise of such powers shall be guaranteed under this Guaranty. EachGuarantor hereby represents and warrants to Lender that such Guarantor hasreceived a copy of each of the Loan Documents, has read or had the opportunityto read each of the Loan Documents, and understands the terms of the LoanDocuments. The provisions in the Loan Documents relating to the execution ofadditional documents, legal proceedings by Lender against Borrower,severability of the provisions of the Loan Documents, interpretation of theLoan Documents, notices, waivers (including waiver of a jury trial), limitationon right of recovery against Lender, disclaimer of individual liability, andthe applicable laws which govern the interpretation of the Loan Documents areincorporated herein in their entirety by this reference and made a part hereofas though set forth in full herein; any reference in those provisions to“Borrower” shall mean each Guarantor and any reference in those provisions tothe “Loan Documents” shall mean this Guaranty.

 

To the extent permittedby law, Guarantor waives its right to enforce any remedies that Borrower nowhas, or later may have, against Lender. Guarantor waives any right toparticipate in any security now or later held by Lender. Guarantor waivesnotice of acceptance of this Guaranty, and all other notices in connection withthis Guaranty or in connection with the liabilities, obligations and dutiesguaranteed hereby, including notices to Guarantor of default by the Borrowerunder the Loan Documents. Guarantor hereby waives diligence, presentment,demand for performance, notice of nonperformance, protest, notice of protest,notice of dishonor, and notice of acceptance of this Guaranty, and waives allnotices of the existence, creation, or incurring of new or additional obligations.

 

If there is more than oneGuarantor, the liability of each Guarantor shall be joint and several.Guarantor’s obligations under this Guaranty shall be binding on Guarantor’slegal representatives, heirs, successors and assigns.

 

If Borrower disposes ofits interest in the property secured by the Loan Documents, “Borrower”, as usedin this Guaranty, shall mean Borrower’s successors or assigns. Assignment ofthe Loan Documents by Lender (as permitted by the Loan Documents) shall notaffect this Guaranty. In the event of an assignment of the Loan Documents byLender, the term “Lender” as used in this Guaranty shall mean Lender’ssuccessors or assigns.

 

Guarantor herebycovenants and agrees to deliver to Lender the following: (a) managementprepared and certified consolidated quarterly financial statements forGuarantor within forty-five (45) days after the end of the first three (3)quarters of each fiscal year of Guarantor, and (b) annual consolidatedfinancial statements for Guarantor audited by an independent certified publicaccountant within one hundred twenty (120) days after the end of each fiscalyear of Guarantor. Such financial statements shall be true and correct in allrespects, shall be prepared in accordance with generally accepted accountingprinciples, and shall fairly represent the respective financial conditions ofthe subjects thereof as of the respective dates thereof. At the request ofLender, Guarantor shall obtain the consent of Guarantor’s accountant(s) to theinclusion of Guarantor’s most recent financial statement in any regulatoryfiling or report to be filed by Lender.

 

If any one or more of theprovisions of this Guaranty shall be held to be invalid, illegal orunenforceable in any respect, such invalidity, illegality or unenforceabilityshall not affect any other provision of this Guaranty, and this Guaranty shallbe construed as if such invalid, illegal or unenforceable provision had neverbeen contained herein.

 

This Guaranty shall beconstrued according to the laws of the State of Virginia. Guarantor agrees thatany dispute which may arise between Lender and Guarantor with regard to thisGuaranty shall be resolved by litigation hi state or federal court. Litigationmay be initiated by Lender or its assignee, at its discretion, in the State ofthe principal place of business of Lender or its assignee, the State of theprincipal place of business of Guarantor, or the State where the Collateral (asdefined in the Loan Documents) is located.

 

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**GUARANTOR HEREBY KNOWINGLY ANDIRREVOCABLY WAIVES ANY OBJECTIONS ON THE GROUNDS OF IMPROPER JURISDICTION ORVENUE TO AN ACTION INITIATED AS SET FORTH ABOVE AND AGREES THAT EFFECTIVESERVICE OF PROCESS MAY BE MADE UPON GUARANTOR BY REGISTERED MAIL RETURN RECEIPTREQUESTED. GUARANTOR WAIVES, TOTHE EXTENT PERMITTED BY LAW, TRIAL BY JURY IN ANY ACTION BETWEEN THE PARTIES.**

 

This Guaranty shallbecome effective on March 31, 1998.

 
| **THE WESTERN SIZZLIN CORPORATION** |
|-------------------------------------|
|                                |
| By:                                 | /s/ Victor F. Foti |   |

 
| Its: | President |   |
|------|-----------|--------|

 

**THE WESTERN SIZZLIN STORES OF LITTLE ROCK, INC.**

 
| By: | /s/ Victor F. Foti |   |
|-----|--------------------|--------|

 
| Its: | President |   |
|------|-----------|--------|

 

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Loan No. 06718

8365 Sudley Rd.

Manassas, Virginia

 

**CERTIFICATE OF BORROWER**

 

THE WESTERN SIZZLIN STORES,INC., a Virginia corporation (“Borrower”), for the benefit of CAPTEC FINANCIALGROUP FUNDING CORPORATION, a Michigan corporation (together with itssuccessors, assigns and transferees, “Lender”), warrants, represents, covenantsand agrees that the following are true and correct as of the date hereof:

 

1.             All warranties and representations of Borrower containedin this Certificate shall survive the execution of this Certificate and anyadvances made in accordance with the Promissory Note executed by Borrower, infavor of Lender, dated even herewith, in the original principal amount of FiveHundred Thousand and 00/100 Dollars ($500,000.00) (the “Note”).

 

2.             Borrower has good, indefeasible and marketable title tothe Collateral (as defined in that certain Security Agreement, dated evenherewith, between Borrower and Lender (the “Security Agreement”)). Except forthe Security Agreement, there are no instruments, matters or agreements, andBorrower is not a party to any instrument, matter or agreement, which will inany way encumber, bind or otherwise affect the Collateral or Lender.  Borrower has neither done nor failed to doanything, nor has suffered anything to be done, as a result of which theCollateral or any part thereof has been or will be encumbered or title theretohas been or will be affected in any way and no person, firm or entity has anypresent, conditional or contingent rights to acquire all or any portion of theCollateral.

 

3.             Borrower is a corporation duly organized and validlyexisting in good standing under the laws of the Commonwealth of Virginia. Theperson or persons executing the Note, the Security Agreement and the other LoanDocuments (as defined in the Security Agreement) have full power and completeauthority to execute the Note, the Security Agreement and the other LoanDocuments, and, when executed, the Note, the Security Agreement and the otherLoan Documents will be legal, valid and binding obligations of Borrower,enforceable in accordance with their terms.

 

4.             As of the date hereof, Borrower is not “insolvent”within the meaning of Section 548(a)(2)(B) of the United States BankruptcyCode.

 

5.             Borrower is in the business of owning and operatingGreat American Steak & Buffet Company restaurants, including the restaurantoperation located at 8365 Sudley Rd., Manassas, Virginia (the “FranchisedOperation”). Borrower’s chief executive office is located at 416 SouthJefferson Street, Roanoke, Virginia 24012, and the Collateral is located atBorrower’s Chief Executive Office and the Franchised Operation.

 

6.             Borrower has furnished to Lender its most recent annualaudited financial statements and most recent management prepared and certifiedquarterly financial statements, which statements were prepared in accordancewith generally accepted accounting principles and are correct and complete andaccurately present the financial condition of Borrower on the datesthereof.  Further, there has been nomaterial adverse change in the business, property or condition of Borrowersince the date of the most recent financial statements.

 

7.             Borrower has complied and will continue to comply withall applicable laws, rules, regulations and orders relating to Borrower or anyaspect of Borrower’s business or assets, including, without limit, all environmentallaws, rules, regulations and orders. Borrower agrees to indemnify and holdLender harmless against and from all claims, losses and costs resulting fromany and all violations by Borrower of any laws, rules, regulations and/ororders.

 

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8.             Borrower has not received any written notice of, and, tothe best knowledge of Borrower, none of Borrower, the Franchised Operation orthe premises where the Franchised Operation is located are in violation of anylaw, municipal ordinance or other governmental requirement of any governmentalauthority.

 

9.             There are no circumstances, state of facts or othermatters which, with the passage of time or the giving of notice, or both, wouldconstitute an Event of Default under the terms of the Note, the Security Agreementor the other Loan Documents.

 

10.           Borrower has filed all federal, stateand local income and other tax returns and other reports required to be filedprior to the date of this Certificate and Borrower has paid all taxes,assessments, withholdings and other governmental charges that are due andpayable prior to the date of this Certificate.

 

11.           All taxes and all installments ofassessments and all other charges of any kind imposed or levied by anygovernmental authority against either Borrower or the Collateral which are dueand payable or constitute a lien at or prior to the date of this Certificate,together with all interest and penalties due thereon, have been paid in full.

 

12.           There is now fully paid andenforceable fire, liability and other forms of insurance in such amounts andcovering such risks as are required under the Security Agreement.

 

13.           There are no disputes, litigation orother such proceedings pending or, to the best of Borrower’s knowledge,threatened against or related to Borrower, the Collateral or the FranchisedOperation, nor does Borrower know of any basis for any such action.

 

14.          In consideration of the loan evidencedby the Note and secured, by the Security Agreement and the other LoanDocuments, Borrower agrees to indemnify and hold Lender harmless against allclaims, liabilities, losses, deficiencies and damages as well as reasonableexpenses (including attorney’s fees), interest and penalties related thereto,asserted by any third party against, or incurred by Lender, by reason of orresulting from any breach, inaccuracy, incompleteness or nonfulfillment of thecovenants, representations and/or warranties of Borrower contained in thisCertificate.

 

15.          Commencing May 1, 1998 and on thefirst day of each following month, Lender is authorized to initiate anelectronic funds transfer to pay the monthly installment payment owing underthe loan evidenced by the Note from the account designated below, and toreceive payments from such account.  This authorization will remain in effect unless the undersigned requestsa modification that is agreed to by the Financial Institution and Lender;provided, however, that Lender and its successors, assigns and transferees maymodify the place of payment to be made by Borrower without the consent of theFinancial Institution.

 

Financial Institution:

Financial Institution

Address:

Routing/Transit #:

Account #:

 

[SIGNATURE PAGEFOLLOWS]

 

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This Certificate shall become effective on March 31,1998.

 

** **
|   | **THE  WESTERN SIZZLIN STORES, INC.** |
|--------|---------------------------------------|
|   |                                  |   |   |
|   | By                                    | /s/ Victor F. Foti |   |
|   |                                  | Its | President |   |
|        |                                       |  |  |  |  |  |  |

 

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Loan No. 06719

3135 Crain Hwy.

Waldorf, Maryland

**PROMISSORY NOTE**

 
| $750,000.00 |   | Date: March 23. 1998 |
|-------------|--------|----------------------|

 

**PROMISE TO PAY.**Forvalue received, **THE WESTERN SIZZLIN STORES, INC.,****a Virginia corporation,(“Borrower”) promises to pay to **CAPTEC FINANCIAL GROUP FUNDING CORPORATION,**aMichigan corporation (together with its successors, assigns and transferees,“Lender”), or order, Seven Hundred Fifty Thousand and 00/100 Dollars($750,000.00), or so much of such sum as has been advanced under this Note, asfollows:

 

Interest only from andafter the date on which funds are disbursed by Lender hereunder (“EffectiveDate”) through the last day of the month in which the Effective Date occursshall be due and payable on the first day of the next month following theEffective Date; provided that if the Effective Date occurs after the fifteenth(15th) day of a month, the interest which would accrue, based on the actualnumber of days, through the end of such month shall be due and payable inadvance on the Effective Date. Installments of principal and interest in theamount of Eight Thousand Ninety-Two and 00/100 Dollars ($8,092.00) are due andpayable on the first day of each month (each a “Payment Date”), commencing May1, 1998; until April 1, 2013 (“Due Date”), when the outstanding principalbalance, plus accrued interest, is due and payable (unless the indebtednessevidenced by this Note is accelerated, in which case, the Due Date is the dateof acceleration). The amortization period for this Note, for purposes ofcalculating the monthly installments of principal and interest, is fifteen (15)years.

 

All payments under thisNote shall be made at Lender’s principal office at 24 Frank Lloyd Wright Drive,Lobby L, 4th Floor, P.O. Box 544, Ann Arbor, Michigan 48106-0544, or at suchother address as Lender may designate in writing, or by electronic fundswithdrawal made by Lender upon written authorization therefor from Borrower,which authorization shall not be revocable by Borrower without the consent ofLender. Payments due and payable on a day on which Lender is not open forbusiness are due on the next succeeding business day. Payments will be appliedfirst to accrued interest and then to principal.

 

**INTEREST RATE.**Theoutstanding principal balance of this Note will bear interest at a fixed rateequal to ten and seven hundredths percent (10.07%) per annum (the “StatedRate”), until the Due Date (whether by acceleration or otherwise), andthereafter at a rate which is three percent (3%) above the Stated Rate(“Default Rate”).

 

Interest will be computedon the basis of a year consisting of twelve (12) months of thirty (30) dayseach. In no event, however, shall the interest rate exceed the maximum rateallowed by law. Notwithstanding anything to the contrary contained herein, atno time shall the interest payable under this Note be greater than the maximumrate permitted by applicable law (“Legal Rate”). If any obligation under thisNote shall result in Lender receiving an amount deemed to be interest underapplicable law in excess of the Legal Rate, then the amount which would beexcessive interest shall be applied to the reduction of the principal balanceof this Note and not to payment of interest. If such excessive interest exceedsthe unpaid principal balance of this Note, the excess shall be refunded toBorrower.

 

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**PREPAYMENT.**Borrower shall not have any right, except as otherwise specifically provided,to prepay the principal balance of this Note until two (2) loan years haveelapsed. The first “loan year” shall commence on the date of the closing of theloan evidenced by this Note, and subsequent loan years shall commence on theanniversaries of such date. Commencing with the third (3rd) loan year and if noEvent of Default (as hereinafter defined) then exists, Borrower shall have theright to prepay all, but not merely a portion of, the principal balance of thisNote together with accrued interest thereon on any Payment Date; provided,however, that Borrower shall provide no less than thirty (30) days priorwritten notice to Lender of Borrower’s intention to prepay (the “PrepaymentNotice”). Once given, the Prepayment Notice may not be withdrawn, and thefailure to prepay in accordance with the Prepayment Notice shall constitute anEvent of Default.

 

Borrower acknowledges andagrees that Lender is making the loan evidenced by this Note in considerationof the receipt by Lender of all interest and other benefits intended to beconferred by this Note, and if payments of principal are made to Lender priorto the regularly scheduled due date of such payments, for whatever reason(whether voluntarily or involuntarily), Lender will not receive all suchinterest and other benefits and may incur additional costs. For these reasons,and to induce Lender to make the loan, Borrower expressly waives any right toprepay this Note except as specifically provided herein.

 

Lender shall not berequired to accept any tender of prepayment of the principal balance of thisNote at any time when the “Reinvestment Rate” (as hereinafter defined) is lowerthan the Stated Rate, less eighty-five basis points, unless such tender alsoincludes a sum of money (the “Prepayment Premium”) equal to the present value(computed at the Reinvestment Rate) of the difference between a stream ofmonthly payments necessary to amortize the outstanding principal balance ofthis Note at the Stated Rate and a stream of monthly payments necessary toamortize the outstanding principal balance of this Note at the ReinvestmentRate (the “Differential”). In the event the Differential is less than zero, noPrepayment Premium will be required. For purposes of this Note, the“Reinvestment Rate” is the yield on a United States Treasury obligation of aconstant maturity rate maturing closest in time but prior to the maturity dateof this Note, as reported in Federal Reserve Statistical Release H.15 (519) (orany comparable successor publication) on the fifth (5th) business day precedingthe prepayment date.

 

In addition to thePrepayment Premium, if any, every tender of prepayment of the principal balanceof this Note shall be accompanied by a payment equal to (x) all accrued butunpaid interest and other charges to the date of prepayment and (y) anadministrative fee equal to one half of one percent (0.5%) of the outstandingprincipal balance of this Note; provided, however, that the administrative feeshall not be less than One Thousand and 00/100 Dollars ($1,000.00)(collectively, the “Other Charges”).

 

If the outstandingprincipal balance of this Note is accelerated by reason of an Event of Default,such acceleration shall be deemed to be a prepayment and Borrower shall pay toLender, in addition to all sums due as a result of the acceleration, anyapplicable Prepayment Premium and Other Charges. In the event of anacceleration of this Note in the first or second loan year, Borrower shall berequired to pay a Prepayment Premium equal to five percent (5%) of theoutstanding principal balance of this Note together with any Other Charges. Inthe event that this Note is partially prepaid from casualty insurance proceeds(as provided in the Security Agreement, defined below), no Prepayment Premiumor Other Charges shall be due and payable with respect to such prepayment, andeach monthly installment thereafter shall be reduced to an amount which willamortize the then unpaid principal balance of this Note at the Stated Rate overthe then remaining term of this Note.

 

**LATEPAYMENT CHARGE.**In the event that any payment under thisNote is not received by Lender within fifteen (15) days of the date when due, alate charge of five percent (5%) of the amount of such payment will be due.Borrower agrees that the late charge is a reasonable estimate of theadministrative costs which Lender will incur in processing the delinquency.Lender’s acceptance of a late payment and/or of the late payment charge willnot waive any default under this Note or affect the acceleration of this Note(if this Note has been accelerated).

 

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**COLLATERAL.**This Note and the other obligations of Borrower to Lender contained in thedocuments securing this Note are secured by and in accordance with the terms ofthat certain Security Agreement, effective March 31, 1998, executed by Borrowerfor the benefit of Lender (the “Security Agreement”; together with any otherdocuments securing payment under this Note, the “Loan Documents”). All propertysecuring the Indebtedness (as defined in the Security Agreement) is referred toas the “Collateral”.

 

**DEFAULT.**Any ofthe following events shall, for purposes of this Note, constitute an “Event ofDefault”:

 

(a)           Failure by Borrower to pay any amountowing on or with respect to the Indebtedness when due, whether by maturity,acceleration or otherwise, which failure continues for five (5) business days.

 

(b)          Any failure by Borrower (or anyguarantor of all or any part of the Indebtedness) to comply with any of thenon-monetary terms, provisions, warranties or covenants of this Note, theSecurity Agreement or the other Loan Documents, which failure continues forfifteen (15) days after the date of written notice to Borrower (or anyguarantor) from Lender of such default; provided, however, that if: (i) thenature of Borrower’s (or any guarantor’s) noncompliance is such that more thanfifteen (15) days are reasonably required for its cure, (ii) Borrower (or anyguarantor) has commenced such cure within said fifteen (15) day period, (iii)Borrower (or any guarantor) diligently prosecutes such cure to completion, (iv)Borrower (or any guarantor) provides Lender with written notice of thenoncompliance, AND (v) Borrower (or any guarantor) furnishes reserves or a securitybond, in an amount satisfactory to Lender in its sole discretion, then Borrower(or any guarantor) shall not be in default.

 

(c)           Institution of foreclosureproceedings or other exercise of rights and remedies by the holder of anymortgage, deed of trust, security interest or other lien against the Collateral(or any portion thereof); provided, however, if there is a good faith disputeby Borrower (or any guarantor) as to the validity or reasonableness of theclaim which is the basis for such proceedings, then no Event of Default shallhave occurred under this clause (c) if Borrower (or any guarantor) providesLender with written notice of the proceedings and furnishes reserves or asecurity bond for the proceedings satisfactory to Lender.

 

(d)          Insolvency of Borrower (or anyguarantor) or the admission in writing of Borrower’s (or any guarantor’s)inability to pay debts as they mature.

 

(e)           Any statement, representation orinformation made or furnished by or on behalf of Borrower (or any guarantor) toLender in connection with or to induce Lender to provide or advance any of theIndebtedness shall prove to be false or materially misleading when made orfurnished.

 

(f)           Institution of bankruptcy,reorganization, insolvency or other similar proceedings by or against Borrower(or any guarantor), unless, in the case of a petition filed against Borrower(or any guarantor), the same is dismissed within sixty (60) days of the date offiling.

 

(g)          The issuance or filing of any judgment, attachment, levy, garnishment or thecommencement of any related proceedings or the commencement of any otherjudicial process upon or in respect to Borrower (or any guarantor) or theCollateral in which the amount in controversy exceeds One Hundred ThousandDollars ($100,000) and is not covered by the insurance of Borrower (or anyguarantor), unless satisfied, or Borrower (or any guarantor) furnishes reservesor a security bond in an amount satisfactory to Lender in its sole discretion,released or discharged within sixty (60) days after the date of such issuance,filing or commencement.

 

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(h)          Sale or other disposition by Borrower(or any guarantor) of any substantial portion of its assets or property.

 

(i)            Death, dissolution, merger,consolidation, termination of existence, insolvency, business failure orassignment for the benefit of creditors of or by Borrower (or any guarantor);without the prior written consent of Lender, which consent shall not beunreasonably withheld.

 

(j)            Any failure by Borrower (or anyguarantor) to pay any indebtedness (other than to Lender) in excess of OneHundred Thousand Dollars ($100,000) (and exclusive of trade debt incurred inthe ordinary course of business) when due, or any failure in the observance orperformance of any term, covenant or condition in any document evidencing,securing or relating to such indebtedness, which failure continues beyond anyapplicable cure period,

 

(k)           Receipt by Borrower of a notice oftermination of the Management and Licensing Agreement from The Western SizzlinCorporation, a Tennessee corporation (“Franchisor”), for the Great AmericanSteak & Buffet Company Restaurant located at 3135 Crain Hwy., Waldorf,Maryland 20603 (“Franchised Operation”).

 

(l)            If this Note, the Security Agreementand the other Loan Documents have not been assigned to the Trust (as defined inthe Security Agreement), the default by Borrower which continues beyond anyapplicable grace or cure period under the Retained Obligations (as defined in theSecurity Agreement); provided, however, if this Note, the Security Agreementand the other Loan Documents are assigned to the Trust, this Clause (1) shallbe of no force and effect during the term of such assignment.

 

(m)          In the event that this Note, the SecurityAgreement and the other Loan Documents are assigned to the Trust, the defaultby Borrower which continues beyond any applicable grace or cure period underthe Trust Obligations (as defined in the Security Agreement).

 

(n)          Any default by Borrower under theLease between Guy E. Clark and Steven R, Ellis, both individuals, as landlord,and Borrower, as tenant, dated March 1, 1996 (“Lease”), which default is notcured within any applicable cure period set forth in such Lease.

 

Upon an occurrence of an Eventof Default, Lender shall have the option to declare all or part of theIndebtedness (including this Note) immediately due and payable. If this Note isnot paid at maturity (whether by acceleration or otherwise), Lender shall haveall of the rights and remedies provided at law or equity or by agreement,including, without limit, the right to sell or liquidate all or any part of theCollateral. The remedies of Lender are cumulative and not exclusive.

 

**EXAMINATIONOF RECORDS.** Borrower shall at all times keep full andaccurate records of its business and of the Collateral, which records shall beopen to inspection and copying by Lender at all reasonable times.

 

**LIABILITYOF SIGNATORIES.** Borrower, and all guarantors andendorsers, and any other party liable for the Indebtedness evidenced by thisNote: (i) severally waive presentment, demand, protest, notice of dishonor,notice of non-payment and notice of acceleration of this Note; and (ii) agreethat no extension or postponement of the time for payment, or waiver, orindulgence or forbearance granted to Borrower (without limit as to number orperiod) or any modification of this Note, or any substitution, or exchange orrelease of all or part of the Collateral, or addition of any party to thisNote, or release or discharge of, or suspension of any rights and remediesagainst any party liable on this Note, shall reduce or affect the obligation ofany other party liable for the payment of this Note.

 

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**NON-WAIVER.**Nodelay by Lender in the exercise of any right or remedy shall operate as awaiver. No single or partial exercise by Lender of any right or remedy shallpreclude any future exercise of such right or remedy or the exercise of anyother right or remedy. No waiver or indulgence by Lender of any default orEvent of Default shall be effective unless in writing and signed by Lender, norshall a waiver on one occasion be construed as a bar to any right or remedy, orwaiver of any default or Event of Default on any future occasion.

 

**REIMBURSEMENT OF EXPENSES.**Borrower shall reimburse Lender for all costs and expenses, includingreasonable attorneys’ fees, incurred by Lender in enforcing the rights ofLender under this Note. Such costs and expenses shall include, withoutlimitation, costs or expenses incurred by Lender in any bankruptcy,reorganization, insolvency or other similar proceeding. Any reference in thisNote to attorneys’ fees shall mean fees, charges, costs and expenses ofin-house and/or outside counsel and paralegals, whether or not a suit orproceeding is instituted, and whether incurred at the trial court level, onappeal, in a bankruptcy, administrative or probate proceeding, in consultationwith counsel, or otherwise.

 

**WAIVER OF JURY TRIAL.BORROWER AND LENDER ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS ACONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED. EACH PARTY AFTER CONSULTING (ORHAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF THEIR CHOICE, KNOWINGLYAND VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT, WAIVES ANY RIGHT TO TRIAL BYJURY IN THE EVENT OF LITIGATION REGARDING THE PERFORMANCE OR ENFORCEMENT OF, ORIN ANY WAY RELATED TO, THIS NOTE OR THE INDEBTEDNESS.**

 

**ASSIGNMENT.**ThisNote is freely assignable, in whole or in part, by Lender without prior noticeto or consent of Borrower; provided, however, that Lender (or its assignee)shall provide written notice of such assignment to Borrower in the event thatLender (or such assignee) desires to designate a new person or entity as payeeand/or a new place of payment for the obligations under this Note. Borrower maynot, in whole or in part, directly or indirectly, assign this Note or itsrights hereunder or delegate its duties hereunder without, in each instance,the specific prior written consent of Lender, which consent may be withheld ordelayed in Lender’s sole discretion. Lender shall be fully discharged from allresponsibility accruing hereunder from and after the effective date of any suchassignment. Lender’s assignee shall, to the extent of the assignment, be vestedwith all the powers and rights of Lender hereunder, and to the extent of suchassignment the assignee may fully enforce such rights and powers, and allreferences to Lender shall mean and refer to such assignee. Lender shall retainall rights and powers hereby given not so assigned, transferred and/ordelivered. Borrower hereby waives all defenses which Borrower may be entitledto assert against Lender’s assignee with respect to liability accruinghereunder prior to the effective date of any assignment of Lender’s interestherein.

 

**SECURITIZATION.**Borrowerunderstands and agrees that Lender may, from time to time, assign its rightsand powers under this Note, the Security Agreement and any other LoanDocuments, in whole or in part, in connection with a securitization program.Borrower agrees to enter into an amendment to this Note, the Security Agreementand any other Loan Documents if such amendments are required by a nationallyrecognized rating agency in connection with a securitization program sponsoredby Lender and in which this Note, the Security Agreement any other LoanDocuments are to be included; provided that Borrower shall not be obligated toenter into any amendment which adversely affects Borrower or otherwise adverselyalters any of the financial terms of this Note, the Security Agreement and anyother Loan Documents.

 

**MISCELLANEOUS.**Theterms and provisions of this Note shall be governed by and construed inaccordance with the laws of the State of Maryland. Lender and Borrower agreethat any dispute which may arise between them with regard to this Note shall beresolved by litigation in state or federal court. Litigation may be initiatedby Lender or its assignee, at its discretion, in the State of the principal placeof business of Lender or its assignee, the State of the principal place ofbusiness of Borrower, or the State where the Collateral is located **BORROWERHEREBY KNOWINGLY AND IRREVOCABLY WAIVES ANY OBJECTIONS ON THE**

 

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**GROUNDS OF IMPROPER JURISDICTION OR VENUE TO AN ACTIONINITIATED AS SET FORTH ABOVE AND AGREES THAT EFFECTIVE SERVICE OR PROCESS MAYBE MADE UPON BORROWER BY REGISTERED MAIL RETURN RECEIPT REQUESTED. **The terms and provisionsof this Note may only be changed in writing, executed by Borrower and Lender.

** **

**THE WESTERN SIZZLIN STORES, INC.**

 
| By: | /s/ Victor F. Foti |   |
|-----|--------------------|--------|

 
|   | Its: President |
|--------|----------------|

 

Address:

 

P.O. Box 12167

Roanoke, VA 24023-2167

 

Tax I.D. No. 54-1787907

 

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Pay to the order of

without warranty or recourse.

Captec Financial Group Funding Corporation

 
| By:    | /s/ [ILLEGIBLE] |   |
|--------|-----------------|--------|
|   |            |
| Its:   |            |   |
|        |                 |        |  |

 

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Loan No. 06719

3135 Crain Hwy.

Waldorf, Maryland

 

**COLLATERAL ASSIGNMENT OF LEASE ANDOPTION RIGHTS**

 

THIS COLLATERALASSIGNMENT OF LEASE AND OPTION RIGHTS (“Assignment”) is made as of the 23 dayof March, 1998, by **THE WESTERN SIZZLIN STORES, INC.**,****a Virginia corporation, whose address isP. O. Box 12167, Roanoke, VA 24023-2167 (“Assignor”), in favor of **CAPTECFINANCIAL GROUP FUNDING CORPORATION,**a Michigan corporation, whoseaddress is 24 Frank Lloyd Wright Drive, Lobby L, 4th Floor, P.O. Box 544, AnnArbor, Michigan 48106-0544 (“Assignee”). This instrument shall become effectiveon March 31, 1998.

 

For good and valuableconsideration, the receipt and sufficiency of which is hereby acknowledged,Assignor presently assigns to Assignee all of Assignor’s right, title andinterest in and to its lessee’s interest in that certain lease with **Guy E. Clarkand Steven R. Ellis, both individuals,**(“Lessor”) dated as of March1, 1996, a copy of which is attached hereto as Exhibit A (the “Lease”)respecting the premises commonly known as the Great American Steak & BuffetCompany Restaurant located at 3135 Crain Hwy., Waldorf, Maryland (“Premises”).This Assignment is for collateral purposes only, and except as specifiedherein, Assignee shall have no liability or obligation of any kind whatsoeverarising from or in connection with this Assignment or the Lease unless Assigneeshall take possession of the Premises and assume the obligations of Assignorthereunder.

 

Assignor represents andwarrants to Assignee that it has full power and authority to so assign theLease and its interest therein and that Assignor has not previously, and is notobligated to, assign or transfer any of its interest in the Lease or thePremises.

 

Throughout the term ofthe Lease, Assignor covenants and agrees to exercise all options to extend orrenew the term of the Lease not less than ninety (90) days prior to the lastday upon which any such option may be exercised, but in no event less than six(6) months prior to of the term of the Lease, unless Assignee otherwise agreesin writing. Assignor shall send Assignee a copy of the notice of exerciseconcurrently with Assignor’s exercise of the option. Upon the failure ofAssignor to so elect or renew the Lease as aforesaid (and the failure ofAssignee to otherwise agree in writing), Assignee shall have the right, but notthe obligation, to exercise such extension or renewal option on behalf ofAssignor, and Assignor hereby appoints Assignee (or any of its employees) asits attorney-in-fact for the purpose of exercising such extension or renewaloption.

 

If an “Event of Default”occurs under the Promissory Note, dated              ,1998, in the original principal amount of Seven Hundred Fifty Thousandand00/100 Dollars ($750,000.00), by Assignor in favor of Assignee (the “Note”) orunder any documents or instruments securing the Note, Assignee shall have theright and is hereby empowered to take possession of the Premises, expelAssignor therefrom, and, in such event, Assignor shall have no further right,title or interest in the Lease and shall remain liable to Assignee for all pastdue rents Assignee shall be required to pay to the Lessor under the Lease toeffectuate this Assignment.

 

Assignor agrees that itwill not suffer or permit any surrender, termination, amendment or modificationof the Lease without the prior written consent of Assignee, which consent shallnot be unreasonably withheld. At the request of Assignee, Assignor shallprovide Assignee with rent payment or such other information regarding theLease as Assignee shall reasonably require.

 

This Assignment shall be governed by the laws of the State of Maryland.

 

This Assignment may beexecuted in one or more counterparts, each of which shall constitute anoriginal and all of which together shall constitute one and the sameinstrument.

 

[SIGNATURE PAGEFOLLOWS]

 

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IN WITNESS WHEREOF, Assignor has executed this Assignment as of the dayand year noted above.

 
|            | **ASSIGNOR:**                         |      |
|-----------------|---------------------------------------|-----------|
|            |                                  |      |
| Witnesses:      | **THE  WESTERN SIZZLIN STORES, INC.** |      |
|            |                                  |
| /s/ [ILLEGIBLE] |                                  | By:       | /s/ Victor F. Foti |   |
|            |                                  |
|            | Its:                                  | President |
| /s/ [ILLEGIBLE] |                                  |      |
|                 |                                       |           |  |  |  |  |  |

 
| STATE OF Virginia | ) |
|-------------------|---|
|              | ) |
| COUNTY OF Roanoke | ) |

 

I, Richard R. Sayers, anotary public in and for the State and County aforesaid, do certify that VictorF. Foti, whose name, as President of The Western Sizzlin Stores, Inc., issigned to the writing above, bearing date on the 23rd day of Marchhas acknowledged the same before me in my county aforesaid.

 

Givenunder my hand and official seal this 23rd day of March.

 

My term of office expires on the 28th day of February 1999.

 
|   | /s/ Richard R. Sayers       |
|--------|-----------------------------|
|   | Notary Public               |
|   | [Notary Public’s Seal] |

 

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Loan Nos. 06719

3135 Crain Hwy.

Waldorf, Maryland

 

**SECURITY AGREEMENT**

 

THIS SECURITY AGREEMENT (“Agreement”) is  made as of the 23 day of of March, 1998, by **THE WESTERN SIZZLIN STORES, INC.,**aVirginia corporation, of P.O. Box 12167, Roanoke, Virginia 24023-2167(“Borrower”) in favor of **CAPTEC FINANCIAL GROUP FUNDING CORPORATION,**aMichigan corporation, of 24 Frank Lloyd Wright Drive, Lobby L, 4th Floor, P.O.Box 544, Ann Arbor, Michigan, 48106 (together with its successors, assigns andtransferees, “Lender”). This instrument shall become effective on March 31,1998.

 

PRELIMINARYSTATEMENT

 

This Agreement is made to secure all of the following (individually andcollectively the “Indebtedness”):

 

1.             Payment in the sumof Seven Hundred Fifty Thousand and 00/100 Dollars ($750,000.00), together withinterest, costs and all other sums, to be paid according to that certainPromissory Note (the “Note”), by Borrower to Lender, made as of the date ofthis Agreement by Borrower, together with any and all extensions, renewals,modifications, substitutions or replacements thereof; and the performance ofthe covenants and obligations of Borrower due or to become due to Lender underthis Agreement or under any other documents securing payment of all amounts dueunder the Note (collectively, the “Loan Documents”), and the repayment of allsums expended by Lender in connection with performance of those covenants andobligations.

 

2.             If the Note, thisAgreement and the Loan Documents are assigned to Captec Loan Receivables Trust- 1996A (the “Trust”), “Indebtedness” shall also include the payment of allother sums (together with interest and costs thereon) concurrently orsubsequently loaned to Borrower by Captec Financial Group, Inc., a Michigancorporation, Captec Financial Group Funding Corporation, a Michigancorporation, or Captec Leasing Company, a California corporation (each an“Originator”), as evidenced and/or secured by certain notes and other documentsof Borrower with respect to such amounts and which notes and other documentsare assigned to the Trust, together with any and all extensions, renewals,modifications, substitutions or replacements thereof; and the performance ofthe covenants and obligations of Borrower due or to become due under such notesand other documents assigned to the Trust, and the repayment of all sumsexpended in connection with performance of those covenants and obligations(collectively, the “Trust Obligations”).

 

3 .            If the Note, thisAgreement and the Loan Documents are not assigned to the Trust, “Indebtedness”shall also include the payment of all other sums (together with interestthereon) concurrently or subsequently loaned to Borrower by an Originator, asevidenced and/or secured by certain notes and other documents of Borrower whichare not assigned to the Trust, together with any and all extensions, renewals,modifications, substitutions or replacements thereof; and the performance ofthe covenants and obligations of Borrower due or to become due under such notesand other documents, and the repayment of all sums expended in connection withperformance of those covenants and obligations (collectively, the “RetainedObligations”).

 

In consideration of theabove facts and the mutual promises of the parties, and as security for thepurposes stated above and elsewhere in this Agreement, the parties agree asfollows:

 

**1.             COLLATERAL.**

 

(a)           **Grant of Security Interest.**Borrowergrants Lender a security interest in all of Borrower’s Inventory, Equipment,Instruments, Accounts and General Intangibles, each as defined in Section l(b)below, whether now owned or hereafter acquired, together with all replacements,substitutions, and additions thereto

 

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(the “Collateral”) which are (i) located on thepremises of, or are related to the operation of, the Great American Steak &Buffet Company Restaurants or WesterN SizzliN Restaurant operated by Borrowerand located at the address set forth in Exhibit A attached hereto (“Franchised Operation”y the “Franchised Operations”), or (ii) related to the Franchised Operation andlocated at the principal business office of Borrower located at 416 SouthJefferson Street, 4th Floor, Roanoke, Virginia 24012. Also included as part ofthe Collateral are all proceeds and products thereof, including, without limit,insurance proceeds, stock rights, subscription rights, dividends, stockdividends, stock splits or liquidating dividends, and all cash, accounts,chattel paper and general intangibles arising from the sale, rent, lease,casualty loss or other disposition of the Collateral, and including any recordsor documents of title relating to the Collateral.

 

(b)           **Definitions.  **For purposes of this Agreement, the following terms shall bedefined as follows:

 

(i)             “Inventory” shall consist of allproperty held at any location by or for Borrower for sale, rent, or lease, orfurnished or to be furnished by Borrower under any contract of service, or rawmaterials or work in process and their products, or materials used or consumedin Borrower’s business.

 

(ii)            “Equipment” shall consist of anygoods at any time acquired, owned or held by Borrower at any location primarilyfor use in Borrower’s business, including, without limit, machinery, fixtures,furniture, furnishings and vehicles, and any accessions, parts, attachments,accessories, tools, dies, additions, substitutions, replacements andappurtenances and their related rights.

 

(iii)           “Instruments” shall consist ofBorrower’s interest of any kind in any negotiable instrument or security asthose terms are defined in the Maryland Uniform Commercial Code (“UCC”), or anyother writing which evidences a right to payment of money and is of a typewhich is, in the ordinary course of business, transferred by delivery alone orby delivery with any necessary endorsement or assignment.

 

(iv)           “General Intangibles” shall consistof any personal property (including things in action) other than goods,accounts, chattel paper, documents, instruments and money.

 

(v)            “Accounts” shall consist of anyright to payment for goods sold or leased or for services rendered which is notevidenced by an instrument or chattel paper whether or not it has been earnedby performance.

 

**2.             WARRANTIES AND REPRESENTATIONS.**Borrowerwarrants and covenants to Lender as follows:

 

(a)           **Payment of Indebtedness.**Borrower willpay the Indebtedness and perform all obligations related to the Indebtednesswhen due, whether by maturity, acceleration or otherwise.

 

(b)           **Authority.**This Agreement is the valid andbinding obligation of Borrower, enforceable in accordance with its terms.    If Borrower is a corporation, partnership,limited liability company or other organization, Borrower is organized andvalidly existing and in good standing under the laws of its state ofestablishment, and the execution, delivery and performance of this Agreementhas been duly authorized by all necessary action of Borrower’s board ofdirectors, partners, members or governing body, and will not violate Borrower’sgoverning instruments or other agreements.

 

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(c)           **Name; Address; Location of Collateral.**Borrower’sname and address and the location of the Collateral are accurately set forth onthe signature page and Exhibit A of this Agreement.

 

(d)           **Title to Collateral. **Borrower has good and marketable titleto the Collateral, free and clear of any liens, encumbrances or securityinterests whatsoever, other than the security interest granted by thisAgreement and existing liens, encumbrances or security interests disclosed toand accepted by Lender in writing. Borrower will keep the Collateral free ofall other liens, encumbrances and security interests. Borrower will defend theCollateral against all claims and demands of all persons at any time claimingany interest in the Collateral.

 

(e)**           Priority of Security Interest.  **The execution and delivery ofthis Agreement creates a valid security interest in the Collateral, and uponthe filing of a UCC-1 financing statement with the Maryland Department ofAssessments and Taxation, Lender will have a first priority perfected securityinterest in the Collateral, subject to no other security interest, except asotherwise approved by Lender in writing.

 

(f)            **Financing Statements.  **Except as disclosed to and accepted byLender in writing, no financing statement covering all or any part of theCollateral is on file in any public office. Borrower will execute financingstatement(s) in form acceptable to Lender and will pay the cost of filing financingstatement(s) in all public offices wherever filing is deemed desirable byLender.   A carbon, photographic orother reproduction of this Agreement shall be sufficient as a financingstatement under the UCC and may be filed by Lender in any filing office.  This Agreement shall be terminated only bythe filing of a termination statement in accordance with the applicableprovisions of the UCC.

 

(g)           **Payment of Taxes.**Borrower shall paywhen due and before any interest, collection fees or penalties accrue, alltaxes, expenses, assessments, liens or other charges which may now or hereafterbe levied or assessed against the Collateral.  Borrower shall furnish proof of payment upon request of Lender.

 

(h)           **Insurance.**

 

(i)            Borrower shall keep the tangibleCollateral (including, without limit, the Equipment and Inventory) insured forthe benefit of Lender. Borrower covenants and agrees that Borrower will carryand maintain, at its sole cost and expense, the following types of insurance,in the amounts specified: (A) comprehensive general liability insurance withinitial limits of not less than Two Million Dollars ($2,000,000) for death orinjuries to one person and not less than Two Million Dollars ($2,000,000) fordeath or injuries to two or more persons in one occurrence, and not less thanOne Million Dollars ($1,000,000) for damage to property; (B) fire and extendedcoverage insurance on a replacement form with inflation-guard, vandalism andmalicious mischief endorsements; (C) rent loss or business interruptioninsurance covering a period of not less than twelve (12) months; and (D) suchother insurance and in such amounts as may be reasonably required from time totime by Lender. All insurance shall be in forms and with companies satisfactoryto Lender. Borrower shall deliver to Lender the policies evidencing therequired insurance with premiums fully paid, and with loss payee clauses(making all losses payable to Lender). Renewals of the required insurance(together with evidence of premium prepayment for one (1) year in advance)shall be delivered to Lender at least thirty (30) days before the expiration ofany existing policies. All policies and renewals shall provide that they maynot be canceled or amended without giving Lender thirty (30) days prior writtennotice of cancellation or amendment.

 

(ii)           Should Borrower fail to insure orfail to pay the premiums on any required insurance or fail to deliver thepolicies or renewals as provided above, Lender may have the insurance issued orrenewed (and pay the premiums on it for the account of Borrower) in amounts andwith companies and at premiums as Lender deems appropriate. If Lender elects tohave insurance issued or renewed to insure Lender’s interest, Lender shall haveno duty or obligation of any kind to also insure Borrower’s interest or tonotify Borrower of Lender’s actions. Any sums paid by Lender for insurance, asprovided above, shall be a lien upon the Collateral, added to the amountsecured by this Agreement, and payable immediately by Borrower to Lender, withinterest on

 

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those sums at the highest rate charged by Lender onany of the Indebtedness (but not to exceed the maximum interest rate permittedby law).

 

(iii)          In the event of loss or damage, theproceeds of all required insurance shall be paid to Lender. No loss or damageshall itself reduce the Indebtedness. Lender or any of its employees is eachirrevocably appointed attorney-in-fact for Borrower and is authorized to adjustand compromise each loss without the consent of Borrower, to collect, receiveand receipt for the insurance proceeds in the name of Lender and Borrower andto endorse Borrower’s name upon any check in payment of the loss.

 

(iv)          Lender shall apply such proceeds tothe repair and replacement of the Collateral subject to the followingconditions:

 

(1)                                   thereshall be no Event of Default existing hereunder;

 

(2)                                   plansfor repair and replacement shall be reviewed and approved by Lender, whichapproval shall not be unreasonably withheld or delayed;

 

(3)                                   repairand replacement of the Collateral to a saleable commodity (as determined byLender) can practicably be completed prior to the Due Date set forth in theNote;

 

(4)                                   Borrowershall have deposited with Lender funds equal to the positive difference,  if any, between the cost of repair,replacement and completion, and the amount of the insurance proceeds; and

 

(5)                                   disbursementswill be made by Lender,  pursuant toprocedures necessary or appropriate to ensure that funds are properly applied.

 

Provided that no Event of Default exists, if there are insuranceproceeds in the amount of Twenty-Five Thousand Dollars ($25,000) or lessremaining after the repair and replacement of the Collateral as requiredhereunder, such proceeds shall be paid to Borrower. Provided that no Event ofDefault exists, if there are insurance proceeds in excess of Twenty-FiveThousand Dollars ($25,000) remaining after the repair and replacement of theCollateral as required hereunder, such proceeds shall be applied toward paymentof the Indebtedness (or any portion thereof) without premium, whether or notthen due or payable, in whatever order of maturity as Lender may elect.Application of proceeds by Lender toward later maturing installments of theIndebtedness shall not excuse Borrower from making the regularly scheduledinstallment payments nor shall such application extend or reduce the amount ofany of these payments.

 

(v)           Notwithstanding Section 2(h)(iv)above, if a substantial portion (fifty percent [50%] or more) of the Collateralis damaged or destroyed during the last twenty-four (24) months of the term ofthe Note, and an Event of Default then exists hereunder, then either Borroweror Lender may elect not to repair/restore and to apply the insurance proceedstoward payment of the Indebtedness (or any portion thereof) without premium,whether or not then due or payable, in whatever order of maturity as Lender mayelect. Application of proceeds by Lender toward later maturing installments ofthe Indebtedness shall not excuse Borrower from making the regularly scheduledinstallment payments nor shall such application extend or reduce the amount ofany of these payments.

 

(vi)          In the event of a sale of theCollateral, the purchaser of the Collateral shall succeed to all of the rightsof Borrower under the insurance policies including, without limit, any right tounearned premiums and to receive the proceeds.

 

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(vii)         Upon the occurrence of an Event ofDefault hereunder, at the option of Lender, Borrower shall pay to Lender, inadvance on the first day of each month, a pro rata portion of die annualpremiums due (as estimated by Lender) on the required insurance. In the eventthat sufficient funds have been deposited with Lender to cover the amount ofthe insurance premiums when the premiums become due and payable, Lender shallpay the premiums. In the event that sufficient funds have not been depositedwith Lender to pay the insurance premiums at least thirty (30) days prior tothe time when they become due and payable, Borrower shall immediately pay theamount of the deficiency to Lender.

 

(i)            **Maintenance of Collateral.** Borrower will maintain theCollateral in good condition and repair. Borrower will promptly inform Lenderof any loss or diminution in value of the Collateral. Borrower may modify,compromise or substitute for the Collateral without the prior written consentof Lender provided that any modifications, compromises or substitutions havethe same or greater value as the original items and that any suchmodifications, compromises or substitutions remain at all times subject to thisAgreement.

 

(j)            **Leased Facilities.**If the Collateral islocated at a facility leased by Borrower, Borrower will obtain from the lessora consent to the granting of a security interest in the Collateral and asubordination of the lessor’s interest hi the Collateral. The consent andsubordination shall be in form acceptable to Lender.

 

(k)           **Reporting Obligations.**Borrower herebycovenants and agrees to deliver to Lender, or to cause The WesterN SizzliNCorporation (“Guarantor”) to deliver to Lender, the following:

 

(A)           Management preparedand certified consolidated quarterly financial statements for Guarantor withinforty-five (45) days after the end of the first three (3) quarters of eachfiscal year of Guarantor.

 

(B)            Annual consolidatedfinancial statements for Guarantor audited by an independent certified publicaccountant within one hundred twenty (120) days after the end of each fiscalyear of Guarantor.

 

(C)            Management preparedand certified unit level profit and loss statements relating to the operationof the Franchised Operation within forty-five (45) days after the end of eachfiscal year of Borrower.

 

Such financial statements shall be true and correct inall respects, shall be prepared in accordance with generally acceptedaccounting principles, and shall fairly represent the respective financialconditions of the subjects thereof as of the respective dates thereof. If Borrower’sfinancial statements are prepared on a consolidated basis, Borrower herebycovenants and agrees to prepare financial statements specifically relating tothe operation of the Franchised Operation. At the request of Lender, Borrowershall obtain the consent of Borrower’s accountant(s) to the inclusion ofBorrower’s most recent financial statement in any regulatory filing or reportto be filed by Lender.

 

(l)            **Management and Licensing Agreement.**Borroweris a franchisee in good standing with The Western Sizzlin Corporation(“Franchisor”), and is not in default under its Management and Licensingagreement with Franchisor relating to the Franchised Operation (“ManagementAgreement”). Borrower agrees to comply with the terms of the ManagementAgreement and to take all actions necessary or required to keep the ManagementAgreement in full force and effect. Borrower will not encumber its rights underthe Management Agreement, except to Lender. Borrower agrees to promptly provideLender with a copy of any notice of default under the Management Agreement.Further, Borrower agrees to promptly provide Lender with a copy of any noticeto Borrower of the existence of any breach which, with notice or the passage oftime, or both, would entitle Franchisor to terminate the Management Agreement.

 

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(m)          **Fixed Charge Coverage Ratio.**Borrowershall maintain a Fixed Charge Coverage Ratio (as hereinafter defined) of notless than 1.2 to 1.0 for Borrower’s business operations generally and not lessthan 1.4 to 1.0 for the Franchised Operation. “Fixed Charge Coverage Ratio”shall mean Borrower’s Operating Cash Flow divided by its Fixed Charges (each asdefined below). The Fixed Charge Coverage Ratios shall be calculated byBorrower from time to time and dates as determined by Lender, and Borrowershall submit such information as Lender may require to confirm and approveBorrower’s calculation of the Fixed Charge Coverage Ratios.

 

(i)            “Fixed Charges” shall mean the sum ofthe following items set forth on a pro forma basis separately stated for bothBorrower’s business operations generally and for the Franchised Operation, ineach case, for the applicable twelve (12) month operating period:

 

(A)          current portion of long-term debt(defined as the current portion of long-term debt due to mature during the nexttwelve (12) month operating period, as stated in Borrower’s applicablefinancial statement, plus, if not already included therein, the current ofportion of principal payments imputed on all capital leases), *plus*

 

(B)           interest expense (defined as theinterest expense as stated on Borrower’s applicable financial statement, plus,if not already included therein, the interest expense imputed on all capitalleases), *plus*

 

(C)           the current portion of operatingleases (defined as the amount of rent due under operating leases for the nexttwelve (12) month operating period).

 

(ii)           “Operating Cash Flow” shall mean thesum or subtraction of the following items separately stated for both Borrower’sbusiness operations generally and for the Franchised Operation, in each case,for the applicable prior twelve (12) month operating period:

 

(A)          net income (defined as the net incomestated on Borrower’s applicable financial statement), *plus*

 

(B)           depreciation and amortization(defined as the depreciation and amortization expense as stated on Borrower’sapplicable financial statement), *plus*

 

(C)           interest expense (as defined above), *plus*

 

(D)          operating lease expense (defined asdie amount of rental expense paid under operating leases, as stated onBorrower’s applicable financial statements), *plus or minus*

 

(E)           non-recurring items (defined as itemswhich, when computing cash flow, should in Lender’s reasonable businessjudgment, be added back to or subtracted from net income to normalize results).

 

**3.             PROHIBITIONON TRANSFER OR MODIFICATION.  **Borrowershall not transfer, sell, assign, lease or modify the Collateral or anyinterest therein, any pan thereof, or any substantial portion of Borrower’sother assets or property without the prior written consent of Lender.   Notwithstanding the foregoing, Borrower mayuse Collateral if the same is in the ordinary course of Borrower’s business andon customary terms and at usual prices.

 

**4.             PROHIBITIONON CHANGE OF NAME,****ORGANIZATIONOR LOCATION. **Borrower  shall not assume a different name, changethe location of its principal place of business, cease conducting business

 

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at any location that appears in this Agreement, merge,consolidate, change or reorganize its organizational structure nor change thelocation of any of the Collateral without, in each instance, obtaining theprior written consent of Lender thirty (30) days prior to any such event.

 

**5.             RIGHTOF SETOFF. **Borrowerhereby grants Lender the right, exercisable if Borrower is in default, to setoff or apply against the Indebtedness any account or deposit with Lender inwhich Borrower has an interest or against any other amounts which may be in thepossession of Lender and to the credit of Borrower.

 

**6.             EXAMINATIONOF RECORDS AND COLLATERAL. **Borrowershall keep full and accurate records of Borrower’s business, including, withoutlimit, records related to the Collateral, and such records shall be open toinspection and duplication by Lender at all reasonable times.   Lender may enter upon any property owned byor in the possession of Borrower to examine and inspect the Collateral duringregular business hours. Borrower shall promptly provide Lender with any informationconcerning the Collateral as Lender may request at any time.

 

**7.             REIMBURSEMENTOF EXPENSES.**Borrower shall reimburse Lender for allreasonable costs and expenses, including reasonable attorneys’ fees, incurredby Lender in enforcing the rights of Lender under this Agreement. All costs andexpenses shall be included in the Indebtedness and shall be immediately due andpayable together with interest at the maximum legal rate.  Such costs and expenses shall include,without limitation, costs or expenses incurred by Lender in any bankruptcy,reorganization, insolvency or other similar proceeding.

 

**8.             RIGHTSAND OBLIGATIONS OF LENDER.**In the event that Borrower failsto pay taxes, maintain insurance or perform any other obligation arising underthis Agreement, Lender may pay or perform such obligation(s) for the account ofBorrower and the same shall be added to the Indebtedness and shall beimmediately due and payable together with interest at the highest rate chargedby Lender on any of the Indebtedness (but not to exceed the maximum ratepermitted by law). Lender shall not be liable for any loss to the Collateralnor shall such loss reduce the balance due.

 

**9.             INDEMNIFICATION.  **Borrower shall indemnifyand save Lender harmless from all claims, obligations, costs, expenses,including attorneys’ fees, and causes of action or other rights assertedagainst Lender and relating to this Agreement and/or the Collateral, exceptthose arising from the gross negligence or wilful misconduct of Lender.

 

**10.          EVENTS O****F DEFAULTAND REMEDIES.**

 

(a)           **Events of Default.**Any of the followingevents shall, for purposes of this Agreement, constitute an “Event of Default”:

 

(i)       Failure by Borrower to pay any amountowing on or with respect to die Indebtedness when due, whether by maturity,acceleration or otherwise, which failure continues for five (5) business days.

 

(ii)      Any failure by Borrower or any guarantorto comply with, or breach by Borrower or any guarantor of, any of thenon-monetary terms, provisions, warranties or covenants of the Note, thisAgreement or the other Loan Documents, which failure continues for fifteen (15)days after the date of written notice to Borrower (or any guarantor) fromLender of such default; provided, however, that if: (i) the nature of Borrower’s(or any guarantor’s) noncompliance is such that more than fifteen (15) days arereasonably required for its cure, (ii) Borrower (or any guarantor) hascommenced such cure within said fifteen (15) day period, (iii) Borrower (or anyguarantor) diligently prosecutes such cure to completion, (iv) Borrower (or anyguarantor) provides Lender with written notice of the noncompliance, AND (v)Borrower (or any guarantor) furnishes reserves

 

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or a security bond, in an amount satisfactory toLender in its sole discretion, then Borrower (or any guarantor) shall not be indefault.

 

(iii)     Institution of remedial proceedings orother exercise of rights and remedies by the holder of any security interest orother lien against the Collateral or any portion thereof; provided, however, ifthere is a good faith dispute by Borrower (or any guarantor) as to the validityor reasonableness of the claim which is the basis for such proceedings, then noEvent of Default shall have occurred under this clause (iii) if Borrower (orany guarantor) provides Lender with written notice of the proceedings andfurnishes reserves or a security bond for the proceedings satisfactory toLender.

 

(iv)     The insolvency of Borrower or any guarantoror the admission in writing of Borrower’s or any guarantor’s inability to paydebts as they mature.

 

(v)      Any statement, representation orinformation made or furnished by or on behalf of Borrower or any guarantor toLender in connection with or to induce Lender to provide any of theIndebtedness shall prove to be false or materially misleading when made orfurnished.

 

(vi)     Institution of bankruptcy, reorganization,insolvency or other similar proceedings by or against Borrower or anyguarantor, unless, in the case of a petition filed against Borrower, the sameis dismissed within sixty (60) days of filing.

 

(vii)    The issuance or filing of any judgment,attachment, levy, garnishment or the commencement of any related proceeding orthe commencement of any other judicial process upon or in respect to Borroweror any guarantor or the Collateral in which the amount in controversy exceedsOne Hundred Thousand Dollars ($100,000) and is not covered by the insurance ofBorrower (or any guarantor), unless satisfied, or Borrower (or any guarantor)furnishes reserves or a security bond in an amount satisfactory to Lender inits sole discretion, released or discharged within sixty (60) days after thedate of such issuance, filing or communication.

 

(viii)   Sale or other disposition by Borrower or anyguarantor of any substantial portion of assets or property.

 

(ix)     Death, dissolution, merger, consolidation,termination of existence, insolvency, business failure or assignment for thebenefit of creditors of or by Borrower or any guarantor; without the priorwritten consent of Lender, which consent shall not be unreasonably withheld.

 

(x)      If there is any failure by Borrower or anyguarantor to pay any indebtedness (other than to Lender) in excess of OneHundred Thousand Dollars ($100,000) (and exclusive of trade debt incurred inthe ordinary course of business) when do or in the observance or performance ofany term, covenant or condition in any document evidencing, securing orrelating to such indebtedness, which failure continues beyond any applicablecure period.

 

(xi)     Receipt by Borrower of a notice oftermination of the Management Agreement.

 

(xii)    If the Note, this Agreement and the otherLoan Documents have not been assigned to the Trust, the default by Borrowerwhich continues beyond any applicable grace or cure period under the RetainedObligations; provided, however, if the Note, this Agreement and the other LoanDocuments are assigned to the Trust, this clause (xii) shall be of no force oreffect during the term of such assignment.

 

(xiii)   In the event that the Note, this Agreementand the other Loan Documents are assigned to the Trust, the default by Borrowerwhich continues beyond any applicable grace or cure period under the TrustObligations.

 

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(b)           **Remedies Upon Event of Default.**Uponthe occurrence of any Event of Default, Lender shall have the following rights:

 

(i)       Declare all or part of the Indebtednessimmediately due and payable.

 

(ii)      Borrower agrees, upon request of Lender,to assemble the Collateral and make it available to Lender at any place whichis reasonably convenient for Borrower and Lender. Borrower grants Lenderpermission to enter upon any premises owned or occupied by Borrower for thepurpose of taking possession of the Collateral.

 

(iii)     Lender shall have the right to takepossession of the Collateral, with or without demand, and with or withoutprocess of law. Lender shall have the right to sell and dispose of theCollateral and to distribute the proceeds according to law. In connection withthe right of Lender to take possession of the Collateral, Lender may takepossession of any other items of property in or on the Collateral at the timeof taking possession, and hold them for Borrower without liability on the partof Lender. If there is any statutory requirement for notice, that requirementshall be met if Lender shall send notice to Borrower at least five (5) daysprior to the date of sale, disposition or other event giving rise to therequired notice. Borrower shall be liable for any deficiency remaining afterdisposition of the Collateral.

 

(iv)     Lender shall also have any one or more ofthe rights and remedies under the UCC or at law or equity to enforce thepayment of the Indebtedness.

 

(c)           **Remedies Generally.**

 

(i)       All remedies provided for in Section10(b) shall be available to the extent not prohibited by law. Each remedy shallbe cumulative and additional to any other remedy of Lender at law, in equity orby statute. No delay or omission to exercise any right or power accruing uponany default or Event of Default shall impair any such right or power or shallbe construed to be a waiver of, or acquiescence in, any such default or Eventof Default.

 

(ii)      Lender may waive any Event of Default andmay rescind any declaration of maturity of payments on the Indebtedness. Incase of such waiver or recision Borrower and Lender shall be restored to theirrespective former positions and rights under this Agreement. Any waiver byLender of any default or Event of Default shall be in writing and shall belimited to the particular default waived and shall not be deemed to waive anyother default.

 

(d)           **Application of Proceeds. **Any proceeds received by Lender from theexercise of remedies pursuant to Section 10(b) of this Agreement shall beapplied as follows:

 

(i)       First, to pay all costs and expensesincidental to the leasing, foreclosure, sale or other disposition of theCollateral. These costs and expenses shall include, without limit, any costsand expenses incurred by Lender (including, without limit, reasonableattorneys’ fees and disbursements), and any taxes and assessments or otherliens and encumbrances prior to the lien of this Agreement.

(ii)      Second, to all sums expended or incurredby Lender, directly or indirectly in carrying out any term, covenant oragreement under this Agreement or any related document, together with interestas provided in this Agreement.

 

(iii)     Third, to the payment of the Indebtedness.If the proceeds are insufficient to fully pay the Indebtedness, thenapplication shall be made first to late charges and interest accrued andunpaid, then

 

9

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to any applicable prepayment premiums, and then tounpaid fees and other charges, then to the outstanding principal balance.

 

(iv)     Fourth, any surplus remaining shall be paidto Borrower or to whomsoever may be lawfully entitled.

 

(e)           **FurtherActions.**    Promptly uponthe request of Lender, Borrower shall execute, acknowledge and deliver any andall further documents, security agreements, financing statements andassurances, and do or cause to be done all further acts as Lender may requireto confirm and protect the lien of this Agreement or otherwise to accomplishthe purposes of this Agreement.

 

(f)            **AttorneysFees.**  Any reference inthis Agreement to attorneys’ fees shall refer to fees, charges, costs andexpenses of in-house and outside attorneys and paralegals, whether or not asuit or proceeding is instituted, and whether incurred at the trial courtlevel, on appeal, in a bankruptcy, administrative or probate proceeding, inconsultation with counsel, or otherwise. All costs, expenses and fees of anynature for which Borrower is obligated to reimburse or indemnify Lender arepart of the Indebtedness secured by this Agreement and are payable upon demand,unless expressly provided otherwise, with interest until repaid at the highestrate charged on any of the Indebtedness (but not to exceed the maximum ratepermitted by law).

 

**11.**          **PARTIALRELEASES.** Lender shall from time to time execute and deliver toBorrower, within ten (10) business days after the written request of Borrower,UCC termination statements with respect to a portion of the Collateral securedhereunder, provided that (a) Borrower shall not be in default under any of theterms, covenants or conditions of any document or instrument evidencing orsecuring the Indebtedness; (b) the outstanding principal balance of theapplicable promissory note, together with interest, premiums, costs and allother sums on that amount, shall be paid in full; and (c) all terminationstatements shall be prepared by Lender at Borrower’s expense. The portion ofthe Collateral released under this Section 11 shall be determined by matchingthe Collateral located at or related to a specified Franchised Operation withthe promissory note referencing that Franchised Operation on its face.

 

**12.          MISCELLANEOUS.**

 

(a)           **GoverningLaw.** This Agreement shall be construed according to the laws ofthe State of Maryland.

 

(b)           **Successorsand Assigns.**   ThisAgreement shall be binding upon the successors and assigns of Borrowerincluding, without limit, any debtor in possession or trustee in bankruptcy forBorrower, and the rights and privileges of Lender under this Agreement shallinure to the benefit of its successors and assigns. This shall not be deemed aconsent by Lender to a conveyance by Borrower of all or any pan of theCollateral or of any ownership interest in Borrower.

 

(c)           **Notices**.  Notice from one party to another relating tothis Agreement, if required, shall be deemed effective if made in writing(including telecommunications) and delivered to the recipient’s address, telexnumber or telecopier number set forth by any of the following means: (i) handdelivery, (ii) registered or certified mail, postage prepaid, (iii) expressmail or other overnight courier service or (iv) telecopy, telex or other wiretransmission with request for assurance of receipt in a manner typical withrespect to communications of that type. Notice made in accordance with these provisions shall be deemeddelivered on receipt if delivered by hand or wire transmission, on the thirdbusiness day after mailing if mailed by registered or certified mail, or on thenext business day after mailing or deposit with the postal service or anovernight courier service if delivered by express mail or overnight courier.Borrower’s telecopier number is (540) 345-0831, and Lender’s telecopier numberis (743) 994-1376.

 

10

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(d)           **Entire Agreement; Amendments.**ThisAgreement and any agreement to which it refers state all rights and obligationsof the parties and supersede all other agreements (oral or written) withrespect to the security interests granted by this Agreement.   Any amendment of this Agreement shall be inwriting and shall require the signature of Borrower and Lender.

 

(e)           **Partial Invalidity.**The invalidity orunenforceability of any provision of this Agreement shall not affect thevalidity or enforceability of the remaining provisions of this Agreement.

 

(f)            **Inspections.**Any inspection, audit,appraisal or examination by Lender or its agents of the Collateral or ofinformation or documents pertaining to the Collateral is for the sole purposeof protecting Lender’s interests under this Agreement and is not for thebenefit or protection of Borrower or any third party.

 

(g)           **Joint and Several Liability.**In theevent that more than one person or entity executes this Agreement, theobligations of each person or entity shall be joint and several,

 

(h)           **Automatic Reinstatement.**Notwithstandingany prior revocation, termination, surrender or discharge of this Agreement,the effectiveness of this Agreement shall automatically continue or bereinstated, as the case may be, in the event that:

 

(i)                Any payment received or creditgiven by Lender in respect of the Indebtedness is determined to be apreference, impermissible setoff, fraudulent conveyance, diversion of trustfunds, or otherwise required to be returned to Borrower or any third partyunder any applicable state or federal law, including, without limit, lawspertaining to bankruptcy or insolvency, in which case this Agreement shall beenforceable as if any such payment or credit had not been received or given, whetheror not Lender relied upon this payment or credit or changed its position as aconsequence of it.

 

(ii)               In the event of continuation orreinstatement of this Agreement, Borrower agrees upon demand by Lender toexecute and deliver to Lender those documents which Lender determines areappropriate to further evidence (in the public records or otherwise) thiscontinuation or reinstatement, although the failure of Borrower to do so shallnot affect in any way the reinstatement or continuation. If Borrower does notexecute and deliver to Lender such documents upon demand, Lender and eachofficer of Lender is irrevocably appointed (which appointment is coupled withan interest) the true and lawful attorney of Borrower (with full power ofsubstitution) to execute and deliver such documents in the name and on behalfof Borrower.

 

**(i)            WAIVEROF JURY TRIAL.   BORROWER AND LENDERACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A CONSTITUTIONAL ONE, BUT THATIT MAY BE WAIVED. EACH PARTY, AFTER CONSULTING (OR HAVING HAD THE OPPORTUNITYTO CONSULT) WITH COUNSEL OF THEIR CHOICE, KNOWINGLY AND VOLUNTARILY, AND FORTHEIR MUTUAL BENEFIT, WAIVES ANY RIGHT TO TRIAL BY JURY IN THE EVENT OFLITIGATION REGARDING THE PERFORMANCE OR ENFORCEMENT OF, OR IN ANY WAY RELATEDTO, THIS AGREEMENT OR THE INDEBTEDNESS.**

 

(j)            Assignment. This Agreement isfreely assignable, in whole or in part, by Lender without notice to or consentof Borrower; provided, however, that Lender (or its assignee) shall providewritten notice of such assignment to Borrower in the event that Lender (or suchassignee) desires to designate a new person or entity as payee and/or a newplace of payment for the obligations under the Note. Lender shall be fullydischarged from all responsibility accruing hereunder from and after theeffective date of any such assignment. Lender’s assignee shall, to the extentof the assignment, be vested with all the powers and rights of Lender hereunder(including those granted under Section 10 hereof or otherwise with respect tothe Collateral), and to the extent of such assignment the assignee may fullyenforce such rights and powers, and all references to Lender shall mean andrefer to such assignee. Lender shall retain all rights and powers hereby givennot so assigned, transferred and/or delivered.

 

11

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Borrower hereby waives all defenses which Borrower maybe entitled to assert against Lender’s assignee with respect to liabilityaccruing hereunder prior to the effective date of any assignment of Lender’sinterest herein. Borrower may not, in whole or in part, directly or indirectly,assign this Agreement or its rights hereunder or delegate its duties hereunderwithout, in each instance, the specific prior written consent of Lender, which consentmay be withheld or delayed in Lender’s sole discretion.

 

(k)           Securitization. Borrowerunderstands and agrees that Lender may, from time to time, assign its rightsand powers under the Note, this Agreement and any other Loan Documents, inwhole or in part, in connection with a securitization program. Borrower agreesto enter into an amendment to the Note, this Agreement and any other LoanDocuments if such amendments are required by a nationally recognized ratingagency in connection with a securitization program sponsored by Lender and inwhich the Note, this Agreement and any older Loan Documents are to be included;provided that Borrower shall not be obligated to enter into any amendment whichadversely affects Borrower or otherwise adversely alters any of the financialterms of the Note, this Agreement and any other Loan Documents.

 

[SIGNATURE PAGEFOLLOWS]

 

12

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Borrower has executed this Agreement on the day andyear first above written.

Borrower’s principal place of business is located inthe City of Roanoke, Commonwealth of Virginia.

 

Locations of the Collateral:

416 South Jefferson Street, 4th Floor

Roanoke, Virginia 24012 and

each of the sites listed on Exhibit A attached hereto.

 

**BORROWER:**

 

**THE WESTERN SIZZLIN STORES, INC.**

 
| By     | /s/ Victor F. Foti |      |   |
|--------|--------------------|-----------|--------|
|   |               |      |   |
|   |               |      |   |
|   | Its:               | President |   |
|        |                    |           |        |  |  |  |

 

 

Address:

 

P.O. Box 12167

Roanoke, VA 24023-2167

 

Tax I.D. No. 54-1787907

 

13

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EXHIBIT A

 

TO

 

SECURITY AGREEMENT

 

 

3135 Crain Hwy.,Waldorf, MD

 

A-1

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Loan No. 06719

3135 Crain Hwy.

Waldorf, Maryland

 

**GUARANTY**

 

THE WESTERN SIZZLIN CORPORATION, a Tennessee corporation and THEWESTERN SIZZLIN STORES OF LITTLE ROCK, INC., an Arkansas corporation (each a“Guarantor”), as a material inducement to and in consideration of CAPTECFINANCIAL GROUP FUNDING CORPORATION, a Michigan corporation, whose address is24 Frank Lloyd Wright Drive, Lobby L, Ann Arbor, Michigan 48106 (together withits successors, assigns and transferees, “Lender”), making a loan in theoriginal principal amount of Seven Hundred Fifty Thousand and 00/100 Dollars($750,000.00) as evidenced by a Promissory Note, dated March *23,*1998 (“Note”), made by THE WESTERN SIZZLIN STORES, INC., a Virginia corporation(“Borrower”), which Note is secured by the instruments referenced therein(together with the Note, “Loan Documents”), hereby jointly and severally,unconditionally and irrevocably, personally guarantees to and for the benefitof Lender, and Lender’s successors and assigns, the full and timely payment andperformance of all of the Borrower’s duties, obligations and covenants underthe Loan Documents. This is a guaranty of payment and performance and not ofcollection.

 

This Guaranty shall not be affected by Lender’s failure or delay toenforce any of its rights.

 

Guarantor’s obligationsare independent of Borrower’s obligations. If Borrower defaults under the LoanDocuments, Lender can proceed immediately against Guarantor or Borrower, orboth, or Lender can enforce against Guarantor or Borrower, or both, any rightsthat it has under the Loan Documents or pursuant to applicable laws. If anylien created by the Loan Documents terminates and Lender has any rights it canenforce against Borrower after termination, Lender can enforce those rightsagainst Guarantor without giving previous notice to Borrower or Guarantor orwithout making any demand on either of them.

 

To the extent permittedby law, Guarantor waives the benefit of any statute of limitations affectingGuarantor’s liability under this Guaranty. Guarantor waives the right torequire Lender to first or concurrently: (1) proceed against Borrower; (2)proceed against or exhaust any security that Lender holds from Borrower; or (3)pursue any other remedy in Lender’s power. The liability of Guarantor shall notbe affected or exonerated by any indulgence, compromise, settlement orvariation of terms which may be extended by Lender to Borrower, or agreed uponby Lender or Borrower, and, unless agreed to in writing by Lender, shall not beaffected or exonerated by any assignment by Borrower of its interest in any oneor more of the Loan Documents, nor shall the liability of the Guarantor beaffected or exonerated by the insolvency, bankruptcy (voluntary orinvoluntary), or reorganization of Borrower, nor by the voluntary orinvoluntary liquidation, sale or other disposition of all or substantially allof the assets of Borrower, or by the release of any other Guarantor. Lender andBorrower, without notice to or consent by Guarantor, may at any time or timesenter into such modifications, extensions, amendments or other covenants of theLoan Documents as they may deem appropriate, and Guarantor shall not bereleased nor its liability exonerated thereby but shall continue to be fullyliable for the payment and performance of all obligations and duties ofBorrower under the Loan Documents as so modified, extended or amended.

 

Guarantor further agrees(1) to indemnify and hold harmless Lender from and against any claims, damages,expenses or losses, including to the extent permitted by law, all reasonableattorneys’ fees incurred by counsel of Lender’s choice (whether or notlitigation is commenced), resulting from or arising out of any breach of anyprovision of the Loan Documents by Borrower or by reason of Borrower’s failureto perform any of its obligations thereunder, and (2) to the extent permittedby law, to pay all costs and expenses, including reasonable attorneys’ fees(whether or not litigation is commenced), incurred by Lender in enforcing thisGuaranty.

 

Until all of Borrower’sobligations to Lender have been discharged in full, Guarantor has no right ofsubrogation against Borrower. Guarantor assumes the responsibility to remaininformed of the financial condition

 

----

 

of Borrower and of all other circumstances bearingupon the risk of Borrower’s default, which reasonable inquiry would reveal, andagrees that Lender shall have no duty to advise Guarantor of information knownto it regarding such condition or any such circumstances. Lender shall not berequired to inquire into the powers of Borrower or the officers, employees,partners or agents acting or purporting to act on its behalf, and anyindebtedness made or created in reliance upon the professed exercise of suchpowers shall be guaranteed under this Guaranty. Each Guarantor herebyrepresents and warrants to Lender that such Guarantor has received a copy ofeach of the Loan Documents, has read or had the opportunity to read each of theLoan Documents, and understands the terms of the Loan Documents. The provisionsin the Loan Documents relating to the execution of additional documents, legalproceedings by Lender against Borrower, severability of the provisions of theLoan Documents, interpretation of the Loan Documents, notices, waivers(including waiver of a jury trial), limitation on right of recovery againstLender, disclaimer of individual liability, and the applicable laws whichgovern the interpretation of the Loan Documents are incorporated herein intheir entirety by this reference and made a part hereof as though set forth infull herein; any reference in those provisions to “Borrower” shall mean eachGuarantor and any reference in those provisions to the “Loan Documents” shallmean this Guaranty.

 

To the extent permittedby law, Guarantor waives its right to enforce any remedies that Borrower nowhas, or later may have, against Lender. Guarantor waives any right toparticipate in any security now or later held by Lender. Guarantor waivesnotice of acceptance of this Guaranty, and all other notices in connection withthis Guaranty or in connection with the liabilities, obligations and dutiesguaranteed hereby, including notices to Guarantor of default by the Borrower underthe Loan Documents. Guarantor hereby waives diligence, presentment, demand forperformance, notice of nonperformance, protest, notice of protest, notice ofdishonor, and notice of acceptance of this Guaranty, and waives all notices ofthe existence, creation, or incurring of new or additional obligations.

 

If there is more than oneGuarantor, the liability of each Guarantor shall be joint and several.Guarantor’s obligations under this Guaranty shall be binding on Guarantor’slegal representatives, heirs, successors and assigns.

 

If Borrower disposes ofits interest in the property secured by the Loan Documents, “Borrower”, as usedin this Guaranty, shall mean Borrower’s successors or assigns. Assignment ofthe Loan Documents by Lender (as permitted by the Loan Documents) shall notaffect this Guaranty. In the event of an assignment of the Loan Documents byLender, the term “Lender” as used in this Guaranty shall mean Lender’ssuccessors or assigns.

 

Guarantor herebycovenants and agrees to deliver to Lender the following: (a) managementprepared and certified consolidated quarterly financial statements forGuarantor within forty-five (45) days after the end of the first three (3)quarters of each fiscal year of Guarantor, and (b) annual consolidated financialstatements for Guarantor audited by an independent certified public accountantwithin one hundred twenty (120) days after the end of each fiscal year ofGuarantor. Such financial statements shall be true and correct in all respects,shall be prepared in accordance with generally accepted accounting principles,and shall fairly represent the respective financial conditions of the subjectsthereof as of the respective dates thereof. At the request of Lender, Guarantorshall obtain the consent of Guarantor’s accountant(s) to the inclusion ofGuarantor’s most recent financial statement in any regulatory filing or reportto be filed by Lender.

 

If any one or more of theprovisions of this Guaranty shall be held to be invalid, illegal orunenforceable in any respect, such invalidity, illegality or unenforceabilityshall not affect any other provision of this Guaranty, and this Guaranty shallbe construed as if such invalid, illegal or unenforceable provision had neverbeen contained herein.

 

This Guaranty shall beconstrued according to the laws of the State of Maryland. Guarantor agrees thatany dispute which may arise between Lender and Guarantor with regard to thisGuaranty shall be resolved by litigation in state or federal court. Litigationmay be initiated by Lender or its assignee, at its discretion, in the State ofthe principal place of business of Lender or its assignee, the State of theprincipal place of business of Guarantor, or the State where the Collateral (asdefined in the Loan Documents) is located.

 

2

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**GUARANTOR HEREBY KNOWINGLY ANDIRREVOCABLY WAIVES ANY OBJECTIONS ON THE GROUNDS OF IMPROPER JURISDICTION ORVENUE TO AN ACTION INITIATED AS SET FORTH ABOVE AND AGREES THAT EFFECTIVESERVICE OF PROCESS MAY BE MADE UPON GUARANTOR BY REGISTERED MAIL RETURN RECEIPTREQUESTED. GUARANTOR WAIVES, TO THE EXTENT PERMITTED BY LAW, TRIAL BY JURY INANY ACTION BETWEEN THE PARTIES.**

 

This Guaranty shallbecome effective on March 31, 1998.

** **

**THEWESTERN SIZZLIN CORPORATION**

 
| By:    | /s/ Victor F. Foti |   |
|--------|--------------------|--------|
|   |               |   |
|   | Its: President     |   |
|        |                    |        |  |

 

**THE WESTERN SIZZLIN STORES OF LITTLE ROCK, INC.**

 
| By:    | /s/ Victor F. Foti |   |
|--------|--------------------|--------|
|   |
|   | Its: President     |   |
|        |                    |        |  |

 

3

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Loan No. 06719

3135 Grain Hwy.

Waldorf, Maryland

 

**CERTIFICATE OF BORROWER**

 

THE WESTERN SIZZLINSTORES, INC., a Virginia corporation ("Borrower"), for the benefit ofCAPTEC FINANCIAL GROUP FUNDING CORPORATION, a Michigan corporation (togetherwith its successors, assigns and transferees, “Lender”), warrants, represents,covenants and agrees that the following are true and correct as of the datehereof:

 

1.             All warranties and representations of Borrower containedin this Certificate shall survive the execution of this Certificate and anyadvances made in accordance with the Promissory Note executed by Borrower, infavor of Lender, dated even herewith, in the original principal amount of SevenHundred Fifty Thousand and 00/100 Dollars ($750,000.00) (the “Note”).

 

2.             Borrower has good, indefeasible and marketable title tothe Collateral (as defined in that certain Security Agreement, dated evenherewith, between Borrower and Lender (the “Security Agreement”)). Except forthe Security Agreement, there are no instruments, matters or agreements, andBorrower is not a party to any instrument, matter or agreement, which will inany way encumber, bind or otherwise affect the Collateral or Lender.  Borrower has neither done nor failed to doanything, nor has suffered anything to be done, as a result of which the Collateralor any part thereof has been or will be encumbered or title thereto has been orwill be affected in any way and no person, firm or entity has any present,conditional or contingent rights to acquire all or any portion of theCollateral.

 

3.             Borrower is a corporation duly organized and validlyexisting in good standing under the laws of the Commonwealth of Virginia and isqualified to do business in the State of Maryland.   The person or persons executing the Note, the Security Agreementand the other Loan Documents (as defined in the Security Agreement) have fullpower and complete authority to execute the Note, the Security Agreement andthe other Loan Documents, and, when executed, the Note, the Security Agreementand the other Loan Documents will be legal, valid and binding obligations ofBorrower, enforceable in accordance with their terms.

 

4.             As of the date hereof, Borrower is not “insolvent”within the meaning of Section 548(a)(2)(B) of the United States BankruptcyCode.

 

5.             Borrower is in the business of owning and operatingGreat American Steak & Buffet Company restaurants, including the restaurantoperation located at 3135 Crain Hwy., Waldorf, Maryland (the “FranchisedOperation”). Borrower’s chief executive office is located at 416 South JeffersonStreet, Roanoke, Virginia 24012, and the Collateral is located at Borrower’sChief Executive Office and the Franchised Operation.

 

6.             Borrower has furnished to Lender its most recent annualaudited financial statements and most recent management prepared and certifiedquarterly financial statements, which statements were prepared in accordancewith generally accepted accounting principles and are correct and complete andaccurately present the financial condition of Borrower on the dates thereof.  Further, there has been no material adversechange in the business, property or condition of Borrower since the date of themost recent financial statements.

 

7.             Borrower has complied and will continue to comply withall applicable laws, rules, regulations and orders relating to Borrower or anyaspect of Borrower’s business or assets, including, without limit, allenvironmental laws, rules, regulations and orders. Borrower agrees to indemnifyand hold Lender harmless against and from all claims, losses and costsresulting from any and all violations by Borrower of any laws, rules,regulations and/or orders.

 

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8.             Borrower has not received anywritten notice of, and, to the best knowledge of Borrower, none of Borrower,the Franchised Operation or the premises where the Franchised Operation islocated are in violation of any law, municipal ordinance or other governmentalrequirement of any governmental authority.

 

9.             There are no circumstances, stateof facts or other matters which, with the passage of time or the giving ofnotice, or both, would constitute an Event of Default under the terms of theNote, the Security Agreement or the other Loan Documents.

 

10.           Borrower has filed all federal, stateand local income and other tax returns and other reports required to be filedprior to the date of this Certificate and Borrower has paid all taxes,assessments, withholdings and other governmental charges that are due andpayable prior to the date of this Certificate.

 

11.           All taxes and all installments ofassessments and all other charges of any kind imposed or levied by anygovernmental authority against either Borrower or the Collateral which are dueand payable or constitute a lien at or prior to the date of this Certificate,together with all interest and penalties due thereon, have been paid in full.

 

12.           There is now fully paid andenforceable fire, liability and other forms of insurance in such amounts andcovering such risks as are required under the Security Agreement.

 

13.           There are no disputes, litigation orother such proceedings pending or, to the best of Borrower’s knowledge,threatened against or related to Borrower, the Collateral or the FranchisedOperation, nor does Borrower know of any basis for any such action.

 

14.           In consideration of the loan evidencedby the Note and secured, by the Security Agreement and the other LoanDocuments, Borrower agrees to indemnify and hold Lender harmless against allclaims, liabilities, losses, deficiencies and damages as well as reasonableexpenses (including attorney’s fees), interest and penalties related thereto,asserted by any third party against, or incurred by Lender, by reason of orresulting from any breach, inaccuracy, incompleteness or nonfulfillment of thecovenants, representations and/or warranties of Borrower contained in thisCertificate.

 

15.           Commencing May 1, 1998 and on thefirst day of each following month, Lender is authorized to initiate anelectronic funds transfer to pay the monthly installment payment owing underthe loan evidenced by the Note from the account designated below, and toreceive payments from such account.  This authorization will remain in effect unless the undersigned requestsa modification that is agreed to by the Financial Institution and Lender;provided, however, that Lender and its successors, assigns and transferees maymodify the place of payment to be made by Borrower without the consent of theFinancial Institution.

 

| Financial  Institution: |   |
|-------------------------|--------|
| Financial  Institution  |   |
| Address:                |   |
| Routing/Transit  #:     |   |
| Account #:              |   |
|                         |        |  |  |  |

 

 

[SIGNATURE PAGEFOLLOWS]

 

2

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This Certificate shallbecome effective on March 31, 1998.

 
|   | **THE WESTERN SIZZLIN STORES, INC.** |               |
|--------|--------------------------------------|--------------------|
|   |                                 |               |   |
|   | By:                                  | /s/ Victor F. Foti |   |
|   |                                 |
|   | Its:                                 | President          |
|        |                                      |                    |  |  |  |

 

3

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[LETTERHEAD OF WESTERNSIZZLIN STORES, INC.]

 

 
| TO;    |   | Martha R. Young, (313) 668-7612 |   |   |
|--------|--------|---------------------------------|--------|--------|
|   |   | Fax:   747-7147  |   |   |
|   |   |                            |   |   |
| FROM:  |   | Calvin Lilly, (540) 345-3195    |   |
|   |   | Fax:   345-0831  |   |   |
|   |   |                            |   |   |
| DATE:  |   | March 24, 1998                  |   |   |
|   |   |                            |   |   |
| RE:    |   | Closing Items — Follow-up  |   |   |
|        |        |                                 |        |        |  |  |  |

 

 
| Information for account drafting: |   |   |   |
|-----------------------------------|--------|--------|--------|

 

 
|                           |   |                             |
|--------------------------------|--------|----------------------------------|
| Financial Institution:         |   | Wachovia Bank, N. A.             |
|                           |   |                             |
| Financial Institution Address: |   | 111 Franklin Road                |
|                           |   | Roanoke, Virginia 24001          |
|                           |   | Attn:  Kelly  Kiser         |
|                           |   |                             |
| Routing #:                     |   | 051000253                        |
|                           |   |                             |
| Account #:                     |   | 7911787711                       |
|                           |   | The WesterN SizzliN Stores, Inc. |

 

 

[ILLEGIBLE]

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Loan No. 06719

3135 Crain Hwy.

Waldorf, Maryland

 

**CERTIFICATE OF GUARANTOR**

 

THE WESTERN SIZZLINCORPORATION, a Tennessee corporation (“Guarantor”), for the benefit of CAPTECFINANCIAL GROUP FUNDING CORPORATION, a Michigan corporation (together with itssuccessors, assigns and transferees, “Lender”), warrants, represents, covenantsand agrees that the following are true and correct as of the date hereof:

 

1.             Guarantor has received a copy of that certain PromissoryNote, dated March 23, 1998 in the original principal amount of Seven HundredFifty Thousand and 00/100 Dollars ($750,000.00) (“Note”) made by THE WESTERNSIZZLIN STORES, INC., a Virginia corporation (“Borrower”).   Guarantor has also received a copy of the instrumentssecuring the Note, as referenced therein (together with the Note, the “LoanDocuments”). The Loan Documents create a lien with respect to certain real andpersonal property located at 3135 Crain Hwy., Waldorf, Maryland (“Premises”).

 

2.             Guarantor has had the opportunity to review theCertificate of Borrower, dated even herewith, made by Borrower for the benefitof Lender, and confirms that the warranties and representations set forththerein are true and correct as of the date hereof.

 

3.             Guarantor has full power and authority to enter intothat certain Guaranty executed by Guarantor in favor of Lender, dated as of thedate of this Certificate (“Guaranty”) and to assume and perform all ofGuarantor’s obligations under the Guaranty in accordance with all of the termsand conditions of the Guaranty. The execution and delivery of the Guaranty andthe performance by Guarantor of Guarantor’s obligations under the Guaranty andunder all documents contemplated by the Guaranty require no further action or approval.   The Guaranty and all other documentscontemplated by the Guaranty are fully binding and enforceable obligations ofGuarantor.

 

4.             There are no circumstances, state of facts or othermatters which, with the passage of time or the giving of notice, or both, wouldconstitute an event of default under the terms of the Guaranty, or to the bestof the Guarantor’s knowledge, under the Loan Documents.

 

5.             There are no disputes, litigation or other suchproceedings pending or, to the best of the Guarantor’s knowledge, threatenedagainst or related to the Guarantor or the Premises, nor does Guarantor know ofany basis for any such action, except asdisclosed to Lender on Exhibit A hereto.

 

6.             Guarantor has furnished to Lender its most recent annualaudited consolidated financial statements and most recent management preparedand certified quarterly consolidated financial statements, which statementswere prepared in accordance with generally accepted accounting principles andare correct and complete and accurately present the financial condition ofGuarantor on the dates thereof.  Further, there has been no material adverse change in the business,property or condition of Guarantor since the date of the most recent financialstatements.

 

7.             In consideration of the loan evidenced by the Note andsecured, in part, by the Loan Documents, the receipt and sufficiency of whichGuarantor acknowledges, and in order to induce Lender to make such loan,Guarantor agrees to indemnify and hold Lender harmless against all claims,liabilities, losses, deficiencies and damages as well as reasonable expenses(including attorney’s fees), interest and penalties related thereto, assertedby any third party against, or incurred by Lender, by reason of or resultingfrom any breach, inaccuracy, incompleteness or nonfulfillment of the covenants,representations and/or warranties of Guarantor contained in this Certificate.

 

----

 

This Certificate shallbecome effective on March 31,1998.

** **

 
|   | **THE  WESTERN SIZZLIN CORPORATION** |
|--------|--------------------------------------|
|   |                                 |   |   |
|   | By                                   | /s/ Victor F. Foti |   |
|   |
|   | Its:                                 | President |
|        |                                      |  |  |  |  |

 

2

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The WesterN SizzliN Corporation

Litigation Proceedings against The WesterN SizzliNCorporation

Exhibit A, to Certificate of Guarantor

 
| **Name /  Caption**                                                                                                                                    |   | **Amount in Controversy** |      | **Status**                                                                                                                                                     |                                                                                                     |
|--------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------|-----------|----------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------|
|                                                                                                                                                   |   |                      |      |                                                                                                                                                           |                                                                                                     |
| David K Wachtel, Jr. v. WSC, et al

First Complaint -  breach of employment contract;

wrongful termination                                            |   | $1,319,000                |      | Wachtel, president until  2/95 claims wrongful termination; which, under his contract would mean two  years’ of compensation, approx. $400,000.           |                                                                                                     |
| Second Complaint -  includes officers and directors in the suit                                                                                        |   |                      |      | The termination was well  justified. The suit had included certain officers and directors, whose cases  have been dismissed through award of summary judgment. |                                                                                                     |
|                                                                                                                                                   |   |                      |      |                                                                                                                                                           |                                                                                                     |
| Third Complaint - loss  of value of stock 

Indemnification for  expenses                                                                              |   | $                         | 8,500,000 |                                                                                                                                                           | Summary judgment granted to defendant, case  dismissed; plaintiff has appealed.

Discovery not complete. |   |
|                                                                                                                                                   |   |                      |      |                                                                                                                                                           |                                                                                                     |   |
| Mann v. WSC

Breach of employment                                                                                                                      |   | $                         | 50,000    |                                                                                                                                                           | Mann is now deceased, with very little discovery. We  expect that the suit will be dismissed.            |   |
|                                                                                                                                                   |   |                      |      |                                                                                                                                                           |                                                                                                     |   |
| Durham Enterprises v. WSC

Denial of awarding a  franchise                                                                                             |   | $                         | 1,000,000 |                                                                                                                                                           | Summary judgment granted to defendant, case  dismissed; plaintiff not appealed.                          |   |
|                                                                                                                                                   |   |                      |      |                                                                                                                                                           |                                                                                                     |
| Cruthis v. Elgin Hamner and WSC

Contaminated tea                                                                                                      |   | $                         | 4,000     |                                                                                                                                                           | Suit primarily against franchise; WSC named as  codefendant; discovery beginning.                        |   |
|                                                                                                                                                   |   |                      |      |                                                                                                                                                           |                                                                                                     |
| Perry v. WSC and David Wachtel, Jr.

Business interference  between franchisee/seller and potential buyer — would not allow franchise  assumption |   | $                         | 2,500,000 |                                                                                                                                                           | Discovery is beginning; D & O insurance.                                                             |   |
|                                                                                                                                                   |   |                      |      |                                                                                                                                                           |                                                                                                     |
| WSC v. Moody / Fowler

Counter claim, in  response to WSC’s collection suit for underpaid royalties                                               |   | $                         | 500,000   |                                                                                                                                                           | Discovery Beginning.                                                                                     |   |

 

3

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Loan No. 06719

3135 Crain Hwy.

Waldorf, Maryland

 

**CERTIFICATE OF GUARANTOR**

 

THE WESTERN SIZZLINSTORES OF LITTLE ROCK, INC., an Arkansas corporation (“Guarantor”), for thebenefit of CAPTEC FINANCIAL GROUP FUNDING CORPORATION, a Michigan corporation(together with its successors, assigns and transferees, “Lender”), warrants,represents, covenants and agrees that the following are true and correct as ofthe date hereof:

 

1.             Guarantor has received a copy of that certain PromissoryNote, dated March 23, 1998 in the original principal amount of Seven HundredFifty Thousand and 00/100 Dollars ($750,000.00) (“Note”) made by THE WESTERNSIZZLIN STORES, INC., a Virginia corporation (“Borrower”). Guarantor has alsoreceived a copy of the instruments securing the Note, as referenced therein(together with the Note, the “Loan Documents”). The Loan Documents create alien with respect to certain real and personal property located at 3135 CrainHwy., Waldorf, Maryland (“Premises”).

 

2.             Guarantor has had the opportunity to review theCertificate of Borrower, dated even herewith, made by Borrower for the benefitof Lender, and confirms that the warranties and representations set forththerein are true and correct as of the date hereof.

 

3.             Guarantor has full power and authority to enter intothat certain Guaranty executed by Guarantor in favor of Lender, dated as of thedate of this Certificate (“Guaranty”) and to assume and perform all ofGuarantor’s obligations under the Guaranty in accordance with all of the termsand conditions of the Guaranty. The execution and delivery of the Guaranty andthe performance by Guarantor of Guarantor’s obligations under the Guaranty andunder all documents contemplated by the Guaranty require no further action orapproval.    The Guaranty and all otherdocuments contemplated by the Guaranty are fully binding and enforceableobligations of Guarantor.

 

4.             There are no circumstances, state of facts or othermatters which, with the passage of time or the giving of notice, or both, wouldconstitute an event of default under the terms of the Guaranty, or to the bestof the Guarantor’s knowledge, under the Loan Documents.

 

5.             There are no disputes, litigation or other suchproceedings pending or, to the best of the Guarantor’s knowledge, threatenedagainst or related to the Guarantor, nor does Guarantor know of any basis forany such action.

 

6.             Guarantor has furnished to Lender its most recent annualaudited consolidated financial statements and most recent management preparedand certified quarterly consolidated financial statements, which statementswere prepared in accordance with generally accepted accounting principles andare correct and complete and accurately present the financial condition of Guarantoron the dates thereof.   Further, therehas been no material adverse change in the business, property or condition ofGuarantor since the date of the most recent financial statements.

 

7.             In consideration of the loan evidenced by the Note andsecured, in part, by the Loan Documents, the receipt and sufficiency of whichGuarantor acknowledges, and in order to induce Lender to make such loan,Guarantor agrees to indemnify and hold Lender harmless against all claims,liabilities, losses, deficiencies and damages as well as reasonable expenses(including attorney’s fees), interest and penalties related thereto, asserted

 

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by any third party against, or incurred by Lender, byreason of or resulting from any breach, inaccuracy, incompleteness or nonfulfillmentof the covenants, representations and/or warranties of Guarantor contained inthis Certificate.

 

This Certificate shallbecome effective on March 31, 1998.

 

** **

 
|   | **THE  WESTERN SIZZLIN STORES OF LITTLE ROCK, INC.** |
|--------|------------------------------------------------------|
|   |                                                 |   |   |
|   | By:                                                  | /s/ Victor F. Foti |   |
|   | Its                                                  | President |
|        |                                                      |  |  |  |  |

 

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Loan No. 06720

4310 Chapman Hwy.

Knoxville, Tennessee

 

**PROMISSORY NOTE**

 
| $500,000.00 | Date: |   | March 23, 1998 |
|-------------|-------|--------|----------------|

 

**PROMISE TO PAY**.For value received, **THE WESTERN SIZZLINSTORES, INC**., a Virginia corporation, (“Borrower”) promises to payto **CAPTEC FINANCIAL GROUP FUNDING CORPORATION**,a Michigan corporation (together with its successors, assigns and transferees,“Lender”), or order, Five Hundred Thousand and 00/100 Dollars ($500,000.00), orso much of such sum as has been advanced under this Note, as follows:

 

Interest only from andafter the date on which funds are disbursed by Lender hereunder (“EffectiveDate”) through the last day of the month in which the Effective Date occursshall be due and payable on the first day of the next month following theEffective Date; provided that if the Effective Date occurs after the fifteenth(15th) day of a month, the interest which would accrue, based on the actualnumber of days, through the end of such month shall be due and payable inadvance on the Effective Date. Installments of principal and interest in theamount of Five Thousand Three Hundred Ninety-Five and 00/100 Dollars($5,395.00) are due and payable on the first day of each month (each a “PaymentDate”), commencing May 1, 1998; until April 1, 2013 (“Due Date”), when theoutstanding principal balance, plus accrued interest, is due and payable(unless the indebtedness evidenced by this Note is accelerated, in which case,the Due Date is the date of acceleration). The amortization period for thisNote, for purposes of calculating the monthly installments of principal andinterest, is fifteen (15) years.

 

All payments under thisNote shall be made at Lender’s principal office at 24 Frank Lloyd Wright Drive,Lobby L, 4th Floor, P.O. Box 544, Ann Arbor, Michigan 48106-0544, or at suchother address as Lender may designate in writing, or by electronic fundswithdrawal made by Lender upon written authorization therefor from Borrower,which authorization shall not be revocable by Borrower without the consent ofLender. Payments due and payable on a day on which Lender is not open forbusiness are due on the next succeeding business day. Payments will be appliedfirst to accrued interest and then to principal.

 

**INTEREST RATE.**The outstanding principal balance of this Note will bear interest at a fixedrate equal to ten and seven hundredths percent (10.07%) per annum (the “StatedRate”), until the Due Date (whether by acceleration or otherwise), andthereafter at a rate which is three percent (3%) above the Stated Rate(“Default Rate”).

 

Interest will be computedon the basis of a year consisting of twelve (12) months of thirty (30) dayseach. In no event, however, shall the interest rate exceed the maximum rateallowed by law. Notwithstanding anything to the contrary contained herein, atno time shall the interest payable under this Note be greater than the maximumrate permitted by applicable law (“Legal Rate”). If any obligation under thisNote shall result in Lender receiving an amount deemed to be interest underapplicable law in excess of the Legal Rate, then the amount which would beexcessive interest shall be applied to the reduction of the principal balanceof this Note and not to payment of interest. If such excessive interest exceedsthe unpaid principal balance of this Note, the excess shall be refunded toBorrower.

 

----

 

**PREPAYMENT.**Borrowershall not have any right, except as otherwise specifically provided, to prepaythe principal balance of this Note until two (2) loan years have elapsed. Thefirst “loan year” shall commence on the date of the closing of the loanevidenced by this Note, and subsequent loan years shall commence on theanniversaries of such date. Commencing with the third (3rd) loan year and if noEvent of Default (as hereinafter defined) then exists, Borrower shall have theright to prepay all, but not merely a portion of, the principal balance of thisNote together with accrued interest thereon on any Payment Date; provided,however, that Borrower shall provide no less than thirty (30) days priorwritten notice to Lender of Borrower’s intention to prepay (the “PrepaymentNotice”). Once given, the Prepayment Notice may not be withdrawn, and thefailure to prepay in accordance with the Prepayment Notice shall constitute anEvent of Default.

 

Borrower acknowledges andagrees that Lender is making the loan evidenced by this Note in considerationof the receipt by Lender of all interest and other benefits intended to beconferred by this Note, and if payments of principal are made to Lender priorto the regularly scheduled due date of such payments, for whatever reason(whether voluntarily or involuntarily), Lender will not receive all suchinterest and other benefits and may incur additional costs. For these reasons,and to induce Lender to make the loan, Borrower expressly waives any right toprepay this Note except as specifically provided herein.

 

Lender shall not berequired to accept any tender of prepayment of the principal balance of thisNote at any time when the “Reinvestment Rate” (as hereinafter defined) is lowerthan the Stated Rate, less eighty-five basis points, unless such tender alsoincludes a sum of money (the “Prepayment Premium”) equal to the present value(computed at the Reinvestment Rate) of the difference between a stream ofmonthly payments necessary to amortize the outstanding principal balance ofthis Note at the Stated Rate and a stream of monthly payments necessary toamortize the outstanding principal balance of this Note at the ReinvestmentRate (the “Differential”). In the event the Differential is less than zero, noPrepayment Premium will be required. For purposes of this Note, the“Reinvestment Rate” is the yield on a United States Treasury obligation of aconstant maturity rate maturing closest in time but prior to the maturity dateof this Note, as reported in Federal Reserve Statistical Release H. 15 (519)(or any comparable successor publication) on the fifth (5th) business daypreceding the prepayment date.

 

In addition to thePrepayment Premium, if any, every tender of prepayment of the principal balanceof this Note shall be accompanied by a payment equal to (x) all accrued butunpaid interest and other charges to the date of prepayment and (y) anadministrative fee equal to one half of one percent (0.5%) of the outstandingprincipal balance of this Note; provided, however, that the administrative feeshall not be less than One Thousand and 00/100 Dollars ($1,000.00)(collectively, the “Other Charges”).

 

If the outstandingprincipal balance of this Note is accelerated by reason of an Event of Default,such acceleration shall be deemed to be a prepayment and Borrower shall pay toLender, in addition to all sums due as a result of the acceleration, anyapplicable Prepayment Premium and Other Charges. In the event of anacceleration of this Note in the first or second loan year, Borrower shall berequired to pay a Prepayment Premium equal to five percent (5%) of theoutstanding principal balance of this Note together with any Other Charges. Inthe event that this Note is partially prepaid from casualty insurance proceeds(as provided in the Security Agreement, defined below), no Prepayment Premiumor Other Charges shall be due and payable with respect to such prepayment, andeach monthly installment thereafter shall be reduced to an amount which willamortize the then unpaid principal balance of this Note at the Stated Rate overthe then remaining term of this Note.

 

**LATE PAYMENT CHARGE.**In the event that any payment underthis Note is not received by Lender within fifteen (15) days of the date whendue, a late charge of five percent (5%) of the amount of such payment will bedue. Borrower agrees that the late charge is a reasonable estimate of theadministrative costs which Lender will incur in processing the delinquency.Lender’s acceptance of a late payment and/or of the late payment charge willnot waive any default under this Note or affect the acceleration of this Note(if this Note has been accelerated).

 

2

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**COLLATERAL.**ThisNote and the other obligations of Borrower to Lender contained in the documentssecuring this Note are secured by and in accordance with the terms of thatcertain Security Agreement, effective March 31, 1998, executed by Borrower forthe benefit of Lender (the “Security Agreement”; together with any otherdocuments securing payment under this Note, the “Loan Documents”). All propertysecuring the Indebtedness (as defined in the Security Agreement) is referred toas the “Collateral”.

 

**DEFAULT.** Any ofthe following events shall, for purposes of this Note, constitute an “Event ofDefault”:

 

(a)           Failure by Borrower to pay any amountowing on or with respect to the Indebtedness when due, whether by maturity,acceleration or otherwise, which failure continues for five (5) business days.

 

(b)          Any failure by Borrower (or anyguarantor of all or any part of the Indebtedness) to comply with any of thenon-monetary terms, provisions, warranties or covenants of this Note, theSecurity Agreement or the other Loan Documents, which failure continues forfifteen (15) days after the date of written notice to Borrower (or anyguarantor) from Lender of such default; provided, however, that if: (i) thenature of Borrower’s (or any guarantor’s) noncompliance is such that more thanfifteen (15) days are reasonably required for its cure, (ii) Borrower (or anyguarantor) has commenced such cure within said fifteen (15) day period, (iii)Borrower (or any guarantor) diligently prosecutes such cure to completion, (iv)Borrower (or any guarantor) provides Lender with written notice of thenoncompliance, AND (v) Borrower (or any guarantor) furnishes reserves or asecurity bond, in an amount satisfactory to Lender in its sole discretion, thenBorrower (or any guarantor) shall not be in default.

 

(c)           Institution of foreclosureproceedings or other exercise of rights and remedies by the holder of anymortgage, deed of trust, security interest or other lien against the Collateral(or any portion thereof); provided, however, if there is a good faith disputeby Borrower (or any guarantor) as to the validity or reasonableness of theclaim which is the basis for such proceedings, then no Event of Default shallhave occurred under this clause (c) if Borrower (or any guarantor) providesLender with written notice of the proceedings and furnishes reserves or asecurity bond for the proceedings satisfactory to Lender.

 

(d)          Insolvency of Borrower (or anyguarantor) or the admission in writing of Borrower’s (or any guarantor’s)inability to pay debts as they mature.

 

(e)           Any statement, representation orinformation made or furnished by or on behalf of Borrower (or any guarantor) toLender in connection with or to induce Lender to provide or advance any of theIndebtedness shall prove to be false or materially misleading when made orfurnished.

 

(f)           Institution of bankruptcy,reorganization, insolvency or other similar proceedings by or against Borrower(or any guarantor), unless, in the case of a petition filed against Borrower(or any guarantor), the same is dismissed within sixty (60) days of the date offiling.

 

(g)          The issuance or filing of anyjudgment, attachment, levy, garnishment or the commencement of any relatedproceedings or the commencement of any other judicial process upon or inrespect to Borrower (or any guarantor) or the Collateral in which the amount incontroversy exceeds One Hundred Thousand Dollars ($100,000) and is not coveredby the insurance of Borrower (or any guarantor), unless satisfied, or Borrower(or any guarantor) furnishes reserves or a security bond in an amountsatisfactory to Lender in its sole discretion, released or discharged withinsixty (60) days after the date ofsuch issuance, filing or commencement.

 

3

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(h)          Sale or other disposition by Borrower(or any guarantor) of any substantial portion of its assets or property.

 

(i)            Death, dissolution, merger,consolidation, termination of existence, insolvency, business failure orassignment for the benefit of creditors of or by Borrower (or any guarantor);without the prior written consent of Lender, which consent shall not beunreasonably withheld.

 

(j)            Any failure by Borrower (or anyguarantor) to pay any indebtedness (other than to Lender) in excess of OneHundred Thousand Dollars ($100,000) (and exclusive of trade debt incurred inthe ordinary course of business) when due, or any failure in the observance orperformance of any term, covenant or condition in any document evidencing,securing or relating to such indebtedness, which failure continues beyond anyapplicable cure period.

 

(k)           Receipt by Borrower of a notice oftermination of the Management and Licensing Agreement from The WesterN SizzliNCorporation, a Tennessee corporation (“Franchisor”), for the Great AmericanSteak & Buffet Company Restaurant located at 4310 Chapman Hwy., Knoxville,Tennessee 37920 (“Franchised Operation”).

 

(1)           If this Note, the Security Agreementand the other Loan Documents have not been assigned to the Trust (as defined inthe Security Agreement), the default by Borrower which continues beyond anyapplicable grace or cure period under the Retained Obligations (as defined inthe Security Agreement); provided, however, if this Note, the SecurityAgreement and the other Loan Documents are assigned to the Trust, this Clause(1) shall be of no force and effect during the term of such assignment.

 

(m)          In the event that this Note, theSecurity Agreement and the other Loan Documents are assigned to the Trust, thedefault by Borrower which continues beyond any applicable grace or cure periodunder the Trust Obligations (as defined in the Security Agreement).

 

(n)          Any default by Borrower under theLease between Lovell Center, Inc., a Tennessee corporation, as landlord, andBorrower, as tenant, dated January 5, 1995 (“Lease”), which default is notcured within any applicable cure period set forth in such Lease.

 

Upon an occurrence of anEvent of Default, Lender shall have the option to declare all or part of theIndebtedness (including this Note) immediately due and payable. If this Note isnot paid at maturity (whether by acceleration or otherwise), Lender shall haveall of the rights and remedies provided at law or equity or by agreement,including, without limit, the right to sell or liquidate all or any part of theCollateral. The remedies of Lender are cumulative and not exclusive.

 

**EXAMINATION OF RECORDS.**Borrower shall at all times keepfull and accurate records of its business and of the Collateral, which recordsshall be open to inspection and copying by Lender at all reasonable times.

 

**LIABILITY OF SIGNATORIES.** Borrower, andall guarantors and endorsers, and any other party liable for the Indebtednessevidenced by this Note: (i) severally waive presentment, demand, protest,notice of dishonor, notice of non-payment and notice of acceleration of thisNote; and (ii) agree that no extension or postponement of the time for payment,or waiver, or indulgence or forbearance granted to Borrower (without limit asto number or period) or any modification of this Note, or any substitution, orexchange or release of all or part of the Collateral, or addition of any partyto this Note, or release or discharge of, or suspension of any rights andremedies against any party liable on this Note, shall reduce or affect theobligation of any other party liable for the payment of this Note.

 

4

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**NON-WAIVER.**Nodelay by Lender in the exercise of any right or remedy shall operate as awaiver. No single or partial exercise by Lender of any right or remedy shallpreclude any future exercise of such right or remedy or the exercise of anyother right or remedy. No waiver or indulgence by Lender of any default orEvent of Default shall be effective unless in writing and signed by Lender, norshall a waiver on one occasion be construed as a bar to any right or remedy, orwaiver of any default or Event of Default on any future occasion.

 

**REIMBURSEMENT OF EXPENSES.**Borrower shall reimburse Lender for all costs and expenses, includingreasonable attorneys’ fees, incurred by Lender in enforcing the rights ofLender under this Note. Such costs and expenses shall include, withoutlimitation, costs or expenses incurred by Lender in any bankruptcy,reorganization, insolvency or other similar proceeding. Any reference in thisNote to attorneys’ fees shall mean fees, charges, costs and expenses ofin-house and/or outside counsel and paralegals, whether or not a suit orproceeding is instituted, and whether incurred at the trial court level, onappeal, in a bankruptcy, administrative or probate proceeding, in consultationwith counsel, or otherwise.

 

**WAIVER OF JURY TRIAL.BORROWER AND LENDER ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A CONSTITUTIONALONE, BUT THAT IT MAY BE WAIVED. EACH PARTY, AFTER CONSULTING (OR HAVING HAD THEOPPORTUNITY TO CONSULT) WITH COUNSEL OF THEIR CHOICE, KNOWINGLY ANDVOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT, WAIVES ANY RIGHT TO TRIAL BY JURY INTHE EVENT OF LITIGATION REGARDING THE PERFORMANCE OR ENFORCEMENT OF, OR IN ANYWAY RELATED TO, THIS NOTE OR THE INDEBTEDNESS.**

 

**ASSIGNMENT.**ThisNote is freely assignable, in whole or in part, by Lender without prior noticeto or consent of Borrower; provided, however, that Lender (or its assignee)shall provide written notice of such assignment to Borrower in the event thatLender (or such assignee) desires to designate a new person or entity as payeeand/or a new place of payment for the obligations under this Note. Borrower maynot, in whole or in part, directly or indirectly, assign this Note or itsrights hereunder or delegate its duties hereunder without, in each instance,the specific prior written consent of Lender, which consent may be withheld ordelayed in Lender’s sole discretion. Lender shall be fully discharged from allresponsibility accruing hereunder from and after the effective date of any suchassignment. Lender’s assignee shall, to the extent of the assignment, be vestedwith all the powers and rights of Lender hereunder, and to the extent of suchassignment the assignee may fully enforce such rights and powers, and allreferences to Lender shall mean and refer to such assignee. Lender shall retainall rights and powers hereby given not so assigned, transferred and/ordelivered. Borrower hereby waives all defenses which Borrower may be entitledto assert against Lender’s assignee with respect to liability accruinghereunder prior to the effective date of any assignment of Lender’s interestherein.

 

**SECURITIZATION.**Borrowerunderstands and agrees that Lender may, from time to time, assign its rightsand powers under this Note, the Security Agreement and any other LoanDocuments, in whole or in part, in connection with a securitization program.Borrower agrees to enter into an amendment to this Note, the Security Agreementand any other Loan Documents if such amendments are required by a nationallyrecognized rating agency in connection with a securitization program sponsoredby Lender and in which this Note, the Security Agreement any other LoanDocuments are to be included; provided that Borrower shall not be obligated toenter into any amendment which adversely affects Borrower or otherwiseadversely alters any of the financial terms of this Note, the SecurityAgreement and any other Loan Documents.

 

**MISCELLANEOUS.**Theterms and provisions of this Note shall be governed by and construed inaccordance with the laws of the State of Tennessee. Lender and Borrower agreethat any dispute which may arise between them with regard to this Note shall beresolved by litigation in state or federal court. Litigation may be initiatedby Lender or its assignee, at its discretion, in the State of the principalplace of business of Lender or its assignee, the State of the principal placeof business of Borrower, or the State where the Collateral is located. **BORROWERHEREBY KNOWINGLY AND IRREVOCABLY WAIVES ANY OBJECTIONS ON THE**

 

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**GROUNDS OF IMPROPER JURISDICTION OR VENUE****TO AN****ACTIONINITIATED AS SET FORTH ABOVE AND AGREES THAT EFFECTIVE SERVICE OF PROCESS MAYBE MADE UPON BORROWER BY REGISTERED MAIL RETURN RECEIPT REQUESTED.**Theterms and provisions of this Note may only be changed in writing, executed byBorrower and Lender.

 

**THE WESTERN SIZZLIN STORES, INC.**

 
| By: |  /s/ Victor  F. Foti |   |
|-----|---------------------------|--------|
| Its | President                 |
|     |                           |        |  |

 

Address:

 

P.O. Box 12167

Roanoke, VA 24023-2167

 

Tax I.D. No. 54-1787907

 

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| Pay to the order  of           |   |
|--------------------------------|--------|
| without warranty  or recourse. |   |

 

 
| Captec Financial Group Funding Corporation |
|--------------------------------------------|
|                                       |   |   |
| By:                                        | /s/ [ILLEGIBLE] |   |
|                                       |
| Its:                                       |   |   |
|                                            |  |  |  |  |

 

7

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Loan No. 06720

4310 Chapman Hwy

Knoxville, Tennessee

 

**COLLATERAL ASSIGNMENT OF LEASE ANDOPTION RIGHTS**

 

THIS COLLATERAL ASSIGNMENT OF LEASE AND OPTION RIGHTS (“Assignment”) ismade as of the 23 day of March, 1998, by **THE WESTERN SIZZLIN STORES, INC.**,****a Virginia corporation, whose address isP. O. Box 12167, Roanoke, VA 24023-2167 (“Assignor”), in favor of **CAPTECFINANCIAL GROUP FUNDING CORPORATION,**a Michigan corporation, whoseaddress is 24 Frank Lloyd Wright Drive, Lobby L, 4th Floor, P.O. Box 544, AnnArbor, Michigan 48106-0544 (“Assignee”). This instrument shall become effectiveon March 31, 1998.

 

For good and valuable consideration,the receipt and sufficiency of which is hereby acknowledged, Assignor presentlyassigns to Assignee all of Assignor’s right, title and interest in and to itslessee’s interest in that certain lease with **Lovell Center, Inc.,**(“Lessor”)dated as of January 5, 1995, a copy of which is attached hereto as Exhibit A(the “Lease”) respecting the premises commonly known as the Great AmericanSteak & Buffet Company Restaurant located at 4310 Chapman Hwy.,Knoxville,Tennessee (“Premises”). This Assignment is for collateral purposes only, andexcept as specified herein, Assignee shall have no liability or obligation ofany kind whatsoever arising from or in connection with this Assignment or theLease unless Assignee shall take possession of the Premises and assume theobligations of Assignor thereunder.

 

Assignor represents andwarrants to Assignee that it has full power and authority to so assign theLease and its interest therein and that Assignor has not previously, and is notobligated to, assign or transfer any of its interest in the Lease or thePremises.

 

Throughout the term ofthe Lease, Assignor covenants and agrees to exercise all options to extend orrenew the term of the Lease not less than ninety (90) days prior to the lastday upon which any such option may be exercised, but in no event less than six(6) months prior to of the term of the Lease, unless Assignee otherwise agreesin writing. Assignor shall send Assignee a copy of the notice of exerciseconcurrently with Assignor’s exercise of the option. Upon the failure ofAssignor to so elect or renew the Lease as aforesaid (and the failure ofAssignee to otherwise agree in writing), Assignee shall have the right, but notthe obligation, to exercise such extension or renewal option on behalf of Assignor,and Assignor hereby appoints Assignee (or any of its employees) as itsattorney-in-fact for the purpose of exercising such extension or renewaloption.

 

If an “Event of Default” occurs under the Promissory Note, dated March23, 1998, in the original principal amount of Five Hundred Thousand and 00/100Dollars ($500,000.00), by Assignor in favor of Assignee (the “Note”) or underany documents or instruments securing the Note, Assignee shall have the rightand is hereby empowered to take possession of the Premises, expel Assignortherefrom, and, in such event, Assignor shall have no further right, title orinterest in the Lease and shall remain liable to Assignee for all past duerents Assignee shall be required to pay to the Lessor under the Lease toeffectuate this Assignment.

 

Assignor agrees that itwill not suffer or permit any surrender, termination, amendment or modificationof the Lease without the prior written consent of Assignee, which consent shallnot be unreasonably withheld. At

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the request of Assignee, Assignor shall provideAssignee with rent payment or such other information regarding the Lease asAssignee shall reasonably require.

 

This Assignment shall be governed by the laws of the State ofTennessee.

 

This Assignment may be executedin one or more counterparts, each of which shall constitute an original and allof which together shall constitute one and the same instrument.

 

IN WITNESS WHEREOF,Assignor has executed this Assignment as of the day and year noted above.

 
|            | **ASSIGNOR:**                        |      |
|-----------------|--------------------------------------|-----------|
| Witnesses:      |                                 |      |
|            | **THE WESTERN SIZZLIN STORES, INC.** |      |
|            |
| /s/ [ILLEGIBLE] |                                 | By:       | /s/ Victor F. Foti |   |
|            |
|            | Its:                                 | President |   |   |
| [ILLEGIBLE]     |                                 |      |   |
|                 |                                      |           |  |  |  |  |  |  |  |  |

 

STATE OF Virginia

 

COUNTY OF Roanoke

 

I, Richard R Sayers, Anotary public in and for the State and County aforesaid, do certify that VictorF. Foti, whose name, as President**of The WesterN SizzliN Stores, Inc., issigned to the writing above, bearing date on the 23rd day of March hasacknowledged the same before me in my county aforesaid.

 

Given under my hand andofficial seal this 23rd day of March.

 

My term of office expires on the 28th day of February1999.

 
|   | /s/ Richard R Sayers        |
|--------|-----------------------------|
|   | Notary Public               |   |
|   | [Notary Public’s Seal] |   |

 

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Loan No. 06720

4310 Chapman Hwy.

Knoxville, Tennessee

 

**COLLATERAL ASSIGNMENT OF LEASE ANDOPTION RIGHTS**

 

THIS COLLATERALASSIGNMENT OF LEASE AND OPTION RIGHTS (“Assignment”) is made as of the 23**dayof March, 1998, by **THE WESTERN SIZZLIN STORES, INC.,**aVirginia corporation, whose address is P. O. Box 12167, Roanoke, VA 24023-2167(“Assignor”), in favor of **CAPTEC FINANCIAL GROUP FUNDING CORPORATION,**aMichigan corporation, whose address is 24 Frank Lloyd Wright Drive, Lobby L,4th Floor, P.O. Box 544, Ann Arbor, Michigan 48106-0544 (“Assignee”). Thisinstrument shall become effective on March 31, 1998.

 

For good and valuableconsideration, the receipt and sufficiency of which is hereby acknowledged,Assignor presently assigns to Assignee all of Assignor’s right, title andinterest in and to its lessee’s interest in that certain lease with **LovellCenter, Inc.,**(“Lessor”) dated as of January 5, 1995, a copy ofwhich is attached hereto as Exhibit A (the “Lease”) respecting the premisescommonly known as the Great American Steak & Buffet Company Restaurantlocated at 4310 Chapman Hwy., Knoxville, Tennessee (“Premises”). ThisAssignment is for collateral purposes only, and except as specified herein,Assignee shall have no liability or obligation of any kind whatsoever arisingfrom or in connection with this Assignment or the Lease unless Assignee shalltake possession of the Premises and assume the obligations of Assignorthereunder.

 

Assignor represents andwarrants to Assignee mat it has full power and authority to so assign the Leaseand its interest therein and that Assignor has not previously, and is notobligated to, assign or transfer any of its interest hi the Lease or thePremises.

 

Throughout the term ofthe Lease, Assignor covenants and agrees to exercise all options to extend orrenew the term of the Lease not less than ninety (90) days prior to the lastday upon which any such option may be exercised, but in no event less than six(6) months prior to of the term of the Lease, unless Assignee otherwise agreesin writing. Assignor shall send Assignee a copy of the notice of exerciseconcurrently with Assignor’s exercise of the option. Upon the failure ofAssignor to so elect or renew the Lease as aforesaid (and the failure ofAssignee to otherwise agree in writing), Assignee shall have the right, but notthe obligation, to exercise such extension or renewal option on behalf ofAssignor, and Assignor hereby appoints Assignee (or any of its employees) asits attorney-in-fact for the purpose of exercising such extension or renewaloption.

 

If an “Event of Default”occurs under the Promissory Note, dated March 23, 1998, in the originalprincipal amount of Five Hundred Thousand and 00/100 Dollars ($500,000.00), byAssignor in favor of Assignee (the “Note”) or under any documents orinstruments securing the Note, Assignee shall have the right and is herebyempowered to take possession of the Premises, expel Assignor therefrom, and, insuch event, Assignor shall have no further right, title or interest in theLease and shall remain liable to Assignee for all past due rents Assignee shallbe required to pay to the Lessor under the Lease to effectuate this Assignment.

 

Assignor agrees that itwill not suffer or permit any surrender, termination, amendment or modificationof the Lease without the prior written consent of Assignee, which consent shallnot be unreasonably withheld. At

 

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the request of Assignee, Assignor shallprovide Assignee with rent payment or such other information regarding theLease as Assignee shall reasonably require.

 

This Assignment shall be governed by the laws of the State ofTennessee.

 

This Assignment may beexecuted in one or more counterparts, each of which shall constitute anoriginal and all of which together shall constitute one and the sameinstrument.

 

IN WITNESS WHEREOF, Assignorhas executed this Assignment as of the day and year noted above.

 

 
|            | **ASSIGNOR:**                        |                      |
|-----------------|--------------------------------------|---------------------------|
| Witnesses:      | **The WESTERN SIZZLIN STORES, INC.** |
|            |
| /s/ [ILLEGIBLE] | By:                                  |  /s/ Victor  F. Foti |   |
|            |
|            | Its:                                 | President                 |   |
| /s/[ILLEGIBLE]  |                                 |                      |
|                 |                                      |                           |  |  |  |  |  |  |  |

 

STATE OF**Virginia**

 

COUNTY OF Roanoke.

 

I, Richard R Sayers, anotary public in and for the State and County aforesaid, do certify that VictorF. Foti, whose name, as President**of The WesterN SizzliN Stores, Inc., issigned to the writing above, bearing date on the 23rd day of March hasacknowledged the same before me in my county aforesaid.

 

Given under my hand andofficial seal this 23rd day of March.

 

My term of officeexpires on the 28th day of February 1999.

 
|   | /s/ Richard R Sayers        |
|--------|-----------------------------|
|   | Notary Public               |   |
|   | [Notary Public’s Seal] |   |

 

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Loan Nos. 06720& 06721

Knoxville,Tennessee

 

**SECURITY AGREEMENT**

 

THIS SECURITY AGREEMENT(“Agreement”) is made as of the 23rd****day of March, 1998, by **THE WESTERNSIZZLES STORES, INC.,**a Virginia corporation, of P.O. Box 12167,Roanoke, Virginia 24023-2167 (“Borrower”) in favor of **CAPTEC FINANCIAL GROUP FUNDINGCORPORATION,**a Michigan corporation, of 24 Frank Lloyd Wright Drive,Lobby L, 4th Floor, P.O. Box 544, Ann Arbor, Michigan, 48106 (together with itssuccessors, assigns and transferees, “Lender”). This instrument shall becomeeffective on March 31, 1998.

 

PRELIMINARYSTATEMENT

 

This Agreement is made to secure all of the following (individually andcollectively the “Indebtedness”):

 

1.             Payment in the sum of One Million Seven Hundred Thousandand 00/100 Dollars ($1,700,000.00), together with interest, costs and all othersums, to be paid according to those certain Promissory Notes (the “Notes”), byBorrower to Lender, made as of the date of this Agreement by Borrower, togetherwith any and all extensions, renewals, modifications, substitutions orreplacements thereof; and the performance of the covenants and obligations ofBorrower due or to become due to Lender under this Agreement or under any otherdocuments securing payment of all amounts due under the Notes (collectively,the “Loan Documents”), and the repayment of all sums expended by Lender inconnection with performance of those covenants and obligations.

 

2.             If the Notes, this Agreement and the Loan Documents are assignedto Captec Loan Receivables Trust - 1996A (the “Trust”), “Indebtedness” shallalso include the payment of all other sums (together with interest and coststhereon) concurrently or subsequently loaned to Borrower by Captec FinancialGroup, Inc., a Michigan corporation, Captec Financial Group FundingCorporation, a Michigan corporation, or Captec Leasing Company, a Californiacorporation (each an "Originator"), as evidenced and/or secured bycertain notes and other documents of Borrower with respect to such amounts andwhich notes and other documents are assigned to the Trust, together with anyand all extensions, renewals, modifications, substitutions or replacementsthereof; and the performance of the covenants and obligations of Borrower dueor to become due under such notes and other documents assigned to the Trust,and the repayment of all sums expended in connection with performance of thosecovenants and obligations (collectively, the “Trust Obligations”).

 

3.             If the Notes, this Agreement and the Loan Documents arenot assigned to the Trust, “Indebtedness” shall also include the payment of allother sums (together with interest thereon) concurrently or subsequently loanedto Borrower by an Originator, as evidenced and/or secured by certain notes andother documents of Borrower which are not assigned to the Trust, together withany and all extensions, renewals, modifications, substitutions or replacementsthereof; and the performance of the covenants and obligations of Borrower dueor to become due under such notes and other documents, and the repayment of allsums expended in connection with performance of those covenants and obligations(collectively, the “Retained Obligations”).

 

In consideration of theabove facts and the mutual promises of the parties, and as security for thepurposes stated above and elsewhere in this Agreement, the parties agree asfollows:

 

**1.             COLLATERAL.**

 

(a)     **Grant of Security Interest. **Borrower grants Lender a securityinterest in all of Borrower’s Inventory, Equipment, Instruments, Accounts andGeneral Intangibles, each as defined in Section l(b) below, whether now ownedor hereafter acquired, together with all replacements, substitutions, andadditions thereto (the “Collateral”) which are (i) located on the premises of, orare related to the operation of, the Great American

 

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Steak & Buffet Company Restaurants or WesterNSizzliN Restaurant operated by Borrower and located at the addresses set forthin Exhibit A attached hereto (each a “Franchised Operation” and collectivelythe “Franchised Operations”), or (ii) related to the Franchised Operations andlocated at the principal business office of Borrower located at 416 SouthJefferson Street, 4th Floor, Roanoke, Virginia 24012. Also included as part ofthe Collateral are all proceeds and products thereof, including, without limit,insurance proceeds, stock rights, subscription rights, dividends, stockdividends, stock splits or liquidating dividends, and all cash, accounts,chattel paper and general intangibles arising from the sale, rent, lease,casualty loss or other disposition of the Collateral, and including any recordsor documents of title relating to the Collateral.

 

(b)     **Definitions. **For purposes of this Agreement, the following terms shall bedefined as follows:

 

(i)            “Inventory” shall consist of allproperty held at any location by or for Borrower for sale, rent, or lease, orfurnished or to be furnished by Borrower under any contract of service, or rawmaterials or work in process and their products, or materials used or consumedin Borrower’s business.

 

(ii)           “Equipment” shall consist of anygoods at any time acquired, owned or held by Borrower at any location primarilyfor use in Borrower’s business, including, without limit, machinery, fixtures,furniture, furnishings and vehicles, and any accessions, parts, attachments,accessories, tools, dies, additions, substitutions, replacements andappurtenances and their related rights.

 

(Hi)         “Instruments” shall consist ofBorrower’s interest of any kind in any negotiable instrument or security asthose terms are defined in the Tennessee Uniform Commercial Code (“UCC”), orany other writing which evidences a right to payment of money and is of a typewhich is, in the ordinary course of business, transferred by delivery alone orby delivery with any necessary endorsement or assignment.

 

(iv)         “General Intangibles” shall consist ofany personal property (including things in action) other than goods, accounts,chattel paper, documents, instruments and money.

 

(v)          “Accounts” shall consist of any rightto payment for goods sold or leased or for services rendered which is notevidenced by an instrument or chattel paper whether or not it has been earnedby performance.

 

**2.             WARRANTIESAND REPRESENTATIONS. **Borrowerwarrants and covenants to Lender as follows:

 

(a)           **Payment of Indebtedness.   **Borrower will pay the Indebtedness andperform all obligations related to the Indebtedness when due, whether bymaturity, acceleration or otherwise.

 

(b)           **Authority. **This Agreement is the valid and binding obligation of Borrower,enforceable in accordance with its terms.   If Borrower is a corporation, partnership, limited liability company orother organization, Borrower is organized and validly existing and in goodstanding under the laws of its state of establishment, and the execution,delivery and performance of this Agreement has been duly authorized by allnecessary action of Borrower’s board of directors, partners, members orgoverning body, and will not violate Borrower’s governing instruments or otheragreements.

 

(c)           **Name; Address; Location of Collateral. **Borrower’s name and address and thelocation of the Collateral are accurately set forth on the signature page andExhibit A of this Agreement.

 

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(d)           **Title to Collateral.**Borrower has goodand marketable title to the Collateral, free and clear of any liens,encumbrances or security interests whatsoever, other than the security interestgranted by this Agreement and existing liens, encumbrances or securityinterests disclosed to and accepted by Lender in writing. Borrower will keepthe Collateral free of all other liens, encumbrances and security interests.Borrower will defend the Collateral against all claims and demands of allpersons at any time claiming any interest in the Collateral.

 

(e)**           Priority of Security Interest. **The execution and delivery ofthis Agreement creates a valid security interest in the Collateral, and uponthe filing of a UCC-1 financing statement with the Tennessee Secretary ofState, will have a first priority perfected security interest in theCollateral, subject to no other security interest, except as otherwise approvedby Lender in writing.

 

(f)            **Financing Statements.  **Except as disclosed to and accepted byLender in writing, no financing statement covering all or any part of theCollateral is on file in any public office. Borrower will execute financingstatement(s) in form acceptable to Lender and will pay the cost of filingfinancing statement(s) in all public offices wherever filing is deemeddesirable by Lender.   A carbon,photographic or other reproduction of this Agreement shall be sufficient as afinancing statement under the UCC and may be filed by Lender in any filingoffice.  This Agreement shall be terminatedonly by the filing of a termination statement in accordance with the applicableprovisions of the UCC.

 

(g)           **Payment of Taxes.**Borrower shall paywhen due and before any interest, collection fees or penalties accrue, alltaxes, expenses, assessments, liens or other charges which may now or hereafterbe levied or assessed against the Collateral. Borrower shall furnish proof ofpayment upon request of Lender.

 

(h)           **Insurance.**

 

(i)            Borrower shall keep the tangibleCollateral (including, without limit, the Equipment and Inventory) insured forthe benefit of Lender. Borrower covenants and agrees that Borrower will carryand maintain, at its sole cost and expense, the following types of insurance,in the amounts specified: (A) comprehensive general liability insurance withinitial limits of not less than Two Million Dollars ($2,000,000) for death orinjuries to one person and not less than Two Million Dollars ($2,000,000) fordeath or injuries to two or more persons in one occurrence, and not less thanOne Million Dollars ($1,000,000) for damage to property; (B) fire and extendedcoverage insurance on a replacement form with inflation-guard, vandalism andmalicious mischief endorsements; (C) rent loss or business interruptioninsurance covering a period of not less than twelve (12) months; and (D) suchother insurance and in such amounts as may be reasonably required from time totune by Lender. All insurance shall be in forms and with companies satisfactoryto Lender. Borrower shall deliver to Lender the policies evidencing therequired insurance with premiums fully paid, and with loss payee clauses(making all losses payable to Lender). Renewals of the required insurance(together with evidence of premium prepayment for one (1) year in advance)shall be delivered to Lender at least thirty (30) days before the expiration ofany existing policies. All policies and renewals shall provide that they maynot be canceled or amended without giving Lender thirty (30) days prior writtennotice of cancellation or amendment.

 

(ii)           Should Borrower fail to insure orfail to pay the premiums on any required insurance or fail to deliver thepolicies or renewals as provided above, Lender may have the insurance issued orrenewed (and pay the premiums on it for the account of Borrower) in amounts andwith companies and at premiums as Lender deems appropriate. If Lender elects tohave insurance issued or renewed to insure Lender’s interest, Lender shall haveno duty or obligation of any kind to also insure Borrower’s interest or tonotify Borrower of Lender’s actions. Any sums paid by Lender for insurance, asprovided above, shall be a lien upon the Collateral, added to the amountsecured by this Agreement, and payable immediately by Borrower to Lender, withinterest on those sums at the highest rate charged by Lender on any of theIndebtedness (but not to exceed the maximum interest rate permitted by law).

 

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(iii)          In the event of loss or damage, theproceeds of all required insurance shall be paid to Lender. No loss or damageshall itself reduce the Indebtedness. Lender or any of its employees is eachirrevocably appointed attorney-in-fact for Borrower and is authorized to adjustand compromise each loss without the consent of Borrower, to collect, receiveand receipt for the insurance proceeds in the name of Lender and Borrower andto endorse Borrower’s name upon any check in payment of the loss.

 

(iv)         Lender shall apply such proceeds to therepair and replacement of the Collateral subject to the following conditions:

 

(1)                                   thereshall be no Event of Default existing hereunder;

 

(2)                                   plansfor repair and replacement shall be reviewed and approved by Lender, whichapproval shall not be unreasonably withheld or delayed; 

 

(3)                                   repairand replacement of the Collateral to a saleable commodity (as determined byLender) can practicably be completed prior to the Due Date set forth in theNote;

 

(4)                                   Borrowershall have deposited with Lender funds equal to the positive difference, ifany, between the cost of repair, replacement and completion, and the amount ofthe insurance proceeds; and

 

(5)                                   disbursementswill be made by Lender, pursuant to procedures necessary or appropriate toensure that funds are properly applied.

 

Provided that no Event ofDefault exists, if there are insurance proceeds in the amount of Twenty-FiveThousand Dollars ($25,000) or less remaining after the repair and replacementof the Collateral as required hereunder, such proceeds shall be paid toBorrower. Provided that no Event of Default exists, if there are insuranceproceeds in excess of Twenty-Five Thousand Dollars ($25,000) remaining afterthe repair and replacement of the Collateral as required hereunder, suchproceeds shall be applied toward payment of the Indebtedness (or any portionthereof) without premium, whether or not then due or payable, in whatever orderof maturity as Lender may elect. Application of proceeds by Lender toward latermaturing installments of the Indebtedness shall not excuse Borrower from makingthe regularly scheduled installment payments nor shall such application extendor reduce the amount of any of these payments.

 

(v)          Notwithstanding Section 2(h)(iv)above, if a substantial portion (fifty percent [50%] or more) of the Collateralis damaged or destroyed during the last twenty-four (24) months of the term ofthe Note, and an Event of Default then exists hereunder, then either Borroweror Lender may elect not to repair/restore and to apply the insurance proceedstoward payment of the Indebtedness (or any portion thereof) without premium,whether or not then due or payable, in whatever order of maturity as Lender mayelect. Application of proceeds by Lender toward later maturing installments ofthe Indebtedness shall not excuse Borrower from making the regularly scheduledinstallment payments nor shall such application extend or reduce the amount ofany of these payments.

 

(vi)         In the event of a sale of theCollateral, the purchaser of the Collateral shall succeed to all of the rightsof Borrower under the insurance policies including, without limit, any right tounearned premiums and to receive the proceeds.

 

(vii)        Upon the occurrence of an Event ofDefault hereunder, at the option of Lender, Borrower shall pay to Lender, inadvance on the first day of each month, a pro rata portion of the annualpremiums due (as estimated by Lender) on the required insurance. In the eventthat sufficient funds

 

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have been deposited withLender to cover the amount of the insurance premiums when the premiums becomedue and payable, Lender shall pay the premiums. In the event that sufficientfunds have not been deposited with Lender to pay the insurance premiums atleast thirty (30) days prior to the time when they become due and payable,Borrower shall immediately pay the amount of the deficiency to Lender.

 

(i)            **Maintenance of Collateral.**Borrowerwill maintain the Collateral in good condition and repair. Borrower willpromptly inform Lender of any loss or diminution in value of the Collateral.Borrower may modify, compromise or substitute for the Collateral without theprior written consent of Lender provided that any modifications, compromises orsubstitutions have the same or greater value as the original items and that anysuch modifications, compromises or substitutions remain at all times subject tothis Agreement.

 

(j)            **Leased Facilities.**If****the Collateral is located at a facilityleased by Borrower, Borrower will obtain from the lessor a consent to thegranting of a security interest in the Collateral and a subordination of thelessor’s interest in the Collateral. The consent and subordination shall be inform acceptable to Lender.

 

(k)           **Reporting Obligations.**Borrower herebycovenants and agrees to deliver to Lender, or to cause The WesterN SizzliNCorporation (“Guarantor”) to deliver to Lender, the following:

 

(A)  Management prepared and certified consolidatedquarterly financial statements for Guarantor within forty-five (45) days afterthe end of the first three (3) quarters of each fiscal year of Guarantor.

 

(B)   Annual consolidated financial statements forGuarantor audited by an independent certified public accountant within onehundred twenty (120) days after the end of each fiscal year of Guarantor.

 

(C)   Management prepared and certified unit levelprofit and loss statements relating to the operation of the FranchisedOperations within forty-five (45) days after the end of each fiscal year ofBorrower.

 

Such financial statements shall be true and correct inall respects, shall be prepared in accordance with generally acceptedaccounting principles, and shall fairly represent the respective financialconditions of the subjects thereof as of the respective dates thereof. IfBorrower’s financial statements are prepared on a consolidated basis, Borrowerhereby covenants and agrees to prepare financial statements specificallyrelating to the operation of the Franchised Operations. At the request ofLender, Borrower shall obtain the consent of Borrower’s accountant(s) to theinclusion of Borrower’s most recent financial statement in any regulatoryfiling or report to be filed by Lender.

 

(l)            **Management and Licensing Agreement.**Borroweris a franchisee in good standing with The WesterN SizzliN Corporation(“Franchisor”), and is not in default under its Management and Licensingagreement with Franchisor relating to the Franchised Operations (“ManagementAgreement”). Borrower agrees to comply with the terms of the ManagementAgreement and to take all actions necessary or required to keep the ManagementAgreement in full force and effect. Borrower will not encumber its rights underthe Management Agreement, except to Lender. Borrower agrees to promptly provideLender with a copy of any notice of default under the Management Agreement.Further, Borrower agrees to promptly provide Lender with a copy of any noticeto Borrower of the existence of any breach which, with notice or the passage oftime, or both, would entitle Franchisor to terminate the Management Agreement.

 

(m)          **Fixed Charge Coverage Ratio.**Borrowershall maintain a Fixed Charge Coverage Ratio (as hereinafter defined) of notless than 1.2 to 1.0 for Borrower’s business operations generally and not lessthan 1.4 to 1.0 for the Franchised Operations. “Fixed Charge Coverage Ratio”shall mean Borrower’s Operating Cash Flow divided by its Fixed Charges (each asdefined below). The Fixed Charge Coverage Ratios shall be calculated

 

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by Borrower from time to time and dates as determinedby Lender, and Borrower shall submit such information as Lender may require toconfirm and approve Borrower’s calculation of the Fixed Charge Coverage Ratios.

 

(i) “FixedCharges” shall mean the sum of the following items set forth on a pro formabasis separately stated for both Borrower’s business operations generally andfor the Franchised Operations, in each case, for the applicable twelve (12)month operating period:

 

(A)          current portion of long-term debt(defined as the current portion of long-term debt due to mature during the nexttwelve (12) month operating period, as stated in Borrower’s applicablefinancial statement, plus, if not already included therein, the current ofportion of principal payments imputed on all capital leases), *plus*

 

(B)           interest expense (defined as theinterest expense as stated on Borrower’s applicable financial statement, plus,if not already included therein, the interest expense imputed on all capitalleases), *plus*

 

(C)           the current portion of operatingleases (defined as the amount of rent due under operating leases for the nexttwelve (12) month operating period).

 

(ii) “OperatingCash Flow” shall mean the sum or subtraction of the following items separatelystated for both Borrower’s business operations generally and for the FranchisedOperations, in each case, for the applicable prior twelve (12) month operatingperiod:

 

(A)          net income (defined as the net incomestated on Borrower’s applicable financial statement), *plus*

 

(B)           depreciation and amortization (definedas the depreciation and amortization expense as stated on Borrower’s applicablefinancial statement), *plus*

 

(C)           interest expense (as defined above), *plus*

 

(D)          operating lease expense (defined asthe amount of rental expense paid under operating leases, as stated onBorrower’s applicable financial statements), *plus or minus*

 

(E)           non-recurring items (defined as itemswhich, when computing cash flow, should in Lender’s reasonable businessjudgment, be added back to or subtracted from net income to normalize results).

 

**3.             PROHIBITIONON TRANSFER OR MODIFICATION.  **Borrowershall not transfer, sell, assign, lease or modify the Collateral or anyinterest therein, any part thereof, or any substantial portion of Borrower’sother assets or property without the prior written consent of Lender.  Notwithstanding the foregoing, Borrower mayuse Collateral if the same is in the ordinary course of Borrower’s business andon customary terms and at usual prices.

 

**4.             PROHIBITIONON CHANGE OF NAME**,**ORGANIZATIONOR LOCATION. **Borrower shallnot assume a different name, change the location of its principal place ofbusiness, cease conducting business at any location that appears in thisAgreement, merge, consolidate, change or reorganize its organizationalstructure nor change the location of any of the Collateral without, in eachinstance, obtaining the prior written consent of Lender thirty (30) days priorto any such event.

 

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**5.             RIGHTOF SETOFF. **Borrowerhereby grants Lender the right, exercisable if Borrower is in default, to setoff or apply against the Indebtedness any account or deposit with Lender inwhich Borrower has an interest or against any other amounts which may be in thepossession of Lender and to the credit of Borrower.

 

**6.             EXAMINATIONOF RECORDS AND COLLATERAL.**Borrower shall keep full andaccurate records of Borrower’s business, including, without limit, recordsrelated to the Collateral, and such records shall be open to inspection andduplication by Lender at all reasonable times.   Lender may enter upon any property owned by or in the possessionof Borrower to examine and inspect the Collateral during regular businesshours. Borrower shall promptly provide Lender with any information concerningthe Collateral as Lender may request at any time.

 

**7.             REIMBURSEMENTOF EXPENSES**. Borrower shall reimburse Lender for allreasonable costs and expenses, including reasonable attorneys’ fees, incurredby Lender in enforcing the rights of Lender under this Agreement. All costs andexpenses shall be included in the Indebtedness and shall be immediately due andpayable together with interest at the maximum legal rate.  Such costs and expenses shall include,without limitation, costs or expenses incurred by Lender in any bankruptcy,reorganization, insolvency or other similar proceeding.

 

**8.             RIGHTSAND OBLIGATIONS OF LENDER. **Inthe event that Borrower fails to pay taxes, maintain insurance or perform anyother obligation arising under this Agreement, Lender may pay or perform suchobligation(s) for the account of Borrower and the same shall be added to theIndebtedness and shall be immediately due and payable together with interest atthe highest rate charged by Lender on any of the Indebtedness (but not toexceed the maximum rate permitted by law). Lender shall not be liable for anyloss to the Collateral nor shall such loss reduce the balance due.

 

**9.             INDEMNIFICATION.  **Borrower shall indemnifyand save Lender harmless from all claims, obligations, costs, expenses, includingattorneys’ fees, and causes of action or other rights asserted against Lenderand relating to this Agreement and/or the Collateral, except those arising fromthe gross negligence or wilful misconduct of Lender.

 

**10.          EVENTS OF DEFAULT AND REMEDIES.**

 

(a)           **Events of Default. **Any of the following events shall, forpurposes of this Agreement, constitute an “Event of Default”:

 

(i)            Failure by Borrower to pay anyamount owing on or with respect to the Indebtedness when due, whether bymaturity, acceleration or otherwise, which failure continues for five (5)business days.

 

(ii)           Any failure by Borrower or anyguarantor to comply with, or breach by Borrower or any guarantor of, any of thenon-monetary terms, provisions, warranties or covenants of the Notes, this Agreementor the other Loan Documents, which failure continues for fifteen (15) daysafter the date of written notice to Borrower (or any guarantor) from Lender ofsuch default; provided, however, that if: (i) the nature of Borrower’s (or anyguarantor’s) noncompliance is such that more than fifteen (15) days arereasonably required for its cure, (ii) Borrower (or any guarantor) hascommenced such cure within said fifteen (15) day period, (iii) Borrower (or anyguarantor) diligently prosecutes such cure to completion, (iv) Borrower (or anyguarantor) provides Lender with written notice of the noncompliance, AND (v)Borrower (or any guarantor) furnishes reserves or a security bond, in an amountsatisfactory to Lender in its sole discretion, then Borrower (or any guarantor)shall not be in default.

 

(iii)          Institution of remedial proceedings orother exercise of rights and remedies by the holder of any security interest orother lien against the Collateral or any portion thereof; provided, however,

 

7

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if there is a good faith dispute by Borrower (or anyguarantor) as to the validity or reasonableness of the claim which is the basisfor such proceedings, then no Event of Default shall have occurred under thisclause (iii) if Borrower (or any guarantor) provides Lender with written noticeof the proceedings and furnishes reserves or a security bond for theproceedings satisfactory to Lender,

 

(iv)          The insolvency of Borrower or anyguarantor or the admission in writing of Borrower’s or any guarantor’sinability to pay debts as they mature.

 

(v)           Any statement, representation orinformation made or furnished by or on behalf of Borrower or any guarantor toLender in connection with or to induce Lender to provide any of theIndebtedness shall prove to be false or materially misleading when made orfurnished.

 

(vi)          Institution of bankruptcy,reorganization, insolvency or other similar proceedings by or against Borroweror any guarantor, unless, in the case of a petition filed against Borrower, thesame is dismissed within sixty (60) days of filing.

 

(vii)         The issuance or filing of any judgment,attachment, levy, garnishment or the commencement of any related proceeding orthe commencement of any other judicial process upon or in respect to Borroweror any guarantor or the Collateral in which the amount in controversy exceedsOne Hundred Thousand Dollars ($100,000) and is not covered by the insurance ofBorrower (or any guarantor), unless satisfied, or Borrower (or any guarantor)furnishes reserves or a security bond in**anamount satisfactory to Lender in its sole discretion, released or dischargedwithin sixty (60) days after the date of such issuance, filing orcommunication.

 

(viii)        Sale or other disposition by Borrower orany guarantor of any substantial portion of assets or property.

 

(ix)           Death, dissolution, merger,consolidation, termination of existence, insolvency, business failure orassignment for the benefit of creditors of or by Borrower or any guarantor;without the prior written consent of Lender, which consent shall not beunreasonably withheld.

 

(x)            If there is any failure by Borroweror any guarantor to pay any indebtedness (other than to Lender) in excess ofOne Hundred Thousand Dollars ($100,000) (and exclusive of trade debt incurredin the ordinary course of business) when do or in the observance or performanceof any term, covenant or condition in any document evidencing, securing orrelating to such indebtedness, which failure continues beyond any applicable cureperiod.

 

(xi)           Receipt by Borrower of a notice oftermination of the Management Agreement.

 

(xii)          If the Notes, this Agreement and theother Loan Documents have not been assigned to the Trust, the default byBorrower which continues beyond any applicable grace or cure period under theRetained Obligations; provided, however, if the Notes, this Agreement and theother Loan Documents are assigned to the Trust, this clause (xii) shall be ofno force or effect during the term of such assignment.

 

(xiii)         In the event that the Notes, thisAgreement and the other Loan Documents are assigned to the Trust, the defaultby Borrower which continues beyond any applicable grace or cure period underthe Trust Obligations.

 

(b)            **RemediesUpon Event of Default.** Upon the occurrence of any Event ofDefault, Lender shall have the following rights:

 

(i)            Declare all or part of theIndebtedness immediately due and payable.

 

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(ii)          Borrower agrees, upon request ofLender, to assemble the Collateral and make it available to Lender at any placewhich is reasonably convenient for Borrower and Lender. Borrower grants Lenderpermission to enter upon any premises owned or occupied by Borrower for thepurpose of taking possession of the Collateral.

 

(iii)         Lender shall have the right to takepossession of the Collateral, with or without demand, and with or withoutprocess of law. Lender shall have the right to sell and dispose of theCollateral and to distribute the proceeds according to law. In connection withthe right of Lender to take possession of the Collateral, Lender may takepossession of any other items of property in or on the Collateral at the timeof taking possession, and hold them for Borrower without liability on the partof Lender. If there is any statutory requirement for notice, that requirementshall be met if Lender shall send notice to Borrower at least five (5) daysprior to the date of sale, disposition or other event giving rise to therequired notice. Borrower shall be liable for any deficiency remaining afterdisposition of the Collateral.

 

(iv)         Lender shall also have any one or moreof the rights and remedies under the UCC or at law or equity to enforce thepayment of the Indebtedness.

 

(c)            **Remedies Generally.**

 

(i)           All remedies provided for in Section10(b) shall be available to the extent not prohibited by law. Each remedy shallbe cumulative and additional to any other remedy of Lender at law, in equity orby statute. No delay or omission to exercise any right or power accruing uponany default or Event of Default shall impair any such right or power or shallbe construed to be a waiver of, or acquiescence in, any such default or Eventof Default.

 

(ii)          Lender may waive any Event of Defaultand may rescind any declaration of maturity of payments on the Indebtedness. Incase of such waiver or recision Borrower and Lender shall be restored to theirrespective former positions and rights under this Agreement. Any waiver byLender of any default or Event of Default shall be in writing and shall belimited to the particular default waived and shall not be deemed to waive anyother default.

 

(d)            **Application of Proceeds.  **Any proceeds received by Lender fromthe exercise of remedies pursuant to Section 10(b) of this Agreement shall beapplied as follows:

 

(i)           First, to pay all costs and expensesincidental to the leasing, foreclosure, sale or other disposition of theCollateral. These costs and expenses shall include, without limit, any costsand expenses incurred by Lender (including, without limit, reasonableattorneys’ fees and disbursements), and any taxes and assessments or otherliens and encumbrances prior to the lien of this Agreement.

 

(ii)          Second, to all sums expended orincurred by Lender, directly or indirectly in carrying out any term, covenantor agreement under this Agreement or any related document, together withinterest as provided in this Agreement.

 

(iii)         Third, to the payment of theIndebtedness.  If the proceeds areinsufficient to fully pay the Indebtedness, then application shall be madefirst to late charges and interest accrued and unpaid, then to any applicableprepayment premiums, and then to unpaid fees and other charges, then to theoutstanding principal balance.

 

(iv)         Fourth, any surplus remaining shall bepaid to Borrower or to whomsoever may be lawfully entitled.

 

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(e)            **Further Actions.   **Promptly upon the request of Lender, Borrower shallexecute, acknowledge and deliver any and all further documents, securityagreements, financing statements and assurances, and do or cause to be done allfurther acts as Lender may require to confirm and protect the lien of thisAgreement or otherwise to accomplish the purposes of this Agreement.

 

(f)             **Attorneys Fees.  **Any reference in this Agreement toattorneys’ fees shall refer to fees, charges, costs and expenses of in-houseand outside attorneys and paralegals, whether or not a suit or proceeding isinstituted, and whether incurred at the trial court level, on appeal, in abankruptcy, administrative or probate proceeding, in consultation with counsel,or otherwise. All costs, expenses and fees of any nature for which Borrower isobligated to reimburse or indemnify Lender are part of the Indebtedness securedby this Agreement and are payable upon demand, unless expressly providedotherwise, with interest until repaid at the highest rate charged on any of theIndebtedness (but not to exceed the maximum rate permitted by law).

 

**11.          PARTIALRELEASES.**Lender shall from time to time execute and deliverto Borrower, within ten (10) business days after the written request ofBorrower, UCC termination statements with respect to a portion of theCollateral secured hereunder, provided that (a) Borrower shall not be in defaultunder any of the terms, covenants or conditions of any document or instrumentevidencing or securing the Indebtedness; (b) the outstanding principal balanceof the applicable promissory note, together with interest, premiums, costs andall other sums on that amount, shall be paid in full; and (c) all terminationstatements shall be prepared by Lender at Borrower’s expense. The portion ofthe Collateral released under this Section 11 shall be determined by matchingthe Collateral located at or related to a specified Franchised Operation withthe promissory note referencing that Franchised Operation on its face.

 

**12.          MISCELLANEOUS.**

 

(a)           **Governing Law.**This Agreement shall beconstrued according to the laws of the State of Tennessee.

 

(b)           **Successors and Assigns.  **This Agreement shall be binding uponthe successors and assigns of Borrower including, without limit, any debtor inpossession or trustee in bankruptcy for Borrower, and the rights and privilegesof Lender under this Agreement shall inure to the benefit of its successors andassigns. This shall not be deemed a consent by Lender to a conveyance byBorrower of all or any part of the Collateral or of any ownership interest inBorrower.

 

(c)           **Notices.**Notice from one party toanother relating to this Agreement, if required, shall be deemed effective ifmade in writing (including telecommunications) and delivered to the recipient’saddress, telex number or telecopier number set forth by any of the followingmeans: (i) hand delivery, (ii) registered or certified mail, postage prepaid,(iii) express mail or other overnight courier service or (iv) telecopy, telexor other wire transmission with request for assurance of receipt in a mannertypical with respect to communications of that type. Notice made in accordancewith these provisions shall be deemed delivered on receipt if delivered by handor wire transmission, on the third business day after mailing if mailed byregistered or certified mail, or on the next business day after mailing ordeposit with the postal service or an overnight courier service if delivered byexpress mail or overnight courier. Borrower’s telecopier number is (540)345-0831, and Lender’s telecopier number is (743) 994-1376.

 

(d)           **Entire Agreement; Amendments.**ThisAgreement and any agreement to which it refers state all rights and obligationsof the parties and supersede all other agreements (oral or written) withrespect to the security interests granted by this Agreement.   Any amendment of this Agreement shall be inwriting and shall require the signature of Borrower and Lender.

 

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(e)           **Partial Invalidity**.  The invalidity or unenforceability of anyprovision of this Agreement shall not affect the validity or enforceability ofthe remaining provisions of this Agreement.

 

(f)            **Inspections**.  Any inspection, audit, appraisal orexamination by Lender or its agents of the Collateral or of information ordocuments pertaining to the Collateral is for the sole purpose of protectingLender’s interests under this Agreement and is not for the benefit orprotection of Borrower or any third party.

 

(g)           **Joint and Several Liability. **In the event that more than one personor entity executes this Agreement, the obligations of each person or entityshall be joint and several.

 

(h)           **Automatic Reinstatement. **Notwithstanding any prior revocation,termination, surrender or discharge of this Agreement, the effectiveness ofthis Agreement shall automatically continue or be reinstated, as the case maybe, in the event that:

 

(i)            Any payment received or credit givenby Lender in respect of the Indebtedness is determined to be a preference,impermissible setoff, fraudulent conveyance, diversion of trust funds, orotherwise required to be returned to Borrower or any third party under anyapplicable state or federal law, including, without limit, laws pertaining tobankruptcy or insolvency, in which case this Agreement shall be enforceable asif any such payment or credit had not been received or given, whether or notLender relied upon this payment or credit or changed its position as aconsequence of it.

 

(ii)           In the event of continuation orreinstatement of this Agreement, Borrower agrees upon demand by Lender toexecute and deliver to Lender those documents which Lender determines areappropriate to further evidence (in the public records or otherwise) thiscontinuation or reinstatement, although the failure of Borrower to do so shallnot affect in any way the reinstatement or continuation. If Borrower does notexecute and deliver to Lender such documents upon demand, Lender and eachofficer of Lender is irrevocably appointed (which appointment is coupled withan interest) the true and lawful attorney of Borrower (with full power ofsubstitution) to execute and deliver such documents in the name and on behalfof Borrower.

 

**(i)            WAIVEROF JURY TRIAL.  BORROWER AND LENDERACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A CONSTITUTIONAL ONE, BUT THATIT MAY BE WAIVED. EACH PARTY, AFTER CONSULTING (OR HAVING HAD THE OPPORTUNITYTO CONSULT) WITH COUNSEL OF THEIR CHOICE, KNOWINGLY AND VOLUNTARILY, AND FORTHEIR MUTUAL BENEFIT, WAIVES ANY RIGHT TO TRIAL BY JURY IN THE EVENT OFLITIGATION REGARDING THE PERFORMANCE OR ENFORCEMENT OF, OR IN ANY WAY RELATEDTO, THIS AGREEMENT OR THE INDEBTEDNESS.**

 

(j)            **Assignment. **This Agreement is freely assignable, in whole or in part, byLender without notice to or consent of Borrower; provided, however, that Lender(or its assignee) shall provide written notice of such assignment to Borrowerin the event that Lender (or such assignee) desires to designate a new personor entity as payee and/or a new place of payment for the obligations under theNotes.  Lender shall be fully dischargedfrom all responsibility accruing hereunder from and after the effective date ofany such assignment.  Lender’s assigneeshall, to the extent of the assignment, be vested with all the powers andrights of Lender hereunder (including those granted under Section 10 hereof orotherwise with respect to the Collateral), and to the extent of such assignmentthe assignee may fully enforce such rights and powers, and all references toLender shall mean and refer to such assignee. Lender shall retain all rights and powers hereby given not so assigned,transferred and/or delivered.  Borrowerhereby waives all defenses which Borrower may be entitled to assert againstLender’s assignee with respect to liability accruing hereunder prior to theeffective date of any assignment of Lender’s interest herein.  Borrower may not, in whole or in part,directly or indirectly, assign this Agreement or its rights hereunder ordelegate its duties hereunder without, in each instance, the specific priorwritten consent of Lender, which consent may be withheld or delayed in Lender’ssole discretion.

 

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(k)           **Securitization**.  Borrower understands and agrees that Lendermay, from time to time, assign its rights and powers under the Notes, thisAgreement and any other Loan Documents, in whole or in part, in connection witha securitization program.  Borroweragrees to enter into an amendment to the Notes, this Agreement and any otherLoan Documents if such amendments are required by a nationally recognized ratingagency in connection with a securitization program sponsored by Lender and inwhich the Notes, this Agreement and any other Loan Documents are to beincluded; provided that Borrower shall not be obligated to enter into anyamendment which adversely affects Borrower or otherwise adversely alters any ofthe financial terms of the Notes, this Agreement and any other Loan Documents.

[SIGNATURE PAGEFOLLOWS]

 

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EXHIBIT A

 

TO

 

SECURITY AGREEMENT

 

4310 Chapman Hwy.,Knoxville, TN

 

900 Merchants Rd, Knoxville,TN

 

A-1

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Borrower has executedthis Agreement on the day and year first above written.

 

Borrower’s principalplace of business is located in the City of Roanoke, Commonwealth of Virginia.

 

Locations of the Collateral:

 

416 South Jefferson Street, 4th FloorRoanoke, Virginia 24011 and

each of the sites listedon Exhibit A attached hereto.

 

 

 

**BORROWER:**

 
| **THE  WESTERN SIZZLIN STORES, INC.** |
|---------------------------------------|
|                                  |   |
|                                  |   |
| By:                                   | /s/ Victor F. Foti |   |   |
|                                  |   |
| Its:                                  | President |   |
|                                       |  |  |  |  |  |

 

 

Address:

 

P.O. Box 12167

Roanoke, VA 24023-2167

 

Tax I.D. No.54-1787907

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Loan No. 067204310 Chapman Hwy.Knoxville, Tennessee

 

**GUARANTY**

 

THE WESTERN SIZZLINCORPORATION, a Tennessee corporation and THE WESTERN SIZZLIN STORES OF LITTLEROCK, INC., an Arkansas corporation (each a “Guarantor”), as a materialinducement to and in consideration of CAPTEC FINANCIAL GROUP FUNDINGCORPORATION, a Michigan corporation, whose address is 24 Frank Lloyd WrightDrive, Lobby L, Ann Arbor, Michigan 48106 (together with its successors,assigns and transferees, “Lender”), making a loan in the original principalamount of Five Hundred Thousand and 00/100 Dollars ($500,000.00) as evidencedby a Promissory Note, dated March 23, 1998 (“Note”), made by THE WESTERNSIZZLIN STORES, INC., a Virginia corporation (“Borrower”), which Note issecured by the instruments referenced therein (together with the Note, “LoanDocuments”), hereby jointly and severally, unconditionally and irrevocably,personally guarantees to and for the benefit of Lender, and Lender’s successorsand assigns, the full and timely payment and performance of all of theBorrower’s duties, obligations and covenants under the Loan Documents.  This is a guaranty of payment and performanceand not of collection.

 

This Guaranty shall notbe affected by Lender’s failure or delay to enforce any of its rights.

 

Guarantor’s obligationsare independent of Borrower’s obligations. If Borrower defaults under the Loan Documents, Lender can proceedimmediately against Guarantor or Borrower, or both, or Lender can enforceagainst Guarantor or Borrower, or both, any rights that it has under the LoanDocuments or pursuant to applicable laws. If any lien created by the Loan Documents terminates and Lender has anyrights it can enforce against Borrower after termination, Lender can enforcethose rights against Guarantor without giving previous notice to Borrower orGuarantor or without making any demand on either of them.

 

To the extent permittedby law, Guarantor waives the benefit of any statute of limitations affectingGuarantor’s liability under this Guaranty. Guarantor waives the right to require Lender to first or concurrently:(1) proceed against Borrower; (2) proceed against or exhaust any security thatLender holds from Borrower; or (3) pursue any other remedy in Lender’spower.  The liability of Guarantor shallnot be affected or exonerated by any indulgence, compromise, settlement orvariation of terms which may be extended by Lender to Borrower, or agreed uponby Lender or Borrower, and, unless agreed to in writing by Lender, shall not beaffected or exonerated by any assignment by Borrower of its interest in any oneor more of the Loan Documents, nor shall the liability of the Guarantor beaffected or exonerated by the insolvency, bankruptcy (voluntary orinvoluntary), or reorganization of Borrower, nor by the voluntary orinvoluntary liquidation, sale or other disposition of all or substantially allof the assets of Borrower, or by the release of any other Guarantor.  Lender and Borrower, without notice to orconsent by Guarantor, may at any time or times enter into such modifications,extensions, amendments or other covenants of the Loan Documents as they maydeem appropriate, and Guarantor shall not be released nor its liability exoneratedthereby but shall continue to be fully liable for the payment and performanceof all obligations and duties of Borrower under the Loan Documents as somodified, extended or amended.

 

Guarantor further agrees(1) to indemnify and hold harmless Lender from and against any claims, damages,expenses or losses, including to the extent permitted by law, all reasonableattorneys’ fees incurred by counsel of Lender’s choice (whether or notlitigation is commenced), resulting from or arising out of any breach of anyprovision of the Loan Documents by Borrower or by reason of Borrower’s failureto perform any of its obligations thereunder, and (2) to the extent permittedby law, to pay all costs and expenses, including reasonable attorneys’ fees(whether or not litigation is commenced), incurred by Lender in enforcing thisGuaranty.

 

Until all of Borrower’sobligations to Lender have been discharged in full, Guarantor has no right ofsubrogation against Borrower.  Guarantorassumes the responsibility to remain informed of the financial condition ofBorrower and of all other circumstances bearing upon the risk of Borrower’sdefault, which reasonable inquiry

 

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would reveal, and agrees that Lender shall have noduty to advise Guarantor of information known to it regarding such condition orany such circumstances.  Lender shallnot be required to inquire into the powers of Borrower or the officers,employees, partners or agents acting or purporting to act on its behalf, andany indebtedness made or created in reliance upon the professed exercise ofsuch powers shall be guaranteed under this Guaranty.  Each Guarantor hereby represents and warrants to Lender that suchGuarantor has received a copy of each of the Loan Documents, has read or hadthe opportunity to read each of the Loan Documents, and understands the termsof the Loan Documents.  The provisionsin the Loan Documents relating to the execution of additional documents, legalproceedings by Lender against Borrower, severability of the provisions of theLoan Documents, interpretation of the Loan Documents, notices, waivers(including waiver of a jury trial), limitation on right of recovery againstLender, disclaimer of individual liability, and the applicable laws whichgovern the interpretation of the Loan Documents are incorporated herein intheir entirety by this reference and made a part hereof as though set forth infull herein; any reference in those provisions to “Borrower” shall mean eachGuarantor and any reference in those provisions to the “Loan Documents” shallmean this Guaranty.

 

To the extent permittedby law, Guarantor waives its right to enforce any remedies that Borrower nowhas, or later may have, against Lender. Guarantor waives any right toparticipate in any security now or later held by Lender.  Guarantor waives notice of acceptance ofthis Guaranty, and all other notices in connection with this Guaranty or inconnection with the liabilities, obligations and duties guaranteed hereby,including notices to Guarantor of default by the Borrower under the LoanDocuments.  Guarantor hereby waivesdiligence, presentment, demand for performance, notice of nonperformance,protest, notice of protest, notice of dishonor, and notice of acceptance ofthis Guaranty, and waives all notices of the existence, creation, or incurringof new or additional obligations.

 

If there is more than oneGuarantor, the liability of each Guarantor shall be joint and several.  Guarantor’s obligations under this Guarantyshall be binding on Guarantor’s legal representatives, heirs, successors andassigns.

 

If Borrower disposes ofits interest in the property secured by the Loan Documents, “Borrower”, as usedin this Guaranty, shall mean Borrower’s successors or assigns.  Assignment of the Loan Documents by Lender(as permitted by the Loan Documents) shall not affect this Guaranty.  In the event of an assignment of the LoanDocuments by Lender, the term “Lender” as used in this Guaranty shall meanLender’s successors or assigns.

 

Guarantor herebycovenants and agrees to deliver to Lender the following: (a) managementprepared and certified consolidated quarterly financial statements forGuarantor within forty-five (45) days after the end of the first three (3)quarters of each fiscal year of Guarantor, and (b) annual consolidatedfinancial statements for Guarantor audited by an independent certified publicaccountant within one hundred twenty (120) days after the end of each fiscalyear of Guarantor.  Such financialstatements shall be true and correct in all respects, shall be prepared inaccordance with generally accepted accounting principles, and shall fairlyrepresent the respective financial conditions of the subjects thereof as of therespective dates thereof.  At therequest of Lender, Guarantor shall obtain the consent of Guarantor’saccountant(s) to the inclusion of Guarantor’s most recent financial statementin any regulatory filing or report to be filed by Lender.

 

If any one or more of theprovisions of this Guaranty shall be held to be invalid, illegal or unenforceablein any respect, such invalidity, illegality or unenforceability shall notaffect any other provision of this Guaranty, and this Guaranty shall beconstrued as if such invalid, illegal or unenforceable provision had never beencontained herein.

 

This Guaranty shall beconstrued according to the laws of the State of Tennessee.  Guarantor agrees that any dispute which mayarise between Lender and Guarantor with regard to this Guaranty shall beresolved by litigation in state or federal court.  Litigation may be initiated by Lender or its assignee, at itsdiscretion, in the State of the principal place of business of Lender or itsassignee, the State of the principal place of business of Guarantor, or theState where the Collateral (as defined in the Loan Documents) is located.

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**GUARANTOR HEREBY KNOWINGLY ANDIRREVOCABLY WAIVES ANY OBJECTIONS ON THE GROUNDS OF IMPROPER JURISDICTION ORVENUE TO AN ACTION INITIATED AS SET FORTH ABOVE AND AGREES THAT EFFECTIVESERVICE OF PROCESS MAY BE MADE UPON GUARANTOR BY REGISTERED MAIL RETURN RECEIPTREQUESTED.  GUARANTOR WAIVES, TO THEEXTENT PERMITTED BY LAW, TRIAL BY JURY IN ANY ACTION BETWEEN THE PARTIES.**

 

This Guaranty shallbecome effective on March 31, 1998.

 
| **THE  WESTERN SIZZLIN CORPORATION**                  |
|-------------------------------------------------------|
|                                                  |   |
| By:.                                                  | /s/ Victor F. Foti |   |
|                                                  |   |
|                                                  | Its: President |
|                                                  |   |
| **THE  WESTERN SIZZLIN STORES OF LITTLE ROCK, INC .** |
|                                                  |   |
| By:                                                   | /s/ Victor F. Foti |   |
|                                                  |   |
| Its:                                             | President |   |
|                                                       |  |  |  |  |  |

 

3

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Loan No. 067204310 Chapman Hwy.Knoxville, Tennessee

 

**CERTIFICATE OF BORROWER**

 

THE WESTERN SIZZLINSTORES, INC., a Virginia corporation ("Borrower"), for the benefit ofCAPTEC FINANCIAL GROUP FUNDING CORPORATION, a Michigan corporation (togetherwith its successors, assigns and transferees, “Lender”), warrants, represents,covenants and agrees that the following are true and correct as of the datehereof:

 

1.             All warranties and representations of Borrower containedin this Certificate shall survive the execution of this Certificate and anyadvances made in accordance with the Promissory Note executed by Borrower, infavor of Lender, dated even herewith, in the original principal amount of FiveHundred Thousand and 00/100 Dollars ($500,000.00) (the “Note”).

 

2.             Borrower has good, indefeasible and marketable title tothe Collateral (as defined in that certain Security Agreement, dated evenherewith, between Borrower and Lender (the “Security Agreement”)).  Except for the Security Agreement, there areno instruments, matters or agreements, and Borrower is not a party to any instrument,matter or agreement, which will in any way encumber, bind or otherwise affectthe Collateral or Lender.  Borrower hasneither done nor failed to do anything, nor has suffered anything to be done,as a result of which the Collateral or any part thereof has been or will beencumbered or title thereto has been or will be affected in any way and noperson, firm or entity has any present, conditional or contingent rights toacquire all or any portion of the Collateral.

 

3.             Borrower is a corporation duly organized and validlyexisting in good standing under the laws of the Commonwealth of Virginia and isqualified to do business in the State of Tennessee.  The person or persons executing the Note, the Security Agreementand the other Loan Documents (as defined in the Security Agreement) have fullpower and complete authority to execute the Note, the Security Agreement andthe other Loan Documents, and, when executed, the Note, the Security Agreementand the other Loan Documents will be legal, valid and binding obligations ofBorrower, enforceable in accordance with their terms.

 

4.             As of the date hereof, Borrower is not “insolvent”within the meaning of Section 548(a)(2)(B) of the United States BankruptcyCode.

 

5.             Borrower is in the business of owning and operatingGreat American Steak *&*Buffet Company restaurants,including the restaurant operation located at 4310 Chapman Hwy., Knoxville,Tennessee (the “Franchised Operation”). Borrower’s chief executive office is located at 416 South Jefferson Street,Roanoke, Virginia 24012, and the Collateral is located at Borrower’s ChiefExecutive Office and the Franchised Operation.

 

6.             Borrower has furnished to Lender its most recent annualaudited financial statements and most recent management prepared and certifiedquarterly financial statements, which statements were prepared in accordancewith generally accepted accounting principles and are correct and complete andaccurately present the financial condition of Borrower on the dates thereof.  Further, there has been no material adversechange in the business, property or condition of Borrower since the date of themost recent financial statements.

 

7.             Borrower has complied and will continue to comply withall applicable laws, rules, regulations and orders relating to Borrower or anyaspect of Borrower’s business or assets, including, without limit, allenvironmental laws, rules, regulations and orders.  Borrower agrees to indemnify and hold Lender harmless against andfrom all claims, losses and costs resulting from any and all violations byBorrower of any laws, rules, regulations and/or orders.

 

----

 

8.             Borrower has not received any written notice of, and, tothe best knowledge of Borrower, none of Borrower, the Franchised Operation orthe premises where the Franchised Operation is located are in violation of anylaw, municipal ordinance or other governmental requirement of any governmentalauthority.

 

9.             There are no circumstances, state of facts or othermatters which, with the passage of time or the giving of notice, or both, wouldconstitute an Event of Default under the terms of the Note, the SecurityAgreement or the other Loan Documents.

 

10.           Borrower has filed all federal, stateand local income and other tax returns and other reports required to be filedprior to the date of this Certificate and Borrower has paid all taxes,assessments, withholdings and other governmental charges that are due andpayable prior to the date of this Certificate.

 

11.           All taxes and all installments ofassessments and all other charges of any kind imposed or levied by anygovernmental authority against either Borrower or the Collateral which are dueand payable or constitute a lien at or prior to the date of this Certificate,together with all interest and penalties due thereon, have been paid in full.

 

12.           There is now fully paid andenforceable fire, liability and other forms of insurance in such amounts andcovering such risks as are required under the Security Agreement.

 

13.           There are no disputes, litigation orother such proceedings pending or, to the best of Borrower’s knowledge,threatened against or related to Borrower, the Collateral or the FranchisedOperation, nor does Borrower know of any basis for any such action.

 

14.           In consideration of the loanevidenced by the Note and secured, by the Security Agreement and the other LoanDocuments, Borrower agrees to indemnify and hold Lender harmless against allclaims, liabilities, losses, deficiencies and damages as well as reasonableexpenses (including attorney’s fees), interest and penalties related thereto,asserted by any third party against, or incurred by Lender, by reason of orresulting from any breach, inaccuracy, incompleteness or nonfulfillment of thecovenants, representations and/or warranties of Borrower contained in thisCertificate.

 

15.           Commencing May 1, 1998 and on thefirst day of each following month, Lender is authorized to initiate anelectronic funds transfer to pay the monthly installment payment owing underthe loan evidenced by the Note from the account designated below, and toreceive payments from such account. This authorization will remain in effect unless the undersigned requestsa modification that is agreed to by the Financial Institution and Lender;provided, however, that Lender and its successors, assigns and transferees maymodify the place of payment to be made by Borrower without the consent of theFinancial Institution.

 
| Financial  Institution: |   |
|-------------------------|--------|
| Financial  Institution  |   |
| Address:                |   |
| Routing/Transit  #:     |   |
| Account #:              |   |

 

 

[SIGNATURE PAGE FOLLOWS]

 

----

 

This Certificate shallbecome effective on March 31, 1998.

 
|   | **THE  WESTERN SIZZLIN STORES, INC.** |                |
|--------|---------------------------------------|---------------------|
|   |                                  |                |
|   | By                                    | /s/ Victor  F. Foti |   |
|   |                                  |                |
|   | Its                              | President           |   |
|        |                                       |                     |  |  |  |  |

 

3

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[LETTERHEAD OFWESTERN SIZZLIN STORES, INC.]

 
| TO:                               | Martha R. Young, (313) 668-7612                                     |
|-----------------------------------|---------------------------------------------------------------------|
|                              | Fax:   747-7147                                                |
|                              |                                                                |   |
| FROM:                             | Calvin Lilly, (540) 345-3195                                        |
|                              | Fax:   345-0831                                                |
|                              |                                                                |   |
| DATE:                             | Match 24, 1998                                                      |
|                              |                                                                |   |
| RE:                               | Closing Items- Follow-up                                            |
|                              |                                                                |   |
| Information for account drafting: |
|                              |
| Financial Institution:            | Wachovia Bank, N. A.                                                |
|                              |                                                                |   |
| Financial Institution Address:    | 111 Franklin Road  Roanoke, Virginia 24001  Attn:  Kelly Kiser |
|                              |                                                                |
| Routing #:                        | 051000253                                                           |
|                              |                                                                |
| Account #**:**                    | 7911787711  The WesterN SizzliN Stores, Inc.                        |

 

 

[ILLEGIBLE]

----

 

Loan No. 067204310 Chapman Hwy.Knoxville, Tennessee

 

**CERTIFICATE OF GUARANTOR**

 

THE WESTERN SIZZLINSTORES OF LITTLE ROCK, INC., an Arkansas corporation (“Guarantor”), for thebenefit of CAPTEC FINANCIAL GROUP FUNDING CORPORATION, a Michigan corporation(together with its successors, assigns and transferees, “Lender”), warrants,represents, covenants and agrees that the following are true and correct as ofthe date hereof:

 

1.             Guarantor has received a copy of that certain PromissoryNote, dated March 23, 1998 inthe original principal amount of Five Hundred Thousand and 00/100 Dollars($500,000.00) (“Note”) made by THE WESTERN SIZZLIN STORES, INC., a Virginiacorporation (“Borrower”).  Guarantor hasalso received a copy of the instruments securing the Note, as referenced therein(together with the Note, the “Loan Documents”).  The Loan Documents create a lien with respect to certain real andpersonal property located at 4310 Chapman Hwy., Knoxville, Tennessee(“Premises”).

 

2.             Guarantor has had the opportunity to review theCertificate of Borrower, dated even herewith, made by Borrower for the benefitof Lender, and confirms that the warranties and representations set forththerein are true and correct as of the date hereof.

 

3.             Guarantor has full power and authority to enter intothat certain Guaranty executed by Guarantor in favor of Lender, dated as of thedate of this Certificate (“Guaranty”) and to assume and perform all ofGuarantor’s obligations under the Guaranty in accordance with all of the termsand conditions of the Guaranty.  Theexecution and delivery of the Guaranty and the performance by Guarantor ofGuarantor’s obligations under the Guaranty and under all documents contemplatedby the Guaranty require no further action or approval.  The Guaranty and all other documentscontemplated by the Guaranty are fully binding and enforceable obligations ofGuarantor.

 

4.             There are no circumstances, state of facts or othermatters which, with the passage of time or the giving of notice, or both, wouldconstitute an event of default under the terms of the Guaranty, or to the bestof the Guarantor’s knowledge, under the Loan Documents.

 

5.             There are no disputes, litigation or other suchproceedings pending or, to the best of the Guarantor’s knowledge, threatenedagainst or related to the Guarantor, nor does Guarantor know of any basis forany such action.

 

6.             Guarantor has furnished to Lender its most recent annualaudited consolidated financial statements and most recent management preparedand certified quarterly consolidated financial statements, which statementswere prepared in accordance with generally accepted accounting principles andare correct and complete and accurately present the financial condition ofGuarantor on the dates thereof. Further, there has been no material adverse change in the business,property or condition of Guarantor since the date of the most recent financialstatements.

 

7.             In consideration of the loan evidenced by the Note andsecured, in part, by the Loan Documents, the receipt and sufficiency of whichGuarantor acknowledges, and in order to induce Lender to make such loan,Guarantor agrees to indemnify and hold Lender harmless against all claims,liabilities, losses, deficiencies and damages as well as reasonable expenses(including attorney’s fees), interest and penalties related thereto, assertedby any third party against, or incurred by Lender, by reason of or resultingfrom any breach, inaccuracy, incompleteness or nonfulfillment of the covenants,representations and/or warranties of Guarantor contained in this Certificate.

 

----

 

 

 

This Certificate shallbecome effective on March 31, 1998.

 
|   | **THE  WESTERN SIZZLIN STORES OF LITTLE ROCK, INC.** |
|--------|------------------------------------------------------|
|   |                                                 |
|   | By                                                   | /s/ Victor F. Foti |   |
|   |                                                 |
|   | Its                                                  | President |   |   |
|        |                                                      |  |  |  |  |  |  |

 

2

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Loan No. 067204310 Chapman Hwy.Knoxville, Tennessee

 

**CERTIFICATE OF GUARANTOR**

 

THE WESTERN SIZZLINCORPORATION, a Tennessee corporation (“Guarantor”), for the benefit of CAPTECFINANCIAL GROUP FUNDING CORPORATION, a Michigan corporation (together with itssuccessors, assigns and transferees, “Lender”), warrants, represents, covenantsand agrees that the following are true and correct as of the date hereof:

 

1.             Guarantor has received a copy of that certain PromissoryNote, dated March 23, 1998 in the original principal amount of Five HundredThousand and 00/100 Dollars ($500,000.00) (“Note”) made by THE WESTERN SIZZLINSTORES, INC., a Virginia corporation (“Borrower”).  Guarantor has also received a copy of the instruments securingthe Note, as referenced therein (together with the Note, the “Loan Documents”).  The Loan Documents create a lien withrespect to certain real and personal property located at 4310 Chapman Hwy.,Knoxville, Tennessee (“Premises”).

 

2.             Guarantor has had the opportunity to review theCertificate of Borrower, dated even herewith, made by Borrower for the benefitof Lender, and confirms that the warranties and representations set forththerein are true and correct as of the date hereof.

 

3.             Guarantor has full power and authority to enter intothat certain Guaranty executed by Guarantor in favor of Lender, dated as of thedate of this Certificate (“Guaranty”) and to assume and perform all ofGuarantor’s obligations under the Guaranty in accordance with all of the termsand conditions of the Guaranty.  Theexecution and delivery of the Guaranty and the performance by Guarantor ofGuarantor’s obligations under the Guaranty and under all documents contemplatedby the Guaranty require no further action or approval.  The Guaranty and all other documentscontemplated by the Guaranty are fully binding and enforceable obligations ofGuarantor.

 

4.             There are no circumstances, state of facts or othermatters which, with the passage of time or the giving of notice, or both, wouldconstitute an event of default under the terms of the Guaranty, or to the bestof the Guarantor’s knowledge, under the Loan Documents.

 

5.             There are no disputes, litigation or other suchproceedings pending or, to the best of the Guarantor’s knowledge, threatenedagainst or related to the Guarantor or the Premises, nor does Guarantor know ofany basis for any such action, except as disclosed to Lender on Exhibit Ahereto.

 

6.             Guarantor has furnished to Lender its most recent annualaudited consolidated financial statements and most recent management preparedand certified quarterly consolidated financial statements, which statementswere prepared in accordance with generally accepted accounting principles andare correct and complete and accurately present the financial condition ofGuarantor on the dates thereof.  Further,there has been no material adverse change in the business, property orcondition of Guarantor since the date of the most recent financial statements.

 

7.            In consideration of the loanevidenced by the Note and secured, in part, by the Loan Documents, the receiptand sufficiency of which Guarantor acknowledges, and in order to induce Lenderto make such loan, Guarantor agrees to indemnify and hold Lender harmlessagainst all claims, liabilities, losses, deficiencies and damages as well asreasonable expenses (including attorney’s fees), interest and penalties relatedthereto, asserted by any third party against, or incurred by Lender, by reasonof or resulting from any breach, inaccuracy, incompleteness or nonfulfillmentof the covenants, representations and/or warranties of Guarantor contained inthis Certificate.

 

----

 

This Certificate shallbecome effective on March 31, 1998.

 
|   |   | **THE WESTERN SIZZLIN CORPORATION** |
|--------|--------|-------------------------------------|
|   |   |
|   | By     | /s/ Victor F. Foti                  |   |
|   |   |
|   |   | Its                                 | President |   |   |
|        |        |                                     |  |  |  |  |  |  |

 

2

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The WesterN SizzliNCorporationLitagation Proceedings against The WesterN SzzliN CorporationExhibit A, to Certificate of Guarantor

 
| **Name/Caption**                                                                                                                                                                      |   |   |      | **Status**                                   |                                                                                                                                                                                                                                                                                                              |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|-----------|----------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                  |   |   |      |                                         |                                                                                                                                                                                                                                                                                                              |
| David K.  Wachtal, Jr. v. WSC. et al

First Complaint –  Breach of  employment contract;  wrongful termination 

Second Complaint -  Includes officers and directors in the suit |   | $      | 1,319,000 |                                         | Wachtal president until 2/95 claims wrongful  termination: which under his contract would mean two years’ of compensation,  approx. $400,000. The termination was well justified. The suit had included  certain officers and directors whose cases have been dismissed through award  of summary judgement. |   |
|                                                                                                                                                                                  |   |   |      |                                         |                                                                                                                                                                                                                                                                                                              |   |
| Third Complaint - loss  of value of stock  Idemnification for expenses                                                                                                                |   | $      | 8,500,000 |                                         | Summary judgement granted to defendant, case  dismissed; plaintiff has appealed. Discovery not complete.                                                                                                                                                                                                          |   |
|                                                                                                                                                                                  |   |   |      |                                         |                                                                                                                                                                                                                                                                                                              |   |
| Mann v. WSC  Breach of employment                                                                                                                                                     |   | $      | 50,000    |                                         | Mann is now deceased, with very little discovery. We  expect that the suit will be dismissed.                                                                                                                                                                                                                     |   |
|                                                                                                                                                                                  |   |   |      |                                         |                                                                                                                                                                                                                                                                                                              |   |
| Durham Enterprises  v. WSC Denial of  awarding a franchise                                                                                                                            |   | $      | 1,000,000 |                                         | Summary judgment granted to defendant, case  dismissed; plantiff has not appealed.                                                                                                                                                                                                                                |   |
|                                                                                                                                                                                  |   |   |      |                                         |                                                                                                                                                                                                                                                                                                              |   |
| Cruthis v. Elgin  Hamner and WSC  Contaminated tea                                                                                                                                    |   | $      | 4,000     |                                         | Suit primarily against franchise; WSC named as  codefendant; discovery beginning.                                                                                                                                                                                                                                 |   |
|                                                                                                                                                                                  |   |   |      |                                         |                                                                                                                                                                                                                                                                                                              |   |
| Perry v. WSC and  David Wachtal, Jr,                                                                                                                                                  |   |   |      | Discovery is beginning: D & O Insurance. |                                                                                                                                                                                                                                                                                                              |
| Business Interference  between franchisee/seller  and potential buyer - would not allow franchise assumption                                                                          |   | $      | 2,500,000 |                                         |                                                                                                                                                                                                                                                                                                              |   |
|                                                                                                                                                                                  |   |   |      |                                         |                                                                                                                                                                                                                                                                                                              |
| WSC v. Moody /  Fowler                                                                                                                                                                |   |   |      |                                         |                                                                                                                                                                                                                                                                                                              |
| **Counter  claim, In response to WSCs collection suit  for unpaid royalties**                                                                                                         |   | $      | 500,000   |                                         | Discovery beginning                                                                                                                                                                                                                                                                                               |   |

 

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Loan No. 06721

900 Merchants Rd.

Knoxville,Tennessee

 

**PROMISSORYNOTE**

 
| $1,200,000.00 | Date: March 23, 1998 |
|---------------|----------------------|

 

**PROMISE TO PAY.**Forvalue received, **THE WESTERN SIZZLIN STORES, INC.**, a Virginia corporation, (“Borrower”) promises to pay to **CAPTECFINANCIAL GROUP FUNDING CORPORATION**, a Michigan corporation (together with its successors, assignsand transferees, “Lender”), or order, One Million Two Hundred Thousand and00/100 Dollars ($1,200,000.00), or so much of such sum as has been advancedunder this Note, as follows:

 

Interest only from andafter the date on which funds are disbursed by Lender hereunder (“EffectiveDate”) through the last day of the month in which the Effective Date occursshall be due and payable on the first day of the next month following theEffective Date; provided that if the Effective Date occurs after the fifteenth(15th) day of a month, the interest which would accrue, based on the actualnumber of days, through the end of such month shall be due and payable inadvance on the Effective Date. Installments of principal and interest in the amount of SeventeenThousand One Hundred Eighty-Two and 00/100 Dollars ($17,182.00) are due andpayable on the first day of each month (each a “Payment Date”), commencing May1, 1998; until December 1, 2006 (“Due Date”), when the outstanding principalbalance, plus accrued interest, is due and payable (unless the indebtednessevidenced by this Note is accelerated, in which case, the Due Date is the dateof acceleration).  The amortizationperiod for this Note, for purposes of calculating the monthly installments ofprincipal and interest, is one hundred four (104) months.

 

All payments under thisNote shall be made at Lender’s principal office at 24 Frank Lloyd Wright Drive,Lobby L, 4th Floor, P.O. Box 544, Ann Arbor, Michigan 48106-0544, or at suchother address as Lender may designate in writing, or by electronic fundswithdrawal made by Lender upon written authorization therefor from Borrower,which authorization shall not be revocable by Borrower without the consent ofLender.  Payments due and payable on aday on which Lender is not open for business are due on the next succeedingbusiness day.  Payments will be appliedfirst to accrued interest and then to principal.

 

**INTEREST RATE.**Theoutstanding principal balance of this Note will bear interest at a fixed rateequal to nine and eighty-two hundredths percent (9.82%) per annum (the “StatedRate”), until the Due Date (whether by acceleration or otherwise), andthereafter at a rate which is three percent (3%) above the Stated Rate(“Default Rate”).

 

Interest will be computedon the basis of a year consisting of twelve (12) months of thirty (30) dayseach.  In no event, however, shall theinterest rate exceed the maximum rate allowed by law.  Notwithstanding anything to the contrary contained herein, at notime shall the interest payable under this Note be greater than the maximumrate permitted by applicable law (“Legal Rate”).  If any obligation under this Note shall result in Lenderreceiving an amount deemed to be interest under applicable law in excess of theLegal Rate, then the amount which would be excessive interest shall be appliedto the reduction of the principal balance of this Note and not to payment ofinterest.  If such excessive interestexceeds the unpaid principal balance of this Note, the excess shall be refundedto Borrower.

 

----

 

**PREPAYMENT.**Borrower shall not have any right, except as otherwise specifically provided,to prepay the principal balance of this Note until two (2) loan years haveelapsed.  The first “loan year” shallcommence on the date of the closing of the loan evidenced by this Note, andsubsequent loan years shall commence on the anniversaries of such date.  Commencing with the third (3rd) loan yearand if no Event of Default (as hereinafter defined) then exists, Borrower shallhave the right to prepay all, but not merely a portion of, the principalbalance of this Note together with accrued interest thereon on any PaymentDate; provided, however, that Borrower shall provide no less than thirty (30)days prior written notice to Lender of Borrower’s intention to prepay (the “PrepaymentNotice”).  Once given, the PrepaymentNotice may not be withdrawn, and the failure to prepay in accordance with thePrepayment Notice shall constitute an Event of Default.

 

Borrower acknowledges andagrees that Lender is making the loan evidenced by this Note in considerationof the receipt by Lender of all interest and other benefits intended to beconferred by this Note, and if payments of principal are made to Lender priorto the regularly scheduled due date of such payments, for whatever reason(whether voluntarily or involuntarily), Lender will not receive all suchinterest and other benefits and may incur additional costs.  For these reasons, and to induce Lender tomake the loan, Borrower expressly waives any right to prepay this Note except asspecifically provided herein.

 

Lender shall not berequired to accept any tender of prepayment of the principal balance of thisNote at any time when the “Reinvestment Rate” (as hereinafter defined) is lowerthan the Stated Rate, less eighty-five basis points, unless such tender alsoincludes a sum of money (the “Prepayment Premium”) equal to the present value(computed at the Reinvestment Rate) of the difference between a stream ofmonthly payments necessary to amortize the outstanding principal balance ofthis Note at the Stated Rate and a stream of monthly payments necessary toamortize the outstanding principal balance of this Note at the ReinvestmentRate (the “Differential”).  In the eventthe Differential is less than zero, no Prepayment Premium will berequired.  For purposes of this Note,the “Reinvestment Rate” is the yield on a United States Treasury obligation ofa constant maturity rate maturing closest in time but prior to the maturitydate of this Note, as reported in Federal Reserve Statistical Release H.15(519) (or any comparable successor publication) on the fifth (5th) business daypreceding the prepayment date.

 

In addition to thePrepayment Premium, if any, every tender of prepayment of the principal balanceof this Note shall be accompanied by a payment equal to (x) all accrued butunpaid interest and other charges to the date of prepayment and (y) anadministrative fee equal to one half of one percent (0.5%) of the outstandingprincipal balance of this Note; provided, however, that the administrative feeshall not be less than One Thousand and 00/100 Dollars ($1,000.00)(collectively, the “Other Charges”).

 

If the outstandingprincipal balance of this Note is accelerated by reason of an Event of Default,such acceleration shall be deemed to be a prepayment and Borrower shall pay toLender, in addition to all sums due as a result of the acceleration, anyapplicable Prepayment Premium and Other Charges.  In the event of an acceleration of this Note in the first orsecond loan year, Borrower shall be required to pay a Prepayment Premium equalto five percent (5%)**ofthe outstanding principal balance of this Note together with any OtherCharges.  In the event that this Note ispartially prepaid from casualty insurance proceeds (as provided in the SecurityAgreement, defined below), no Prepayment Premium or Other Charges shall be dueand payable with respect to such prepayment, and each monthly installmentthereafter shall be reduced to an amount which will amortize the then unpaidprincipal balance of this Note at the Stated Rate over the then remaining termof this Note.

 

**LATE PAYMENT CHARGE**.In the event that any payment under this Note is not received by Lender withinfifteen (15) days of the date when due, a late charge of five percent (5%) ofthe amount of such payment will be due. Borrower agrees that the late charge is a reasonable estimate of theadministrative costs which Lender will incur in processing the delinquency.  Lender’s acceptance of a late payment and/orof the late payment charge will not waive any default under this Note or affectthe acceleration of this Note (if this Note has been accelerated).

 

2

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**COLLATERAL.**  ThisNote and the other obligations of Borrower to Lender contained in the documentssecuring this Note are secured by and in accordance with the terms of thatcertain Security Agreement, effective March 31,1998, executed by Borrower forthe benefit of Lender (the “Security Agreement”; together with any other documentssecuring payment under this Note, the “Loan Documents”).  All property securing the Indebtedness (asdefined in the Security Agreement) is referred to as the “Collateral”.

 

**DEFAULT. **Any of the following events shall, forpurposes of this Note, constitute an “Event of Default”:

 

(a)           Failure by Borrower to pay any amountowing on or with respect to the Indebtedness when due, whether by maturity,acceleration or otherwise, which failure continues for five (5) business days.

 

(b)           Any failure by Borrower (or anyguarantor of all or any part of the Indebtedness) to comply with any of thenon-monetary terms, provisions, warranties or covenants of this Note, theSecurity Agreement or the other Loan Documents, which failure continues forfifteen (15) days after the date of written notice to Borrower (or anyguarantor) from Lender of such default; provided, however, that if: (i) thenature of Borrower’s (or any guarantor’s) noncompliance is such that more thanfifteen (15) days are reasonably required for its cure, (ii) Borrower (or anyguarantor) has commenced such cure within said fifteen (15) day period, (iii)Borrower (or any guarantor) diligently prosecutes such cure to completion, (iv)Borrower (or any guarantor) provides Lender with written notice of the noncompliance,AND (v) Borrower (or any guarantor) furnishes reserves or a security bond, inan amount satisfactory to Lender in its sole discretion, then Borrower (or anyguarantor) shall not be in default.

 

(c)           Institution of foreclosureproceedings or other exercise of rights and remedies by the holder of anymortgage, deed of trust, security interest or other lien against the Collateral(or any portion thereof); provided, however, if there is a good faith disputeby Borrower (or any guarantor) as to the validity or reasonableness of theclaim which is the basis for such proceedings, then no Event of Default shallhave occurred under this clause (c) if Borrower (or any guarantor) providesLender with written notice of the proceedings and furnishes reserves or asecurity bond for the proceedings satisfactory to Lender.

 

(d)           Insolvency of Borrower (or anyguarantor) or the admission in writing of Borrower’s (or any guarantor’s)inability to pay debts as they mature.

 

(e)           Any statement, representation orinformation made or furnished by or on behalf of Borrower (or any guarantor) toLender in connection with or to induce Lender to provide or advance any of theIndebtedness shall prove to be false or materially misleading when made orfurnished,

 

(f)            Institution of bankruptcy,reorganization, insolvency or other similar proceedings by or against Borrower(or any guarantor), unless, in the case of a petition filed against Borrower(or any guarantor), the same is dismissed within sixty (60) days of the date offiling.

 

(g)           The issuance or filing of anyjudgment, attachment, levy, garnishment or the commencement of any relatedproceedings or the commencement of any other judicial process upon or inrespect to Borrower (or any guarantor) or the Collateral in which the amount incontroversy exceeds One Hundred Thousand Dollars ($100,000) and is not coveredby the insurance of Borrower (or any guarantor), unless satisfied, or Borrower(or any guarantor) furnishes reserves or a security bond in an amountsatisfactory to Lender in its sole discretion, released or discharged withinsixty (60) days after the date of such issuance, filing or commencement.

 

3

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(h)           Sale or other disposition by Borrower(or any guarantor) of any substantial portion of its assets or property.

 

(i)            Death, dissolution, merger,consolidation, termination of existence, insolvency, business failure orassignment for the benefit of creditors of or by Borrower (or any guarantor);without the prior written consent of Lender, which consent shall not beunreasonably withheld.

 

(j)            Any failure by Borrower (or anyguarantor) to pay any indebtedness (other than to Lender) in excess of OneHundred Thousand Dollars ($100,000) (and exclusive of trade debt incurred inthe ordinary course of business) when due, or any failure in the observance orperformance of any term, covenant or condition in any document evidencing,securing or relating to such indebtedness, which failure continues beyond anyapplicable cure period.

 

(k)           Receipt by Borrower of a notice oftermination of the Management and Licensing Agreement from The WesterN SizzliNCorporation, a Tennessee corporation (“Franchisor”), for the Great AmericanSteak & Buffet Company Restaurant located at 900 Merchants Rd., Knoxville,Tennessee 37912 (“Franchised Operation”).

 

(1)           If this Note, the Security Agreementand the other Loan Documents have not been assigned to the Trust (as defined inthe Security Agreement), the default by Borrower which continues beyond anyapplicable grace or cure period under the Retained Obligations (as defined inthe Security Agreement); provided, however, if this Note, the SecurityAgreement and the other Loan Documents are assigned to the Trust, this Clause(1) shall be of no force and effect during the term of such assignment.

 

(m)          In the event that this Note, theSecurity Agreement and the other Loan Documents are assigned to the Trust, thedefault by Borrower which continues beyond any applicable grace or cure periodunder the Trust Obligations (as defined in the Security Agreement).

 

(n)           Any default by Borrower under theLease between Ray Ward, an individual, as landlord, and Borrower, as tenant,dated March 1, 1994 (“Lease”), which default is not cured within any applicablecure period set forth in such Lease.

 

Upon an occurrence of anEvent of Default, Lender shall have the option to declare all or part of theIndebtedness (including this Note) immediately due and payable.  If this Note is not paid at maturity(whether by acceleration or otherwise), Lender shall have all of the rights andremedies provided at law or equity or by agreement, including, without limit,the right to sell or liquidate all or any part of the Collateral.  The remedies of Lender are cumulative andnot exclusive.

 

**EXAMINATIONOF RECORDS.** Borrower shall at all times keep full andaccurate records of its business and of the Collateral, which records shall beopen to inspection and copying by Lender at all reasonable times.

 

**LIABILITYOF SIGNATORIES.** Borrower, and all guarantors andendorsers, and any other party liable for the Indebtedness evidenced by thisNote: (i) severally waive presentment, demand, protest, notice of dishonor,notice of non-payment and notice of acceleration of this Note; and (ii) agreethat no extension or postponement of the time for payment, or waiver, orindulgence or forbearance granted to Borrower (without limit as to number orperiod) or any modification of this Note, or any substitution, or exchange orrelease of all or part of the Collateral, or addition of any party to thisNote, or release or discharge of, or suspension of any rights and remediesagainst any party liable on this Note, shall reduce or affect the obligation ofany other party liable for the payment of this Note.

 

4

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**NON-WAIVER.**  No delay by Lender in the exercise of anyright or remedy shall operate as a waiver. No single or partial exercise by Lender of any right or remedy shallpreclude any future exercise of such right or remedy or the exercise of anyother right or remedy.  No waiver orindulgence by Lender of any default or Event of Default shall be effectiveunless in writing and signed by Lender, nor shall a waiver on one occasion beconstrued as a bar to any right or remedy, or waiver of any default or Event ofDefault on any future occasion.

 

**REIMBURSEMENT OF EXPENSES:**  Borrower shall reimburse Lender for allcosts and expenses, including reasonable attorneys’ fees, incurred by Lender inenforcing the rights of Lender under this Note.  Such costs and expenses shall include, without limitation, costsor expenses incurred by Lender in any bankruptcy, reorganization, insolvency orother similar proceeding.  Any referencein this Note to attorneys’ fees shall mean fees, charges, costs and expenses ofin-house and/or outside counsel and paralegals, whether or not a suit orproceeding is instituted, and whether incurred at the trial court level, onappeal, in a bankruptcy, administrative or probate proceeding, in consultationwith counsel, or otherwise.

 

**WAIVER OF JURY TRIAL.**  **BORROWER ANDLENDER ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A CONSTITUTIONAL ONE, BUTTHAT IT MAY BE WAIVED.  EACH PARTY,AFTER CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OFTHEIR CHOICE, KNOWINGLY AND VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT, WAIVESANY RIGHT TO TRIAL BY JURY IN THE EVENT OF LITIGATION REGARDING THE PERFORMANCEOR ENFORCEMENT OF, OR IN ANY WAY RELATED TO, THIS NOTE OR THE INDEBTEDNESS.**

 

**ASSIGNMENT.**  This Note is freely assignable, in whole orin part, by Lender without prior notice to or consent of Borrower; provided,however, that Lender (or its assignee) shall provide written notice of suchassignment to Borrower in the event that Lender (or such assignee) desires todesignate a new person or entity as payee and/or a new place of payment for theobligations under this Note.  Borrowermay not, in whole or in part, directly or indirectly, assign this Note or itsrights hereunder or delegate its duties hereunder without, in each instance,the specific prior written consent of Lender, which consent may be withheld ordelayed in Lender’s sole discretion. Lender shall be fully discharged from all responsibility accruinghereunder from and after the effective date of any such assignment.  Lender’s assignee shall, to the extent ofthe assignment, be vested with all the powers and rights of Lender hereunder,and to the extent of such assignment the assignee may fully enforce such rightsand powers, and all references to Lender shall mean and refer to suchassignee.  Lender shall retain allrights and powers hereby given not so assigned, transferred and/ordelivered.  Borrower hereby waives alldefenses which Borrower may be entitled to assert against Lender’s assigneewith respect to liability accruing hereunder prior to the effective date of anyassignment of Lender’s interest herein.

 

**SECURITIZATION**.  Borrower understands and agrees that Lendermay, from time to time, assign its rights and powers under this Note, theSecurity Agreement and any other Loan Documents, in whole or in part, inconnection with a securitization program. Borrower agrees to enter into an amendment to this Note, the SecurityAgreement and any other Loan Documents if such amendments are required by anationally recognized rating agency in connection with a securitization programsponsored by Lender and in which this Note, the Security Agreement any otherLoan Documents are to be included; provided that Borrower shall not beobligated to enter into any amendment which adversely affects Borrower orotherwise adversely alters any of the financial terms of this Note, theSecurity Agreement and any other Loan Documents.

 

**MISCELLANEOUS.**  The terms and provisions of this Note shallbe governed by and construed in accordance with the laws of the State ofTennessee.  Lender and Borrower agreethat any dispute which may arise between them with regard to this Note shall beresolved by litigation in state or federal court. Litigation may be initiatedby Lender or its assignee, at its discretion, in the State of the principalplace of business of Lender or its assignee, the State of the principal placeof business of Borrower, or the State where the Collateral is located.  BORROWER HEREBY KNOWINGLY AND IRREVOCABLYWAIVES ANY OBJECTIONS ON THE

 

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**GROUNDS OF IMPROPER JURISDICTION ORVENUE TO AN ACTION INITIATED AS SET****FORTHABOVE AND AGREES THAT EFFECTIVE SERVICE OF PROCESS MAY BE MADE UPON BORROWER BYREGISTERED MAIL RETURN RECEIPT REQUESTED. **The terms and provisions of this Note may only be changed inwriting, executed by Borrower and Lender.

 
| **THE WESTERN SIZZLIN STORES, INC.** |
|--------------------------------------|
|                                 |
| By:                                  | /s/ Victor F. Foti |   |
|                                 |   |
|                                 | Its: |  President |
|                                      |  |  |  |  |

 

Address:

 

P.O. Box 12167Roanoke, VA 24023-2167

 

Tax I.D. No. 54-1787907

 

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without warranty or recourse.
| Pay to the order of                        |            |   |
|--------------------------------------------|-----------------|--------|
|                                       |
| Captec Financial Group Funding Corporation |
| By:                                        | /s/ [ILLEGIBLE] |   |
|                                       |
| Its:                                       |            |   |
|                                            |                 |        |  |  |

 

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Loan No. 06721900 Merchants Rd.Knoxville, Tennessee

 

**COLLATERAL ASSIGNMENT OF LEASE ANDOPTION RIGHTS**

 

THIS COLLATERALASSIGNMENT OF LEASE AND OPTION RIGHTS (“Assignment”) is made as of the 23******day of March, 1998,by **THEWESTERN SIZZLIN STORES, INC.,**a Virginia corporation, whose addressis P. O. Box 12167, Roanoke, VA 24023-2167 (“Assignor”), in favor of **CAPTECFINANCIAL GROUP FUNDING CORPORATION,**a Michigan corporation, whoseaddress is 24 Frank Lloyd Wright Drive, Lobby L, 4th Floor, P.O. Box 544, AnnArbor, Michigan 48106-0544 (“Assignee”). This instrument shall become effective on March 31, 1998.

 

For good and valuableconsideration, the receipt and sufficiency of which is hereby acknowledged,Assignor presently assigns to Assignee all of Assignor’s right, title andinterest in and to its lessee’s interest in that certain lease with **Ray Ward, anindividual,**(“Lessor”) dated as of March 1, 1994, a copy of which isattached hereto as Exhibit A (the “Lease”) respecting the premises commonlyknown as the Great American Steak & Buffet Company Restaurant located at900 Merchants Rd., Knoxville, Tennessee (“Premises”).  This Assignment is for collateral purposes only, and except asspecified herein, Assignee shall have no liability or obligation of any kindwhatsoever arising from or in connection with this Assignment or the Leaseunless Assignee shall take possession of the Premises and assume theobligations of Assignor thereunder.

 

Assignor represents andwarrants to Assignee that it has full power and authority to so assign theLease and its interest therein and that Assignor has not previously, and is notobligated to, assign or transfer any of its interest in the Lease or thePremises.

 

Throughout the term ofthe Lease, Assignor covenants and agrees to exercise all options to extend orrenew the term of the Lease not less than ninety (90) days prior to the lastday upon which any such option may be exercised, but in no event less than six(6) months prior to of the term of the Lease, unless Assignee otherwise agreesin writing.  Assignor shall sendAssignee a copy of the notice of exercise concurrently with Assignor’s exerciseof the option.  Upon the failure ofAssignor to so elect or renew the Lease as aforesaid (and the failure ofAssignee to otherwise agree in writing), Assignee shall have the right, but notthe obligation, to exercise such extension or renewal option on behalf ofAssignor, and Assignor hereby appoints Assignee (or any of its employees) asits attorney-in-fact for the purpose of exercising such extension or renewaloption.

 

If an “Event of Default”occurs under the Promissory Note, dated March 23, 1998, in the originalprincipal amount of One Million Two Hundred Thousand and 00/100 Dollars($1,200,000.00), by Assignor in favor of Assignee (the “Note”) or under anydocuments or instruments securing the Note, Assignee shall have the right andis hereby empowered to take possession of the Premises, expel Assignortherefrom, and, in such event, Assignor shall have no further right, title orinterest in the Lease and shall remain liable to Assignee for all past duerents Assignee shall be required to pay to the Lessor under the Lease toeffectuate this Assignment.

 

Assignor agrees that itwill not suffer or permit any surrender, termination, amendment or modificationof the Lease without the prior written consent of Assignee, which consent shallnot be unreasonably withheld.  At

 

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the request of Assignee,Assignor shall provide Assignee with rent payment or such other informationregarding the Lease as Assignee shall reasonably require.

 

This Assignment shall begoverned by the laws of the State of Tennessee.

 

This Assignment may beexecuted in one or more counterparts, each of which shall constitute anoriginal and all of which together shall constitute one and the sameinstrument.

 

IN WITNESS WHEREOF,Assignor has executed this Assignment as of the day and year noted above.

 
|              |   |                              | **ASSIGNOR:**      |      |
|-------------------|--------|-----------------------------------|--------------------|-----------|
| Witnesses:        |   |                              |
|              |   |                              |
| /s/ [ILLEGIBLE]   |   | **WESTERN  SIZZLIN STORES, INC.** |
|              |   |                              |
|              |   | By:                               | /s/ Victor F. Foti |
| /s/ [ILLEGIBLE]   |   |                              |
|              |   |                              | Its:          | President |   |
|              |   |                              |               |
| STATE OF Virginia | )      |                              |               |
|              | )      |                              |               |
| COUNTY OF Roanoke | )      |                              |               |
|              |   |                              |               |
|                   |        |                                   |                    |           |  |  |  |  |  |

 

 

I, [ILLEGIBLE], a notary public in and for the Stateand County aforesaid, do certify that Victor F. Foti, whose name, as Presidentof The WesterN SizzliN Stores, Inc., is signed to the writing above, bearingdate on the 23rd day of March has acknowledged the same before me in my countyaforesaid.

 

Given under my hand andofficial seal this 23rd day of March.

 

My term of office expireson the 28th day of February 1999.

 
|   | /s/ [ILLEGIBLE]                             |
|--------|---------------------------------------------|
|   | Notary Public 

[Notary Public’s Seal] |

 

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Loan Nos.06717-06723

 

**SECURITY AGREEMENT**

 

THIS SECURITY AGREEMENT(“Agreement”) is made as of the 23 day of March, 1998, by **THE WESTERN SIZZLIN CORPORATION**, aTennessee corporation, of P.O. Box 12167, Roanoke, Virginia 24023-2167(“Guarantor”) in favor of **CAPTEC FINANCIAL****GROUP FUNDING CORPORATION,** aMichigan corporation, of 24 Frank Lloyd Wright Drive, Lobby L, 4th Floor, P.O.Box 544, Ann Arbor, Michigan, 48106 (together with its successors, assigns andtransferees, “Lender”).  This instrumentshall become effective on March 31, 1998.

 

WITNESSETH:

 

This Agreement is made tosecure the payment and performance obligations of Guarantor under those certainGuaranties, effective of even date herewith, made by Guarantor in favor ofLender (“Guaranties”).  The Guarantiessecure the payment and performance obligations of THE WESTERN SIZZLIN STORES,INC., a Virginia corporation and a wholly owned subsidiary of Guarantor(“Borrower”), under those certain loans in the original aggregate principalamount of Six Million Two Hundred Thousand and 00/100 Dollars ($6,200,000.00)evidenced by those certain Promissory Notes, each of even dated herewith(“Notes”), made by Borrower in favor of Lender, which Notes are secured by theinstruments referenced therein (together with the Notes, “Loan Documents”).

 

**1.**                                      **DEFINITIONS**For purposes of this Agreement, the following terms shall be defined asfollows:

 

(a)           **Franchise Agreement(s)** - shall mean thoseagreement(s) by which Guarantor grants an entity(ies) or individual(s), otherthan a Subsidiary, the right to operate a WesterN SizzliN Steak House orWesterN SizzliN Wood Grill Buffet restaurant or to use the WesterN SizzliN orWesterN SizzliN Wood Grill trademarks, trade names or service marks, whichagreements are specified on Schedule 1 attached hereto, as updated and amendedfrom time to time.

 

(b)           **Subsidiary** - with respect to Guarantorshall mean any corporation or other entity in which Guarantor or one of itsSubsidiaries, holds securities or other interests having the power to electiona majority of that corporation’s or entity’s board of directors or similargoverning body, or otherwise having the power to direct the business andpolicies of that corporation or entity.

 

**2.             COLLATERAL.**

 

**Grant of Security Interest**.  Guarantor grants Lender a security interestin all of Guarantor’s franchise fee and franchise royalty fee accountsreceivable now outstanding or hereafter arising owing to Guarantor and to bepaid to Guarantor pursuant to the Franchise Agreement(s) including withoutlimitation, franchise fees, management fees or any other similar fees for theuse of trademarks, trade names, service marks, advertising services, know-how, managementservices, materials, equipment and/or labor (collectively, “Franchise AccountsReceivable”), all general intangibles (as defined in the Uniform CommercialCode relating to the documents or instruments evidencing the obligations toGuarantor for payment of the Franchise Accounts Receivable, and all otherinstruments and documents evidencing the Franchise Agreements now owned orhereafter acquired (collectively, the “Collateral”).  The Collateral shall also include any documents of titleevidencing the aforementioned Collateral. PROVIDED, HOWEVER, that Lender assumes no responsibility of performanceof any of Guarantor’s obligations with reference to any of said Collateral.

 

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**3.             WARRANTIESAND REPRESENTATIONS. **Guarantor warrants and covenants to Lender asfollows:

 

(a)           **Authority**. This Agreement is thevalid and binding obligation of Guarantor, enforceable in accordance with itsterms.  If Guarantor is a corporation,partnership, limited liability company or other organization, Guarantor is organizedand validly existing in good standing under the laws of its state ofestablishment, and the execution, delivery and performance of this Agreementhave been duly authorized by all necessary action of Guarantor’s Board ofDirectors, partners, or governing body and will not violate Guarantor’sgoverning instruments or other agreements.

 

(b)           **Name; Address; Location of Collateral**.Guarantor’s name and principal place of business and the location(s) of theCollateral are accurately set forth on the signature page and on Schedule 1 ofthis Agreement.

 

(c)           **Nature of Collateral**. All of theCollateral is held by Guarantor solely for business purposes, and none of theCollateral constitutes consumer goods. No part of the Collateral consists of equipment used in farmingoperations or farm products or accounts or general intangibles arising from orrelating to the sale of farm products by a farmer.  The Collateral was acquired in the ordinary course of business ofGuarantor.  There are no setoffs,counterclaims, or defenses against the Collateral, except as provided under theterms of the Franchise Agreements.

 

(d)           **Title to Collateral**. Guarantorhas good and marketable title to the Collateral, free and clear of any liens orencumbrances whatsoever, other than Permitted Liens, as hereinafterdefined.  Guarantor will keep theCollateral free of all other liens, encumbrances and security interests.  Guarantor will defend the Collateral againstall claims and demands of all persons at any time claiming any interest in theCollateral.  Guarantor warrants that theFranchise Accounts Receivable are due and owing under the related FranchiseAgreements.

 

(e)           **Perfection and Priority of Security Interest**.The execution and delivery of this Agreement creates a valid security interestin the Collateral, and upon the filing of a UCC-1 financing statement with theSecretary of State of Tennessee and the Virginia State Corporation Commission,Lender will have a second priority perfected security interest in theCollateral, subject only to the security interest of the Permitted Liens.

 

“Permitted Liens” shallmean any mortgage, security interest or other lien or encumbrance that CentralFidelity National Bank (“CFNB”) may now have or subsequently obtain as securityfor the payment of that certain $500,000.00 Revolving Line of Credit granted toGuarantor by CFNB (the “Revolving Line of Credit”) and as evidenced by thatcertain Commercial Note and that certain Security Agreement, both dated May 26,1995, between Guarantor and CFNB. Lender agrees that this Agreement and any mortgage, security interest orother lien (including possessory liens) or encumbrance that it may presentlyhave or subsequently create or acquire as security for the Guaranties is andshall remain subject and subordinate in right of priority to any mortgage,security interest or other lien or encumbrance that CFNB may now have orsubsequently obtain as security for the payment of the Revolving Line ofCredit.  Guarantor agrees to execute anyinstrument or financing statements necessary to evidence the subordinationherein set forth.

 

(f)            **Financing Statements**. Except asdisclosed to and accepted by Lender in writing and subject to any PermittedLiens, no financing statement covering any part of the Collateral is on file inany public office.  Borrower willexecute financing statement(s) in form acceptable to Lender and will pay thecost of filing financing statement(s) in all public offices wherever filing isdeemed desirable by Lender.  A carbon,photographic or other reproduction of this Agreement shall be sufficient as afinancing statement under the UCC and may be filed by Lender in any filingoffice.  This Agreement shall beterminated only by the filing of a termination statement(s) in accordance withthe applicable provisions of the UCC.

 

(g)           **Payment of Taxes**. Guarantorshall pay when due and before any interest, collection fees or penaltiesaccrue, all taxes, expenses, assessments, liens or other charges which may nowor hereafter be levied or assessed against the Collateral, and shall furnishproof of payment of the same upon request by Lender or, in the

 

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alternative, post a bondsatisfactory to Lender under the provisions of the applicable law with respectto any lien or claim of lien filed for record within ten (10) days of the dateof filing of said lien or claim.

 

**4.**             **PROHIBITION ON TRANSFER ORMODIFICATION. **Guarantorshall not transfer, sell, assign or lease or modify the Collateral or anyinterest therein, any part thereof, nor permit any other security interest tobe created therein without the prior written consent of Lender.

 

**5.**             **PROHIBITION ON CHANGE OF NAME**,**ORGANIZATIONOR LOCATION. **Guarantor shallnot conduct Guarantor’s business under any name other than as appears in thisAgreement nor change or reorganize the type of Guarantor’s business entity, norchange the location of any of the Collateral without the prior written consentof Lender, which consent shall not be unreasonably withheld.  Guarantor shall maintain its presentbusiness form and right to do business.

 

**6.**             **RIGHT OF SETOFF. **Guarantor hereby grants to Lenderthe right, exercisable at any time and from time to time, if Guarantor is thenin default, to set off or apply against the Guaranties any account or depositwith Lender of which Guarantor is the or one of the owners or against any otheramounts which may be in the possession of Lender and to the credit ofGuarantor.

 

**7.**             **EXAMINATION OF RECORDS ANDCOLLATERAL. **Guarantor shallat all times keep full and accurate records of its business, includingFranchise Accounts Receivable at Guarantor’s place of business, which recordsshall be open to inspection by Lender during Guarantor’s regular business hours(whether the records are printed or in magnetic, electronic, or machinereadable or other form).  Lender ishereby granted the full right to enter upon any property owned by or in thepossession of Guarantor to examine and inspect the Collateral during Guarantor’sregular business hours.  Guarantorshall, upon reasonable request by Lender, deliver any or all records to a placeof Lender’s choosing.

 

**8.**             **REIMBURSEMENT OF EXPENSES. **Guarantor shall reimburse Lenderfor all expenses, including reasonable attorneys’ fees, incurred by Lender inenforcing the rights of Lender hereunder, including the storage and liquidationof Collateral, and any such expenses shall be included in the amount covered bythe Guaranties and shall be immediately due and payable.  Such expenses shall include, withoutlimitation, any costs or expenses incurred by Lender in any bankruptcy,reorganization, insolvency or other similar proceeding.

 

**9.**             **RIGHTS AND OBLIGATIONS OF LENDER. **In the event Guarantor fails topay taxes or other assessments (and does not post a bond, supply additionalreserves or provide additional security satisfactory to Lender) or fails toperform any other of its obligations hereunder, Lender may (but shall not berequired to) without notice to or consent from Guarantor, pay or perform suchobligations for the account of Guarantor and the same shall be added to theamount of the indebtedness covered by the Guaranties and secured by thisAgreement and shall be immediately due and payable.  Lender shall not be liable for any loss to the Collateral norshall such loss reduce the balance due. Guarantor hereby expressly waives any and all claims or right to partialor complete discharge resulting from Lender’s release of or failure to seekpayment from any other party or failure to realize on any instrument or collateralor to setoff any moneys, or to perfect its lien or realize on any collateralsecurity, notwithstanding Section 3605 of the Uniform Commercial Code.  This shall include, without limitation,extension of time or forbearance of payment or performance, bankruptcy, changein terms of notes, guaranties or other loan document, or waiver by Lender ofany required performance of any condition, or the surrender, release, exchange,dissipation, loss or alteration of any collateral, in whole or in part.

 

**10.**          **INDEMNIFICATION. **Guarantor shall indemnify and save Lender harmless from allclaims, obligations, costs, expenses, including attorneys’ fees, and causes ofaction or other rights asserted against Lender relating to the Collateral.  Any such claim, obligation, cost or expenseshall be an indebtedness of Guarantor covered by the Guaranties, secured bythis Agreement and payable upon demand.

 

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**11.**          **DEFAULT AND REMEDIES.**

 

(a)           **Events of Default**. Any of thefollowing events shall, for purposes of this Agreement, constitute an “Event ofDefault”:

 

(i) Failure by Guarantorto pay any amount owing on or with respect to the indebtedness secured by theGuaranties when due, whether by maturity, acceleration or otherwise, whichfailure continues for five (5) business days.

 

(ii) Any failureby Borrower or Guarantor to comply with, or breach by Borrower or Guarantor of,any of the non-monetary terms, provisions, warranties or covenants of theNote(s), this Agreement or the other Loan Documents, which failure continuesfor fifteen (15) days after the date of written notice to Borrower or Guarantorfrom Lender of such default; provided, however, that if: (i) the nature ofBorrower’s (or Guarantor’s) noncompliance is such that more than fifteen (15)days are reasonably required for its cure, (ii) Borrower (or Guarantor) hascommenced such cure within said fifteen (15) day period, (iii) Borrower (orGuarantor) diligently prosecutes such cure to completion, (iv) Borrower (or Guarantor)provides Lender with written notice of the noncompliance, AND (v) Borrower (orGuarantor) furnishes reserves or a security bond, in an amount satisfactory toLender in its sole discretion, then Borrower (or Guarantor) shall not be indefault.

 

(iii) Institution ofremedial proceedings or other exercise of rights and remedies by the holder ofany security interest or other lien against the Collateral or any portionthereof, except for proceedings with respect to the Permitted Liens; provided,however, if there is a good faith dispute by Borrower or Guarantor as to thevalidity or reasonableness of the claim which is the basis for suchproceedings, then no Event of Default shall have occurred under this Section ifBorrower or Guarantor provides Lender with written notice of the proceedingsand furnishes reserves or a security bond for the proceedings satisfactory toLender.

 

(iv) The insolvency ofBorrower or Guarantor or the admission in writing of Borrower’s or Guarantor’sinability to pay debts as they mature.

 

(v) Any statement,representation or information made or furnished by or on behalf of Borrower orGuarantor to Lender in connection with or to induce Lender to provide any ofthe indebtedness secured by the Guaranties shall prove to be false or materiallymisleading when made or furnished.

 

(vi) Institution ofbankruptcy, reorganization, insolvency or other similar proceedings by oragainst Borrower or Guarantor, unless, in the case of a petition filed againstBorrower or Guarantor, the same is dismissed within sixty (60) days of the dateof filing.

 

(vii) The issuance orfiling of any judgment, attachment, levy, garnishment or the commencement ofany related proceedings or the commencement of any other judicial process uponor in respect to Borrower or Guarantor or the Collateral, except with respectto the Permitted Liens, in which the amount in controversy exceeds One HundredThousand Dollars ($100,000) and is not covered by the insurance of Borrower orGuarantor, unless satisfied, or Borrower (or any guarantor) furnishes reservesor a security bond in an amount satisfactory to Lender in its sole discretion,released or discharged within sixty (60) days after the date of such issuance,filing or commencement.

 

(viii) Sale or otherdisposition by Borrower or Guarantor of any substantial portion of assets orproperty.

 

(ix) Dissolution, merger,consolidation, termination of existence, insolvency, business failure orassignment for the benefit of creditors of or by Borrower or Guarantor; withoutthe prior written consent of Lender, which consent shall not be unreasonablywithheld.

 

(x) Any failure byBorrower or Guarantor to pay any indebtedness (other than to Lender) in excessof One Hundred Thousand Dollars ($100,000) (and exclusive of trade debt incurredin the ordinary course of business) when due, or any failure in the observanceor performance of any term, covenant or condition in any

 

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document evidencing, securing or relating to suchindebtedness, which failure continues beyond any applicable cure period.

 

(b)           **Remedies**. Upon the occurrence ofan Event of Default as defined above, unless the same is waived by Lender inwriting, Lender shall be entitled to the following remedies, all of which shallbe cumulative and not alternative:

 

(i)            **Collectionof Franchise Accounts Receivable.** Guarantor shall continue to collect the Franchise Accounts Receivableuntil Lender notifies Guarantor and the obligors on such Franchise AccountsReceivable, after which time Guarantor shall hold any proceeds collected intrust for Lender and shall not commingle the same and shall turn such proceedsover to the Lender immediately upon receipt thereof.

 

(ii)           Guarantor shall, upon request fromtime to time and at any time by Lender, provide Lender with an updated list ofGuarantor’s Franchise Accounts Receivable, stating the current name and addressof the obligor, the balance due, and any comments pertaining to the status ofthe collection and defenses or counterclaims by such obligors to the extentthat such information is not reflected in the financial statements of Guarantorto be delivered to Lender pursuant to the terms of the Guaranties.

 

(iii)          Lender may, or upon Lender’s request,Guarantor shall notify obligors under such accounts of the existence of thisAgreement and instruct such obligors to make future payments directly to Lenderat any time it chooses to do so only after default by Guarantor.

 

(iv)          Guarantor hereby irrevocablyauthorizes Lender in Guarantor’s name: (a) To demand, receive, sue for and givereceipts as acquittances for any moneys due or to become due on any FranchiseAccounts Receivable (a) with respect to any Collateral, to assent to any or allextensions or postponements of the time of payment thereof or any otherindulgence in connection therewith, to the substitution, exchange or release ofCollateral, to the addition or release of any party primarily or secondarilyliable, to the acceptance of partial payments thereon and the settlement, compromiseor adjustment thereof, all in such manner and at such time or times as Lendershall deem advisable; (b) to make all necessary transfers of all or any part ofthe Collateral in connection with any sale, lease, or other disposition madepursuant hereto: to execute and deliver for value all necessary or appropriatebills of sale, assignment and other instruments in connection with any suchsale, lease, or other disposition, Guarantor hereby ratifies and confirms allthat its said attorney (or any substitute) shall lawfully do hereunder andpursuant hereto; nevertheless, if so requested by Lender or a purchaser orlessee, Guarantor shall ratify and confirm any sale, lease or other dispositionby executing and delivering to Lender or such purchaser or lessee, all properbills of sale, assignments, releases, leases, and other instruments as may bedesignated in any such request. Guarantor understands that Lender has no dutyfor collection or preservation, beyond reasonable care of Guarantor’s FranchiseAccounts Receivable.

 

(v)           **Obtain Possession of Collateral**.  Guarantor agrees, upon request of Lender, toassemble the Collateral and make it available to the Lender at any placereasonably convenient for Guarantor and Lender.  Guarantor grants Lender permission to enter upon any premisesowned or occupied by Guarantor for the purpose of taking possession of theCollateral or any part of it, including any paper covering such Collateral orsuch part thereof as remains in Guarantor’s possession, and any and all proceedsof such Collateral as has been sold, wherever and in whatever form.

 

(vi)          Lender shall have the right to takepossession of the Collateral, with or without demand, and with or withoutprocess of law.  Lender shall have theright to sell and dispose of the Collateral and to distribute the proceedsaccording to law.  If there is anystatutory requirement for notice, that requirement shall be met if Lender shallsend notice to Borrower at least five (5) days prior to the date of sale,disposition or other event giving rise to the required notice.  Borrower shall be liable for any deficiencyremaining after disposition of the Collateral.

 

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(vii)         **Additional Rights and Remedies**.  Lender shall also have, and may exercise inaddition to the above any one or more of the rights and remedies under theUniform Commercial Code or any other law.

 

(c)**           Remedies Generally.**

 

(i)            All remedies provided for in Section10(b) shall be available to the extent not prohibited by law.  Each remedy shall be cumulative andadditional to any other remedy of Lender at law, in equity or by statute.  No delay or omission to exercise any rightor power accruing upon any default or Event of Default shall impair any suchright or power or shall be construed to be a waiver of, or acquiescence in, anysuch default or Event of Default.

 

(ii)           Lender may waive any Event of Defaultand may rescind any declaration of maturity of payments on the Indebtedness. Incase of such waiver or recision Guarantor and Lender shall be restored to theirrespective former positions and rights under this Agreement.  Any waiver by Lender of any default or Eventof Default shall be in writing and shall be limited to the particular defaultwaived and shall not be deemed to waive any other default.

 

(d)           **Application of Proceeds.**  Any proceeds received by Lender from theexercise of remedies pursuant to Section 10(b) of this Agreement shall beapplied as follows:

 

(i)            First, to pay all costs and expensesincidental to the leasing, foreclosure, sale or other disposition of theCollateral.  These costs and expensesshall include, without limit, any costs and expenses incurred by Lender(including, without limit, attorneys’ fees and disbursements), and any taxesand assessments or other liens and encumbrances prior to the lien of thisAgreement.

 

(ii)           Second, to all sums expended orincurred by Lender, directly or indirectly in carrying out any term, covenantor agreement under this Agreement or any related document, together withinterest as provided in this Agreement.

 

(iii)          Third, to the payment of theIndebtedness.  If the proceeds areinsufficient to fully pay the Indebtedness, then application shall be madefirst to late charges and interest accrued and unpaid, then to any applicableprepayment premiums, and then to unpaid fees and other charges, then to theoutstanding principal balance.

 

(iv)          Fourth, any surplus remaining shall bepaid to Guarantor or to whomsoever may be lawfully entitled.

 

(e)           **Further Actions**.  Promptly upon the request of Lender,Guarantor shall execute, acknowledge and deliver any and all further documents,security agreements, financing statements and assurances, and do or cause to bedone all further acts as Lender may require to confirm and protect the lien ofthis Agreement or otherwise to accomplish the purposes of this Agreement.

 

(f)            **Attorneys Fees**.  Any reference in this Agreement to attorneys’fees shall refer to reasonable fees, charges, costs and expenses of in-houseand outside attorneys and paralegals, whether or not a suit or proceeding isinstituted, and whether incurred at the trial court level, on appeal, in abankruptcy, administrative or probate proceeding, in consultation with counsel,or otherwise.  All costs, expenses andfees of any nature for which Guarantor is obligated to reimburse or indemnifyLender are part of the indebtedness covered by the Guaranties and secured bythis Agreement and are payable upon demand, unless expressly providedotherwise, with interest until repaid at the highest rate charged on any of theIndebtedness (but not to exceed the maximum rate permitted by law).

 

6

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12**.****                                 MISCELLANEOUS.**

 

(a)           **Notices**. Any notices, demands orother communications required or contemplated by this Agreement shall be deemedduly given if delivered or mailed, registered mail, return receipt requested,postage fully prepaid, to the addresses of the parties as stated in thisAgreement, or as subsequently directed by the appropriate party in writing, andshall be deemed effective when mailed.

 

(b)           **Non-Waiver**. Failure of Lender toexercise any right hereunder, including the right to declare the balance of theIndebtedness immediately due, shall not constitute a waiver nor preclude theLender from exercising such right at any time. Neither extension of time for payment or any other modification of theterms of the Indebtedness or of this Agreement shall operate to release theliability of Guarantor or permit any delay as to future payments.  Acceptance by Lender of a partial paymentshall not alter the obligation of Guarantor to make the full payment, nor shallacceptance of a late payment constitute Lender’s waiver of prompt payment ofsuch payment or any subsequent payment. No waiver shall be valid unless in writing and signed by an officer ofLender.

 

(c)           **Joint and Several Obligations**.In the event that more than one person or entity executes this Agreement, theobligations of each shall be joint and several.

 

(d)           **Governing Law**.  This Agreement shall be construed accordingto the laws of the State of Tennessee.

 

(e)           **Successors and Assigns**.  This Agreement shall be binding upon thesuccessors and assigns of Guarantor including, without limit, any debtor inpossession or trustee in bankruptcy for Guarantor, and the rights andprivileges of Lender under this Agreement shall inure to the benefit of itssuccessors and assigns.  This shall notbe deemed a consent by Lender to a conveyance by Guarantor of all or any partof the Collateral or of any ownership interest in Guarantor.

 

(f)            **Notices**. Notice from one partyto another relating to this Agreement, if required, shall be deemed effectiveif made in writing (including telecommunications) and delivered to therecipient’s address, telex number or telecopier number set forth by any of thefollowing means:  (1) hand delivery, (2)registered or certified mail, postage prepaid, (3) express mail or otherovernight courier service or (4) telecopy, telex or other wire transmissionwith request for assurance of receipt in a manner typical with respect tocommunications of that type.  Noticemade in accordance with these provisions shall be deemed delivered on receiptif delivered by hand or wire transmission, on the third business day aftermailing if mailed by registered or certified mail, or on the next business dayafter mailing or deposit with the postal service or an overnight courierservice if delivered by express mail or overnight courier.  Guarantor’s telecopier number is (540)345-0831, and Lender’s telecopier number is (313) 994-1376.

 

(g)           **Entire Agreement; Amendments**.  This Agreement and any agreement to which itrefers state all rights and obligations of the parties and supersede all otheragreements (oral or written) with respect to the security interests granted bythis Agreement.  Any amendment of thisAgreement shall be in writing and shall require the signature of Guarantor andLender.

 

(h)           **Partial Invalidity**. Theinvalidity or unenforceability of any provision of this Agreement shall notaffect the validity or enforceability of the remaining provisions of thisAgreement.

 

(i)            **Inspections**. Any inspection,audit, appraisal or examination by Lender or its agents of the Collateral or ofinformation or documents pertaining to the Collateral is for the sole purposeof protecting Lender’s interests under this Agreement and is not for thebenefit or protection of Guarantor or any third party.

 

(j)            **Joint and Several Liability**. Inthe event that more than one person or entity executes this Agreement, the obligationsof each person or entity shall be joint and several.

 

7

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(k)           **Automatic Reinstatement**.  Notwithstanding any prior revocation,termination, surrender or discharge of this Agreement, the effectiveness ofthis Agreement shall automatically continue or be reinstated, as the case maybe, in the event that:

 

(i)            Any payment received or credit givenby Lender in respect of the Indebtedness is determined to be a preference,impermissible setoff, fraudulent conveyance, diversion of trust funds, orotherwise required to be returned to Guarantor or any third party under anyapplicable state or federal law, including, without limit, laws pertaining tobankruptcy or insolvency, in which case this Agreement shall be enforceable asif any such payment or credit had not been received or given, whether or notLender relied upon this payment or credit or changed its position as aconsequence of it.

 

(ii)           In the event of continuation orreinstatement of this Agreement, Guarantor agrees upon demand by Lender toexecute and deliver to Lender those documents which Lender determines areappropriate to further evidence (in the public records or otherwise) thiscontinuation or reinstatement, although the failure of Guarantor to do so shallnot affect in any way the reinstatement or continuation.  If Guarantor does not execute and deliver toLender such documents upon demand, Lender and each officer of Lender isirrevocably appointed (which appointment is coupled with an interest) the trueand lawful attorney of Guarantor (with full power of substitution) to executeand deliver such documents in the name and on behalf of Guarantor.

 

**(1)           WAIVEROF JURY TRIAL.  GUARANTOR AND LENDERACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A CONSTITUTIONAL ONE, BUT THATIT MAY BE WAIVED.  EACH PARTY, AFTERCONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF THEIRCHOICE, KNOWINGLY AND VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT, WAIVES ANYRIGHT TO TRIAL BY JURY IN THE EVENT OF LITIGATION REGARDING THE PERFORMANCE ORENFORCEMENT OF, OR IN ANY WAY RELATED TO, THIS AGREEMENT OR THE INDEBTEDNESS.**

 

(m)          **Assignment.**  This Agreement is freely assignable, in whole or in part, byLender without prior notice to or consent of Guarantor; provided, however, thatLender (or its assignee) shall provide written notice of such assignment toGuarantor in the event that Lender (or such assignee) desires to designate anew person or entity as payee and/or a new place of payment for the obligationsunder the Notes.  Guarantor may not, inwhole or in part, directly or indirectly, assign this Agreement or its rightshereunder or delegate its duties hereunder without, in each instance, thespecific prior written consent of Lender, which consent may be withheld ordelayed in Lender’s sole discretion. Lender shall be fully discharged from all responsibility accruinghereunder from and after the effective date of any such assignment.  Lender’s assignee shall, to the extent ofthe assignment, be vested with all the powers and rights of Lender hereunder(including those granted under Section 10 hereof or otherwise with respect tothe Collateral), and to the extent of such assignment the assignee may fullyenforce such rights and powers, and all references to Lender shall mean andrefer to such assignee.  Lender shallretain all rights and powers hereby given not so assigned, transferred and/ordelivered.  Guarantor hereby waives alldefenses which Guarantor may be entitled to assert against Lender’s assignee withrespect to liability accruing hereunder prior to the effective date of anyassignment of Lender’s interest herein.

 

(n)           **Securitization.**  Guarantor understands and agrees that Lendermay, from time to time, assign its rights and power under the Note(s), thisAgreement and any other Loan Documents, in whole or in part, in connection witha securitization program.  Guarantoragrees to enter into an amendment to the Note(s), this Agreement and any otherLoan Documents if such amendments are required by a nationally recognizedrating agency in connection with a securitization program sponsored by Lenderand in which the Note(s), this Agreement and any other Loan Documents are to beincluded; provided that Guarantor shall not be obligated to enter into any amendmentwhich adversely affects Guarantor or otherwise adversely alters any of thefinancial terms of the Notes, this Agreement and any other Loan Documents.

 

13.           **ENTIREAGREEMENT**.  This Agreementcontains all of the understandings, promises and undertakings of the partieshereto. All prior understandings and agreements or statements, oral or written,are rescinded except as stated herein.

 

8

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Schedule 1

To

Security Agreementbetween The WesterN SizzliN Corporationand Captec Financial Group Funding Corporation

 
| **Title of  Agreement** |   | **Date** |   | **Name of  Franchisee** |   | **Location  of Franchise** |   |
|-------------------------|--------|----------|--------|-------------------------|--------|----------------------------|--------|
|                    |   |     |   |                    |   |                       |   |
|                    |   |     |   |                    |   |                       |   |
|                    |   |     |   |                    |   |                       |   |

 

9

----

 

The WesterN SizzliN Corporation

Schedule 1, To Security Agreement between The WesternSizzliN Corporation and

Captec Financial Group Funding Corporation

 

 
| **Type of Agreement** |   | **Date** |   | **Name of  Franchisee**                 |   | **Store**

**Number** |   | **City**             |   | **State** |   |
|-----------------------|--------|----------|--------|-----------------------------------------|--------|-----------------------|--------|----------------------|--------|-----------|--------|
| Franchise  Agreemt    |   | 1/30/78  |   | Vezertzis, Pat; Hamilton, Paul          |   | 613                   |   | Ft. Payne            |   | Alabama   |   |
| Franchise  Agreemt    |   | 2/9/79   |   | Hill, Jimmy & Harvey                |   | 709                   |   | Opelika              |   | Alabama   |   |
| Franchise  Agreemt    |   | 12/1/83  |   | Stanoll, Ron                            |   | 1060                  |   | Anniston             |   | Alabama   |   |
| Franchise  Agreemt    |   | 10/9/89  |   | Vezertzis, Pat                          |   | 1323                  |   | Rainbow City         |   | Alabama   |   |
| Franchise  Agreemt    |   | 1/12/98  |   | Shockley, Leonard & Martha; Penton  |   | 1325                  |   | Alexander City       |   | Alabama   |   |
| Franchise  Agreemt    |   | 5/15/88  |   | Stanoll, Ron                            |   | 1392                  |   | Oxford               |   | Alabama   |   |
| Franchise  Agreemt    |   | 5/8/89   |   | Schwichtenberg, Richard; Vezertzis, I   |   | 2007                  |   | Scottsboro           |   | Alabama   |   |
| Franchise  Agreemt    |   | 9/11/95  |   | Vezertzis, Pat; Schwichtenberg, Rich    |   | 5021                  |   | Arab                 |   | Alabama   |   |
| Franchise  Agreemt    |   | 6/23/97  |   | Patty, Blyde & Margaret             |   | 8002                  |   | Prescott             |   | Arizona   |   |
| Franchise  Agreemt    |   | 4/22/78  |   | Barzda, Mary                            |   | 330                   |   | Pine Bluff           |   | Arkansas  |   |
| Franchise  Agreemt    |   | 9/18/75  |   | Gardner, Jerry & Vonda              |   | 449                   |   | Fort Smith           |   | Arkansas  |   |
| Franchise  Agreemt    |   | 6/28/77  |   | Christison, W; Hamilton, Dwayne         |   | 600                   |   | Hot Springs          |   | Arkansas  |   |
| Franchise  Agreemt    |   | 10/26/77 |   | Brashear, John                          |   | 568                   |   | Conway               |   | Arkansas  |   |
| Franchise  Agreemt    |   | 6/21/90  |   | Dudley, Gerald                          |   | 754                   |   | Jonesboro            |   | Arkansas  |   |
| Franchise  Agreemt    |   | 11/24/79 |   | Gardner, Jerry & Vonda              |   | 782                   |   | Fort Smith           |   | Arkansas  |   |
| Franchise  Agreemt    |   | 7/10/80  |   | Barzda, Mary                            |   | 819                   |   | Pine Bluff           |   | Arkansas  |   |
| Franchise  Agreemt    |   | 5/18/83  |   | Gardner, Jerry & Vonda              |   | 1000                  |   | Van Buren            |   | Arkansas  |   |
| Franchise Agreemt     |   | 5/9/84   |   | Chambless, Gary; Campbell, P; Vess      |   | 1066                  |   | Hope                 |   | Arkansas  |   |
| Franchise  Agreemt    |   | 6/20/84  |   | Walker, Barbara                         |   | 1114                  |   | Brinkley             |   | Arkansas  |   |
| Franchise  Agreemt    |   | 1/28/85  |   | Bailey, Michael; Howard, Eddie          |   | 1167                  |   | Malvern              |   | Arkansas  |   |
| Franchise  Agreemt    |   | 11/5/85  |   | Edwards, Benny                          |   | 1231                  |   | Clinton              |   | Arkansas  |   |
| Franchise  Agreemt    |   | 1/21/80  |   | Sexton, Jack                            |   | 1240                  |   | Clarksville          |   | Arkansas  |   |
| Franchise  Agreemt    |   | 9/1/89   |   | Bailey, Michael; Howard, Eddie          |   | 1260                  |   | Stuttgart            |   | Arkansas  |   |
| Franchise  Agreemt    |   | 6/23/86  |   | Hamner, III, Elgin                      |   | 1281                  |   | Benton               |   | Arkansas  |   |
| Franchise  Agreemt    |   | 1/23/87  |   | Daugherty, Jack                         |   | 1317                  |   | Magnolia             |   | Arkansas  |   |
| Franchise  Agreemt    |   | 8/25/87  |   | Grissom, Jimmy                          |   | 1354                  |   | Crossett             |   | Arkansas  |   |
| Franchise  Agreemt    |   | 3/1/88   |   | Hamner, III, Elgin                      |   | 1379                  |   | Searcy               |   | Arkansas  |   |
| Franchise  Agreemt    |   | 6/22/87  |   | Bazyk, Mark & Laura                 |   | 1418                  |   | Russellville         |   | Arkansas  |   |
| Franchise  Agreemt    |   | 5/14/89  |   | Hamner, III, Elgin                      |   | 2000                  |   | Arkadelphia          |   | Arkansas  |   |
| Franchise  Agreemt    |   | 12/27/89 |   | Wallace, M A & Vaudine              |   | 2010                  |   | Wynne                |   | Arkansas  |   |
| Franchise  Agreemt    |   | 3/21/94  |   | Clayton, Jack; Sisler, Allan            |   | 5004                  |   | Batesville           |   | Arkansas  |   |
| Franchise  Agreemt    |   | 6/15/94  |   | Bazyk, Mark & Laura                 |   | 5005                  |   | Springdale           |   | Arkansas  |   |
| Franchise  Agreemt    |   | 10/1/94  |   | Hicks, Don & Rick                   |   | 5006                  |   | Nashville            |   | Arkansas  |   |
| Franchise  Agreemt    |   | 1/1/92   |   | Scott, Frank                            |   | 816                   |   | Pueblo               |   | Colorado  |   |
| Franchise  Agreemt    |   | 3/3/86   |   | Cash, Robert; Boswell, Bob; Henley,     |   | 1256                  |   | Evans                |   | Colorado  |   |
| Franchise  Agreemt    |   | 3/5/87   |   | Welch, William                          |   | 1326                  |   | Colorado Springs     |   | Colorado  |   |
| Franchise  Agreemt    |   | 1/16/87  |   | Welch, William; Sims, Loyd              |   | 1329                  |   | Grand Junction       |   | Colorado  |   |
| Franchise  Agreemt    |   | 8/15/94  |   | Lu, Thomas & Alice                  |   | 5001                  |   | Durango              |   | Colorado  |   |
| Franchise  Agreemt    |   | 6/21/77  |   | Williams, Rick; Colborn, Ron            |   | 493                   |   | Mt. Vernon           |   | Illinois  |   |
| Franchise  Agreemt    |   | 5/24/79  |   | Colborn, Ron; James, Rick               |   | 744                   |   | Marion               |   | Illinois  |   |
| Franchise  Agreemt    |   | 9/21/93  |   | McMillin, Bradley                       |   | 1131                  |   | O'Fallon             |   | Illinois  |   |
| Franchise  Agreemt    |   | 6/25/87  |   | Jones, Larry; Pamela; Welch William     |   | 1339                  |   | Bloomington          |   | Indiana   |   |
| Franchise  Agreemt    |   | 8/23/97  |   | Khoury, George                          |   | 778                   |   | Wichita              |   | Kansas    |   |
| Franchise  Agreemt    |   | 4/28/82  |   | Cash, Robert; Reaves, Jimmy             |   | 901                   |   | Harrison             |   | Kansas    |   |
| Franchise  Agreemt    |   | 8/29/83  |   | Cash, Robert; McElroy, Lenord           |   | 1023                  |   | Salina               |   | Kansas    |   |
| Franchise  Agreemt    |   | 10/15/97 |   | Davis, Steven; Debbie Jo                |   | 1087                  |   | Emporia              |   | Kansas    |   |
| Franchise  Agreemt    |   | 6/8/84   |   | Albritton, Dale                         |   | 1102                  |   | Pittsburg            |   | Kansas    |   |
| Franchise  Agreemt    |   | 7/23/84  |   | Cirks, Todd; Dick, Curtis               |   | 1110                  |   | Winfield             |   | Kansas    |   |
| Franchise  Agreemt    |   | 4/18/96  |   | Khoury, George & Therese            |   | 1274                  |   | Augusta              |   | Kansas    |   |
| Franchise  Agreemt    |   | 4/4/91   |   | Cash, Robert; McElroy, Leonard          |   | 5000                  |   | Leavenworth          |   | Kansas    |   |
| Franchise  Agreemt    |   | 8/17/77  |   | Mills, H; Hain, J.; Harris, H A         |   | 523                   |   | Somerset             |   | Kentucky  |   |
| Franchise  Agreemt    |   | 11/23/77 |   | Green, Jerry; Mills, H; Carter, Joe     |   | 682                   |   | Danville             |   | Kentucky  |   |
| Franchise  Agreemt    |   | 12/13/77 |   | Moody, Kenneth                          |   | 590                   |   | Harlan               |   | Kentucky  |   |
| Franchise  Agreemt    |   | 4/17/78  |   | Elkins, Johnny & Patricia           |   | 635                   |   | Goody (Forest Hills) |   | Kentucky  |   |
| Franchise  Agreemt    |   | 7/11/83  |   | Barker, Andrew, [ILLEGIBLE]; Hodges, Ed |   | 1010                  |   | Richmond             |   | Kentucky  |   |
| Franchise  Agreemt    |   | 8/15/95  |   | Kelly, Ted & Sharon                 |   | 1263                  |   | Jamestown            |   | Kentucky  |   |
| Franchise  Agreemt    |   | 6/22/88  |   | Hurst, Larry                            |   | 1401                  |   | Corbin               |   | Kentucky  |   |
| Franchise  Agreemt    |   | 10/3/89  |   | Diez, Doug                              |   | 46                    |   | Baton Rouge          |   | Louisiana |   |
| Franchise  Agreemt    |   | 12/28/81 |   | Case, George & Georgia              |   | 888                   |   | Bogalusa             |   | Louisiana |   |
| Franchise  Agreemt    |   | 1/4/90   |   | Vauleman, Norman & Marcia           |   | 944                   |   | Alexandria           |   | Louisiana |   |
| Franchise  Agreemt    |   | 11/21/84 |   | Albritton, Keith; W L                   |   | 1168                  |   | Monroe               |   | Louisiana |   |
| Franchise  Agreemt    |   | 6/18/85  |   | Parker, Bob                             |   | 1197                  |   | Lake Charles         |   | Louisiana |   |
| Franchise  Agreemt    |   | 3/18/88  |   | Diez, Doug                              |   | 1383                  |   | Thibodeaux           |   | Louisiana |   |
| Franchise  Agreemt    |   | 3/18/88  |   | Diez, Doug                              |   | 1384                  |   | Gonzales             |   | Louisiana |   |

 

 

10

----

 

 
| **Type of Agreement** |   | **Date** |   | **Name of  Franchisee**                  |   | **Store**

**Number** |   | **City**              |   | **State**    |   |
|-----------------------|--------|----------|--------|------------------------------------------|--------|-----------------------|--------|-----------------------|--------|--------------|--------|
| Franchise  Agreemt    |   | 7/1/92   |   | Albritton, Keith; W L                    |   | 2032                  |   | W. Monroe             |   | Louisiana    |   |
| Franchise  Agreemt    |   | 9/18/78  |   | Snyder, Bruce & Larry                |   | 678                   |   | LaVale                |   | Maryland     |   |
| Franchise  Agreemt    |   | 9/1/81   |   | Romsburg, Betty; Pual; Kim               |   | 873                   |   | Hagerstown            |   | Maryland     |   |
| Franchise  Agreemt    |   | 6/10/71  |   | Jackson, Kenneth                         |   | 35                    |   | Jackson               |   | Mississippi  |   |
| Franchise  Agreemt    |   | 8/24/89  |   | Sethi, Dr. S L                           |   | 93                    |   | Jackson               |   | Mississippi  |   |
| Franchise  Agreemt    |   | 12/9/75  |   | Sethi, Dr. S L                           |   | 270                   |   | Greenwood             |   | Mississippi  |   |
| Franchise  Agreemt    |   | 8/24/89  |   | Sethi, Dr. S L                           |   | 463                   |   | Pearl (Flowood)       |   | Mississippi  |   |
| Franchise  Agreemt    |   | 11/7/77  |   | Sethi, Dr. S L, Monica, Rascksha         |   | 588                   |   | Cleveland             |   | Mississippi  |   |
| Franchise  Agreemt    |   | 12/20/79 |   | Hontzas, Thomas; Tattle, A. A.           |   | 792                   |   | Meridian              |   | Mississippi  |   |
| Franchise  Agreemt    |   | 2/22/80  |   | Sethi, Dr. S L; Monica; Jackie's Int'l;  |   | 804                   |   | Waynesboro            |   | Mississippi  |   |
| Franchise  Agreemt    |   | 6/3/82   |   | Sethi, Dr. S L                           |   | 913                   |   | Grenada               |   | Mississippi  |   |
| Franchise  Agreemt    |   | 8/17/82  |   | Albritton, Keith;   W L             |   | 921                   |   | Natchez               |   | Mississippi  |   |
| Franchise  Agreemt    |   | 7/8/96   |   | Hughes, Robert C.                        |   | 969                   |   | Tupelo                |   | Mississippi  |   |
| Franchise  Agreemt    |   | 3/7/83   |   | Sethi, Dr. S L                           |   | 985                   |   | Brookhaven            |   | Mississippi  |   |
| Franchise  Agreemt    |   | 3/20/84  |   | Hontzas, Thomas; Tattis, A A             |   | 1046                  |   | Mages                 |   | Mississippi  |   |
| Franchise  Agreemt    |   | 7/8/84   |   | Sethi, Dr. S L                           |   | 1108                  |   | Senatobia             |   | Mississippi  |   |
| Franchise  Agreemt    |   | 12/6/85  |   | Sethi, Dr. S L                           |   | 1238                  |   | Philadelphia          |   | Mississippi  |   |
| Franchise  Agreemt    |   | 5/1/92   |   | Liberto, Vincent; Mauldin, Joe; King,    |   | 1276                  |   | Laurel                |   | Mississippi  |   |
| Franchise  Agreemt    |   | 11/14/86 |   | Sethi, Dr. S L                           |   | 1306                  |   | Batesville            |   | Mississippi  |   |
| Franchise  Agreemt    |   | 3/26/87  |   | Sethi, Dr. S L                           |   | 1332                  |   | New Albany            |   | Mississippi  |   |
| Franchise  Agreemt    |   | 3/29/88  |   | Evans, Alfred; Worbington, Alfred        |   | 1385                  |   | Clarksdale            |   | Mississippi  |   |
| Franchise  Agreemt    |   | 8/5/88   |   | Sethi, Dr. S L                           |   | 1416                  |   | Booneville            |   | Mississippi  |   |
| Franchise  Agreemt    |   | 11/10/89 |   | Sethi, Dr. S L; Monica; Raksha           |   | 2021                  |   | Amory                 |   | Mississippi  |   |
| Franchise  Agreemt    |   | 6/13/79  |   | Albritton, Larry & Dale              |   | 749                   |   | Joplin                |   | Missouri     |   |
| Franchise  Agreemt    |   | 3/10/96  |   | Siraj, Saleem; Mohamed                   |   | 899                   |   | Branson               |   | Missouri     |   |
| Franchise  Agreemt    |   | 4/10/96  |   | Siraj, Saleem; Mohamed                   |   | 1078                  |   | Branson               |   | Missouri     |   |
| Franchise  Agreemt    |   | 6/15/84  |   | Cobb, Doug; Scholfield, Robert; Don      |   | 1124                  |   | Springfield           |   | Missouri     |   |
| Franchise  Agreemt    |   | 7/1/96   |   | Lai, Wu Shih; Lee Y                      |   | 1128                  |   | Lebanon               |   | Missouri     |   |
| Franchise  Agreemt    |   | 3/8/87   |   | Johnson, Kimmie & Ray                |   | 1327                  |   | Monett                |   | Missouri     |   |
| Franchise  Agreemt    |   | 6/24/87  |   | Ackman, David; Sakarelos, Nick           |   | 1338                  |   | Jackson (Cape Girard) |   | Missouri     |   |
| Franchise  Agreemt    |   | 6/25/84  |   | Siraj, Saleem                            |   | 5008                  |   | Grandview             |   | Missouri     |   |
| Franchise  Agreemt    |   | 2/12/96  |   | Dudley, Gerald; Dudley, Beauton          |   | 5022                  |   | Popular Bluff         |   | Missouri     |   |
| Franchise  Agreemt    |   | 5/1/94   |   | O'Sullivan, Tom & Mary               |   | 472                   |   | Alamorgordo           |   | New Mexico   |   |
| Franchise  Agreemt    |   | 7/23/87  |   | Dobry, Mary                              |   | 1345                  |   | Hobbs                 |   | New Mexico   |   |
| Franchise  Agreemt    |   | 3/3/95   |   | Zvonar, David; Velasquez, Doris          |   | 2030                  |   | Tucumcari             |   | New Mexico   |   |
| Franchise  Agreemt    |   | 1/12/98  |   | Lu, Thomas & Alice                   |   | 5033                  |   | Farmington            |   | New Mexico   |   |
| Franchise  Agreemt    |   | 3/13/78  |   | Albrittain D; Hill W; Collins B, L; Loga |   | 618                   |   | Lima                  |   | Ohio         |   |
| Franchise  Agreemt    |   | 7/14/73  |   | Mott, Dennis B., Jr., & Hazel        |   | 113                   |   | Tulsa                 |   | Oklahoma     |   |
| Franchise  Agreemt    |   | 9/12/74  |   | McNear, Mack                             |   | 163                   |   | Oklahoma City         |   | Oklahoma     |   |
| Franchise  Agreemt    |   | 10/19/76 |   | McNear, Mack                             |   | 397                   |   | Oklahoma City         |   | Oklahoma     |   |
| Franchise  Agreemt    |   | 12/10/76 |   | McNear, Mack                             |   | 417                   |   | Edmond                |   | Oklahoma     |   |
| Franchise  Agreemt    |   | 6/17/77  |   | McNear, Mack                             |   | 494                   |   | Oklahoma City         |   | Oklahoma     |   |
| Franchise  Agreemt    |   | 6/28/77  |   | Harris, S; Albritton; Hamilton; Harden   |   | 499                   |   | Enid                  |   | Oklahoma     |   |
| Franchise  Agreemt    |   | 4/18/96  |   | Shaw, II, Sidney                         |   | 517                   |   | Stillwater            |   | Oklahoma     |   |
| Franchise  Agreemt    |   | 8/29/77  |   | Albritton, Dale; Morrow, Jeff, David     |   | 522                   |   | Muskogee              |   | Oklahoma     |   |
| Franchise  Agreemt    |   | 6/17/77  |   | McNear, Mack                             |   | 526                   |   | Midwest City          |   | Oklahoma     |   |
| Franchise  Agreemt    |   | 9/3/77   |   | McNear, Mack                             |   | 527                   |   | Oklahoma City         |   | Oklahoma     |   |
| Franchise  Agreemt    |   | 2/6/78   |   | Mott, Jr, Dennis & Hazel             |   | 606                   |   | Sand Springs          |   | Oklahoma     |   |
| Franchise  Agreemt    |   | 8/16/78  |   | McNear, Mack                             |   | 664                   |   | Moore                 |   | Oklahoma     |   |
| Franchise  Agreemt    |   | 12/21/81 |   | Gardner, Jim                             |   | 886                   |   | McAlester             |   | Oklahoma     |   |
| Franchise  Agreemt    |   | 7/12/82  |   | Sudderth, Sam & Randy Dale           |   | 917                   |   | Shawnee               |   | Oklahoma     |   |
| Franchise  Agreemt    |   | 9/13/82  |   | McNear, Mack; Coursey, Bill              |   | 932                   |   | Chickasha             |   | Oklahoma     |   |
| Franchise  Agreemt    |   | 9/27/82  |   | Jobes, Rick; Morrow, David & Jeff    |   | 937                   |   | Sallisaw              |   | Oklahoma     |   |
| Franchise  Agreemt    |   | 1/26/96  |   | Rifal, Mike; Alishammat, M A             |   | 940                   |   | Broken Arrow          |   | Oklahoma     |   |
| Franchise  Agreemt    |   | 4/18/96  |   | Shaw, II, Sidney                         |   | 995                   |   | Ponoa City            |   | Oklahoma     |   |
| Franchise  Agreemt    |   | 8/15/94  |   | Ray, Forrest                             |   | 1030                  |   | Elk City              |   | Oklahoma     |   |
| Franchise  Agreemt    |   | 6/19/85  |   | McNear, Mack                             |   | 1200                  |   | Del City              |   | Oklahoma     |   |
| Franchise  Agreemt    |   | 4/29/83  |   | Caufield, Dennis & Karen             |   | 1397                  |   | Bartlesville          |   | Oklahoma     |   |
| Franchise  Agreemt    |   | 11/1/92  |   | Wiss, Connie & Don                   |   | 2034                  |   | Poteau                |   | Oklahoma     |   |
| Franchise  Agreemt    |   | 10/1/94  |   | Ray, Forrest                             |   | 5013                  |   | Altus                 |   | Oklahoma     |   |
| Franchise  Agreemt    |   | 9/22/97  |   | Sudderth, Randy & Sam                |   | 5036                  |   | Seminole              |   | Oklahoma     |   |
| Franchise  Agreemt    |   | 6/2/77   |   | Bratio, Dusan; Wolf, Jan; Thakrar, A.    |   | 486                   |   | Carlisle              |   | Pennsylvania |   |
| Franchise  Agreemt    |   | 7/31/84  |   | Sickle, David; Yodock, Lee Jr.           |   | 1116                  |   | Bloomsburg            |   | Pennsylvania |   |
| Franchise  Agreemt    |   | 8/18/87  |   | Bratio, Dusan                            |   | 1352                  |   | Harrisburg            |   | Pennsylvania |   |

 

 

11

----

 

 
| **Type of Agreement** |   | **Date** |   | **Name of  Franchisee**                     |   | **Store**

**Number** |   | **City**        |   | **State**     |   |
|-----------------------|--------|----------|--------|---------------------------------------------|--------|-----------------------|--------|-----------------|--------|---------------|--------|
| Franchise  Agreemt    |   | 6/5/74   |   | Miller, Aline; Hugh, Ellis, Sharon M.       |   | 157                   |   | Memphis         |   | Tennessee     |   |
| Franchise  Agreemt    |   | 9/20/75  |   | Scudder, A; Quinton, W.; Winget, R.         |   | 235                   |   | Columbia        |   | Tennessee     |   |
| Franchise  Agreemt    |   | 1/31/77  |   | Milhorne, D.; Wells J & MT; Jones, Cl   |   | 431                   |   | Jackson         |   | Tennessee     |   |
| Franchise  Agreemt    |   | 12/20/77 |   | Burris, Sr., David, Michelle; Pirkle, J.    |   | 589                   |   | Athens          |   | Tennessee     |   |
| Franchise  Agreemt    |   | 12/28/78 |   | Bible, John; Harris HA; Macon W; Git        |   | 697                   |   | East Morristown |   | Tennessee     |   |
| Franchise  Agreemt    |   | 7/1/93   |   | Stanfill, Jerry; Carter, J. P; Grics M.     |   | 1268                  |   | Lexington       |   | Tennessee     |   |
| Franchise Agreemt     |   | 8/1/96   |   | Vezertzis, Pat                              |   | 1319                  |   | Tullahoma       |   | Tennessee     |   |
| Franchise  Agreemt    |   | 9/1/90   |   | Burris, Jr. & Sr., David; Vezertzis Pat |   | 1409                  |   | Jasper          |   | Tennessee     |   |
| Franchise  Agreemt    |   | 4/26/93  |   | Burris, Sr., David & Michelle           |   | 2035                  |   | Dayton          |   | Tennessee     |   |
| Franchise  Agreemt    |   | 10/1/93  |   | Hurst, Larry; Lois                          |   | 2037                  |   | Knoxville       |   | Tennessee     |   |
| Franchise  Agreemt    |   | 7/10/97  |   | Vezertzis, Pat                              |   | 5035                  |   | Dickson         |   | Tennessee     |   |
| Franchise  Agreemt    |   | 4/12/76  |   | Brown, Floyd                                |   | 322                   |   | Midland         |   | Texas         |   |
| Franchise  Agreemt    |   | 4/12/76  |   | Brown, Floyd                                |   | 323                   |   | Odessa          |   | Texas         |   |
| Franchise  Agreemt    |   | 5/1/96   |   | Mills, Joe, Catherine; Robertson, B.        |   | 324                   |   | Abilene         |   | Texas         |   |
| Franchise  Agreemt    |   | 6/13/81  |   | Branstetter, Neal; Morrow, David            |   | 569                   |   | Amarillo        |   | Texas         |   |
| Franchise  Agreemt    |   | 10/14/85 |   | Dale, Timothy; Sorrells, W L; D S; J I      |   | 1170                  |   | Mt. Pleasant    |   | Texas         |   |
| Franchise  Agreemt    |   | 4/1/85   |   | Hicks, Don                                  |   | 1194                  |   | Texarkana       |   | Texas         |   |
| Franchise  Agreemt    |   | 7/18/86  |   | Mc Gee, Robert                              |   | 1258                  |   | Denton          |   | Texas         |   |
| Franchise  Agreemt    |   | 1/1/92   |   | Corse, Earl & Carolyn                   |   | 2031                  |   | Dumas           |   | Texas         |   |
| Franchise  Agreemt    |   | 6/12/95  |   | Ray, Forrest                                |   | 5019                  |   | Lubbock         |   | Texas         |   |
| Franchise  Agreemt    |   | 12/15/96 |   | Broyles, Kelly                              |   | 5028                  |   | Sulphur Springs |   | Texas         |   |
| Franchise  Agreemt    |   | 12/23/96 |   | Dodd, Jerry                                 |   | 5031                  |   | Decatur         |   | Texas         |   |
| Franchise Agreemt     |   | 9/27/94  |   | Christy, Frank                              |   | 167                   |   | Parkersburg     |   | West Virginia |   |
| Franchise  Agreemt    |   | 3/1/91   |   | Wilson, Janet & Ronald                  |   | 991                   |   | Weston          |   | West Virginia |   |
| Franchise  Agreemt    |   | 6/7/83   |   | Malcolm, Richard; Robinson, Patricia        |   | 1001                  |   | Westover        |   | West Virginia |   |
| Franchise  Agreemt    |   | 1/24/95  |   | Wingo, John; Mariane; Willie III            |   | 1270                  |   | Lewisburg       |   | West Virginia |   |

 

 

12

----

 

14.           **GOVERNINGLAW**. This Agreement shall be construed according to the laws of theState of Tennessee.

 

(a)           Except as otherwise provided, allother terms used herein shall have the meanings assigned to them in Article 9(or, absent definition in Article 9, in any other Article) of the UniformCommercial Code.

 

IN WITNESS WHEREOF theGuarantor has executed this Agreement on the day and year first above written.

 

Guarantor’s principalplace of business is located in the City of Roanoke, Commonwealth of Virginia.

 

 
| **Location(s) of the Collateral**                                                                                    | **GUARANTOR:**                      |
|----------------------------------------------------------------------------------------------------------------------|-------------------------------------|
|                                                                                                                 |                                |
| 416 South Jefferson Street, 4th Floor  Roanoke, Virginia 24012 and

each of the sites listed on 

Schedule 1 hereto. | **THE WESTERN SIZZLEN CORPORATION** |
| By:                                                                                                                  | /s/ Victor F. Foti                  |
|                                                                                                                 |                                |
|                                                                                                                 | Its:                           | President |   |
|                                                                                                                      |                                     |  |  |  |  |

 

**Guarantor’s Address**:

 

P.O. Box 12167

Roanoke, Virginia 24023-2167

 

**Guarantor’sTax Identification Number:**54-1684114

 

13

----

 

Loan No. 06721900 Merchants Rd.Knoxville, Tennessee

 

**GUARANTY**

 

THE WESTERN SIZZLINCORPORATION, a Tennessee corporation and THE WESTERN SIZZLIN STORES OF LITTLEROCK, INC., an Arkansas corporation (each a “Guarantor”), as a materialinducement to and in consideration of CAPTEC FINANCIAL GROUP FUNDINGCORPORATION, a Michigan corporation, whose address is 24 Frank Lloyd WrightDrive, Lobby L, Ann Arbor, Michigan 48106 (together with its successors,assigns and transferees, “Lender”), making a loan in the original principalamount of One Million Two Hundred Thousand and 00/100 Dollars ($1,200,000.00)as evidenced by a Promissory Note, dated March 23, 1998 (“Note”), made by THEWESTERN SIZZLIN STORES, INC., a Virginia corporation (“Borrower”), which Noteis secured by the instruments referenced therein (together with the Note, “LoanDocuments”), hereby jointly and severally, unconditionally and irrevocably,personally guarantees to and for the benefit of Lender, and Lender’s successorsand assigns, the full and timely payment and performance of all of theBorrower’s duties, obligations and covenants under the Loan Documents. This isa guaranty of payment and performance and not of collection.

 

This Guaranty shall notbe affected by Lender’s failure or delay to enforce any of its rights.

 

Guarantor’s obligationsare independent of Borrower’s obligations. If Borrower defaults under the Loan Documents, Lender can proceedimmediately against Guarantor or Borrower, or both, or Lender can enforceagainst Guarantor or Borrower, or both, any rights that it has under the LoanDocuments or pursuant to applicable laws. If any lien created by the Loan Documents terminates and Lender has anyrights it can enforce against Borrower after termination, Lender can enforcethose rights against Guarantor without giving previous notice to Borrower orGuarantor or without making any demand on either of them.

 

To the extent permittedby law, Guarantor waives the benefit of any statute of limitations affectingGuarantor’s liability under this Guaranty. Guarantor waives the right to require Lender to first or concurrently:(1) proceed against Borrower; (2) proceed against or exhaust any security thatLender holds from Borrower; or (3) pursue any other remedy in Lender’spower.  The liability of Guarantor shallnot be affected or exonerated by any indulgence, compromise, settlement orvariation of terms which may be extended by Lender to Borrower, or agreed uponby Lender or Borrower, and, unless agreed to in writing by Lender, shall not beaffected or exonerated by any assignment by Borrower of its interest in any oneor more of the Loan Documents, nor shall the liability of the Guarantor beaffected or exonerated by the insolvency, bankruptcy (voluntary orinvoluntary), or reorganization of Borrower, nor by the voluntary orinvoluntary liquidation, sale or other disposition of all or substantially allof the assets of Borrower, or by the release of any other Guarantor.  Lender and Borrower, without notice to orconsent by Guarantor, may at any time or times enter into such modifications,extensions, amendments or other covenants of the Loan Documents as they maydeem appropriate, and Guarantor shall not be released nor its liabilityexonerated thereby but shall continue to be fully liable for the payment andperformance of all obligations and duties of Borrower under the Loan Documentsas so modified, extended or amended.

 

Guarantor further agrees(1) to indemnify and hold harmless Lender from and against any claims, damages,expenses or losses, including to the extent permitted by law, all reasonableattorneys’ fees incurred by counsel of Lender’s choice (whether or notlitigation is commenced), resulting from or arising out of any breach of anyprovision of the Loan Documents by Borrower or by reason of Borrower’s failureto perform any of its obligations thereunder, and (2) to the extent permittedby law, to pay all costs and expenses, including reasonable attorneys’ fees(whether or not litigation is commenced), incurred by Lender in enforcing thisGuaranty.

 

Until all of Borrower’sobligations to Lender have been discharged in full, Guarantor has no right ofsubrogation against Borrower.  Guarantorassumes the responsibility to remain informed of the financial condition

 

----

 

of Borrower and of all other circumstances bearingupon the risk of Borrower’s default, which reasonable inquiry would reveal, andagrees that Lender shall have no duty to advise Guarantor of information known toit regarding such condition or any such circumstances.  Lender shall not be required to inquire intothe powers of Borrower or the officers, employees, partners or agents acting orpurporting to act on its behalf, and any indebtedness made or created inreliance upon the professed exercise of such powers shall be guaranteed underthis Guaranty.  Each Guarantor herebyrepresents and warrants to Lender that such Guarantor has received a copy ofeach of the Loan Documents, has read or had the opportunity to read each of theLoan Documents, and understands the terms of the Loan Documents.  The provisions in the Loan Documentsrelating to the execution of additional documents, legal proceedings by Lenderagainst Borrower, severability of the provisions of the Loan Documents,interpretation of the Loan Documents, notices, waivers (including waiver of ajury trial), limitation on right of recovery against Lender, disclaimer ofindividual liability, and the applicable laws which govern the interpretationof the Loan Documents are incorporated herein in their entirety by thisreference and made a part hereof as though set forth in full herein; anyreference in those provisions to “Borrower” shall mean each Guarantor and anyreference in those provisions to the “Loan Documents” shall mean this Guaranty.

 

To the extent permittedby law, Guarantor waives its right to enforce any remedies that Borrower nowhas, or later may have, against Lender. Guarantor waives any right to participate in any security now or laterheld by Lender.  Guarantor waives noticeof acceptance of this Guaranty, and all other notices in connection with thisGuaranty or in connection with the liabilities, obligations and dutiesguaranteed hereby, including notices to Guarantor of default by the Borrowerunder the Loan Documents.  Guarantorhereby waives diligence, presentment, demand for performance, notice ofnonperformance, protest, notice of protest, notice of dishonor, and notice ofacceptance of this Guaranty, and waives all notices of the existence, creation,or incurring of new or additional obligations.

 

If there is more than oneGuarantor, the liability of each Guarantor shall be joint and several.  Guarantor’s obligations under this Guarantyshall be binding on Guarantor’s legal representatives, heirs, successors andassigns.

 

If Borrower disposes ofits interest in the property secured by the Loan Documents, “Borrower”, as usedin this Guaranty, shall mean Borrower’s successors or assigns.  Assignment of the Loan Documents by Lender(as permitted by the Loan Documents) shall not affect this Guaranty.  In the event of an assignment of the LoanDocuments by Lender, the term “Lender” as used in this Guaranty shall meanLender’s successors or assigns.

 

Guarantor herebycovenants and agrees to deliver to Lender the following: (a) managementprepared and certified consolidated quarterly financial statements forGuarantor within forty-five (45) days after the end of the first three (3)quarters of each fiscal year of Guarantor, and (b) annual consolidatedfinancial statements for Guarantor audited by an independent certified publicaccountant within one hundred twenty (120) days after the end of each fiscalyear of Guarantor.  Such financialstatements shall be true and correct in all respects, shall be prepared inaccordance with generally accepted accounting principles, and shall fairlyrepresent the respective financial conditions of the subjects thereof as of therespective dates thereof.  At therequest of Lender, Guarantor shall obtain the consent of Guarantor’saccountant(s) to the inclusion of Guarantor’s most recent financial statementin any regulatory filing or report to be filed by Lender.

 

If any one or more of theprovisions of this Guaranty shall be held to be invalid, illegal or unenforceablein any respect, such invalidity, illegality or unenforceability shall notaffect any other provision of this Guaranty, and this Guaranty shall beconstrued as if such invalid, illegal or unenforceable provision had never beencontained herein.

 

This Guaranty shall beconstrued according to the laws of the State of Tennessee.  Guarantor agrees that any dispute which mayarise between Lender and Guarantor with regard to this Guaranty shall beresolved by litigation in state or federal court.  Litigation may be initiated by Lender or its assignee, at itsdiscretion, in the State of the principal place of business of Lender or itsassignee, the State of the principal place of business of Guarantor, or theState where the Collateral (as defined in the Loan Documents) is located.

 

2

----

 

**GUARANTOR HEREBY KNOWINGLY ANDIRREVOCABLY WAIVES ANY OBJECTIONS ON THE GROUNDS OF IMPROPER JURISDICTION ORVENUE TO AN ACTION INITIATED AS SET FORTH ABOVE AND AGREES THAT EFFECTIVESERVICE OF PROCESS MAY BE MADE UPON GUARANTOR BY REGISTERED MAIL, RETURNRECEIPT REQUESTED.  GUARANTOR WAIVES, TOTHE EXTENT PERMITTED BY LAW, TRIAL BY JURY IN ANY ACTION BETWEEN THE PARTIES.**

 

This Guaranty shallbecome effective on March 31, 1998.

 
| THE WESTERN SIZZLIN CORPORATION                      |
|------------------------------------------------------|
|                                                 |
| By:                                                  | /s/ Victor F. Foti |   |
|                                                 |
|                                                 | Its: | President |   |   |
|                                                 |
| **THE  WESTERN SIZZLIN STORES OF LITTLE ROCK, INC.** |
|                                                 |
| By:.                                                 | /s/ Victor F. Foti |   |
|                                                 |
|                                                 | Its: | President |   |
|                                                 |   |
|                                                      |  |  |  |  |  |  |  |  |

 

----

 

Loan No. 06721900 Merchants Rd.Knoxville, Tennessee

 

**CERTIFICATEOF BORROWER**

 

THE WESTERN SIZZLINSTORES, INC., a Virginia corporation (“Borrower”), for the benefit of CAPTECFINANCIAL GROUP FUNDING CORPORATION, a Michigan corporation (together with itssuccessors, assigns and transferees, “Lender”), warrants, represents, covenantsand agrees that the following are true and correct as of the date hereof:

 

1.             All warranties and representations of Borrower containedin this Certificate shall survive the execution of this Certificate and anyadvances made in accordance with the Promissory Note executed by Borrower, infavor of Lender, dated even herewith, in the original principal amount of OneMillion Two Hundred Thousand and 00/100 Dollars ($1,200,000.00) (the “Note”).

 

2.             Borrower has good, indefeasible and marketable title tothe Collateral (as defined in that certain Security Agreement, dated evenherewith, between Borrower and Lender (the “Security Agreement”)).  Except for the Security Agreement, there areno instruments, matters or agreements, and Borrower is not a party to anyinstrument, matter or agreement, which will in any way encumber, bind orotherwise affect the Collateral or Lender. Borrower has neither done nor failed to do anything, nor has sufferedanything to be done, as a result of which the Collateral or any part thereofhas been or will be encumbered or title thereto has been or will be affected inany way and no person, firm or entity has any present, conditional orcontingent rights to acquire all or any portion of the Collateral.

 

3.             Borrower is a corporation duly organized and validlyexisting in good standing under the laws of the Commonwealth of Virginia and isqualified to do business in the State of Tennessee.  The person or persons executing the Note, the Security Agreementand the other Loan Documents (as defined in the Security Agreement) have fullpower and complete authority to execute the Note, the Security Agreement andthe other Loan Documents, and, when executed, the Note, the Security Agreementand the other Loan Documents will be legal, valid and binding obligations ofBorrower, enforceable in accordance with their terms.

 

4.             As of the date hereof, Borrower is not “insolvent”within the meaning of Section 548(a)(2)(B) of the United States BankruptcyCode.

 

5.             Borrower is in the business of owning and operatingGreat American Steak & Buffet Company restaurants, including the restaurantoperation located at 900 Merchants Rd., Knoxville, Tennessee (the “FranchisedOperation”).  Borrower’s chief executiveoffice is located at 416 South Jefferson Street, Roanoke, Virginia 24012, andthe Collateral is located at Borrower’s Chief Executive Office and theFranchised Operation.

 

6.             Borrower has furnished to Lender its most recent annualaudited financial statements and most recent management prepared and certifiedquarterly financial statements, which statements were prepared in accordancewith generally accepted accounting principles and are correct and complete andaccurately present the financial condition of Borrower on the dates thereof.  Further, there has been no material adversechange in the business, property or condition of Borrower since the date of themost recent financial statements.

 

7.             Borrower has complied and will continue to comply withall applicable laws, rules, regulations and orders relating to Borrower or anyaspect of Borrower’s business or assets, including, without limit, allenvironmental laws, rules, regulations and orders.  Borrower agrees to indemnify and hold Lender harmless against andfrom all claims, losses and costs resulting from any and all violations byBorrower of any laws, rules, regulations and/or orders.

 

----

 

8.             Borrower has not received any written notice of, and, tothe best knowledge of Borrower, none of Borrower, the Franchised Operation orthe premises where the Franchised Operation is located are in violation of anylaw, municipal ordinance or other governmental requirement of any governmentalauthority.

 

9.             There are no circumstances, state of facts or othermatters which, with the passage of time or the giving of notice, or both, wouldconstitute an Event of Default under the terms of the Note, the SecurityAgreemt or the other Loan Documents.

 

10.           Borrower has filed all federal, stateand local income and other tax returns and other reports required to be filedprior to the date of this Certificate and Borrower has paid all taxes,assessments, withholdings and other governmental charges that are due andpayable prior to the date of this Certificate.

 

11.           All taxes and all installments ofassessments and all other charges of any kind imposed or levied by anygovernmental authority against either Borrower or the Collateral which are dueand payable or constitute a lien at or prior to the date of this Certificate,together with all interest and penalties due thereon, have been paid in full.

 

12.           There is now fully paid andenforceable fire, liability and other forms of insurance in such amounts andcovering such risks as are required under the Security Agreement.

 

13.           There are no disputes, litigation orother such proceedings pending or, to the best of Borrower’s knowledge,threatened against or related to Borrower, the Collateral or the FranchisedOperation, nor does Borrower know of any basis for any such action.

 

14.           In consideration of the loanevidenced by the Note and secured, by the Security Agreement and the other LoanDocuments, Borrower agrees to indemnify and hold Lender harmless against allclaims, liabilities, losses, deficiencies and damages as well as reasonableexpenses (including attorney’s fees), interest and penalties related thereto,asserted by any third party against, or incurred by Lender, by reason of orresulting from any breach, inaccuracy, incompleteness or nonfulfillment of thecovenants, representations and/or warranties of Borrower contained in thisCertificate.

 

15.           Commencing May 1, 1998 and on thefirst day of each following month, Lender is authorized to initiate anelectronic funds transfer to pay the monthly installment payment owing underthe loan evidenced by the Note from the account designated below, and toreceive payments from such account. This authorization will remain in effect unless the undersigned requestsa modification that is agreed to by the Financial Institution and Lender;provided, however, that Lender and its successors, assigns and transferees maymodify the place of payment to be made by Borrower without the consent of theFinancial Institution.

 

| Financial  Institution: |   |
|-------------------------|--------|
| Financial  Institution  |   |
| Address:                |   |
| Routing/Transit  #:     |   |
| Account #:              |   |
|                         |        |  |  |  |

 

[SIGNATURE PAGE FOLLOWS]

 

2

----

 

ThisCertificate shall become effective on March 31, 1998.

 
|   | **THE  WESTERN SIZZLIN STORES, INC.** |               |
|--------|---------------------------------------|--------------------|
|   |                                  |               |
|   | By:                                   | /s/ Victor F. Foti |   |
|   |                                  |               |
|   | Its:                             | President          |
|        |                                       |                    |  |  |  |

 

3

----

 

[LETTERHEAD OFWESTERN SIZZLIN STORES, INC.]

 
| TO:                               | Martha R. Young, (313) 668-7612                                     |
|-----------------------------------|---------------------------------------------------------------------|
|                              | Fax:   747-7147                                                |
|                              |                                                                |   |
| FROM:                             | Calvin Lilly, (540) 345-3195                                        |
|                              | Fax:   345-0831                                                |
|                              |                                                                |   |
| DATE:                             | March 24, 1998                                                      |
|                              |                                                                |   |
| RE:                               | Closing Items — Follow-up                                      |
|                              |                                                                |   |
| Information for account drafting: |
|                              |                                                                |   |
| Financial Institution:            | Wachovia Bank, N. A.                                                |
|                              |                                                                |   |
| Financial Institution Address:    | 111 Franklin Road  Roanoke, Virginia 24001  Attn:  Kelly Kiser |
|                              |                                                                |   |
| **Routing  #:**                   | **051000253**                                                       |
|                              |                                                                |   |
| **Account  #:**                   | 7911787711                                                          |
|                              |                                                                | The WesterN SizzliN Stores, Inc. |

 

----

 

Loan No. 06721 

900 Merchants Rd.Knoxville, Tennessee

 

**CERTIFICATE OF GUARANTOR**

 

THE WESTERN SIZZLINCORPORATION, a Tennessee corporation (“Guarantor”), for the benefit of CAPTECFINANCIAL GROUP FUNDING CORPORATION, a Michigan corporation (together with itssuccessors, assigns and transferees, “Lender”), warrants, represents, covenantsand agrees that the following are true and correct as of the date hereof:

 

1.             Guarantor has received a copy of that certain PromissoryNote, dated March 23, 1998 in the original principal amount of One Million TwoHundred Thousand and 00/100 Dollars ($1,200,000.00) (“Note”) made by THEWESTERN SIZZLIN STORES, INC., a Virginia corporation (“Borrower”).  Guarantor has also received a copy of theinstruments securing the Note, as referenced therein (together with the Note,the “Loan Documents”).  The LoanDocuments create a lien with respect to certain real and personal propertylocated at 900 Merchants Rd., Knoxville, Tennessee (“Premises”).

 

2.             Guarantor has had the opportunity to review theCertificate of Borrower, dated even herewith, made by Borrower for the benefitof Lender, and confirms that the warranties and representations set forththerein are true and correct as of the date hereof.

 

3.             Guarantor has full power and authority to enter intothat certain Guaranty executed by Guarantor in favor of Lender, dated as of thedate of this Certificate (“Guaranty”) and to assume and perform all ofGuarantor’s obligations under the Guaranty in accordance with all of the termsand conditions of the Guaranty.  Theexecution and delivery of the Guaranty and the performance by Guarantor ofGuarantor’s obligations under the Guaranty and under all documents contemplatedby the Guaranty require no further action or approval.  The Guaranty and all other documentscontemplated by the Guaranty are fully binding and enforceable obligations ofGuarantor.

 

4.             There are no circumstances, state of facts or othermatters which, with the passage of time or the giving of notice, or both, wouldconstitute an event of default under the terms of the Guaranty, or to the bestof the Guarantor’s knowledge, under the Loan Documents.

 

5.             There are no disputes, litigation or other suchproceedings pending or, to the best of the Guarantor’s knowledge, threatenedagainst or related to the Guarantor or the Premises, nor does Guarantor know ofany basis for any such action, except as disclosed to Lender on Exhibit Ahereto.

 

6.             Guarantor has furnished to Lender its most recent annualaudited consolidated financial statements and most recent management preparedand certified quarterly consolidated financial statements, which statementswere prepared in accordance with generally accepted accounting principles andare correct and complete and accurately present the financial condition ofGuarantor on the dates thereof. Further, there has been no material adverse change in the business,property or condition of Guarantor since the date of the most recent financialstatements.

 

7.             In consideration of the loan evidenced by the Note andsecured, in part, by the Loan Documents, the receipt and sufficiency of whichGuarantor acknowledges, and in order to induce Lender to make such loan,Guarantor agrees to indemnify and hold Lender harmless against all claims,liabilities, losses, deficiencies and damages as well as reasonable expenses(including attorney’s fees), interest and penalties related thereto, assertedby any third party against, or incurred by Lender, by reason of or resultingfrom any breach, inaccuracy, incompleteness or nonfulfillment of the covenants,representations and/or warranties of Guarantor contained in this Certificate.

 

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This Certificate shallbecome effective on March 31, 1998.

 
|   | **THE  WESTERN SIZZLIN CORPORATION** |
|--------|--------------------------------------|
|   |                                 |
|   | By                                   | /s/ Victor F. Foti |
|   |                                 |
|   |                                 | Its:  | President |
|        |                                      |  |  |  |

 

2

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| **Name/Caption**                                                                                                                                                                |   | **Amount in  Controversy** |              | **Status** |                                                                                                                                                                                                                                                                                                                |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------|-------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                            |   |                       |              |       |                                                                                                                                                                                                                                                                                                                |
| David K Wachtal, Jr. v. WSC. et al  First Complaint – breach of employment contract;

wrongful termination

Second Complaint - includes officers and directors in the suit |   | $                          | 1,319,000         |       | Wachtel, president until  2/95 claims wrongful termination; which, under his contract would mean two  years’ of compensation, approx. $400,000. The termination was well justified.  The suit had included certain officers and directors, whose cases have been  dismissed through award of summary judgment. |   |
|                                                                                                                                                                            |   |                       |              |       |                                                                                                                                                                                                                                                                                                                |   |
| Third Complaint - loss of value of stock Idemnification for expenses                                                                                                            |   | $                          | 8,500,000

— |       | Summary judgment granted  to defendant, case dismissed; plaintiff has appealed. 

Discovery not complete.                                                                                                                                                                                                           |   |
| Mann v. WSC  Breach of employment                                                                                                                                               |   | $                          | 50,000            |       | Mann is now deceased, with  very little discovery.  We expect that  the suit will be dismissed                                                                                                                                                                                                                 |   |
|                                                                                                                                                                            |   |                       |              |       |                                                                                                                                                                                                                                                                                                                |   |
| Durham Enterprises v. WSC  Denial of awarding a franchise                                                                                                                       |   | $                          | 1,000,000         |       | Summary judgment granted  to defendant, case dismissed; plantiff has not appealed.                                                                                                                                                                                                                                  |   |
|                                                                                                                                                                            |   |                       |              |       |                                                                                                                                                                                                                                                                                                                |   |
| Cruthis v. Elgin Hamner and WSC   Contaminated tea                                                                                                                              |   | $                          | 4,000             |       | Suit primarily against  franchise; WSC named as codefendant; discovery beginning.                                                                                                                                                                                                                                   |   |
|                                                                                                                                                                            |   |                       |              |       |                                                                                                                                                                                                                                                                                                                |   |
| Perry v. WSC and David Wachtel, Jr.                                                                                                                                             |   |                       |              |       |                                                                                                                                                                                                                                                                                                                |
| Business interference between franchisee/seller and potential buyer -  would not allow franchise assumption

                                                              |   | $                          | 2,500,000         |       | Discovery is beginning; D  & O insurance.                                                                                                                                                                                                                                                                       |   |
|                                                                                                                                                                            |   |                       |              |       |                                                                                                                                                                                                                                                                                                                |
| WSC v. Moody / Fowler                                                                                                                                                           |   |                       |              |       |                                                                                                                                                                                                                                                                                                                |
| Counter claim, in response to WSC’s collection suit for unpaid  royalties                                                                                                  |   | $                          | 500,000           |       | Discovery Beginning.                                                                                                                                                                                                                                                                                                |   |

 

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Loan No. 06721900 Merchants Rd.Knoxville, Tennessee

 

**CERTIFICATE OF GUARANTOR**

 

THE WESTERN SIZZLINSTORES OF LITTLE ROCK, INC., an Arkansas corporation (“Guarantor”), for thebenefit of CAPTEC FINANCIAL GROUP FUNDING CORPORATION, a Michigan corporation(together with its successors, assigns and transferees, “Lender”), warrants,represents, covenants and agrees that the following are true and correct as ofthe date hereof:

 

1.             Guarantor has received a copy of that certain PromissoryNote, dated March 23, 1998 in the original principal amount of One Million TwoHundred Thousand and 00/100 Dollars ($1,200,000.00) (“Note”) made by THEWESTERN SIZZLIN STORES, INC., a Virginia corporation (“Borrower”). Guarantorhas also received a copy of the instruments securing the Note, as referencedtherein (together with the Note, the “Loan Documents”).  The Loan Documents create a lien withrespect to certain real and personal property located at 900 Merchants Rd.,Knoxville, Tennessee (“Premises”).

 

2.             Guarantor has had the opportunity to review theCertificate of Borrower, dated even herewith, made by Borrower for the benefitof Lender, and confirms that the warranties and representations set forththerein are true and correct as of the date hereof.

 

3.             Guarantor has full power and authority to enter intothat certain Guaranty executed by Guarantor in favor of Lender, dated as of thedate of this Certificate (“Guaranty”) and to assume and perform all ofGuarantor’s obligations under the Guaranty in accordance with all of the termsand conditions of the Guaranty.  Theexecution and delivery of the Guaranty and the performance by Guarantor ofGuarantor’s obligations under the Guaranty and under all documents contemplatedby the Guaranty require no further action or approval.  The Guaranty and all other documentscontemplated by the Guaranty are fully binding and enforceable obligations ofGuarantor.

 

4.             There are no circumstances, state of facts or othermatters which, with the passage of time or the giving of notice, or both, wouldconstitute an event of default under the terms of the Guaranty, or to the bestof the Guarantor’s knowledge, under the Loan Documents.

 

5.             There are no disputes, litigation or other suchproceedings pending or, to the best of the Guarantor’s knowledge, threatenedagainst or related to the Guarantor, nor does Guarantor know of any basis forany such action.

 

6.             Guarantor has furnished to Lender its most recent annualaudited consolidated financial statements and most recent management preparedand certified quarterly consolidated financial statements, which statementswere prepared in accordance with generally accepted accounting principles andare correct and complete and accurately present the financial condition ofGuarantor on the dates thereof. Further, there has been no material adverse change in the business,property or condition of Guarantor since the date of the most recent financialstatements.

 

7.             In consideration of the loan evidenced by the Note andsecured, in part, by the Loan Documents, the receipt and sufficiency of whichGuarantor acknowledges, and in order to induce Lender to make such loan,Guarantor agrees to indemnify and hold Lender harmless against all claims,liabilities, losses, deficiencies and damages as well as reasonable expenses(including attorney’s fees), interest and penalties related thereto, asserted

 

----

 

by any third party against, or incurred by Lender, byreason of or resulting from any breach, inaccuracy, incompleteness ornonfulfillment of the covenants, representations and/or warranties of Guarantorcontained in this Certificate.

 

This Certificate shallbecome effective on March 31, 1998.

 
|   | **THE  WESTERN SIZZLIN STORES OF LITTLE ROCK, INC.** |
|--------|------------------------------------------------------|
|   |                                                 |
|   |                                                 |
|   | By                                                   | /s/ Victor F. Foti |
|   |                                                 | Its | President |
|        |                                                      |  |  |  |

 

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Loan No. 067225902 Richmond Hwy.Alexandria, Virginia

 

**PROMISSORYNOTE**

 
| $l,250,000.00 |   | Date:  3/23, 1998 |
|---------------|--------|------------------------|

 

**PROMISE TO PAY.**  Forvalue received, **THE WESTERN SIZZLIN STORES,INC.**, a Virginiacorporation, (“Borrower”) promises to pay to **CAPTECFINANCIAL GROUP FUNDING CORPORATION**,****aMichigan corporation (together with its successors, assigns and transferees,“Lender”), or order, One Million Two Hundred Fifty Thousand and 00/100 Dollars($1,250,000.00), or so much of such sum as has been advanced under this Note,as follows:

 

Interestonly from and after the date on which funds are disbursed by Lender hereunder(“Effective Date”) through the last day of the month in which the EffectiveDate occurs shall be due and payable on the first day of the next monthfollowing the Effective Date; provided that if the Effective Date occurs afterthe fifteenth (15th) day of a month, the interest which would accrue, based onthe actual number of days, through the end of such month shall be due andpayable in advance on the Effective Date. Installments of principal and interest in the amount of ThirteenThousand Four Hundred Eighty-Seven and 00/100 Dollars ($13,487.00) are due andpayable on the first day of each month (each a “Payment Date”), commencing May1, 1998; until April 1, 2013 (“Due Date”), when the outstanding principalbalance, plus accrued interest, is due and payable (unless the indebtednessevidenced by this Note is accelerated, in which case, the Due Date is the dateof acceleration).  The amortizationperiod for this Note, for purposes of calculating the monthly installments ofprincipal and interest, is fifteen (15) years.

 

Allpayments under this Note shall be made at Lender’s principal office at 24 FrankLloyd Wright Drive, Lobby L, 4th Floor, P.O. Box 544, Ann Arbor, Michigan48106-0544, or at such other address as Lender may designate in writing, or byelectronic funds withdrawal made by Lender upon written authorization thereforfrom Borrower, which authorization shall not be revocable by Borrower withoutthe consent of Lender.  Payments due andpayable on a day on which Lender is not open for business are due on the nextsucceeding business day.  Payments willbe applied first to accrued interest and then to principal.

 

**INTEREST RATE.**  Theoutstanding principal balance of this Note will bear interest at a fixed rateequal to ten and seven hundredths percent (10.07%) per annum (the “StatedRate”), until the Due Date (whether by acceleration or otherwise), andthereafter at a rate which is three percent (3%) above the Stated Rate(“Default Rate”).

 

Interestwill be computed on the basis of a year consisting of twelve (12) months ofthirty (30) days each.  In no event,however, shall the interest rate exceed the maximum rate allowed by law.  Notwithstanding anything to the contrarycontained herein, at no time shall the interest payable under this Note begreater than the maximum rate permitted by applicable law (“Legal Rate”).  If any obligation under this Note shallresult in Lender receiving an amount deemed to be interest under applicable lawin excess of the Legal Rate, then the amount which would be excessive interestshall be applied to the reduction of the principal balance of this Note and notto payment of interest.  If suchexcessive interest exceeds the unpaid principal balance of this Note, theexcess shall be refunded to Borrower.

 

----

 

**PREPAYMENT.** Borrower shall not have any right, except as otherwise specificallyprovided, to prepay the principal balance of this Note until two (2) loan yearshave elapsed.  The first “loan year”shall commence on the date of the closing of the loan evidenced by this Note,and subsequent loan years shall commence on the anniversaries of suchdate.  Commencing with the third (3rd)loan year and if no Event of Default (as hereinafter defined) then exists,Borrower shall have the right to prepay all, but not merely a portion of, theprincipal balance of this Note together with accrued interest thereon on anyPayment Date; provided, however, that Borrower shall provide no less thanthirty (30) days prior written notice to Lender of Borrower’s intention toprepay (the “Prepayment Notice”).  Oncegiven, the Prepayment Notice may not be withdrawn, and the failure to prepay inaccordance with the Prepayment Notice shall constitute an Event of Default.

 

Borroweracknowledges and agrees that Lender is making the loan evidenced by this Notein consideration of the receipt by Lender of all interest and other benefitsintended to be conferred by this Note, and if payments of principal are made toLender prior to the regularly scheduled due date of such payments, for whateverreason (whether voluntarily or involuntarily), Lender will not receive all suchinterest and other benefits and may incur additional costs.  For these reasons, and to induce Lender tomake the loan, Borrower expressly waives any right to prepay this Note exceptas specifically provided herein.

 

Lendershall not be required to accept any tender of prepayment of the principalbalance of this Note at any time when the “Reinvestment Rate” (as hereinafterdefined) is lower than the Stated Rate, less eighty-five basis points, unlesssuch tender also includes a sum of money (the “Prepayment Premium”) equal tothe present value (computed at the Reinvestment Rate) of the difference betweena stream of monthly payments necessary to amortize the outstanding principalbalance of this Note at the Stated Rate and a stream of monthly paymentsnecessary to amortize the outstanding principal balance of this Note at theReinvestment Rate (the “Differential”). In the event the Differential is less than zero, no Prepayment Premiumwill be required.  For purposes of thisNote, the “Reinvestment Rate” is the yield on a United States Treasuryobligation of a constant maturity rate maturing closest in time but prior tothe maturity date of this Note, as reported in Federal Reserve StatisticalRelease H. 15 (519) (or any comparable successor publication) on the fifth(5th) business day preceding the prepayment date.

 

Inaddition to the Prepayment Premium, if any, every tender of prepayment of theprincipal balance of this Note shall be accompanied by a payment equal to (x)all accrued but unpaid interest and other charges to the date of prepayment and(y) an administrative fee equal to one half of one percent (0.5%) of theoutstanding principal balance of this Note; provided, however, that theadministrative fee shall not be less than One Thousand and 00/100 Dollars($1,000.00) (collectively, the “Other Charges”).

 

Ifthe outstanding principal balance of this Note is accelerated by reason of anEvent of Default, such acceleration shall be deemed to be a prepayment andBorrower shall pay to Lender, in addition to all sums due as a result of theacceleration, any applicable Prepayment Premium and Other Charges.  In the event of an acceleration of this Notein the first or second loan year, Borrower shall be required to pay aPrepayment Premium equal to five percent (5%) of the outstanding principalbalance of this Note together with any Other Charges.  In the event that this Note is partially prepaid from casualtyinsurance proceeds (as provided in the Security Agreement, defined below), noPrepayment Premium or Other Charges shall be due and payable with respect tosuch prepayment, and each monthly installment thereafter shall be reduced to anamount which will amortize the then unpaid principal balance of this Note atthe Stated Rate over the then remaining term of this Note.

 

**LATE PAYMENT CHARGE.**  Inthe event that any payment under this Note is not received by Lender withinfifteen (15) days of the date when due, a late charge of five percent (5%) ofthe amount of such payment will be due. Borrower agrees that the late charge is a reasonable estimate of theadministrative costs which Lender will incur in processing thedelinquency.  Lender’s acceptance of a latepayment and/or of the late payment charge will not waive any default under thisNote or affect the acceleration of this Note (if this Note has beenaccelerated).

 

2

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**COLLATERAL.**  ThisNote and the other obligations of Borrower to Lender contained in the documentssecuring this Note are secured by and in accordance with the terms of thatcertain Security Agreement, effective March 31, 1998, executed by Borrower forthe benefit of Lender (the “Security Agreement”; together with any otherdocuments securing payment under this Note, the “Loan Documents”).  All property securing the Indebtedness (asdefined in the Security Agreement) is referred to as the “Collateral”.

 

**DEFAULT.**  Anyof the following events shall, for purposes of this Note, constitute an “Eventof Default” :

 

(a)           Failure by Borrower topay any amount owing on or with respect to the Indebtedness when due, whetherby maturity, acceleration or otherwise, which failure continues for five (5)business days.

 

(b)           Any failure byBorrower (or any guarantor of all or any part of the Indebtedness) to complywith any of the non-monetary terms, provisions, warranties or covenants of thisNote, the Security Agreement or the other Loan Documents, which failurecontinues for fifteen (15) days after the date of written notice to Borrower(or any guarantor) from Lender of such default; provided, however, that if: (i)the nature of Borrower’s (or any guarantor’s) noncompliance is such that morethan fifteen (15) days are reasonably required for its cure, (ii) Borrower (orany guarantor) has commenced such cure within said fifteen (15) day period,(iii) Borrower (or any guarantor) diligently prosecutes such cure tocompletion, (iv) Borrower (or any guarantor) provides Lender with writtennotice of the noncompliance, AND (v) Borrower (or any guarantor) furnishesreserves or a security bond, in an amount satisfactory to Lender in its solediscretion, then Borrower (or any guarantor) shall not be in default.

 

(c)           Institution offoreclosure proceedings or other exercise of rights and remedies by the holderof any mortgage, deed of trust, security interest or other lien against theCollateral (or any portion thereof); provided, however, if there is a goodfaith dispute by Borrower (or any guarantor) as to the validity orreasonableness of the claim which is the basis for such proceedings, then noEvent of Default shall have occurred under this clause (c) if Borrower (or anyguarantor) provides Lender with written notice of the proceedings and furnishesreserves or a security bond for the proceedings satisfactory to Lender.

 

(d)           Insolvency of Borrower(or any guarantor) or the admission in writing of Borrower’s (or anyguarantor’s) inability to pay debts as they mature.

 

(e)           Any statement,representation or information made or furnished by or on behalf of Borrower (orany guarantor) to Lender in connection with or to induce Lender to provide oradvance any of the Indebtedness shall prove to be false or materiallymisleading when made or furnished.

 

(f)            Institution ofbankruptcy, reorganization, insolvency or other similar proceedings by oragainst Borrower (or any guarantor), unless, in the case of a petition filedagainst Borrower (or any guarantor), the same is dismissed within sixty (60)days of the date of filing.

 

(g)           The issuance or filingof any judgment, attachment, levy, garnishment or the commencement of anyrelated proceedings or the commencement of any other judicial process upon orin respect to Borrower (or any guarantor) or the Collateral in which the amountin controversy exceeds One Hundred Thousand Dollars ($100,000) and is notcovered by the insurance of Borrower (or any guarantor), unless satisfied, orBorrower (or any guarantor) furnishes reserves or a security bond in an amountsatisfactory to Lender in its sole discretion, released or discharged withinsixty (60) days after the date of such issuance, filing or commencement.

 

3

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(h)           Sale or otherdisposition by Borrower (or any guarantor) of any substantial portion of itsassets or property.

 

(i)            Death, dissolution,merger, consolidation, termination of existence, insolvency, business failureor assignment for the benefit of creditors of or by Borrower (or anyguarantor); without the prior written consent of Lender, which consent shall notbe unreasonably withheld.

 

(j)            Any failure byBorrower (or any guarantor) to pay any indebtedness (other than to Lender) inexcess of One Hundred Thousand Dollars ($100,000) (and exclusive of trade debtincurred in the ordinary course of business) when due, or any failure in theobservance or performance of any term, covenant or condition in any documentevidencing, securing or relating to such indebtedness, which failure continuesbeyond any applicable cure period.

 

(k)           Receipt by Borrower ofa notice of termination of the Management and Licensing Agreement from TheWesterN SizzliN Corporation, a Tennessee corporation (“Franchisor”), for theGreat American Steak & Buffet Company Restaurant located at 5902 RichmondHwy., Alexandria, Virginia 22303 (“Franchised Operation”).

 

(1)           If this Note, theSecurity Agreement and the other Loan Documents have not been assigned to theTrust (as defined in the Security Agreement), the default by Borrower whichcontinues beyond any applicable grace or cure period under the RetainedObligations (as defined in the Security Agreement); provided, however, if thisNote, the Security Agreement and the other Loan Documents are assigned to theTrust, this Clause (1) shall be of no force and effect during the term of suchassignment.

 

(m)          In the event that thisNote, the Security Agreement and the other Loan Documents are assigned to theTrust, the default by Borrower which continues beyond any applicable grace orcure period under the Trust Obligations (as defined in the Security Agreement).

 

(n)           Any default byBorrower under the Lease between Guy E. Clark and Betty S. Clark, bothindividuals, as landlord, and Borrower, as tenant, dated January 1, 1996(“Lease”), which default is not cured within any applicable cure period setforth in such Lease.

 

Uponan occurrence of an Event of Default, Lender shall have the option to declareall or part of the Indebtedness (including this Note) immediately due andpayable.  If this Note is not paid atmaturity (whether by acceleration or otherwise), Lender shall have all of therights and remedies provided at law or equity or by Agreement, including,without limit, the right to sell or liquidate all or any part of theCollateral.  The remedies of Lender arecumulative and not exclusive.

 

**EXAMINATION OF RECORDS.** Borrower shall at all times keep full and accurate records of itsbusiness and of the Collateral, which records shall be open to inspection andcopying by Lender at all reasonable times.

 

**LIABILITY OF SIGNATORIES.** Borrower, and all guarantors and endorsers, and any other party liablefor the Indebtedness evidenced by this Note: (i) severally waive presentment,demand, protest, notice of dishonor, notice of non-payment and notice ofacceleration of this Note; and (ii) agree that no extension or postponement ofthe time for payment, or waiver, or indulgence or forbearance granted toBorrower (without limit as to number or period) or any modification of thisNote, or any substitution, or exchange or release of all or part of theCollateral, or addition of any party to this Note, or release or discharge of,or suspension of any rights and remedies against any party liable on this Note,shall reduce or affect the obligation of any other party liable for the paymentof this Note.

 

4

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**NON-WAIVER.**  Nodelay by Lender in the exercise of any right or remedy shall operate as awaiver.  No single or partial exerciseby Lender of any right or remedy shall preclude any future exercise of suchright or remedy or the exercise of any other right or remedy.  No waiver or indulgence by Lender of anydefault or Event of Default shall be effective unless in writing and signed byLender, nor shall a waiver on one occasion be construed as a bar to any rightor remedy, or waiver of any default or Event of Default on any future occasion.

 

**REIMBURSEMENT OF EXPENSES.** Borrower shall reimburse Lender for all costs and expenses, includingreasonable attorneys’ fees, incurred by Lender in enforcing the rights ofLender under this Note.  Such costs andexpenses shall include, without limitation, costs or expenses incurred byLender in any bankruptcy, reorganization, insolvency or other similarproceeding.  Any reference in this Noteto attorneys’ fees shall mean fees, charges, costs and expenses of in-houseand/or outside counsel and paralegals, whether or not a suit or proceeding isinstituted, and whether incurred at the trial court level, on appeal, in abankruptcy, administrative or probate proceeding, in consultation with counsel,or otherwise.

 

**WAIVER OF JURY TRIAL.**  **BORROWER ANDLENDER ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A CONSTITUTIONAL ONE, BUTTHAT IT MAY BE WAIVED.  EACH PARTY,AFTER CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OFTHEIR CHOICE, KNOWINGLY AND VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT, WAIVESANY RIGHT TO TRIAL BY JURY IN THE EVENT OF LITIGATION REGARDING THE PERFORMANCEOR ENFORCEMENT OF, OR IN ANY WAY RELATED TO, THIS NOTE OR THE INDEBTEDNESS.**

 

**ASSIGNMENT.**  ThisNote is freely assignable, in whole or in part, by Lender without prior noticeto or consent of Borrower; provided, however, that Lender (or its assignee)shall provide written notice of such assignment to Borrower in the event thatLender (or such assignee) desires to designate a new person or entity as payeeand/or a new place of payment for the obligations under this Note.  Borrower may not, in whole or in part,directly or indirectly, assign this Note or its rights hereunder or delegateits duties hereunder without, in each instance, the specific prior writtenconsent of Lender, which consent may be withheld or delayed in Lender’s solediscretion. Lender shall be fully discharged from all responsibility accruinghereunder from and after the effective date of any such assignment.  Lender’s assignee shall, to the extent ofthe assignment, be vested with all the powers and rights of Lender hereunder,and to the extent of such assignment the assignee may fully enforce such rightsand powers, and all references to Lender shall mean and refer to suchassignee.  Lender shall retain allrights and powers hereby given not so assigned, transferred and/ordelivered.  Borrower hereby waives alldefenses which Borrower may be entitled to assert against Lender’s assigneewith respect to liability accruing hereunder prior to the effective date of anyassignment of Lender’s interest herein.

 

**SECURITIZATION.** Borrower understands and agrees that Lender may, from time to time,assign its rights and powers under this Note, the Security Agreement and anyother Loan Documents, in whole or in part, in connection with a securitizationprogram.  Borrower agrees to enter intoan amendment to this Note, the Security Agreement and any other Loan Documentsif such amendments are required by a nationally recognized rating agency inconnection with a securitization program sponsored by Lender and in which thisNote, the Security Agreement any other Loan Documents are to be included;provided that Borrower shall not be obligated to enter into any amendment whichadversely affects Borrower or otherwise adversely alters any of the financialterms of this Note, die Security Agreement and any other Loan Documents.

 

**MISCELLANEOUS.**  Theterms and provisions of this Note shall be governed by and construed inaccordance with the laws of the Commonwealth of Virginia.  Lender and Borrower agree that any disputewhich may arise between them with regard to this Note shall be resolved bylitigation in state or federal court. Litigation may be initiated by Lender or its assignee, at itsdiscretion, in the State of the principal place of business of Lender or itsassignee, the State of the principal place of business of Borrower, or theState where the Collateral is located.  **BORROWER HEREBY KNOWINGLY AND IRREVOCABLY WAIVES ANYOBJECTIONS ON THE**

 

5

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**GROUNDSOF IMPROPER JURISDICTION OR****VENUE****TO****AN ACTION INITIATED AS SET FORTH ABOVE ANDAGREES THAT EFFECTIVE SERVICE OF PROCESS MAY BE MADE UPON BORROWER BYREGISTERED MAIL RETURN RECECIPT REQUESTED. **The terms andprovisions of this Note may only be changed in writing, executed by Borrowerand Lender.

 
| **THE WESTERN SIZZLIN STORES, INC.** |
|--------------------------------------|
|                                 |
| By:                                  | /s/ Victor F. Foti |   |
|                                 |
|                                 | Its:  President |
|                                      |  |  |  |

 

Address:

 

P.O.Box 12167 

Roanoke,VA 24023-2167

 

TaxI.D. No. 54-1787907

 

6

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Pay to the order of

without warranty orrecourse.
| Captec Financial Group Funding Corporation |
|--------------------------------------------|
| By:                                        |
|                                       | /s/ [ILLEGIBLE] |   |
|                                       |   |   |
| Its:                                       |   |   |
|                                            |  |  |  |  |

 

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Loan No. 067225902 Richmond Hwy.Alexandria, Virginia

 

**COLLATERALASSIGNMENT OF LEASE AND OPTION RIGHTS**

 

THISCOLLATERAL ASSIGNMENT OF LEASE AND OPTION RIGHTS (“Assignment”) is made as ofthe 23 day of March, 1998, by **THE WESTERN SIZZLIN STORES, INC.,** a Virginia corporation, whose address is P.O. Box 12167, Roanoke, VA 24023-2167 (“Assignor”), in favor of **CAPTECFINANCIAL GROUP FUNDING CORPORATION,** a Michigan corporation, whose address is 24 Frank Lloyd Wright Drive,Lobby L, 4th Floor, P.O. Box 544, Ann Arbor, Michigan 48106-0544 (“Assignee”).  This instrument shall become effective onMarch 31, 1998.

 

Forgood and valuable consideration, the receipt and sufficiency of which is herebyacknowledged, Assignor presently assigns to Assignee all of Assignor’s right,title and interest in and to its lessee’s interest in that certain lease with **Guy E. Clark and Betty S. Clark, both individuals,**(“Lessor”) dated as of January 1, 1996,a copy of which is attached hereto as Exhibit A (the “Lease”) respecting diepremises commonly known as the Great American Steak & Buffet CompanyRestaurant located at 5902 Richmond Hwy., Alexandria, Virginia(“Premises”).  This Assignment is forcollateral purposes only, and except as specified herein, Assignee shall haveno liability or obligation of any kind whatsoever arising from or in connectionwith this Assignment or the Lease unless Assignee shall take possession of thePremises and assume the obligations of Assignor thereunder.

 

Assignorrepresents and warrants to Assignee that it has full power and authority to soassign the Lease and its interest therein and that Assignor has not previously,and is not obligated to, assign or transfer any of its interest in the Lease orthe Premises.

 

Throughoutthe term of the Lease, Assignor covenants and agrees to exercise all options toextend or renew the term of the Lease not less than ninety (90) days prior tothe last day upon which any such option may be exercised, but in no event lessthan six (6) months prior to of the term of the Lease, unless Assignee otherwiseagrees in writing.  Assignor shall sendAssignee a copy of the notice of exercise concurrently with Assignor’s exerciseof the option.  Upon the failure ofAssignor to so elect or renew the Lease as aforesaid (and the failure ofAssignee to otherwise agree in writing), Assignee shall have the right, but notthe obligation, to exercise such extension or renewal option on behalf ofAssignor, and Assignor hereby appoints Assignee (or any of its employees) asits attorney-in-fact for die purpose of exercising such extension or renewaloption.

 

Ifan “Event of Default” occurs under the Promissory Note, dated March 23, 1998,in the original principal amount of One Million Two Hundred Fifty Thousand and00/100 Dollars ($1,250,000.00), by Assignor in favor of Assignee (the “Note”)or under any documents or instruments securing the Note, Assignee shall havethe right and is hereby empowered to take possession of the Premises, expelAssignor therefrom, and, in such event, Assignor shall have no further right,title or interest in the Lease and shall remain liable to Assignee for all pastdue rents Assignee shall be required to pay to the Lessor under the Lease toeffectuate this Assignment.

 

Assignoragrees that it will not suffer or permit any surrender, termination, amendmentor modification of the Lease without the prior written consent of Assignee,which consent shall not be unreasonably wthheld.  At the request ofAssignee, Assignor shall provide Assignee with rent payment or such otherinformation regarding the Lease as Assignee shall reasonably require.

 

ThisAssignment shall be governed by the laws of the Commonwealth of Virginia.

 

ThisAssignment may be executed in one or more counterparts, each of which shallconstitute an original and all of which together shall constitute one and thesame instrument.

 

[SIGNATURE PAGE FOLLOWS]

 

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INWITNESS WHEREOF, Assignor has executed this Assignment as of the day and yearnoted above.

 
| Witnesses:      |   | **ASSIGNOR:**                        |               |
|-----------------|--------|--------------------------------------|--------------------|
|            |   |                                 |               |
|            |   | **THE WESTERN SIZZLIN STORES, INC.** |               |
|            |   |                                 |               |
| /s/ [ILLEGIBLE] |   | By:                                  | /s/ Victor F. Foti |   |
|            |   |                                 |               |
| /s/ [ILLEGIBLE] |   |                                 | Its:          | President |
|                 |        |                                      |                    |  |  |  |  |

 

COMMONWEALTHOF VIRGINIA          )

 

COUNTYOF ROANOKE                             )

 

I,Richard R. Sayers*,*a notary public in and for the State and County aforesaid,do certify that Victor F. Foti, whose name, as President of The WesterN SizzliN Stores, Inc.,is signed to the writing above, bearing date on the 23rd day of March hasacknowledged the same before me in my county aforesaid.

 

Givenunder my hand and official seal this 23rd day of March.

 

Myterm of office expires on the 28th day of Februrary 28, 1999.

 
|   | /s/ Richard R. Sayers                      |
|--------|--------------------------------------------|
|   |                                       |
|   | Notary Public  [Notary Public’s Seal] |

 

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Loan Nos. 06717-06723

 

**SECURITY AGREEMENT**

 

THISSECURITY AGREEMENT (“Agreement”) is made as of the 23rd day of March, 1998, by **THE WESTERN**  **SIZZLIN****CORPORATION**, a Tennessee corporation, of P.O. Box 12167,Roanoke, Virginia 24023-2167 (“Guarantor”) in favor of **CAPTECFINANCIAL GROUP FUNDING CORPORATION**, a Michigan corporation, of 24 Frank Lloyd Wright Drive, Lobby L, 4thFloor, P.O. Box 544, Ann Arbor, Michigan, 48106 (together with its successors,assigns and transferees, “Lender”). This instrument shall become effective on March 31, 1998.

 

**WITNESSETH:**

 

ThisAgreement is made to secure the payment and performance obligations ofGuarantor under those certain Guaranties, effective of even date herewith, madeby Guarantor in favor of Lender (“Guaranties”).  The Guaranties secure the payment and performance obligations ofTHE WESTERN SIZZLIN STORES, INC., a Virginia corporation and a wholly ownedsubsidiary of Guarantor (“Borrower”), under those certain loans in the originalaggregate principal amount of Six Million Two Hundred Thousand and 00/100Dollars ($6,200,000.00) evidenced by those certain Promissory Notes, each ofeven dated herewith (“Notes”), made by Borrower in favor of Lender, which Notesare secured by the instruments referenced therein (together with the Notes,“Loan Documents”).

 

1.             **DEFINITIONS**  For purposes of this Agreement,the following terms shall be defined as follows:

 

(a)           **Franchise Agreement(s)** - shall mean those Agreement(s) by whichGuarantor grants an entity(ies) or individual(s), other than a Subsidiary, theright to operate a WesterN SizzliN Steak House or WesterN SizzliN Wood Grill Buffetrestaurant or to use the WesterN SizzliN or WesterN SizzliN Wood Grilltrademarks, trade names or service marks, which Agreements are specified onSchedule 1 attached hereto, as updated and amended from time to time.

 

(b)           **Subsidiary** - with respect to Guarantor shall mean anycorporation or other entity in which Guarantor or one of its Subsidiaries,holds securities or other interests having the power to election a majority ofthat corporation’s or entity’s board of directors or similar governing body, orotherwise having the power to direct the business and policies of thatcorporation or entity.

 

**2.            COLLATERAL.**

 

**Grant of Security Interest.** Guarantor grants Lender a security interest in all of Guarantor’sfranchise fee and franchise royalty fee accounts receivable now outstanding orhereafter arising owing to Guarantor and to be paid to Guarantor pursuant tothe Franchise Agreemt(s) including without limitation, franchise fees,management fees or any other similar fees for the use of trademarks, tradenames, service marks, advertising services, know-how, management services,materials, equipment and/or labor (collectively, “Franchise AccountsReceivable”), all general intangibles (as defined in the Uniform CommercialCode relating to the documents or instruments evidencing the obligations toGuarantor for payment of the Franchise Accounts Receivable, and all otherinstruments and documents evidencing the Franchise Agreemts now owned orhereafter acquired (collectively, the “Collateral”).  The Collateral shall also include any documents of titleevidencing the aforementioned Collateral. PROVIDED, HOWEVER, that Lender assumes no responsibility of performanceof any of Guarantor’s obligations with reference to any of said Collateral.

 

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3.                                       **WARRANTIESAND REPRESENTATIONS**.  Guarantor warrants and covenants to Lenderas follows:

 

(a)           **Authority**. This Agreement is the valid and binding obligation of Guarantor,enforceable in accordance with its terms. If Guarantor is a corporation, partnership, limited liability company orother organization, Guarantor is organized and validly existing in goodstanding under the laws of its state of establishment, and the execution,delivery and performance of this Agreement have been duly authorized by allnecessary action of Guarantor’s Board of Directors, partners, or governing bodyand will not violate Guarantor’s governing instruments or other Agreements.

 

(b)           **Name; Address; Location ofCollateral.** Guarantor’sname and principal place of business and the location(s) of the Collateral areaccurately set forth on the signature page and on Schedule 1 of this Agreement.

 

(c)           **Nature of Collateral.** All of the Collateral is held by Guarantorsolely for business purposes, and none of the Collateral constitutes consumergoods.  No part of the Collateralconsists of equipment used in farming operations or farm products or accountsor general intangibles arising from or relating to the sale of farm products bya farmer.  The Collateral was acquiredin the ordinary course of business of Guarantor.  There are no setoffs, counterclaims, or defenses against theCollateral, except as provided under the terms of the Franchise Agreements.

 

(d)           **Title to Collateral.** Guarantor has good and marketable title tothe Collateral, free and clear of any liens or encumbrances whatsoever, otherthan Permitted Liens, as hereinafter defined. Guarantor will keep the Collateral free of all other liens, encumbrancesand security interests.  Guarantor willdefend the Collateral against all claims and demands of all persons at any timeclaiming any interest in the Collateral. Guarantor warrants that the Franchise Accounts Receivable are due andowing under the related Franchise Agreements.

 

(e)           **Perfection and Priority of SecurityInterest.** The executionand delivery of this Agreement creates a valid security interest in theCollateral, and upon the filing of a UCC-1 financing statement with theSecretary of State of Tennessee and the Virginia State Corporation Commission,Lender will have a second priority perfected security Interest in theCollateral, subject only to the security interest of the Permitted Liens.

 

“PermittedLiens”  shall mean any mortgage,security interest or other lien or encumbrance that Central Fidelity NationalBank (“CFNB”) may now have or subsequently obtain as security for the paymentof that certain $500,000.00 Revolving Line of Credit granted to Guarantor byCFNB (the “Revolving Line of Credit”) and as evidenced by that certainCommercial Note and that certain Security Agreement, both dated May 26, 1995,between Guarantor and CFNB.  Lenderagrees that this Agreement and any mortgage, security interest or other lien(including possessory liens) or encumbrance that it may presently have orsubsequently create or acquire as security for the Guaranties is and shallremain subject and subordinate in right of priority to any mortgage, securityinterest or other lien or encumbrance that CFNB may now have or subsequentlyobtain as security for the payment of the Revolving Line of Credit.  Guarantor agrees to execute any instrumentor financing statements necessary to evidence the subordination herein setforth.

 

(f)            **Financing Statements.** Except as disclosed to and accepted byLender in writing and subject to any Permitted Liens, no financing statementcovering any part of the Collateral is on file in any public office.  Borrower will execute financing statement(s)in form acceptable to Lender and will pay the cost of filing financingstatement(s) in all public offices wherever filing is deemed desirable byLender.  A carbon, photographic or otherreproduction of this Agreement shall be sufficient as a financing statementunder the UCC and may be filed by Lender in any filing office.  This Agreement shall be terminated only bythe filing of a termination statement(s) in accordance with the applicableprovisions of the UCC.

 

(g)           **Payment of Taxes.** Guarantor shall pay when due and before anyinterest, collection fees or penalties accrue, all taxes, expenses,assessments, liens or other charges which may now or hereafter be levied orassessed against the Collateral, and shall furnish proof of payment of the sameupon request by Lender or, in the

 

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alternative, post a bondsatisfactory to Lender under the provisions of the applicable law with respectto any lien or claim of lien filed for record within ten (10) days of the dateof filing of said lien or claim.

 

**4.             PROHIBITIONON TRANSFER OR MODIFICATION. **Guarantor shall not transfer, sell, assign orlease or modify the Collateral or any interest therein, any part thereof, norpermit any other security interest to be created therein without the priorwritten consent of Lender.

 

**5.             PROHIBITIONON CHANGE OF NAME, ORGANIZATION OR LOCATION. **Guarantorshall not conduct Guarantor’s business under any name other than as appears inthis Agreement nor change or reorganize the type of Guarantor’s businessentity, nor change the location of any of the Collateral without the priorwritten consent of Lender, which consent shall not be unreasonablywithheld.  Guarantor shall maintain itspresent business form and right to do business.

 

**6.             RIGHT OFSETOFF. **Guarantor hereby grants to Lender the right,exercisable at any time and from tune to time, if Guarantor is then in default,to set off or apply against the Guaranties any account or deposit with Lenderof which Guarantor is the or one of the owners or against any other amountswhich may be in the possession of Lender and to the credit of Guarantor.

 

**7.             EXAMINATIONOF RECORDS AND COLLATERAL. **Guarantor shall at all times keep full andaccurate records of its business, including Franchise Accounts Receivable atGuarantor’s place of business, which records shall be open to inspection byLender during Guarantor’s regular business hours (whether the records areprinted or in magnetic, electronic, or machine readable or other form).  Lender is hereby granted the full right toenter upon any property owned by or in the possession of Guarantor to examineand inspect the Collateral during Guarantor’s regular business hours.  Guarantor shall, upon reasonable request byLender, deliver any or all records to a place of Lender’s choosing,

 

**8.             REIMBURSEMENTOF EXPENSES. **Guarantor shall reimburse Lender for allexpenses, including reasonable attorneys’ fees, incurred by Lender in enforcingthe rights of Lender hereunder, including the storage and liquidation ofCollateral, and any such expenses shall be included in the amount covered bythe Guaranties and shall be immediately due and payable.  Such expenses shall include, withoutlimitation, any costs or expenses incurred by Lender in any bankruptcy,reorganization, insolvency or other similar proceeding.

 

**9.             RIGHTSAND OBLIGATIONS OF LENDER. **In the event Guarantor fails to pay taxes or otherassessments (and does not post a bond, supply additional reserves or provideadditional security satisfactory to Lender) or fails to perform any other ofits obligations hereunder, Lender may (but shall not be required to) withoutnotice to or consent from Guarantor, pay or perform such obligations for theaccount of Guarantor and the same shall be added to the amount of theindebtedness covered by the Guaranties and secured by this Agreement and shallbe immediately due and payable.  Lendershall not be liable for any loss to the Collateral nor shall such loss reducethe balance due.  Guarantor herebyexpressly waives any and all claims or right to partial or complete dischargeresulting from Lender’s release of or failure to seek payment from any otherparty or failure to realize on any instrument or collateral or to setoff anymoneys, or to perfect its lien or realize on any collateral security,notwithstanding Section 3605 of the Uniform Commercial Code.  This shall include, without limitation, extensionof time or forbearance of payment or performance, bankruptcy, change in termsof notes, guaranties or other loan document, or waiver by Lender of anyrequired performance of any condition, or the surrender, release, exchange,dissipation, loss or alteration of any collateral, in whole or in part.

 

**10.          INDEMNIFICATION. **Guarantor shall indemnify and save Lender harmless from all claims,obligations, costs, expenses, including attorneys’ fees, and causes of actionor other rights asserted against Lender relating to the Collateral.  Any such claim, obligation, cost or expenseshall be an indebtedness of Guarantor covered by the Guaranties, secured bythis Agreement and payable upon demand.

 

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**11.          DEFAULT ANDREMEDIES.**

 

(a)           **Events ofDefault.** Any of thefollowing events shall, for purposes of this Agreement, constitute an “Event ofDefault”:

 

(i)Failure by Guarantor to pay any amount owing on or with respect to theindebtedness secured by the Guaranties when due, whether by maturity,acceleration or otherwise, which failure continues for five (5) business days.

 

(ii)Any failure by Borrower or Guarantor to comply with, or breach by Borrower orGuarantor of, any of the non-monetary terms, provisions, warranties orcovenants of the Note(s), this Agreement or the other Loan Documents, whichfailure continues for fifteen (15) days after the date of written notice toBorrower or Guarantor from Lender of such default; provided, however, that if:(i) the nature of Borrower’s (or Guarantor’s) noncompliance is such that morethan fifteen (15) days are reasonably required for its cure, (ii) Borrower (orGuarantor) has commenced such cure within said fifteen (15) day period, (iii)Borrower (or Guarantor) diligently prosecutes such cure to completion, (iv)Borrower (or Guarantor) provides Lender with written notice of thenoncompliance, AND (v) Borrower (or Guarantor) furnishes reserves or a securitybond, in an amount satisfactory to Lender in its sole discretion, then Borrower(or Guarantor) shall not be in default.

 

(iii)Institution of remedial proceedings or other exercise of rights and remedies bythe holder of any security interest or other lien against the Collateral or anyportion thereof, except for proceedings with respect to the Permitted Liens;provided, however, if there is a good faith dispute by Borrower or Guarantor asto the validity or reasonableness of the claim which is the basis for suchproceedings, then no Event of Default shall have occurred under this Section ifBorrower or Guarantor provides Lender with written notice of the proceedingsand furnishes reserves or a security bond for the proceedings satisfactory toLender.

 

(iv)The insolvency of Borrower or Guarantor or the admission in writing of Borrower’sor Guarantor’s inability to pay debts as they mature.

 

(v)Any statement, representation or information made or furnished by or on behalfof Borrower or Guarantor to Lender in connection with or to induce Lender toprovide any of the indebtedness secured by the Guaranties shall prove to befalse or materially misleading when made or furnished.

 

(vi)Institution of bankruptcy, reorganization, insolvency or other similarproceedings by or against Borrower or Guarantor, unless, in the case of apetition filed against Borrower or Guarantor, the same is dismissed withinsixty (60) days of the date of filing.

 

(vii)The issuance or filing of any judgment, attachment, levy, garnishment or thecommencement of any related proceedings or the commencement of any otherjudicial process upon or in respect to Borrower or Guarantor or the Collateral,except with respect to the Permitted Liens, in which the amount in controversyexceeds One Hundred Thousand Dollars ($100,000) and is not covered by theinsurance of Borrower or Guarantor, unless satisfied, or Borrower (or anyguarantor) furnishes reserves or a security bond in an amount satisfactory toLender in its sole discretion,released or discharged within sixty (60) daysafter the date of such issuance, filing or commencement.

 

(viii)Sale or other disposition by Borrower or Guarantor of any substantial portionof assets or property.

 

(ix)Dissolution, merger, consolidation, termination of existence, insolvency,business failure or assignment for the benefit of creditors of or by Borroweror Guarantor; without the prior written consent of Lender, which consent shallnot be unreasonably withheld.

 

(x)Any failure by Borrower or Guarantor to pay any indebtedness (other than toLender) in excess of One Hundred Thousand Dollars ($100,000) (and exclusive oftrade debt incurred in the ordinary course of business) when due, or anyfailure in the observance or performance of any term, covenant or condition inany

 

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document evidencing,securing or relating to such indebtedness, which failure continues beyond anyapplicable cure period.

 

(b)**Remedies.** Upon the occurrence of an Event of Defaultas defined above, unless the same is waived by Lender in writing, Lender shallbe entitled to the following remedies, all of which shall be cumulative and notalternative:

 

(i) **Collection of Franchise Accounts Receivable.** Guarantor shall continue to collect the Franchise AccountsReceivable until Lender notifies Guarantor and the obligors on such FranchiseAccounts Receivable, after which time Guarantor shall hold any proceedscollected in trust for Lender and shall not commingle the same and shall rumsuch proceeds over to the Lender immediately upon receipt thereof.

 

(ii) Guarantor shall, upon request from time to time and at any time byLender, provide Lender with an updated list of Guarantor’s Franchise AccountsReceivable, stating the current name and address of the obligor, the balancedue, and any comments pertaining to the status of the collection and defensesor counterclaims by such obligors to the extent that such information is notreflected in the financial statements of Guarantor to be delivered to Lenderpursuant to the terms of the Guaranties.

 

(iii) Lender may, or upon Lender’s request, Guarantor shall notifyobligors under such accounts of the existence of this Agreement and instructsuch obligors to make future payments directly to Lender at any time it choosesto do so only after default by Guarantor.

 

(iv) Guarantor hereby irrevocably authorizes Lender in Guarantor’s name:(a) To demand, receive, sue for and give receipts as acquittances for anymoneys due or to become due on any Franchise Accounts Receivable (a) withrespect to any Collateral, to assent to any or all extensions or postponementsof the time of payment thereof or any other indulgence in connection therewith,to the substitution, exchange or release of Collateral, to the addition orrelease of any party primarily or secondarily liable, to the acceptance of partialpayments thereon and the settlement, compromise or adjustment thereof, all insuch manner and at such time or times as Lender shall deem advisable; (b) tomake all necessary transfers of all or any part of the Collateral in connectionwith any sale, lease, or other disposition made pursuant hereto: to execute anddeliver for value all necessary or appropriate bills of sale, assignment andother instruments in connection with any such sale, lease, or otherdisposition, Guarantor hereby ratifies and confirms all that its said attorney(or any substitute) shall lawfully do hereunder and pursuant hereto;nevertheless, if so requested by Lender or a purchaser or lessee, Guarantorshall ratify and confirm any sale, lease or other disposition by executing anddelivering to Lender or such purchaser or lessee, all proper bills of sale,assignments, releases, leases, and other instruments as may be designated inany such request.  Guarantor understandsthat Lender has no duty for collection or preservation, beyond reasonable careof Guarantor’s Franchise Accounts Receivable.

 

(v) **Obtain Possession of Collateral.**  Guarantor agrees, upon requestof Lender, to assemble the Collateral and make it available to the Lender atany place reasonably convenient for Guarantor and Lender.  Guarantor grants Lender permission to enterupon any premises owned or occupied by Guarantor for the purpose of takingpossession of the Collateral or any part of it, including any paper coveringsuch Collateral or such part thereof as remains in Guarantor’s possession, andany and all proceeds of such Collateral as has been sold, wherever and inwhatever form.

 

(vi) Lender shall have the right to take possession of the Collateral,with or without demand, and with or without process of law.  Lender shall have the right to sell anddispose of the Collateral and to distribute the proceeds according to law.  If there is any statutory requirement fornotice, that requirement shall be met if Lender shall send notice to Borrowerat least five (5) days prior to the date of sale, disposition or other eventgiving rise to the required notice. Borrower shall be liable for any deficiency remaining after dispositionof the Collateral.

 

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(vii) **Additional Rightsand Remedies.** Lender shall also have, and may exercise in additionto the above any one or more of the rights and remedies under the UniformCommercial Code or any other law.

 

(c)           **Remedies Generally.**

 

(i) All remediesprovided for in Section 10(b) shall be available to the extent not prohibitedby law. Each remedy shall be cumulative and additional to any other remedy ofLender at law, in equity or by statute. No delay or omission to exercise anyright or power accruing upon any default or Event of Default shall impair anysuch right or power or shall be construed to be a waiver of, or acquiescencein, any such default or Event of Default.

 

(ii) Lender maywaive any Event of Default and may rescind any declaration of maturity ofpayments on the Indebtedness. In case of such waiver or recision Guarantor andLender shall be restored to their respective former positions and rights underthis Agreement. Any waiver byLender of any default or Event of Default shall be in writing and shall belimited to the particular default waived and shall not be deemed to waive anyother default.

 

(d)           **Application of Proceeds.** Any proceeds received by Lender from theexercise of remedies pursuant to Section 10(b) of this Agreement shall be applied as follows:

 

(i) First, to payall costs and expenses incidental to the leasing, foreclosure, sale or otherdisposition of the Collateral. These costs and expenses shall include, withoutlimit, any costs and expenses incurred by Lender (including, without limit,attorneys' fees and disbursements), and any taxes and assessments or otherliens and encumbrances prior to the lien of this Agreement.

 

(ii) Second, toall sums expended or incurred by Lender, directly or indirectly in carrying outany term, covenant or agreementunder this Agreement or anyrelated document, together with interest as provided this Agreement.

 

(iii) Third, tothe payment of the Indebtedness. If the proceeds are insufficient to fully paythe Indebtedness, then application shall be made first to late charges andinterest accrued and unpaid, then to any applicable prepayment premiums, andthen to unpaid fees and other charges, then to the outstanding principalbalance.

 

(iv) Fourth, anysurplus remaining shall be paid to Guarantor or to whomsoever may be lawfullyentitled.

 

(e)           **Further Actions.**  Promptly upon the request of Lender,Guarantor shall execute, acknowledge and deliver any and all further documents,security agreements, financingstatements and assurances, and do or cause to be done all further acts asLender may require to confirm and protect the lien of this Agreement or otherwise to accomplish thepurposes of this Agreement.

 

(f)            **Attorneys Fees.**Any reference in this Agreementto attorneys’ fees shall refer to reasonable fees, charges, costs and expensesof in-house and outside attorneys and paralegals, whether or not a suit orproceeding is instituted, and whether incurred at the trial court level, onappeal, in a bankruptcy, administrative or probate proceeding, in consultationwith counsel, or otherwise. All costs, expenses and fees of any nature forwhich Guarantor is obligated to reimburse or indemnify Lender are part of theindebtedness covered by the Guaranties and secured by this Agreement and are payable upon demand,unless expressly provided otherwise, with interest until repaid at the highestrate charged on any of the Indebtedness (but not to exceed the maximum ratepermitted by law).

 

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12**.           MISCELLANEOUS.**

 

(a)           **Notices**. Any notices, demands orother communications required or contemplated by this Agreement shall be deemed duly given ifdelivered or mailed, registered mail, return receipt requested, postage fullyprepaid, to the addresses of the parties as stated in this Agreement, or as subsequently directed bythe appropriate party in writing, and shall be deemed effective when mailed.

 

(b)           **Non-Waiver.**Failure of Lender to exercise any right hereunder, including the right todeclare the balance of the Indebtedness immediately due, shall not constitute awaiver nor preclude the Lender from exercising such right at any time. Neitherextension of time for payment or any other modification of the terms of theIndebtedness or of this Agreementshall operate to release the liability of Guarantor or permit any delay as tofuture payments. Acceptance by Lender of a partial payment shall not alter theobligation of Guarantor to make the full payment, nor shall acceptance of alate payment constitute Lender’s waiver of prompt payment of such payment orany subsequent payment. No waiver shall be valid unless in writing and signedby an officer of Lender.

 

(c)           **Joint and Several Obligations.** In the event that more than one person or entityexecutes this Agreemt, the obligations of each shall be joint and several.

 

(d)           **Governing Law.**  This Agreement shall be construed according to the laws of the State ofTennessee.

 

(e)           **Successors and Assigns.** This Agreement shall be binding upon the successors and assigns of Guarantorincluding, without limit, any debtor in possession or trustee in bankruptcy forGuarantor, and the rights and privileges of Lender under this Agreement shall inure to the benefit of itssuccessors and assigns. This shall not be deemed a consent by Lender to aconveyance by Guarantor of all or any part of the Collateral or of anyownership interest in Guarantor.

 

(f)            **Notices.**Notice from one party to another relating to this Agreement, if required, shall be deemed effective if made in writing(including telecommunications) and delivered to the recipient’s address, telexnumber or telecopier number set forth by any of the following means:  (1) hand delivery, (2) registered orcertified mail, postage prepaid, (3) express mail or other overnight courierservice or (4) telecopy, telex or other wire transmission with request forassurance of receipt in a manner typical with respect to communications of thattype. Notice made in accordance with these provisions shall be deemed deliveredon receipt if delivered by hand or wire transmission, on the third business dayafter mailing if mailed by registered or certified mail, or on the nextbusiness day after mailing or deposit with the postal service or an overnightcourier service if delivered by express mail or overnight courier. Guarantor’stelecopier number is (540) 345-0831, and Lender’s telecopier number is (313)994-1376.

 

(g)           **Entire Agreement; Amendments.**  This Agreement and any Agreementto which it refers state all rights and obligations of the parties andsupersede all other Agreements(oral or written) with respect to the security interests granted by this Agreement. Any amendment of this Agreementshall be in writing and shall require the signature of Guarantor and Lender.

 

(h)           **Partial Invalidity.**The invalidity orunenforceability of any provision of this Agreement shall not affect the validity or enforceability of theremaining provisions of this Agreement.

 

(i)            **Inspections.**Any inspection, audit, appraisal or examination by Lender or its agents of theCollateral or of information or documents pertaining to the Collateral is forthe sole purpose of protecting Lender’s interests under this Agreement and is not for the benefit orprotection of Guarantor or any third party.

 

(j)            **Joint and Several Liability.** In theevent that more than one person or entity executes this Agreement, the obligations of each person orentity shall be joint and several.

 

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(k)           **Automatic Reinstatement.**Notwithstanding any prior revocation, termination, surrender or discharge ofthis Agreement, theeffectiveness of this Agreementshall automatically continue or be reinstated, as the case may be, in the eventthat:

 

(i)            Any payment received or credit givenby Lender in respect of the Indebtedness is determined to be a preference,impermissible setoff, fraudulent conveyance, diversion of trust funds, orotherwise required to be returned to Guarantor or any third party under anyapplicable state or federal law, including, without limit, laws pertaining tobankruptcy or insolvency, in which case this Agreement shall be enforceable as if any such payment or credit had notbeen received or given, whether or not Lender relied upon this payment orcredit or changed its position as a consequence of it.

 

(ii)           In the event of continuation orreinstatement of this Agreement,Guarantor agrees upon demand by Lender to execute and deliver to Lender thosedocuments which Lender determines are appropriate to further evidence (in thepublic records or otherwise) this continuation or reinstatement, although thefailure of Guarantor to do so shall not affect in any way the reinstatement orcontinuation. If Guarantor does not execute and deliver to Lender suchdocuments upon demand, Lender and each officer of Lender is irrevocablyappointed (which appointment is coupled with an interest) the true and lawfulattorney of Guarantor (with full power of substitution) to execute and deliversuch documents in the name and on behalf of Guarantor.

 

**(1)           WAIVEROF JURY TRIAL. GUARANTOR AND LENDER ACKNOWLEDGE THAT THE RIGHT TO TRIAL BYJURY IS A CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED. EACH PARTY, AFTERCONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF THEIRCHOICE, KNOWINGLY AND VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT, WAIVES ANY RIGHTTO TRIAL BY JURY IN THE EVENT OF LITIGATION REGARDING THE PERFORMANCE ORENFORCEMENT OF, OR IN ANY WAY RELATED TO, THIS AGREEMENT OR THE INDEBTEDNESS.**

 

**(m)**          **Assignment.** This Agreement is freely assignable, in whole orin part, by Lender without prior notice to or consent of Guarantor; provided,however, that Lender (or its assignee) shall provide written notice of suchassignment to Guarantor in the event that Lender (or such assignee) desires todesignate a new person or entity as payee and/or a new place of payment for theobligations under the Notes. Guarantor may not, in whole or in part, directlyor indirectly, assign this Agreementor its rights hereunder or delegate its duties hereunder without, in eachinstance, the specific prior written consent of Lender, which consent may bewithheld or delayed in Lender’s sole discretion. Lender shall be fullydischarged from all responsibility accruing hereunder from and after theeffective date of any such assignment. Lender’s assignee shall, to the extentof the assignment, be vested with all the powers and rights of Lender hereunder(including those granted under Section 10 hereof or otherwise with respect tothe Collateral), and to the extent of such assignment the assignee may fullyenforce such rights and powers, and all references to Lender shall mean andrefer to such assignee. Lender shall retain all rights and powers hereby givennot so assigned, transferred and/or delivered. Guarantor hereby waives alldefenses which Guarantor may be entitled to assert against Lender’s assigneewith respect to liability accruing hereunder prior to the effective date of anyassignment of Lender’s interest herein.

 

**(n)**           **Securitization.** Guarantor understandsand agrees that Lender may, from time to time, assign its rights and powerunder the Note(s), this Agreementand any other Loan Documents, in whole or in part, hi connection with asecuritization program. Guarantor agrees to enter into an amendment to theNote(s), this Agreement and anyother Loan Documents if such amendments are required by a nationally recognizedrating agency in connection with a securitization program sponsored by Lenderand in which the Note(s), this Agreementand any other Loan Documents are to be included; provided that Guarantor shallnot be obligated to enter into any amendment which adversely affects Guarantoror otherwise adversely alters any of the financial terms of the Notes, thisAgreement and any other LoanDocuments.

 

13.           **ENTIREAGREEMENT.** ThisAgreement contains all of theunderstandings, promises and undertakings of the parties hereto. All priorunderstandings and agreements orstatements, oral or written, are rescinded except as stated herein.

 

8

----

 

Schedule 1

To

Security Agreement between The WesterN SizzliNCorporation and Captec Financial Group Funding Corporation

 
| **Title of  Agreem****ent** |   | **Date** |   | **Name of Franchisee** |   | **Location of Franchise** |
|-----------------------------|--------|----------|--------|------------------------|--------|---------------------------|
|                        |   |     |   |                   |   |                      |
|                        |   |     |   |                   |   |                      |
|                        |   |     |   |                   |   |                      |

 

 

9

----

 

The WestorN SizzliN Corporation

Schedule 1, To Security Agreemt between The WesterNSizzliN Corporation andCaptec Financial Group Funding Corporation

 
| **Type of Agreement** |   | **Date** |   | **Name of  Franchisee**                 |   | **Store  Number** |   | **City**             |   | **State** |   |
|-----------------------|--------|----------|--------|-----------------------------------------|--------|-------------------|--------|----------------------|--------|-----------|--------|
| Franchise  Agreemt    |   | 1/30/78  |   | Vezertzis, Pat; Hamilton, Paul          |   | 613               |   | Ft. Payne            |   | Alabama   |   |
| Franchise  Agreemt    |   | 2/9/79   |   | Hill, Jimmy & Harvey                |   | 709               |   | Opelika              |   | Alabama   |   |
| Franchise  Agreemt    |   | 12/1/83  |   | Stanoll, Ron                            |   | 1050              |   | Anniston             |   | Alabama   |   |
| Franchise  Agreemt    |   | 10/9/89  |   | Vezertzis, Pat                          |   | 1323              |   | Rainbow City         |   | Alabama   |   |
| Franchise  Agreemt    |   | 1/12/98  |   | Shockley, Leonard & Martha; Penton  |   | 1325              |   | Alexander City       |   | Alabama   |   |
| Franchise  Agreemt    |   | 5/15/88  |   | Stanoll, Ron                            |   | 1392              |   | Oxford               |   | Alabama   |   |
| Franchise  Agreemt    |   | 5/8/89   |   | Schwichtenberg, Richard; Vezertzis, I   |   | 2007              |   | Scottsboro           |   | Alabama   |   |
| Franchise  Agreemt    |   | 9/11/95  |   | Vezertzis, Pat; Schwichtenberg, Rich    |   | 5021              |   | Arab                 |   | Alabama   |   |
| Franchise  Agreemt    |   | 6/23/97  |   | Patty, Blyde & Margaret             |   | 8002              |   | Prescott             |   | Arizona   |   |
| Franchise  Agreemt    |   | 4/22/78  |   | Barzda, Mary                            |   | 330               |   | Pine Bluff           |   | Arkansas  |   |
| Franchise  Agreemt    |   | 9/18/75  |   | Gardner, Jerry & Vonda              |   | 449               |   | Fort Smith           |   | Arkansas  |   |
| Franchise  Agreemt    |   | 6/28/77  |   | Christison, W; Hamilton, Dwayne         |   | 500               |   | Hot Springs          |   | Arkansas  |   |
| Franchise  Agreemt    |   | 10/26/77 |   | Brashear, John                          |   | 568               |   | Conway               |   | Arkansas  |   |
| Franchise  Agreemt    |   | 6/21/90  |   | Dudley, Gerald                          |   | 754               |   | Jonesboro            |   | Arkansas  |   |
| Franchise  Agreemt    |   | 11/24/79 |   | Gardner, Jerry & Vonda              |   | 782               |   | Fort Smith           |   | Arkansas  |   |
| Franchise  Agreemt    |   | 7/10/80  |   | Barzda, Mary                            |   | 819               |   | Pine Bluff           |   | Arkansas  |   |
| Franchise  Agreemt    |   | 5/19/83  |   | Gardner, Jerry & Vonda              |   | 1000              |   | Van Buren            |   | Arkansas  |   |
| Franchise  Agreemt    |   | 5/9/84   |   | Chambless, Gary; Campbell, P; Vess      |   | 1066              |   | Hope                 |   | Arkansas  |   |
| Franchise  Agreemt    |   | 5/20/84  |   | Walker, Barbara                         |   | 1114              |   | Brinkley             |   | Arkansas  |   |
| Franchise  Agreemt    |   | 1/28/85  |   | Bailey, Michael; Howard, Eddie          |   | 1167              |   | Malvern              |   | Arkansas  |   |
| Franchise  Agreemt    |   | 11/5/85  |   | Edwards, Benny                          |   | 1231              |   | Clinton              |   | Arkansas  |   |
| Franchise  Agreemt    |   | 1/21/86  |   | Sexton, Jack                            |   | 1240              |   | Clarksville          |   | Arkansas  |   |
| Franchise  Agreemt    |   | 9/1/89   |   | Bailey, Michael; Howard, Eddie          |   | 1260              |   | Stuttgart            |   | Arkansas  |   |
| Franchise  Agreemt    |   | 6/23/86  |   | Hamner, III, Elgin                      |   | 1281              |   | Benton               |   | Arkansas  |   |
| Franchise  Agreemt    |   | 1/23/87  |   | Daugherty, Jack                         |   | 1317              |   | Magnolia             |   | Arkansas  |   |
| Franchise  Agreemt    |   | 8/25/87  |   | Grissom, Jimmy                          |   | 1354              |   | Crossett             |   | Arkansas  |   |
| Franchise  Agreemt    |   | 3/1/88   |   | Hamner, III, Elgin                      |   | 1379              |   | Searcy               |   | Arkansas  |   |
| Franchise  Agreemt    |   | 6/22/87  |   | Bazyk, Mark & Laura                 |   | 1418              |   | Russellville         |   | Arkansas  |   |
| Franchise  Agreemt    |   | 5/14/89  |   | Hamner, III, Elgin                      |   | 2000              |   | Arkadelphia          |   | Arkansas  |   |
| Franchise  Agreemt    |   | 12/27/89 |   | Wallace, M A & Vaudine              |   | 2010              |   | Wynne                |   | Arkansas  |   |
| Franchise  Agreemt    |   | 3/21/94  |   | Clayton, Jack; Sisler, Allan            |   | 5004              |   | Batesville           |   | Arkansas  |   |
| Franchise  Agreemt    |   | 6/15/94  |   | Bazyk, Mark & Laura                 |   | 5005              |   | Springdale           |   | Arkansas  |   |
| Franchise  Agreemt    |   | 10/1/94  |   | Hicks, Don & Rick                   |   | 5006              |   | Nashville            |   | Arkansas  |   |
| Franchise  Agreemt    |   | 1/1/92   |   | Scott, Frank                            |   | 816               |   | Pueblo               |   | Colorado  |   |
| Franchise  Agreemt    |   | 3/3/86   |   | Cash, Robert; Boswell, Bob; Henley,     |   | 1256              |   | Evans                |   | Colorado  |   |
| Franchise  Agreemt    |   | 3/5/87   |   | Welch, William                          |   | 1326              |   | Colorado Springs     |   | Colorado  |   |
| Franchise  Agreemt    |   | 1/16/87  |   | Welch, William; Sims, Loyd              |   | 1329              |   | Grand Junction       |   | Colorado  |   |
| Franchise  Agreemt    |   | 8/15/94  |   | Lu, Thomas & Alice                  |   | 5001              |   | Durango              |   | Colorado  |   |
| Franchise  Agreemt    |   | 6/21/77  |   | Williams, Rick; Colborn, Ron            |   | 493               |   | Mt. Vernon           |   | Illinois  |   |
| Franchise  Agreemt    |   | 5/24/79  |   | Colborn, Ron; James, Rick               |   | 744               |   | Marion               |   | Illinois  |   |
| Franchise  Agreemt    |   | 9/21/93  |   | McMillin, Bradley                       |   | 1131              |   | O'Fallon             |   | Illinois  |   |
| Franchise  Agreemt    |   | 6/25/87  |   | Jones, Larry; Pamela; Welch William     |   | 1339              |   | Bloomington          |   | Indiana   |   |
| Franchise  Agreemt    |   | 8/23/97  |   | Khoury, George                          |   | 778               |   | Wichita              |   | Kansas    |   |
| Franchise Agreemt     |   | 4/28/82  |   | Cash, Robert; Reaves, Jimmy             |   | 901               |   | Harrison             |   | Kansas    |   |
| Franchise  Agreemt    |   | 8/29/83  |   | Cash, Robert; McElroy, Lenord           |   | 1023              |   | Salina               |   | Kansas    |   |
| Franchise  Agreemt    |   | 10/15/97 |   | Davis, Steven; Debbie Jo                |   | 1087              |   | Emporia              |   | Kansas    |   |
| Franchise  Agreemt    |   | 6/8/84   |   | Albritton, Dale                         |   | 1102              |   | Pittsburg            |   | Kansas    |   |
| Franchise  Agreemt    |   | 7/23/84  |   | Cirks, Todd; Dick, Curtis               |   | 1110              |   | Winfield             |   | Kansas    |   |
| Franchise  Agreemt    |   | 4/19/96  |   | Khoury, George & Theresa            |   | 1274              |   | Augusta              |   | Kansas    |   |
| Franchise  Agreemt    |   | 4/4/91   |   | Cash, Robert; McElroy, Leonard          |   | 5000              |   | Leavenworth          |   | Kansas    |   |
| Franchise  Agreemt    |   | 8/17/77  |   | Mills, H; Hain, J.; Harris, H A         |   | 523               |   | Somerset             |   | Kentucky  |   |
| Franchise  Agreemt    |   | 11/23/77 |   | Green, Jerry; Mills, H; Carter, Joe     |   | 682               |   | Danville             |   | Kentucky  |   |
| Franchise  Agreemt    |   | 12/13/77 |   | Moody, Kenneth                          |   | 590               |   | Harlan               |   | Kentucky  |   |
| Franchise  Agreemt    |   | 4/17/78  |   | Elkins, Johnny & Patricia           |   | 635               |   | Goody (Forest Hills) |   | Kentucky  |   |
| Franchise  Agreemt    |   | 7/11/83  |   | Barker, Andrew, [ILLEGIBLE]; Hodges, Ed |   | 1010              |   | Richmond             |   | Kentucky  |   |
| Franchise  Agreemt    |   | 8/15/95  |   | Kelly, Ted & Sharon                 |   | 1263              |   | Jamestown            |   | Kentucky  |   |
| Franchise  Agreemt    |   | 6/22/88  |   | Hurst, Larry                            |   | 1401              |   | Corbin               |   | Kentucky  |   |
| Franchise  Agreemt    |   | 10/3/89  |   | Diez, Doug                              |   | 46                |   | Baton Rouge          |   | Louisiana |   |
| Franchise  Agreemt    |   | 12/28/81 |   | Case, George & Georgia              |   | 888               |   | Bogalusa             |   | Louisiana |   |
| Franchise  Agreemt    |   | 1/4/90   |   | Vauleman, Norman & Marcia           |   | 944               |   | Alexandria           |   | Louisiana |   |
| Franchise  Agreemt    |   | 11/21/84 |   | Albritton, Keith; W L                   |   | 1168              |   | Monroe               |   | Louisiana |   |
| Franchise  Agreemt    |   | 6/18/85  |   | Parker, Bob                             |   | 1197              |   | Lake Charles         |   | Louisiana |   |
| Franchise  Agreemt    |   | 3/18/88  |   | Diez, Doug                              |   | 1383              |   | Thibodeaux           |   | Louisiana |   |
| Franchise  Agreemt    |   | 3/18/88  |   | Diez, Doug                              |   | 1384              |   | Gonzales             |   | Louisiana |   |

 

1

----

 
| **Type of Agreement** |   | **Date** |   | **Name of  Franchisee**                  |   | **Store  Number** |   | **City**              |   | **State**    |   |
|-----------------------|--------|----------|--------|------------------------------------------|--------|-------------------|--------|-----------------------|--------|--------------|--------|
| Franchise  Agreemt    |   | 7/1/92   |   | Albritton, Keith; W L                    |   | 2032              |   | W. Monroe             |   | Louisiana    |   |
| Franchise  Agreemt    |   | 9/16/76  |   | Snyder, Bruce & Larry                |   | 678               |   | LaVale                |   | Maryland     |   |
| Franchise  Agreemt    |   | 9/1/81   |   | Romsburg, Betty; Pual; Kim               |   | 873               |   | Hagerstown            |   | Maryland     |   |
| Franchise  Agreemt    |   | 6/10/71  |   | Jackson, Kenneth                         |   | 35                |   | Jackson               |   | Mississippi  |   |
| Franchise  Agreemt    |   | 8/24/89  |   | Sethi, Dr. S L                           |   | 93                |   | Jackson               |   | Mississippi  |   |
| Franchise  Agreemt    |   | 12/9/75  |   | Sethi, Dr. S L                           |   | 270               |   | Greenwood             |   | Mississippi  |   |
| Franchise  Agreemt    |   | 8/24/89  |   | Sethi, Dr. S L                           |   | 463               |   | Pearl (Flowood)       |   | Mississippi  |   |
| Franchise  Agreemt    |   | 11/7/77  |   | Sethi, Dr. S L, Monica, Rasksha          |   | 588               |   | Cleveland             |   | Mississippi  |   |
| Franchise  Agreemt    |   | 12/20/79 |   | Hontzas, Thomas; Tattle, A. A.           |   | 792               |   | Meridian              |   | Mississippi  |   |
| Franchise  Agreemt    |   | 2/22/80  |   | Sethi, Dr. S L; Monica; Jackie's Int'l;  |   | 804               |   | Waynesboro            |   | Mississippi  |   |
| Franchise  Agreemt    |   | 6/3/82   |   | Sethi, Dr. S L                           |   | 913               |   | Grenada               |   | Mississippi  |   |
| Franchise  Agreemt    |   | 8/17/82  |   | Albritton, Keith;   W L             |   | 921               |   | Natchez               |   | Mississippi  |   |
| Franchise Agreemt     |   | 7/8/96   |   | Hughes, Robert C.                        |   | 969               |   | Tupelo                |   | Mississippi  |   |
| Franchise  Agreemt    |   | 3/7/83   |   | Sethi, Dr. S L                           |   | 985               |   | Brookhaven            |   | Mississippi  |   |
| Franchise  Agreemt    |   | 3/20/84  |   | Hontzas, Thomas; Tattle, A. A.           |   | 1046              |   | Mages                 |   | Mississippi  |   |
| Franchise  Agreemt    |   | 7/6/84   |   | Sethi, Dr. S L                           |   | 1108              |   | Senatobia             |   | Mississippi  |   |
| Franchise  Agreemt    |   | 12/6/85  |   | Sethi, Dr. S L                           |   | 1238              |   | Philadelphia          |   | Mississippi  |   |
| Franchise  Agreemt    |   | 5/1/92   |   | Liberto, Vincent; Mauldin, Joe; King,    |   | 1276              |   | Laurel                |   | Mississippi  |   |
| Franchise  Agreemt    |   | 11/14/86 |   | Sethi, Dr. S L                           |   | 1308              |   | Batesville            |   | Mississippi  |   |
| Franchise  Agreemt    |   | 3/26/87  |   | Sethi, Dr. S L                           |   | 1332              |   | New Albany            |   | Mississippi  |   |
| Franchise  Agreemt    |   | 3/29/88  |   | Evans, Alfred; Worbington, Alfred        |   | 1385              |   | Clarksdale            |   | Mississippi  |   |
| Franchise Agreemt     |   | 6/5/88   |   | Sethi, Dr. S L                           |   | 1416              |   | Boonesville           |   | Mississippi  |   |
| Franchise  Agreemt    |   | 11/10/89 |   | Sethi, Dr. S L; Monica; Raksha           |   | 2021              |   | Amory                 |   | Mississippi  |   |
| Franchise  Agreemt    |   | 6/13/79  |   | Albritton, Larry & Dale              |   | 749               |   | Joplin                |   | Missouri     |   |
| Franchise Agreemt     |   | 3/10/96  |   | Siraj, Saleem; Mohamed                   |   | 899               |   | Branson               |   | Missouri     |   |
| Franchise  Agreemt    |   | 4/10/95  |   | Siraj, Saleem; Mohamed                   |   | 1079              |   | Branson               |   | Missouri     |   |
| Franchise  Agreemt    |   | 6/15/84  |   | Cobb, Doug; Scholfield, Robert; Don      |   | 1124              |   | Springfield           |   | Missouri     |   |
| Franchise  Agreemt    |   | 7/1/95   |   | Lai, Wu Shih; Lee Y                      |   | 1128              |   | Lebanon               |   | Missouri     |   |
| Franchise  Agreemt    |   | 3/6/87   |   | Johnson, Kimmie & Ray                |   | 1327              |   | Monett                |   | Missouri     |   |
| Franchise  Agreemt    |   | 6/24/87  |   | Ackman, David; Sakarelos, Nick           |   | 1338              |   | Jackson (Cape Girard) |   | Missouri     |   |
| Franchise  Agreemt    |   | 6/25/94  |   | Siraj, Saleem                            |   | 5006              |   | Grandview             |   | Missouri     |   |
| Franchise  Agreemt    |   | 2/12/96  |   | Dudley, Gerald; Dudley, Beauton          |   | 5022              |   | Popular Bluff         |   | Missouri     |   |
| Franchise  Agreemt    |   | 5/1/94   |   | O'Sullivan, Tom & Mary               |   | 472               |   | Alamorgordo           |   | New Mexico   |   |
| Franchise  Agreemt    |   | 7/23/87  |   | Dobry, Mary                              |   | 1345              |   | Hobbs                 |   | New Mexico   |   |
| Franchise  Agreemt    |   | 3/3/95   |   | Zvonar, David; Velasquez, Doris          |   | 2030              |   | Tucumcari             |   | New Mexico   |   |
| Franchise  Agreemt    |   | 1/12/98  |   | Lu, Thomas & Alice                   |   | 5033              |   | Farmington            |   | New Mexico   |   |
| Franchise  Agreemt    |   | 3/13/78  |   | Albrittain D; Hill W; Collins B, L; Loga |   | 618               |   | Lima                  |   | Ohio         |   |
| Franchise  Agreemt    |   | 7/14/73  |   | Mott, Dennis B., Jr., & Hazel        |   | 113               |   | Tulsa                 |   | Oklahoma     |   |
| Franchise  Agreemt    |   | 9/12/74  |   | McNear, Mack                             |   | 163               |   | Oklahoma City         |   | Oklahoma     |   |
| Franchise  Agreemt    |   | 10/19/75 |   | McNear, Mack                             |   | 397               |   | Oklahoma City         |   | Oklahoma     |   |
| Franchise  Agreemt    |   | 12/10/76 |   | McNear, Mack                             |   | 417               |   | Edmond                |   | Oklahoma     |   |
| Franchise  Agreemt    |   | 6/17/77  |   | McNear, Mack                             |   | 494               |   | Oklahoma City         |   | Oklahoma     |   |
| Franchise  Agreemt    |   | 6/26/77  |   | Harris, S; Albritton; Hamilton; Harden   |   | 499               |   | Enid                  |   | Oklahoma     |   |
| Franchise  Agreemt    |   | 4/16/96  |   | Shaw, II, Sidney                         |   | 517               |   | Stillwater            |   | Oklahoma     |   |
| Franchise  Agreemt    |   | 8/29/77  |   | Albritton, Dale; Morrow, Jeff, David     |   | 522               |   | Muskogee              |   | Oklahoma     |   |
| Franchise  Agreemt    |   | 6/17/77  |   | McNear, Mack                             |   | 526               |   | Midwest City          |   | Oklahoma     |   |
| Franchise  Agreemt    |   | 9/3/77   |   | McNear, Mack                             |   | 527               |   | Oklahoma City         |   | Oklahoma     |   |
| Franchise  Agreemt    |   | 2/6/78   |   | Mott, Jr, Dennis & Hazel             |   | 606               |   | Sand Springs          |   | Oklahoma     |   |
| Franchise  Agreemt    |   | 8/16/76  |   | McNear, Mack                             |   | 664               |   | Moore                 |   | Oklahoma     |   |
| Franchise  Agreemt    |   | 12/21/81 |   | Gardner, Jim                             |   | 866               |   | McAlester             |   | Oklahoma     |   |
| Franchise  Agreemt    |   | 7/12/82  |   | Suddearth, Sam & Randy Dale          |   | 917               |   | Shawnee               |   | Oklahoma     |   |
| Franchise  Agreemt    |   | 9/13/82  |   | McNear, Mack; Coursey, Bill              |   | 932               |   | Chickasha             |   | Oklahoma     |   |
| Franchise  Agreemt    |   | 9/27/82  |   | Jobes, Rick; Morrow, David & Jeff    |   | 937               |   | Sallisaw              |   | Oklahoma     |   |
| Franchise  Agreemt    |   | 1/26/96  |   | Rifal, Mike; Alishammat, M A             |   | 940               |   | Broken Arrow          |   | Oklahoma     |   |
| Franchise  Agreemt    |   | 4/18/96  |   | Shaw, II, Sidney                         |   | 995               |   | Ponca City            |   | Oklahoma     |   |
| Franchise  Agreemt    |   | 8/15/94  |   | Ray, Forrest                             |   | 1030              |   | Elk City              |   | Oklahoma     |   |
| Franchise  Agreemt    |   | 6/19/85  |   | McNear, Mack                             |   | 1200              |   | Del City              |   | Oklahoma     |   |
| Franchise  Agreemt    |   | 4/29/88  |   | Caufield, Dennis & Karen             |   | 1397              |   | Bartlesville          |   | Oklahoma     |   |
| Franchise  Agreemt    |   | 11/1/92  |   | Wise, Connie & Don                   |   | 2034              |   | Poteau                |   | Oklahoma     |   |
| Franchise  Agreemt    |   | 10/1/94  |   | Ray, Forrest                             |   | 5013              |   | Altus                 |   | Oklahoma     |   |
| Franchise  Agreemt    |   | 9/22/97  |   | Suddearth, Randy & Sam               |   | 5036              |   | Seminole              |   | Oklahoma     |   |
| Franchise  Agreemt    |   | 6/2/77   |   | Bratio, Dusan; Wolf, Jan; Thakrar, A.    |   | 488               |   | Carlisle              |   | Pennsylvania |   |
| Franchise  Agreemt    |   | 7/31/84  |   | Sickle, David; Yodock, Lee Jr.           |   | 1118              |   | Bloomsburg            |   | Pennsylvania |   |
| Franchise  Agreemt    |   | 8/18/87  |   | Bratio, Dusan                            |   | 1352              |   | Harrisburg            |   | Pennsylvania |   |

 

2

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| **Type of Agreement** |   | **Date** |   | **Name of  Franchisee**                     |   | **Store  Number** |   | **City**        |   | **State**     |   |
|-----------------------|--------|----------|--------|---------------------------------------------|--------|-------------------|--------|-----------------|--------|---------------|--------|
| Franchise  Agreemt    |   | 6/5/74   |   | Miller, Aline; Hugh, Ellis, Sharon M.       |   | 157               |   | Memphis         |   | Tennessee     |   |
| Franchise  Agreemt    |   | 9/20/75  |   | Scudder, A; Quinton, W.; Winget, R.         |   | 235               |   | Columbia        |   | Tennessee     |   |
| Franchise  Agreemt    |   | 1/31/77  |   | Milhorne, D.; Wells J & MT; Jones, Cl   |   | 431               |   | Jackson         |   | Tennessee     |   |
| Franchise  Agreemt    |   | 12/20/77 |   | Burris, Sr., David, Michelle; Pirkle, J.    |   | 589               |   | Athens          |   | Tennessee     |   |
| Franchise  Agreemt    |   | 12/28/78 |   | Bible, John; Harris HA; Mason W; Gib        |   | 697               |   | East Morristown |   | Tennessee     |   |
| Franchise  Agreemt    |   | 7/1/93   |   | Stanfill, Jerry; Carter, J. P; Grics Ma.    |   | 1268              |   | Lexington       |   | Tennessee     |   |
| Franchise  Agreemt    |   | 8/1/96   |   | Vezertzis, Pat                              |   | 1319              |   | Tullahoma       |   | Tennessee     |   |
| Franchise  Agreemt    |   | 9/1/90   |   | Burris, Jr. & Sr., David; Vezertzis Pat |   | 1409              |   | Jasper          |   | Tennessee     |   |
| Franchise  Agreemt    |   | 4/26/93  |   | Burris, Sr., David & Michelle           |   | 2035              |   | Dayton          |   | Tennessee     |   |
| Franchise  Agreemt    |   | 10/1/93  |   | Hurst, Larry; Lois                          |   | 2037              |   | Knoxville       |   | Tennessee     |   |
| Franchise  Agreemt    |   | 7/10/97  |   | Vezertzis, Pat                              |   | 5035              |   | Dickson         |   | Tennessee     |   |
| Franchise  Agreemt    |   | 4/12/76  |   | Brown, Floyd                                |   | 322               |   | Midland         |   | Texas         |   |
| Franchise  Agreemt    |   | 4/12/76  |   | Brown, Floyd                                |   | 323               |   | Odessa          |   | Texas         |   |
| Franchise  Agreemt    |   | 5/1/96   |   | Mills, Joe, Catherine; Robertson, B.        |   | 324               |   | Abilene         |   | Texas         |   |
| Franchise  Agreemt    |   | 6/13/81  |   | Branstetter, Neal; Morrow, David            |   | 569               |   | Amarillo        |   | Texas         |   |
| Franchise  Agreemt    |   | 10/14/85 |   | Dale, Timothy; Borralls, W L; D S; J I      |   | 1170              |   | Mt. Pleasant    |   | Texas         |   |
| Franchise  Agreemt    |   | 4/1/85   |   | Hicks, Don                                  |   | 1194              |   | Texarkana       |   | Texas         |   |
| Franchise  Agreemt    |   | 7/18/86  |   | Mc Gee, Robert                              |   | 1258              |   | Denton          |   | Texas         |   |
| Franchise  Agreemt    |   | 1/1/92   |   | Corse, Earl & Carolyn                   |   | 2031              |   | Dumas           |   | Texas         |   |
| Franchise  Agreemt    |   | 6/12/95  |   | Ray, Forrest                                |   | 5019              |   | Lubbock         |   | Texas         |   |
| Franchise  Agreemt    |   | 12/15/96 |   | Broyles, Kelly                              |   | 5028              |   | Sulphur Springs |   | Texas         |   |
| Franchise  Agreemt    |   | 12/23/96 |   | Dodd, Jerry                                 |   | 5031              |   | Decatur         |   | Texas         |   |
| Franchise  Agreemt    |   | 9/27/94  |   | Christy, Frank                              |   | 167               |   | Parkersburg     |   | West Virginia |   |
| Franchise  Agreemt    |   | 3/1/91   |   | Wilson, Janet & Ronald                  |   | 991               |   | Weston          |   | West Virginia |   |
| Franchise  Agreemt    |   | 6/7/83   |   | Malcolm, Richard; Robinson, Patricia        |   | 1001              |   | Westover        |   | West Virginia |   |
| Franchise  Agreemt    |   | 1/24/95  |   | Wingo, John; Mariane; Willie III            |   | 1270              |   | Lewisburg       |   | West Virginia |   |

 

3

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14.          **GOVERNING LAW.**This Agreement shall beconstrued according to the laws of the State of Tennessee.

 

(a)           Except as otherwise provided, allother terms used herein shall have the meanings assigned to them in Article 9(or, absent definition in Article 9, in any other Article) of the UniformCommercial Code.

 

IN WITNESS WHEREOFthe Guarantor has executed this Agreemt on the day and year first abovewritten.

 

Guarantor’s principalplace of business is located in the City of Roanoke, Commonwealth of Virginia.

 

 
| **Location(s) of the Collateral**                           | **GUARANTOR:**                       |               |
|-------------------------------------------------------------|--------------------------------------|--------------------|
|                                                        |                                 |               |
| 416 South Jefferson Street, 4th Floor                       | **THE  WESTERN SIZZLIN CORPORATION** |               |
| Roanoke, Virginia 24012 and each                            |                                 |               |
| of the sites listed on Schedule 1 hereto.                   |                                 |               |
|                                                        | By:                                  | /s/ Victor F. Foti |   |
|                                                        |                                 |               |   |
|                                                        | Its:                                 | President          |   |
|                                                        |                                 |
|                                                        |                                 |               |
|                                                        |                                 |               |
| **Guarantor’s  Address:**                              |                                 |               |
|                                                        |                                 |               |
| P.O. Box 12167                                              |                                 |               |
| Roanoke, Virginia  24023-2167                               |                                 |               |
|                                                        |                                 |               |
| **Guarantor’s Tax Identification  Number:** 54-1684114 |                                 |               |
|                                                             |                                      |                    |  |  |  |  |

 

 

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Loan Nos. 06718, 06722& 06723

Manassas, Alexandria, andFalls Church, Virginia

 

**SECURITYAGREEMENT**

 

THIS SECURITY AGREEMENT(“Agreement”) is made as of the23 day of March, 1998, by **THE WESTERN SIZZLINSTORES, INC**., a Virginia corporation, of P.O. Box 12167, Roanoke,Virginia 24023-2167 (“Borrower”) in favor of**CAPTEC FINANCIAL GROUP FUNDING CORPORATION**, a Michigan corporation,of 24 Frank Lloyd Wright Drive, Lobby L, 4th Floor, P.O. Box 544, Ann Arbor,Michigan, 48106 (together with its successors, assigns and transferees,“Lender”). This instrument shall become effective on March 31, 1998.

 

PRELIMINARYSTATEMENT

 

This Agreement is made to secure all of the following(individually and collectively the “Indebtedness”):

 

1.             Payment in the sum of Two Million Two Hundred FiftyThousand and 00/100 Dollars ($2,250,000.00), together with interest, costs andall other sums, to be paid according to those certain Promissory Notes (the“Notes”), by Borrower to Lender, made as of the date of this Agreement by Borrower, together with any andall extensions, renewals, modifications, substitutions or replacements thereof;and the performance of the covenants and obligations of Borrower due or tobecome due to Lender under this Agreementor under any other documents securing payment of all amounts due under theNotes (collectively, the “Loan Documents”), and the repayment of all sumsexpended by Lender in connection with performance of those covenants andobligations.

 

2.            If the Notes, this Agreement and the Loan Documents areassigned to Captec Loan Receivables Trust - 1996A (the “Trust”), “Indebtedness”shall also include the payment of all other sums (together with interest andcosts thereon) concurrently or subsequently loaned to Borrower by CaptecFinancial Group, Inc., a Michigan corporation, Captec Financial Group FundingCorporation, a Michigan corporation, or Captec Leasing Company, a Californiacorporation (each an “Originator”), as evidenced and/or secured by certainnotes and other documents of Borrower with respect to such amounts and whichnotes and other documents are assigned to the Trust, together with any and allextensions, renewals, modifications, substitutions or replacements thereof; andthe performance of the covenants and obligations of Borrower due or to becomedue under such notes and other documents assigned to the Trust, and therepayment of all sums expended in connection with performance of those covenantsand obligations (collectively, the “Trust Obligations”).

 

3.             If the Notes, this Agreement and the Loan Documents are not assigned to the Trust,“Indebtedness” shall also include the payment of all other sums (together withinterest thereon) concurrently or subsequently loaned to Borrower by anOriginator, as evidenced and/or secured by certain notes and other documents ofBorrower which are not assigned to the Trust, together with any and allextensions, renewals, modifications, substitutions or replacements thereof; andthe performance of the covenants and obligations of Borrower due or to becomedue under such notes and other documents, and the repayment of all sumsexpended in connection with performance of those covenants and obligations(collectively, the “Retained Obligations”).

 

In consideration of theabove facts and the mutual promises of the parties, and as security for thepurposes stated above and elsewhere in this Agreement, the parties agree as follows:

 

**1.             COLLATERAL.**

** **

(a)           **Grantof Security Interest.** Borrower grants Lender a security interestin all of Borrower’s Inventory, Equipment, Instruments, Accounts and GeneralIntangibles, each as defined in Section l(b) below, whether now owned orhereafter acquired, together with all replacements, substitutions, andadditions thereto (the “Collateral”) which are (i) located on the premises of,or are related to the operation of, the Great American

 

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Steak & Buffet Company Restaurants or WesterNSizzliN Restaurant operated by Borrower and located at the addresses set forthin Exhibit A attached hereto (each a “Franchised Operation” and collectivelythe “Franchised Operations”), or (ii) related to the Franchised Operations andlocated at the principal business office of Borrower located at 416 South JeffersonStreet, 4th Floor, Roanoke, Virginia 24012. Also included as part of theCollateral are all proceeds and products thereof, including, without limit,insurance proceeds, stock rights, subscription rights, dividends, stockdividends, stock splits or liquidating dividends, and all cash, accounts,chattel paper and general intangibles arising from the sale, rent, lease,casualty loss or other disposition of the Collateral, and including any recordsor documents of title relating to the Collateral.

 

(b)           **Definitions.**  For purposes of this Agreemt, the followingterms shall be defined as follows:

 

(i)            “Inventory” shall consist of allproperty held at any location by or for Borrower for sale, rent, or lease, orfurnished or to be furnished by Borrower under any contract of service, or rawmaterials or work in process and their products, or materials used or consumedin Borrower’s business.

 

(ii)           “Equipment” shall consist of anygoods at any time acquired, owned or held by Borrower at any location primarilyfor use in Borrower’s business, including, without limit, machinery, fixtures,furniture, furnishings and vehicles, and any accessions, parts, attachments,accessories, tools, dies, additions, substitutions, replacements andappurtenances and their related rights.

 

(iii)          “Instruments” shall consist ofBorrower’s interest of any kind in any negotiable instrument or security asthose terms are defined in the Virginia Uniform Commercial Code (“UCC”), or anyother writing which evidences a right to payment of money and is of a typewhich is, in the ordinary course of business, transferred by delivery alone orby delivery with any necessary endorsement or assignment.

 

(iv)          “General Intangibles” shall consist ofany personal property (including things in action) other than goods, accounts,chattel paper, documents, instruments and money.

 

(v)           “Accounts” shall consist of any rightto payment for goods sold or leased or for services rendered which is notevidenced by an instrument or chattel paper whether or not it has been earnedby performance.

 

**2.             WARRANTIES AND REPRESENTATIONS.**  Borrower warrants and covenants to Lender asfollows:

 

(a)           **Paymentof Indebtedness.** Borrower will pay the Indebtedness and perform all obligations relatedto the Indebtedness when due, whether by maturity, acceleration or otherwise.

 

(b)           **Authority.**This Agreement is the valid andbinding obligation of Borrower, enforceable in accordance with its terms.  If Borrower is a corporation, partnership,limited liability company or other organization, Borrower is organized andvalidly existing and in good standing under the laws of its state ofestablishment, and the execution, delivery and performance of this Agreemt hasbeen duly authorized by all necessary action of Borrower’s board of directors,partners, members or governing body, and will not violate Borrower’s governinginstruments or other agreements.

 

(c)          **Name;Address; Location of Collateral.** Borrower’s name and address andthe location of the Collateral are accurately set forth on the signature pageand Exhibit A of this Agreement.

 

2

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(d)           **Titleto Collateral.** Borrower has good and marketable title to theCollateral, free and clear of any liens, encumbrances or security interestswhatsoever, other than the security interest granted by this Agreemt andexisting liens, encumbrances or security interests disclosed to and accepted byLender in writing. Borrower will keep the Collateral free of all other liens,encumbrances and security interests. Borrower will defend the Collateralagainst all claims and demands of all persons at any time claiming any interestin the Collateral.

 

(e)           **Priorityof Security Interest.** The execution and delivery of this Agreemt creates a valid securityinterest in the Collateral, and upon the filing of a UCC-1 financing statementwith the Virginia State Corporation Commission, Lender will have a firstpriority perfected security interest in the Collateral, subject to no othersecurity interest, except as otherwise approved by Lender in writing.

 

(f)            **FinancingStatements.**  Except asdisclosed to and accepted by Lender in writing, no financing statement coveringall or any part of the Collateral is on file in any public office. Borrowerwill execute financing statement(s) in form acceptable to Lender and will paythe cost of filing financing statement(s) in all public offices wherever filingis deemed desirable by Lender.   Acarbon, photographic or other reproduction of this Agreemt shall be sufficientas a financing statement under the UCC and may be filed by Lender in any filingoffice.  This Agreemt shall beterminated only by the filing of a termination statement in accordance with theapplicable provisions of the UCC.

 

(g)           **Paymentof Taxes.** Borrower shall pay when due and before any interest,collection fees or penalties accrue, all taxes, expenses, assessments, liens orother charges which may now or hereafter be levied or assessed against theCollateral.  Borrower shall furnishproof of payment upon request of Lender.

 

(h)          **Insurance.**

 

(i)            Borrower shall keep the tangibleCollateral (including, without limit, the Equipment and Inventory) insured forthe benefit of Lender. Borrower covenants and agrees that Borrower will carryand maintain, at its sole cost and expense, the following types of insurance,in the amounts specified: (A) comprehensive general liability insurance withinitial limits of not less than Two Million Dollars ($2,000,000) for death orinjuries to one person and not less than Two Million Dollars ($2,000,000) fordeath or injuries to two or more persons in one occurrence, and not less thanOne Million Dollars ($1,000,000) for damage to property; (B) fire and extendedcoverage insurance on a replacement form with inflation-guard, vandalism andmalicious mischief endorsements; (C) rent loss or business interruptioninsurance covering a period of not less than twelve (12) months; and (D) suchother insurance and in such amounts as may be reasonably required from time totime by Lender. All insurance shall be in forms and with companies satisfactoryto Lender. Borrower shall deliver to Lender the policies evidencing therequired insurance with premiums fully paid, and with loss payee clauses(making all losses payable to Lender). Renewals of the required insurance(together with evidence of premium prepayment for one (1) year in advance)shall be delivered to Lender at least thirty (30) days before the expiration ofany existing policies. All policies and renewals shall provide that they maynot be canceled or amended without giving Lender thirty (30) days prior writtennotice of cancellation or amendment.

 

(ii)           Should Borrower fail to insure orfail to pay the premiums on any required insurance or fail to deliver thepolicies or renewals as provided above, Lender may have the insurance issued orrenewed (and pay the premiums on it for the account of Borrower) in amounts andwith companies and at premiums as Lender deems appropriate. If Lender elects tohave insurance issued or renewed to insure Lender’s interest, Lender shall haveno duty or obligation of any kind to also insure Borrower’s interest or tonotify Borrower of Lender’s actions. Any sums paid by Lender for insurance, asprovided above, shall be a lien upon the Collateral, added to the amount securedby this Agreement, and payableimmediately by Borrower to Lender, with interest on those sums at the highestrate charged by Lender on any of the Indebtedness (but not to exceed themaximum interest rate permitted by law).

 

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(iii)          In the event of loss or damage, theproceeds of all required insurance shall be paid to Lender. No loss or damageshall itself reduce the Indebtedness. Lender or any of its employees is eachirrevocably appointed attorney-in-fact for Borrower and is authorized to adjustand compromise each loss without the consent of Borrower, to collect, receiveand receipt for the insurance proceeds in the name of Lender and Borrower andto endorse Borrower’s name upon any check in payment of the loss.

 

(iv)          Lender shall apply such proceeds tothe repair and replacement of the Collateral subject to the followingconditions:

 

(1)               there shall be noEvent of Default existing hereunder;

 

(2)               plans for repairand replacement shall be reviewed and approved by Lender, which approval shallnot be unreasonably withheld or delayed;

 

(3)               repair andreplacement of the Collateral to a saleable commodity (as determined by Lender)can practicably be completed prior to the Due Date set forth in the Note;

 

(4)               Borrower shall havedeposited with Lender funds equal to the positive difference,  if any, between the cost of repair,replacement and completion, and the amount of the insurance proceeds; and

 

(5)               disbursements willbe made by Lender, pursuant to procedures necessary or appropriate to ensurethat funds are properly applied.

 

Provided that no Event ofDefault exists, if there are insurance proceeds in the amount of Twenty-FiveThousand Dollars ($25,000) or less remaining after the repair and replacementof the Collateral as required hereunder, such proceeds shall be paid toBorrower. Provided that no Event of Default exists, if there are insuranceproceeds in excess of Twenty-Five Thousand Dollars ($25,000) remaining afterthe repair and replacement of the Collateral as required hereunder, suchproceeds shall be applied toward payment of the Indebtedness (or any portionthereof) without premium, whether or not then due or payable, in whatever orderof maturity as Lender may elect. Application of proceeds by Lender toward latermaturing installments of the Indebtedness shall not excuse Borrower from makingthe regularly scheduled installment payments nor shall such application extendor reduce the amount of any of these payments.

 

(v)           Notwithstanding Section 2(h)(iv)above, if a substantial portion (fifty percent [50%] or more) of the Collateralis damaged or destroyed during the last twenty-four (24) months of the term ofthe Note, and an Event of Default then exists hereunder, then either Borroweror Lender may elect not to repair/restore and to apply the insurance proceedstoward payment of the Indebtedness (or any portion thereof) without premium,whether or not then due or payable, in whatever order of maturity as Lender mayelect. Application of proceeds by Lender toward later maturing installments ofthe Indebtedness shall not excuse Borrower from making the regularly scheduledinstallment payments nor shall such application extend or reduce the amount ofany of these payments.

 

(vi)          In the event of a sale of theCollateral, the purchaser of the Collateral shall succeed to all of the rightsof Borrower under the insurance policies including, without limit, any right tounearned premiums and to receive the proceeds.

 

(vii)         Upon the occurrence of an Event of Defaulthereunder, at the option of Lender, Borrower shall pay to Lender, in advance onthe first day of each month, a pro rata portion of the annual premiums due (asestimated by Lender) on the required insurance. In the event that sufficientfunds

 

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have been deposited withLender to cover the amount of the insurance premiums when the premiums becomedue and payable, Lender shall pay the premiums. In the event that sufficientfunds have not been deposited with Lender to pay the insurance premiums atleast thirty (30) days prior to the time when they become due and payable,Borrower shall immediately pay the amount of the deficiency to Lender.

 

(i)            **Maintenanceof Collateral.** Borrower will maintain the Collateral in goodcondition and repair. Borrower will promptly inform Lender of any loss ordiminution in value of the Collateral. Borrower may modify, compromise orsubstitute for the Collateral without the prior written consent of Lenderprovided that any modifications, compromises or substitutions have the same orgreater value as the original items and that any such modifications,compromises or substitutions remain at all times subject to this Agreement.

 

(j)            **LeasedFacilities.** If the Collateral is located at a facility leased byBorrower, Borrower will obtain from the lessor a consent to the granting of asecurity interest in the Collateral and a subordination of the lessor’sinterest in the Collateral. The consent and subordination shall be in formacceptable to Lender.

 

(k)          **ReportingObligations.** Borrower hereby covenants and agrees to deliver toLender, or to cause The WesterN SizzliN Corporation (“Guarantor”) to deliver toLender, the following:

 

(A)                                Managementprepared and certified consolidated quarterly financial statements forGuarantor within forty-five (45) days after the end of the first three (3)quarters of each fiscal year of Guarantor.

 

(B)                 Annual consolidated financialstatements for Guarantor audited by an independent certified public accountantwithin one hundred twenty (120) days after the end of each fiscal year ofGuarantor.

 

(C)                 Managementprepared and certified unit level profit and loss statements relating to theoperation of the Franchised Operations within forty-five (45) days after theend of each fiscal year of Borrower.

 

Such financial statementsshall be true and correct in all respects, shall be prepared in accordance withgenerally accepted accounting principles, and shall fairly represent therespective financial conditions of the subjects thereof as of the respectivedates thereof. If Borrower’s financial statements are prepared on aconsolidated basis, Borrower hereby covenants and agrees to prepare financialstatements specifically relating to the operation of the Franchised Operations.At the request of Lender, Borrower shall obtain the consent of Borrower’saccountant(s) to the inclusion of Borrower’s most recent financial statement inany regulatory filing or report to be filed by Lender.

 

(1)           **Managementand Licensing Agreem****ent.**Borrower is a franchisee in good standing with The WesterN SizzliN Corporation(“Franchisor”), and is not in default under its Management and Licensing Agreement with Franchisor relating to theFranchised Operations (“Management Agreement”). Borrower agrees to comply with the terms of the ManagementAgreement and to take allactions necessary or required to keep the Management Agreemt in full force andeffect. Borrower will not encumber its rights under the Management Agreement, except to Lender. Borrower agreesto promptly provide Lender with a copy of any notice of default under theManagement Agreement. Further,Borrower agrees to promptly provide Lender with a copy of any notice toBorrower of the existence of any breach which, with notice or the passage oftime, or both, would entitle Franchisor to terminate the Management Agreement.

 

(m)          **FixedCharge Coverage Ratio.** Borrower shall maintain a Fixed ChargeCoverage Ratio (as hereinafter defined) of not less than 1.2 to 1.0 forBorrower’s business operations generally and not less than 1.4 to 1.0 for theFranchised Operations. “Fixed Charge Coverage Ratio” shall mean Borrower’sOperating Cash Flow divided by its Fixed Charges (each as defined below). TheFixed Charge Coverage Ratios shall be calculated

 

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by Borrower from time to time and dates as determinedby Lender, and Borrower shall submit such information as Lender may require toconfirm and approve Borrower’s calculation of the Fixed Charge Coverage Ratios.

 

(i) “FixedCharges” shall mean the sum of the following items set forth on a pro formabasis separately stated for both Borrower’s business operations generally andfor the Franchised Operations, in each case, for the applicable twelve (12) monthoperating period:

 

(A)          current portion of long-term debt(defined as the current portion of long-term debt due to mature during the nexttwelve (12) month operating period, as stated in Borrower’s applicablefinancial statement, plus, if not already included therein, the current ofportion of principal payments imputed on all capital leases), *plus*

 

(B)           interest expense (defined as theinterest expense as stated on Borrower’s applicable financial statement, plus,if not already included therein, the interest expense imputed on all capitalleases), *plus*

 

(C)           the current portion of operatingleases (defined as the amount of rent due under operating leases for the nexttwelve (12) month operating period).

 

(ii) “OperatingCash Flow” shall mean the sum or subtraction of the following items separatelystated for both Borrower’s business operations generally and for the FranchisedOperations, in each case, for the applicable prior twelve (12) month operatingperiod:

 

(A)          net income (defined as the net incomestated on Borrower’s applicable financial statement), *plus*

 

(B)           depreciation and amortization(defined as the depreciation and amortization expense as stated on Borrower’sapplicable financial statement), *plus*

 

(C)           interest expense (as defined above), *plus*

 

(D)          operating lease expense (defined asthe amount of rental expense paid under operating leases, as stated onBorrower’s applicable financial statements), *plus or minus*

 

(E)           non-recurring items (defined as itemswhich, when computing cash flow, should in Lender’s reasonable businessjudgment, be added back to or subtracted from net income to normalize results).

 

**3.**             **PROHIBITIONON TRANSFER OR MODIFICATION.**  Borrower shall not transfer, sell, assign, lease or modify theCollateral or any interest therein, any part thereof, or any substantialportion of Borrower’s other assets or property without the prior writtenconsent of Lender.  Notwithstanding theforegoing, Borrower may use Collateral if the same is in the ordinary course ofBorrower’s business and on customary terms and at usual prices.

 

**4.             PROHIBITION ON CHANGE OF NAME,ORGANIZATION OR LOCATION.** Borrower shall not assume a different name, change the location of itsprincipal place of business, cease conducting business at any location thatappears in this Agreemt, merge, consolidate, change or reorganize itsorganizational structure nor change the location of any of the Collateralwithout, in each instance, obtaining the prior written consent of Lender thirty(30) days prior to any such event.

 

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**5.             RIGHT OF SETOFF.** Borrower hereby grants Lender the right,exercisable if Borrower is in default, to set off or apply against theIndebtedness any account or deposit with Lender in which Borrower has an interestor against any other amounts which may be in the possession of Lender and tothe credit of Borrower.

 

**6.             EXAMINATION OF RECORDS ANDCOLLATERAL.** Borrower shall keep full and accurate records ofBorrower’s business, including, without limit, records related to theCollateral, and such records shall be open to inspection and duplication byLender at all reasonable times.  Lendermay enter upon any property owned by or in the possession of Borrower toexamine and inspect the Collateral during regular business hours. Borrowershall promptly provide Lender with any information concerning the Collateral asLender may request at any time.

 

**7.             REIMBURSEMENT OF EXPENSES.**Borrower shall reimburse Lender for all reasonable costs and expenses,including reasonable attorneys’ fees, incurred by Lender in enforcing therights of Lender under this Agreement.All costs and expenses shall be included in the Indebtedness and shall beimmediately due and payable together with interest at the maximum legalrate.  Such costs and expenses shallinclude, without limitation, costs or expenses incurred by Lender hi anybankruptcy, reorganization, insolvency or other similar proceeding.

 

**8.             RIGHTS AND OBLIGATIONS OF LENDER.**  In the event that Borrower fails to paytaxes, maintain insurance or perform any other obligation arising under thisAgreement, Lender may pay orperform such obligation(s) for the account of Borrower and the same shall beadded to the Indebtedness and shall be immediately due and payable togetherwith interest at the highest rate charged by Lender on any of the Indebtedness(but not to exceed the maximum rate permitted by law). Lender shall not beliable for any loss to the Collateral nor shall such loss reduce the balancedue.

 

**9.             INDEMNIFICATION.**  Borrower shall indemnify and save Lenderharmless from all claims, obligations, costs, expenses, including attorneys’fees, and causes of action or other rights asserted against Lender and relatingto this Agreement and/or theCollateral, except those arising from the gross negligence or wilful misconductof Lender.

 

**10.         EVENTS OF DEFAULT AND REMEDIES.**

 

(a)        **Eventsof Default.**  Any of thefollowing events shall, for purposes of this Agreement, constitute an “Event of Default”:

 

(i)            Failure by Borrower to pay anyamount owing on or with respect to the Indebtedness when due, whether bymaturity, acceleration or otherwise, which failure continues for five (5)business days.

 

(ii)           Any failure by Borrower or anyguarantor to comply with, or breach by Borrower or any guarantor of, any of thenon-monetary terms, provisions, warranties or covenants of the Notes, thisAgreement or the other LoanDocuments, which failure continues for fifteen (15) days after the date ofwritten notice to Borrower (or any guarantor) from Lender of such default;provided, however, that if: (i) the nature of Borrower’s (or any guarantor’s)noncompliance is such that more than fifteen (15) days are reasonably requiredfor its cure, (ii) Borrower (or any guarantor) has commenced such cure withinsaid fifteen (15) day period, (iii) Borrower (or any guarantor) diligentlyprosecutes such cure to completion, (iv) Borrower (or any guarantor) providesLender with written notice of the noncompliance, AND (v) Borrower (or anyguarantor) furnishes reserves or a security bond, in an amount satisfactory toLender in its sole discretion, then Borrower (or any guarantor) shall not be indefault.

 

(iii)          Institution of remedial proceedings orother exercise of rights and remedies by the holder of any security interest orother lien against the Collateral or any portion thereof; provided, however,

 

7

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if there is a good faith dispute by Borrower (or anyguarantor) as to the validity or reasonableness of the claim which is the basisfor such proceedings, then no Event of Default shall have occurred under thisclause (iii) if Borrower (or any guarantor) provides Lender with written noticeof the proceedings and furnishes reserves or a security bond for theproceedings satisfactory to Lender.

 

(iv)          The insolvency of Borrower or anyguarantor or the admission in writing of Borrower’s or any guarantor’sinability to pay debts as they mature.

 

(v)           Any statement, representation orinformation made or furnished by or on behalf of Borrower or any guarantor toLender in connection with or to induce Lender to provide any of theIndebtedness shall prove to be false or materially misleading when made orfurnished.

 

(vi)          Institution of bankruptcy,reorganization, insolvency or other similar proceedings by or against Borroweror any guarantor, unless, in the case of a petition filed against Borrower, thesame is dismissed within sixty (60) days of filing.

 

(vii)         The issuance or filing of any judgment,attachment, levy, garnishment or the commencement of any related proceeding orthe commencement of any other judicial process upon or in respect to Borroweror any guarantor or the Collateral in which the amount in controversy exceedsOne Hundred Thousand Dollars ($100,000) and is not covered by the insurance ofBorrower (or any guarantor), unless satisfied, or Borrower (or any guarantor)furnishes reserves or a security bond in an amount satisfactory to Lender inits sole discretion, released or discharged within sixty (60) days after thedate of such issuance, filing or communication.

 

(viii)        Sale or other disposition by Borrower orany guarantor of any substantial portion of assets or property.

(ix)           Death, dissolution, merger,consolidation, termination of existence, insolvency, business failure orassignment for the benefit of creditors of or by Borrower or any guarantor;without the prior written consent of Lender, which consent shall not beunreasonably withheld.

 

(x)            If there is any failure by Borroweror any guarantor to pay any indebtedness (other than to Lender) in excess ofOne Hundred Thousand Dollars ($100,000) (and exclusive of trade debt incurredin the ordinary course of business) when do or in the observance or performanceof any term, covenant or condition in any document evidencing, securing orrelating to such indebtedness, which failure continues beyond any applicablecure period.

 

(xi)           Receipt by Borrower of a notice oftermination of the Management Agreement.

 

(xii)          If the Notes, this Agreement and the other Loan Documents havenot been assigned to the Trust, the default by Borrower which continues beyondany applicable grace or cure period under the Retained Obligations; provided,however, if the Notes, this Agreementand the other Loan Documents are assigned to the Trust, this clause (xii) shallbe of no force or effect during the term of such assignment.

 

(xiii)         In the event that the Notes, thisAgreement and the other LoanDocuments are assigned to the Trust, the default by Borrower which continuesbeyond any applicable grace or cure period under the Trust Obligations.

 

(b)           **RemediesUpon Event of Default.** Upon the occurrence of any Event ofDefault, Lender shall have the following rights:

(i)            Declare all or part of theIndebtedness immediately due and payable.

 

8

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(ii)           Borrower agrees, upon request ofLender, to assemble the Collateral and make it available to Lender at any placewhich is reasonably convenient for Borrower and Lender.  Borrower grants Lender permission to enterupon any premises owned or occupied by Borrower for the purpose of takingpossession of the Collateral.

 

(iii)          Lender shall have the right to takepossession of the Collateral, with or without demand, and with or withoutprocess of law.  Lender shall have the rightto sell and dispose of the Collateral and to distribute the proceeds accordingto law. In connection with the right of Lender to take possession of theCollateral, Lender may take possession of any other items of property in or onthe Collateral at the time of taking possession, and hold them for Borrowerwithout liability on the part of Lender. If there is any statutory requirement for notice, that requirement shallbe met if Lender shall send notice to Borrower at least five (5) days prior tothe date of sale, disposition or other event giving rise to the requirednotice.  Borrower shall be liable forany deficiency remaining after disposition of the Collateral.

 

(iv)         Lender shall also have any one or moreof the rights and remedies under the UCC or at law or equity to enforce thepayment of the Indebtedness.

 

(c)           **RemediesGenerally.**

** **

(i)            All remedies provided for in Section10(b) shall be available to the extent not prohibited by law. Each remedy shallbe cumulative and additional to any other remedy of Lender at law, in equity orby statute. No delay or omission to exercise any right or power accruing uponany default or Event of Default shall impair any such right or power or shallbe construed to be a waiver of, or acquiescence in, any such default or Eventof Default.

 

(ii)           Lender may waive any Event of Defaultand may rescind any declaration of maturity of payments on the Indebtedness. Incase of such waiver or recision Borrower and Lender shall be restored to theirrespective former positions and rights under this Agreement. Any waiver by Lender of any default or Event of Default shallbe in writing and shall be limited to the particular default waived and shallnot be deemed to waive any other default.

 

(d)           **Applicationof Proceeds.**  Anyproceeds received by Lender from the exercise of remedies pursuant to Section10(b) of this Agreement shall beapplied as follows:

 

(i)            First, to pay all costs and expensesincidental to the leasing, foreclosure, sale or other disposition of theCollateral. These costs and expenses shall include, without limit, any costsand expenses incurred by Lender (including, without limit, reasonableattorneys’ fees and disbursements), and any taxes and assessments or otherliens and encumbrances prior to the lien of this Agreement.

 

(ii)           Second, to all sums expended orincurred by Lender, directly or indirectly in carrying out any term, covenantor Agreement under this Agreement or any related document, togetherwith interest as provided in this Agreement.

 

(iii)          Third, to the payment of theIndebtedness.  If the proceeds areinsufficient to fully pay the Indebtedness, then application shall be madefirst to late charges and interest accrued and unpaid, then to any applicableprepayment premiums, and then to unpaid fees and other charges, then to theoutstanding principal balance.

 

(iv)          Fourth, any surplus remaining shall bepaid to Borrower or to whomsoever may be lawfully entitled.

 

9

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(e)           **FurtherActions.**    Promptly uponthe request of Lender, Borrower shall execute, acknowledge and deliver any andall further documents, security Agreements,financing statements and assurances, and do or cause to be done all furtheracts as Lender may require to confirm and protect the lien of this Agreement or otherwise to accomplish thepurposes of this Agreement.

 

(f)            **AttorneysFees.**  Any reference inthis Agreement to attorneys’fees shall refer to fees, charges, costs and expenses of in-house and outsideattorneys and paralegals, whether or not a suit or proceeding is instituted,and whether incurred at the trial court level, on appeal, in a bankruptcy,administrative or probate proceeding, in consultation with counsel, orotherwise. All costs, expenses and fees of any nature for which Borrower isobligated to reimburse or indemnify Lender are part of the Indebtedness securedby this Agreement and arepayable upon demand, unless expressly provided otherwise, with interest untilrepaid at the highest rate charged on any of the Indebtedness (but not toexceed the maximum rate permitted by law).

 

11.           **PARTIALRELEASES.** Lender shall from time to time execute and deliver toBorrower, within ten (10) business days after the written request of Borrower,UCC termination statements with respect to a portion of the Collateral securedhereunder, provided that (a) Borrower shall not be in default under any of theterms, covenants or conditions of any document or instrument evidencing orsecuring the Indebtedness; (b) the outstanding principal balance of theapplicable promissory note, together with interest, premiums, costs and allother sums on that amount, shall be paid in full; and (c) all terminationstatements shall be prepared by Lender at Borrower’s expense. The portion ofthe Collateral released under this Section 11 shall be determined by matchingthe Collateral located at or related to a specified Franchised Operation withthe promissory note referencing that Franchised Operation on its face.

 

**12.**          **MISCELLANEOUS.**

 

(a)           **GoverningLaw.**  This Agreement shall be construed according tothe laws of the Commonwealth of Virginia.

 

(b)           **Successorsand Assigns.**  ThisAgreement shall be binding uponthe successors and assigns of Borrower including, without limit, any debtor inpossession or trustee in bankruptcy for Borrower, and the rights and privilegesof Lender under this Agreement shall inure to the benefit of its successors andassigns. This shall not be deemed a consent by Lender to a conveyance byBorrower of all or any part of the Collateral or of any ownership interest inBorrower.

 

(c)           **Notices.**Notice from one party to another relating to this Agreement, if required, shall be deemed effective if made in writing(including telecommunications) and delivered to the recipient’s address, telexnumber or telecopier number set forth by any of the following means: (i) handdelivery, (ii) registered or certified mail, postage prepaid, (iii) expressmail or other overnight courier service or (iv) telecopy, telex or other wiretransmission with request for assurance of receipt in a manner typical withrespect to communications of that type. Notice made in accordance with theseprovisions shall be deemed delivered on receipt if delivered by hand or wiretransmission, on the third business day after mailing if mailed by registeredor certified mail, or on the next business day after mailing or deposit withthe postal service or an overnight courier service if delivered by express mailor overnight courier. Borrower’s telecopier number is (540) 345-0831, andLender’s telecopier number is (743) 994-1376.

 

(d)           **EntireAgreement; Amendments.**This Agreement and any Agreementto which it refers state all rights and obligations of the parties andsupersede all other Agreements (oral or written) with respect to the securityinterests granted by this Agreement.   Any amendment of this Agreement shall be in writing and shallrequire the signature of Borrower and Lender.

 

10

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(e)           **PartialInvalidity.**  Theinvalidity or unenforceability of any provision of this Agreement shall not affect the validity orenforceability of the remaining provisions of this Agreement.

 

(f)            **Inspections.**  Any inspection, audit, appraisal orexamination by Lender or its agents of the Collateral or of information ordocuments pertaining to the Collateral is for the sole purpose of protectingLender’s interests under this Agreementand is not for the benefit or protection of Borrower or any third party.

 

(g)           **Jointand Several Liability.** In the event that more than one person or entity executes this Agreement, the obligations of each person orentity shall be joint and several.

 

(h)          **AutomaticReinstatement.** Notwithstanding any prior revocation, termination, surrender ordischarge of this Agreement, theeffectiveness of this Agreementshall automatically continue or be reinstated, as the case may be, in the eventthat:

 

(i)            Any payment received or credit givenby Lender in respect of the Indebtedness is determined to be a preference,impermissible setoff, fraudulent conveyance, diversion of trust funds, orotherwise required to be returned to Borrower or any third party under anyapplicable state or federal law, including, without limit, laws pertaining tobankruptcy or insolvency, in which case this Agreement shall be enforceable as if any such payment or credit had notbeen received or given, whether or not Lender relied upon this payment orcredit or changed its position as a consequence of it.

 

(ii)           In the event of continuation orreinstatement of this Agreement,Borrower agrees upon demand by Lender to execute and deliver to Lender thosedocuments which Lender determines are appropriate to further evidence (in thepublic records or otherwise) this continuation or reinstatement, although thefailure of Borrower to do so shall not affect in any way the reinstatement orcontinuation. If Borrower does not execute and deliver to Lender such documentsupon demand, Lender and each officer of Lender is irrevocably appointed (whichappointment is coupled with an interest) the true and lawful attorney ofBorrower (with full power of substitution) to execute and deliver suchdocuments in the name and on behalf of Borrower.

 

(i)           **WAIVEROF JURY TRIAL.  BORROWER ANDLENDER ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A CONSTITUTIONAL ONE, BUTTHAT IT MAY BE WAIVED.  EACH PARTY,AFTER CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OFTHEIR CHOICE, KNOWINGLY AND VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT, WAIVESANY RIGHT TO TRIAL BY JURY IN THE EVENT OF LITIGATION REGARDING THE PERFORMANCEOR ENFORCEMENT OF, OR IN ANY WAY RELATED TO, THIS AGREEMENT OR THEINDEBTEDNESS.**

 

(j)           **Assignment.**  This Agreement is freely assignable, in whole or in part, by Lender withoutnotice to or consent of Borrower; provided, however, that Lender (or itsassignee) shall provide written notice of such assignment to Borrower in theevent that Lender (or such assignee) desires to designate a new person orentity as payee and/or a new place of payment for the obligations under theNotes. Lender shall be fully discharged from all responsibility accruinghereunder from and after the effective date of any such assignment. Lender’sassignee shall, to the extent of the assignment, be vested with all the powersand rights of Lender hereunder (including those granted under Section 10 hereofor otherwise with respect to the Collateral), and to the extent of suchassignment the assignee may fully enforce such rights and powers, and allreferences to Lender shall mean and refer to such assignee. Lender shall retainall rights and powers hereby given not so assigned, transferred and/ordelivered. Borrower hereby waives all defenses which Borrower may be entitledto assert against Lender’s assignee with respect to liability accruinghereunder prior to the effective date of any assignment of Lender’s interestherein. Borrower may not, in whole or in part, directly or indirectly, assignthis Agreement or its rightshereunder or delegate its duties hereunder without, in each instance, thespecific prior written consent of Lender, which consent may be withheld ordelayed in Lender’s sole discretion.

 

11

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(k)           **Securitization.**  Borrower understands and agrees that Lendermay, from time to time, assign its rights and powers under the Notes, thisAgreement and any other LoanDocuments, in whole or in part, in connection with a securitization program.Borrower agrees to enter into an amendment to the Notes, this Agreement and any other Loan Documents ifsuch amendments are required by a nationally recognized rating agency inconnection with a securitization program sponsored by Lender and in which theNotes, this Agreement and anyother Loan Documents are to be included; provided that Borrower shall not beobligated to enter into any amendment which adversely affects Borrower orotherwise adversely alters any of the financial terms of the Notes, this Agreement and any other Loan Documents.

**[SIGNATUREPAGE FOLLOWS]**

 

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EXHIBIT A

 

TO

 

SECURITY AGREEMENT

 

 

8365 Sudley Rd.,Manassas, VA

 

5902 RichmondHwy., Alexandria, VA

 

3500 S. Jefferson,Falls Church, VA

 

A-1

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Borrowerhas executed this Agreement on the day and year first above written. 

Borrower’sprincipal place of business is located in the City of Roanoke, Commonwealth ofVirginia. 

Locationsof the Collateral:

 

416 South Jefferson Street,4th Floor

Roanoke,Virginia 24012 and

eachof the sites listed on Exhibit A attached hereto.

 
| **BORROWER:**                           |               |
|-----------------------------------------|--------------------|
|                                    |               |
| **THE  WESTERN SIZZLIN STORES, INC.**   |               |
|                                    |               |
|                                    |               |
| By:                                     | /s/ Victor F. Foti |   |
|                                    |               |
|                                    |               |
| Its                                     | President          |   |
|                                    |               |
| Address:                                |               |
|                                    |               |
| P.O. Box 12167 

Roanoke, VA 24023-2167 |               |
|                                    |               |
|                                    |               |
| Tax I.D. No. 54-1787907                 |               |
|                                         |                    |  |  |  |

 

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Loan No. 067225902 Richmond Hwy.Alexandria, Virginia

 

**GUARANTY**

 

THEWESTERN SIZZLIN CORPORATION, a Tennessee corporation and THE WESTERN SIZZLINSTORES OF LITTLE ROCK, INC., an Arkansas corporation (each a “Guarantor”), as amaterial inducement to and in consideration of CAPTEC FINANCIAL GROUP FUNDINGCORPORATION, a Michigan corporation, whose address is 24 Frank Lloyd WrightDrive, Lobby L, Ann Arbor, Michigan 48106 (together with its successors,assigns and transferees, “Lender”), making a loan in the original principalamount of One Million Two Hundred Fifty Thousand and 00/100 Dollars($1,250,000.00) as evidenced by a Promissory Note, dated March 23,**1998(“Note”), made by THE WESTERN SIZZLIN STORES, INC., a Virginia corporation(“Borrower”), which Note is secured by the instruments referenced therein(together with the Note, “Loan Documents”), hereby jointly and severally,unconditionally and irrevocably, personally guarantees to and for the benefitof Lender, and Lender’s successors and assigns, the full and timely payment andperformance of all of the Borrower’s duties, obligations and covenants underthe Loan Documents. This is a guaranty of payment and performance and not ofcollection.

 

ThisGuaranty shall not be affected by Lender’s failure or delay to enforce any ofits rights.

 

Guarantor’sobligations are independent of Borrower’s obligations. If Borrower defaultsunder the Loan Documents, Lender can proceed immediately against Guarantor orBorrower, or both, or Lender can enforce against Guarantor or Borrower, orboth, any rights that it has under the Loan Documents or pursuant to applicablelaws. If any lien created by the Loan Documents terminates and Lender has anyrights it can enforce against Borrower after termination, Lender can enforcethose rights against Guarantor without giving previous notice to Borrower orGuarantor or without making any demand on either of them.

 

Tothe extent permitted by law, Guarantor waives the benefit of any statute oflimitations affecting Guarantor’s liability under this Guaranty. Guarantorwaives the right to require Lender to first or concurrently: (1) proceedagainst Borrower; (2) proceed against or exhaust any security that Lender holdsfrom Borrower; or (3) pursue any other remedy in Lender’s power. The liabilityof Guarantor shall not be affected or exonerated by any indulgence, compromise,settlement or variation of terms which may be extended by Lender to Borrower,or agreed upon by Lender or Borrower, and, unless agreed to in writing by Lender,shall not be affected or exonerated by any assignment by Borrower of itsinterest in any one or more of the Loan Documents, nor shall the liability ofthe Guarantor be affected or exonerated by the insolvency, bankruptcy(voluntary or involuntary), or reorganization of Borrower, nor by the voluntaryor involuntary liquidation, sale or other disposition of all or substantiallyall of the assets of Borrower, or by the release of any other Guarantor. Lenderand Borrower, without notice to or consent by Guarantor, may at any time ortimes enter into such modifications, extensions, amendments or other covenantsof the Loan Documents as they may deem appropriate, and Guarantor shall not bereleased nor its liability exonerated thereby but shall continue to be fullyliable for the payment and performance of all obligations and duties ofBorrower under the Loan Documents as so modified, extended or amended.

 

Guarantorfurther agrees (1) to indemnify and hold harmless Lender from and against anyclaims, damages, expenses or losses, including to the extent permitted by law,all reasonable attorneys’ fees incurred by counsel of Lender’s choice (whetheror not litigation is commenced), resulting from or arising out of any breach ofany provision of the Loan Documents by Borrower or by reason of Borrower’sfailure to perform any of its obligations thereunder, and (2) to me extentpermitted by law, to pay all costs and expenses, including reasonableattorneys’ fees (whether or not litigation is commenced), incurred by Lender inenforcing this Guaranty.

 

Untilall of Borrower’s obligations to Lender have been discharged in full, Guarantorhas no right of subrogation against Borrower. Guarantor assumes theresponsibility to remain informed of the financial condition

 

----

 

of Borrower and of all othercircumstances bearing upon the risk of Borrower’s default, which reasonableinquiry would reveal, and agrees that Lender shall have no duty to adviseGuarantor of information known to it regarding such condition or any such circumstances.Lender shall not be required to inquire into the powers of Borrower or theofficers, employees, partners or agents acting or purporting to act on itsbehalf, and any indebtedness made or created in reliance upon the professedexercise of such powers shall be guaranteed under this Guaranty. Each Guarantorhereby represents and warrants to Lender that such Guarantor has received acopy of each of the Loan Documents, has read or had the opportunity to readeach of the Loan Documents, and understands the terms of the Loan Documents.The provisions in the Loan Documents relating to the execution of additionaldocuments, legal proceedings by Lender against Borrower, severability of theprovisions of the Loan Documents, interpretation of the Loan Documents,notices, waivers (including waiver of a jury trial), limitation on right ofrecovery against Lender, disclaimer of individual liability, and the applicablelaws which govern the interpretation of the Loan Documents are incorporatedherein in their entirety by this reference and made a part hereof as though setforth in full herein; any reference in those provisions to “Borrower” shallmean each Guarantor and any reference in those provisions to the “LoanDocuments” shall mean this Guaranty.

 

Tothe extent permitted by law, Guarantor waives its right to enforce any remediesthat Borrower now has, or later may have, against Lender. Guarantor waives anyright to participate m any security now or later held by Lender. Guarantorwaives notice of acceptance of this Guaranty, and all other notices inconnection with this Guaranty or in connection with the liabilities,obligations and duties guaranteed hereby, including notices to Guarantor ofdefault by the Borrower under the Loan Documents. Guarantor hereby waivesdiligence, presentment, demand for performance, notice of nonperformance,protest, notice of protest, notice of dishonor, and notice of acceptance ofthis Guaranty, and waives all notices of the existence, creation, or incurringof new or additional obligations.

 

Ifthere is more than one Guarantor, the liability of each Guarantor shall bejoint and several. Guarantor’s obligations under this Guaranty shall be bindingon Guarantor’s legal representatives, heirs, successors and assigns.

 

IfBorrower disposes of its interest in the property secured by the LoanDocuments, “Borrower”, as used in this Guaranty, shall mean Borrower’ssuccessors or assigns. Assignment of the Loan Documents by Lender (as permittedby the Loan Documents) shall not affect this Guaranty.   In the event of an assignment of the LoanDocuments by Lender, the term “Lender” as used in this Guaranty shall meanLender’s successors or assigns.

 

Guarantorhereby covenants and agrees to deliver to Lender the following: (a) managementprepared and certified consolidated quarterly financial statements forGuarantor within forty-five (45) days after the end of the first three (3)quarters of each fiscal year of Guarantor, and (b) annual consolidatedfinancial statements for Guarantor audited by an independent certified publicaccountant within one hundred twenty (120) days after the end of each fiscalyear of Guarantor. Such financial statements shall be true and correct in allrespects, shall be prepared in accordance with generally accepted accountingprinciples, and shall fairly represent the respective financial conditions ofthe subjects thereof as of the respective dates thereof. At the request ofLender, Guarantor shall obtain the consent of Guarantor’s accountant(s) to theinclusion of Guarantor’s most recent financial statement in any regulatoryfiling or report to be filed by Lender.

 

Ifany one or more of the provisions of this Guaranty shall be held to be invalid,illegal or unenforceable in any respect, such invalidity, illegality or unenforceabilityshall not affect any other provision of this Guaranty, and this Guaranty shallbe construed as if such invalid, illegal or unenforceable provision had neverbeen contained herein.

 

ThisGuaranty shall be construed according to the laws of the State of Virginia.Guarantor agrees that any dispute which may arise between Lender and Guarantorwith regard to this Guaranty shall be resolved by litigation in state orfederal court. Litigation may be initiated by Lender or its assignee, at itsdiscretion, in the State of the principal place of business of Lender or itsassignee, the State of the principal place of business of Guarantor, or theState where the Collateral (as defined in the Loan Documents) is located.

 

2

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**GUARANTOR HEREBY KNOWINGLY ANDIRREVOCABLY WAIVES ANY OBJECTIONS ON THE GROUNDS OF IMPROPER JURISDICTION ORVENUE TO AN ACTION INITIATED AS SET FORTH ABOVE AND AGREES THAT EFFECTIVESERVICE OF PROCESS MAY BE MADE UPON GUARANTOR BY REGISTERED MAIL RETURN RECEIPTREQUESTED. GUARANTOR WAIVES, TO THE EXTENT PERMITTED BY LAW, TRIAL BY JURY INANY ACTION BETWEEN THE PARTIES.**

** **

ThisGuaranty shall become effective on March 31, 1998. 

 
|                                                 |               |      |
|------------------------------------------------------|--------------------|-----------|
| THE WESTERN SIZZLIN  CORPORATION                     |               |      |
|                                                 |               |      |
|                                                 |               |      |
| By:                                                  | /s/ Victor F. Foti |      |   |
|                                                 |               |      |
|                                                 | Its:               | President |   |
|                                                 |               |      |
| **THE  WESTERN SIZZLIN STORES OF LITTLE ROCK, INC.** |               |
|                                                 |               |
|                                                 |               |
| By:                                                  | /s/ Victor F. Foti |      |   |
|                                                 |               |      |
|                                                 | Its:               | President |   |   |
|                                                      |                    |           |  |  |  |  |  |  |  |  |  |  |

 

3

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ThisCertificate shall become effective on March 31, 1998.

 
|   | **THE  WESTERN SIZZLIN STORES, INC.**  |
|--------|----------------------------------------|
|   |                                   |
|   |                                   |
|   | By                                     | /s/ Victor F. Foti |
|   |                                   |
|   | Its:     President |
|        |                                        |  |  |  |

 

4

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LoanNo. 067225902 Richmond Hwy.Alexandria, Virginia

**CERTIFICATE OF BORROWER**

** **

THE WESTERN SIZZLIN STORES, INC., a Virginia corporation("Borrower”), for the benefit of CAPTEC FINANCIAL GROUP FUNDINGCORPORATION, a Michigan corporation (together with its successors, assigns andtransferees, “Lender"), warrants, represents, covenants and agrees thatthe following are true and correct as of the date hereof:

 

1.             All warranties andrepresentations of Borrower contained in this Certificate shall survive theexecution of this Certificate and any advances made in accordance with thePromissory Note executed by Borrower, in favor of Lender, dated even herewith,in the original principal amount of One Million Two Hundred Fifty Thousand and00/100 Dollars ($1,250,000.00) (the “Note”).

 

2.             Borrower has good,indefeasible and marketable title to the Collateral (as defined in that certainSecurity Agreement, dated even herewith, between Borrower and Lender (the“Security Agreement”)). Except for the Security Agreement, there are noinstruments, matters or agreements, and Borrower is not a party to anyinstrument, matter or agreement, which will in any way encumber, bind orotherwise affect the Collateral or Lender. Borrower has neither done nor failed to do anything, nor has sufferedanything to be done, as a result of which the Collateral or any part thereofhas been or will be encumbered or title thereto has been or will be affected inany way and no person, firm or entity has any present, conditional orcontingent rights to acquire all or any portion of the Collateral.

 

3.             Borrower is a corporation dulyorganized and validly existing in good standing under the laws of theCommonwealth of Virginia. The person or persons executing the Note, theSecurity Agreement and the other Loan Documents (as defined in the SecurityAgreement) have full power and complete authority to execute the Note, the SecurityAgreement and the other Loan Documents, and, when executed, the Note, theSecurity Agreement and the other Loan Documents will be legal, valid andbinding obligations of Borrower, enforceable in accordance with their terms.

 

4.             As of the datehereof, Borrower is not “insolvent” within the meaning of Section 548(a)(2)(B)of the United States Bankruptcy Code.

 

5*.            *Borroweris in the business of owning and operating Great American Steak & BuffetCompany restaurants, including the restaurant operation located at 5902Richmond Hwy., Alexandria, Virginia (the “Franchised Operation”).   Borrower’s chief executive office islocated at 416 South Jefferson Street, Roanoke, Virginia 24012, and theCollateral is**locatedat Borrower’s Chief Executive Office and the Franchised Operation.

 

6.             Borrower has furnished to Lenderits most recent annual audited financial statements and most recent managementprepared and certified quarterly financial statements, which statements wereprepared in accordance with generally accepted accounting principles and arecorrect and complete and accurately present the financial condition of Borroweron the dates thereof.   Further, therehas been no material adverse change in the business, property or condition ofBorrower since the date of the most recent financial statements.

 

7.             Borrower has compliedand will continue to comply with all applicable laws, rules, regulations andorders relating to Borrower or any aspect of Borrower’s business or assets,including, without limit, all environmental laws, rules, regulations andorders. Borrower agrees to indemnify and hold Lender harmless against and fromall claims, losses and costs resulting from any and all violations by Borrowerof any laws, rules, regulations and/or orders.

 

----

 

8.             Borrower has notreceived any written notice of, and, to the best knowledge of Borrower, none ofBorrower, the Franchised Operation or the premises where the FranchisedOperation is located are in violation of any law, municipal ordinance or othergovernmental requirement of any governmental authority.

 

9.             There are nocircumstances, state of facts or other matters which, with the passage of timeor the giving of notice, or both, would constitute an Event of Default underthe terms of the Note, the Security Agreement or the other Loan Documents.

 

10.           Borrower has filed allfederal, state and local income and other tax returns and other reportsrequired to be filed prior to the date of this Certificate and Borrower haspaid all taxes, assessments, withholdings and other governmental charges thatare due and payable prior to the date of this Certificate.

 

11.           All taxes and allinstallments of assessments and all other charges of any kind imposed or leviedby any governmental authority against either Borrower or the Collateral whichare due and payable or constitute a lien at or prior to the date of thisCertificate, together with all interest and penalties due thereon, have beenpaid in full.

 

12.           There is now fullypaid and enforceable fire, liability and other forms of insurance in suchamounts and covering such risks as are required under the Security Agreement.

 

13.           There are no disputes,litigation or other such proceedings pending or, to the best of Borrower’sknowledge, threatened against or related to Borrower, the Collateral or theFranchised Operation, nor does Borrower know of any basis for any such action.

 

14.           In consideration of the loanevidenced by the Note and secured, by the Security Agreement and the other LoanDocuments, Borrower agrees to indemnify and hold Lender harmless against allclaims, liabilities, losses, deficiencies and damages as well as reasonableexpenses (including attorney’s fees), interest and penalties related thereto,asserted by any third party against, or incurred by Lender, by reason of orresulting from any breach, inaccuracy, incompleteness or nonfulfillment of thecovenants, representations and/or warranties of Borrower contained in thisCertificate.

 

15.           Commencing May 1, 1998and on the first day of each following month, Lender is authorized to initiatean electronic funds transfer to pay the monthly installment payment owing underthe loan evidenced by the Note from the account designated below, and toreceive payments from such account.  This authorization will remain in effect unless the undersigned requestsa modification that is agreed to by the Financial Institution and Lender;provided, however, that Lender and its successors, assigns and transferees maymodify the place of payment to be made by Borrower without the consent of theFinancial Institution.

 

 
| Financial Institution: |   |
|------------------------|--------|
| Financial Institution  |   |
| Address:               |   |
| Routing/Transit #:     |   |
| Account #:             |   |
|                        |        |  |  |  |

 

 

[SIGNATURE PAGE FOLLOWS]

 

2

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Loan No. 067225902 Richmond Hwy.Alexandria, Virginia

 

**CERTIFICATE OF GUARANTOR**

 

THEWESTERN SIZZLIN STORES OF LITTLE ROCK, INC., an Arkansas corporation(“Guarantor”), for the benefit of CAPTEC FINANCIAL GROUP FUNDING CORPORATION, aMichigan corporation (together with its successors, assigns and transferees,“Lender”), warrants, represents, covenants and agrees that the following aretrue and correct as of the date hereof:

 

1.             Guarantor has received a copy ofthat certain Promissory Note, dated March 23, 1998 in the original principalamount of One Million Two Hundred Fifty Thousand and 00/100 Dollars($1,250,000.00) (“Note”) made by THE WESTERN SIZZLIN STORES, INC., a Virginiacorporation (“Borrower”). Guarantor has also received a copy of the instrumentssecuring the Note, as referenced therein (together with the Note, the “LoanDocuments”). The Loan Documents create a lien with respect to certain real andpersonal property located at 5902 Richmond Hwy., Alexandria, Virginia(“Premises”).

 

2.             Guarantor has had theopportunity to review the Certificate of Borrower, dated even herewith, made byBorrower for the benefit of Lender, and confirms that the warranties andrepresentations set forth therein are true and correct as of the date hereof.

 

3.             Guarantor has fullpower and authority to enter into that certain Guaranty executed by Guarantorin favor of Lender, dated as of the date of this Certificate (“Guaranty”) andto assume and perform all of Guarantor’s obligations under the Guaranty inaccordance with all of the terms and conditions of the Guaranty. The executionand delivery of the Guaranty and the performance by Guarantor of Guarantor’sobligations under the Guaranty and under all documents contemplated by theGuaranty require no further action or approval.  The Guaranty and all other documents contemplated by the Guarantyare fully binding and enforceable obligations of Guarantor.

 

4.             There are nocircumstances, state of facts or other matters which, with the passage of timeor the giving of notice, or both, would constitute an event of default underthe terms of the Guaranty, or to the best of the Guarantor’s knowledge, underthe Loan Documents.

 

5.             There are nodisputes, litigation or other such proceedings pending or, to the best of theGuarantor’s knowledge, threatened against or related to the Guarantor, nor doesGuarantor know of any basis for any such action.

 

6.             Guarantor hasfurnished to Lender its most recent annual audited consolidated financialstatements and most recent management prepared and certified quarterlyconsolidated financial statements, which statements were prepared in accordancewith generally accepted accounting principles and are correct and complete andaccurately present the financial condition of Guarantor on the datesthereof.   Further, there has been nomaterial adverse change in the business, property or condition of Guarantorsince the date of the most recent financial statements.

 

7.             In consideration ofthe loan evidenced by the Note and secured, in part, by the Loan Documents, thereceipt and sufficiency of which Guarantor acknowledges, and in order to induceLender to make such loan, Guarantor agrees to indemnify and hold Lenderharmless against all claims, liabilities, losses, deficiencies and damages aswell as reasonable expenses (including attorney’s fees), interest and penaltiesrelated thereto, asserted

 

----

 

byany third party against, or incurred by Lender, by reason of or resulting fromany breach, inaccuracy, incompleteness or nonfulfillment of the covenants,representations and/or warranties of Guarantor contained in this Certificate.

 

ThisCertificate shall become effective on March 31, 1998.

 
|   | **THE WESTERN SIZZLIN STORES OF LITTLE ROCK, INC.** |
|--------|-----------------------------------------------------|
|   |                                                |
|   |                                                |
|   | By                                                  | /s/ Victor F. Foti |
|   |                                                |   |
|   | Its                                                 | President |   |
|        |                                                     |  |  |  |  |

 

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Loan No. 06722

5902 Richmond Hwy

Alexandria, Virginia

 

**CERTIFICATE OF GUARANTOR**

 

THEWESTERN SIZZLIN CORPORATION, a Tennessee corporation (“Guarantor”), for thebenefit of CAPTEC FINANCIAL GROUP FUNDING CORPORATION, a Michigan corporation(together with its successors, assigns and transferees, “Lender”), warrants,represents, covenants and agrees that the following are true and correct as ofthe date hereof:

 

1.             Guarantor hasreceived a copy of that certain Promissory Note, dated March 23,  1998 in the original principal amount of OneMillion Two Hundred Fifty Thousand and 00/100 Dollars ($1,250,000.00) (“Note”)made by THE WESTERN SIZZLIN STORES, INC., a Virginia corporation (“Borrower”).Guarantor has also received a copy of the instruments securing the Note, asreferenced therein (together with the Note, the “Loan Documents”). The LoanDocuments create a lien with respect to certain real and personal propertylocated at 5902 Richmond Hwy., Alexandria, Virginia (“Premises”).

 

2.             Guarantor has had the opportunityto review the Certificate of Borrower, dated even herewith, made by Borrowerfor the benefit of Lender, and confirms that the warranties and representationsset forth therein are true and correct as of the date hereof.

 

3.             Guarantor has full power and authorityto enter into that certain Guaranty executed by Guarantor in favor of Lender,dated as of the date of this Certificate (“Guaranty”) and to assume and performall of Guarantor’s obligations under the Guaranty in accordance with all of theterms and conditions of the Guaranty. The execution and delivery of theGuaranty and the performance by Guarantor of Guarantor’s obligations under theGuaranty and under all documents contemplated by the Guaranty require nofurther action or approval.  TheGuaranty and all other documents contemplated by the Guaranty are fully bindingand enforceable obligations of Guarantor.

 

4.             There are no circumstances, stateof facts or other matters which, with the passage of time or the giving ofnotice, or both, would constitute an event of default under the terms of theGuaranty, or to the best of the Guarantor’s knowledge, under the LoanDocuments.

 

5.             There are no disputes, litigationor other such proceedings pending or, to the best of the Guarantor’s knowledge,threatened against or related to the Guarantor or the Premises, nor doesGuarantor know of any basis for any such action, except as disclosed to Lenderon Exhibit A hereto.

 

6.             Guarantor has furnished to Lenderits most recent annual audited consolidated financial statements and mostrecent management prepared and certified quarterly consolidated financialstatements, which statements were prepared in accordance with generallyaccepted accounting principles and are correct and complete and accuratelypresent the financial condition of Guarantor on the dates thereof.  Further, there has been no material adversechange in the business, property or condition of Guarantor since the date ofthe most recent financial statements.

 

7.             In consideration of the loanevidenced by the Note and secured, in part, by the Loan Documents, the receiptand sufficiency of which Guarantor acknowledges, and in order to induce Lenderto make such loan, Guarantor agrees to indemnify and hold Lender harmlessagainst all claims, liabilities, losses, deficiencies and damages as well asreasonable expenses (including attorney’s fees), interest and penalties relatedthereto, asserted by any third party against, or incurred by Lender, by reasonof or resulting from any breach, inaccuracy, incompleteness or nonfulfillmentof the covenants, representations and/or warranties of Guarantor contained inthis Certificate.

 

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ThisCertificate shall become effective on March  31, 1998.

 
|   | **THE WESTERN SIZZLIN CORPORATION** |
|--------|-------------------------------------|
|   |                                |
|   |                                |
|   | By                                  | /s/ Victor F. Foti |
|   |                                |   |
|   | Its                                 | President |
|        |                                     |  |  |  |

 

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**The WesterN SizzliN Corporation**

Litigation Proceedings against The WesterN SizzliN Corporation

Exhibit A, to Certificate of Guarantor

 
| **Name/Caption**                                                                                                                                                             |   | **Amount in  Controversy** |      | **Status** |                                                                                                                                                                                                                                                                                                               |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------|-----------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                         |   |                       |      |       |                                                                                                                                                                                                                                                                                                               |
| David K Wachtal,  Jr. v. WSC. et al  First Complaint - breach of employment contract;  wrongful termination

Second Complaint -  Includes officers and directors in the suit |   | $                          | 1,319,000 |       | Wachtal president until 2/95 claims wrongful  termination; which under his contract would mean two years’ of compensation,  approx. $400,000. The termination was well justified. The suit had included  certain officers and directors, whose cases have been dismissed through award  of summary judgement. |   |
|                                                                                                                                                                         |
|                                                                                                                                                                         |
|                                                                                                                                                                         |   |                       |      |       |                                                                                                                                                                                                                                                                                                               |
| Third Complaint  - loss of value of stock 

Indemnification for  expenses                                                                                                    |   | $                          | 8,500,000 |       | Summary judgement granted to defendant, case  dismissed; plaintiff has appealed. Discovery not complete.                                                                                                                                                                                                           |   |
|                                                                                                                                                                         |
|                                                                                                                                                                         |   |                       |      |       |                                                                                                                                                                                                                                                                                                               |
| Mann v. WSC   Breach of employment                                                                                                                                           |   | $                          | 50,000    |       | Mann is now deceased, with very little  discovery.  We expect that the suit  will be dismissed.                                                                                                                                                                                                               |   |
|                                                                                                                                                                         |   |                       |      |       |                                                                                                                                                                                                                                                                                                               |
| Durham  Enterprises v. WSC 

Denial of awarding a  franchise                                                                                                                 |   | $                          | 1,000,000 |       | Summary judgment granted to defendant, case  dismissed; plantiff has not appealed.                                                                                                                                                                                                                                 |   |
|                                                                                                                                                                         |   |                       |      |       |                                                                                                                                                                                                                                                                                                               |
| Cruthis v Elgin  Hamner and WSC   Contaminated tea                                                                                                                           |   | $                          | 4,000     |       | Suit primarily against franchise; WSC named as  codefendant; discovery beginning                                                                                                                                                                                                                                   |   |
|                                                                                                                                                                         |   |                       |      |       |                                                                                                                                                                                                                                                                                                               |
| Pony  v. WSC  and David Wachtel, Jr.

Business Interference  between franchisee/seller   and potential buyer - would not allow franchise assumption                     |   | $                          | 2,500,000 |       | Discovery is beginning: D & O insurance.                                                                                                                                                                                                                                                                       |   |
|                                                                                                                                                                         |
|                                                                                                                                                                         |   |                       |      |       |                                                                                                                                                                                                                                                                                                               |
| WSC v. Moody /  Fowler

Counter claim, in response to WSC's collection suit for unpaid  royalties                                                                            |   | $                          | 500,000   |       | Discovery Beginning.                                                                                                                                                                                                                                                                                               |   |

 

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Loan No. 067233500 S. JeffersonFalls Church, Virginia

** **

**PROMISSORY NOTE**

 
| $500,000.00 | Date: March 23, 1998 |
|-------------|----------------------|

 

 

**PROMISE TO PAY.** For value received, **THE WESTERNSIZZLIN STORES, INC.**, aVirginia corporation, (“Borrower”) promises to pay to **CAPTECFINANCIAL GROUP FUNDING CORPORATION**, a Michigan corporation (together with its successors, assigns andtransferees, “Lender”), or order, Five Hundred Thousand and 00/100 Dollars($500,000.00), or so much of such sum as has been advanced under this Note, asfollows:

 

Interestonly from and after the date on which funds are disbursed by Lender hereunder(“Effective Date”) through the last day of the month in which the EffectiveDate occurs shall be due and payable on the first day of the next monthfollowing the Effective Date; provided that if the Effective Date occurs afterthe fifteenth (15th) day of a month, the interest which would accrue, based onthe actual number of days, through the end of such month shall be due andpayable in advance on the Effective Date. Installments of principal andinterest in the amount of Six Thousand Five Hundred Ninety-One and 00/100Dollars ($6,591.00) are due and payable on the first day of each month (each a“Payment Date”), commencing May 1, 1998; until March 1, 2008 (“Due Date”), whenthe outstanding principal balance, plus accrued interest, is due and payable(unless the indebtedness evidenced by this Note is accelerated, in which case,the Due Date is the date of acceleration). The amortization period for thisNote, for purposes of calculating the monthly installments of principal andinterest, is one hundred nineteen (119) months.

 

Allpayments under this Note shall be made at Lender’s principal office at 24 FrankLloyd Wright Drive, Lobby L, 4th Floor, P.O. Box 544, Ann Arbor, Michigan48106-0544, or at such other address as Lender may designate in writing, or byelectronic funds withdrawal made by Lender upon written authorization thereforfrom Borrower, which authorization shall not be revocable by Borrower withoutthe consent of Lender. Payments due and payable on a day on which Lender is notopen for business are due on the next succeeding business day. Payments will beapplied first to accrued interest and then to principal.

 

**INTEREST RATE.** The outstanding principal balance of thisNote will bear interest at a fixed rate equal to nine and eighty-two hundredthspercent (9.82%) per annum (the “Stated Rate”), until the Due Date (whether byacceleration or otherwise), and thereafter at a rate which is three percent(3%) above the Stated Rate (“Default Rate”).

 

Interestwill be computed on the basis of a year consisting of twelve (12) months ofthirty (30) days each. In no event, however, shall the interest rate exceed themaximum rate allowed by law. Notwithstanding anything to the contrary containedherein, at no time shall the interest payable under this Note be greater thanthe maximum rate permitted by applicable law (“Legal Rate”). If any obligationunder this Note shall result in Lender receiving an amount deemed to beinterest under applicable law in excess of the Legal Rate, then the amountwhich would be excessive interest shall be applied to the reduction of theprincipal balance of this Note and not to payment of interest. If suchexcessive interest exceeds the unpaid principal balance of this Note, theexcess shall be refunded to Borrower.

 

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**PREPAYMENT**. Borrower shall not have any right, except as otherwise specificallyprovided, to prepay the principal balance of this Note until two (2) loan yearshave elapsed. The first “loan year” shall commence on the date of the closingof the loan evidenced by this Note, and subsequent loan years shall commence onthe anniversaries of such date. Commencing with the third (3rd) loan year andif no Event of Default (as hereinafter defined) then exists, Borrower shallhave the right to prepay all, but not merely a portion of, the principalbalance of this Note together with accrued interest thereon on any PaymentDate; provided, however, that Borrower shall provide no less than thirty (30)days prior written notice to Lender of Borrower’s intention to prepay (the“Prepayment Notice”). Once given, the Prepayment Notice may not be withdrawn,and the failure to prepay in accordance with the Prepayment Notice shallconstitute an Event of Default.

 

Borroweracknowledges and agrees that Lender is making the loan evidenced by this Notein consideration of the receipt by Lender of all interest and other benefitsintended to be conferred by this Note, and if payments of principal are made toLender prior to the regularly scheduled due date of such payments, for whateverreason (whether voluntarily or involuntarily), Lender will not receive all suchinterest and other benefits and may incur additional costs. For these reasons,and to induce Lender to make the loan, Borrower expressly waives any right toprepay this Note except as specifically provided herein.

 

Lendershall not be required to accept any tender of prepayment of the principalbalance of this Note at any time when the “Reinvestment Rate” (as hereinafterdefined) is lower than the Stated Rate, less eighty-five basis points, unlesssuch tender also includes a sum of money (the “Prepayment Premium”) equal tothe present value (computed at the Reinvestment Rate) of the difference betweena stream of monthly payments necessary to amortize the outstanding principalbalance of this Note at the Stated Rate and a stream of monthly paymentsnecessary to amortize the outstanding principal balance of this Note at theReinvestment Rate (the “Differential”). In the event the Differential is lessthan zero, no Prepayment Premium will be required. For purposes of this Note,the “Reinvestment Rate” is the yield on a United States Treasury obligation ofa constant maturity rate maturing closest in time but prior to the maturitydate of this Note, as reported in Federal Reserve Statistical Release H. 15(519) (or any comparable successor publication) on the fifth (5th) business daypreceding the prepayment date.

 

Inaddition to the Prepayment Premium, if any, every tender of prepayment of theprincipal balance of this Note shall be accompanied by a payment equal to (x)all accrued but unpaid interest and other charges to the date of prepayment and(y) an administrative fee equal to one half of one percent (0.5%) of theoutstanding principal balance of this Note; provided, however, that theadministrative fee shall not be less than One Thousand and 00/100 Dollars($1,000.00) (collectively, the “Other Charges”).

 

Ifthe outstanding principal balance of this Note is accelerated by reason of anEvent of Default, such acceleration shall be deemed to be a prepayment andBorrower shall pay to Lender, in addition to all sums due as a result of theacceleration, any applicable Prepayment Premium and Other Charges. In the eventof an acceleration of this Note in the first or second loan year, Borrowershall be required to pay a Prepayment Premium equal to five percent (5%) of theoutstanding principal balance of this Note together with any Other Charges. Inthe event that this Note is partially prepaid from casualty insurance proceeds(as provided in the Security Agreement, defined below), no Prepayment Premiumor Other Charges shall be due and payable with respect to such prepayment, andeach monthly installment thereafter shall be reduced to an amount which willamortize the then unpaid principal balance of this Note at the Stated Rate overthe then remaining term of this Note.

 

**LATE PAYMENT CHARGE.** In the event that any payment under thisNote is not received by Lender within fifteen (15) days of the date when due, alate charge of five percent (5%) of the amount of such payment will be due.Borrower agrees that the late charge is a reasonable estimate of theadministrative costs which Lender will incur in processing the delinquency.Lender’s acceptance of a late payment and/or of the late payment charge willnot waive any default under this Note or affect the acceleration of this Note(if this Note has been accelerated).

 

2

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**COLLATERAL.** This Note and the other obligations ofBorrower to Lender contained in the documents securing this Note are secured byand in accordance with the terms of that certain Security Agreement, effectiveMarch 31, 1998, executed by Borrower for the benefit of Lender (the “SecurityAgreement”; together with any other documents securing payment under this Note,the “Loan Documents”). All property securing the Indebtedness (as defined inthe Security Agreement) is referred to as the “Collateral”,

 

**DEFAULT.** Any of the following events shall, forpurposes of this Note, constitute an “Event of Default” :

 

(a)           Failure by Borrower topay any amount owing on or with respect to the Indebtedness when due, whetherby maturity, acceleration or otherwise, which failure continues for five (5)business days.

 

(b)             Anyfailure by Borrower (or any guarantor of all or any part of the Indebtedness)to comply with any of the non-monetary terms, provisions, warranties orcovenants of this Note, the Security Agreemt or the other Loan Documents, whichfailure continues for fifteen (15) days after the date of written notice toBorrower (or any guarantor) from Lender of such default; provided, however,that if: (i) the nature of Borrower’s (or any guarantor’s) noncompliance is suchthat more than fifteen (15) days are reasonably required for its cure, (ii)Borrower (or any guarantor) has commenced such cure within said fifteen (15)day period, (iii) Borrower (or any guarantor) diligently prosecutes such cureto completion, (iv) Borrower (or any guarantor) provides Lender with writtennotice of the noncompliance, AND (v) Borrower (or any guarantor) furnishesreserves or a security bond, in an amount satisfactory to Lender in its solediscretion, then Borrower (or any guarantor) shall not be in default.

 

(c)             Institutionof foreclosure proceedings or other exercise of rights and remedies by theholder of any mortgage, deed of trust, security interest or other lien againstthe Collateral (or any portion thereof); provided, however, if there is a goodfaith dispute by Borrower (or any guarantor) as to the validity orreasonableness of the claim which is the basis for such proceedings, then noEvent of Default shall have occurred under this clause (c) if Borrower (or anyguarantor) provides Lender with written notice of the proceedings and furnishesreserves or a security bond for the proceedings satisfactory to Lender.

 

(d)             Insolvencyof Borrower (or any guarantor) or the admission in writing of Borrower’s (orany guarantor’s) inability to pay debts as they mature.

 

(e)             Anystatement, representation or information made or furnished by or on behalf ofBorrower (or any guarantor) to Lender in connection with or to induce Lender toprovide or advance any of the Indebtedness shall prove to be false ormaterially misleading when made or furnished.

 

(f)              Institutionof bankruptcy, reorganization, insolvency or other similar proceedings by oragainst Borrower (or any guarantor), unless, in the case of a petition filedagainst Borrower (or any guarantor), the same is dismissed within sixty (60)days of the date of filing.

 

(g)             Theissuance or filing of any judgment, attachment, levy,  garnishment or the commencement of any related proceedings or thecommencement of any other judicial process upon or in respect to Borrower (orany guarantor) or the Collateral in which the amount in controversy exceeds OneHundred Thousand Dollars ($100,000) and is not covered by the insurance ofBorrower (or any guarantor), unless satisfied, or Borrower (or any guarantor)furnishes reserves or a security bond in an amount satisfactory to Lender inits sole discretion, released or discharged within sixty (60) days after thedate of such issuance, filing or commencement.

 

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(h)             Saleor other disposition by Borrower (or any guarantor) of any substantial portionof its assets or property.

 

(i)            Death, dissolution,merger, consolidation, termination of existence, insolvency, business failureor assignment for the benefit of creditors of or by Borrower (or anyguarantor); without the prior written consent of Lender, which consent shallnot be unreasonably withheld.

 

(j)              Anyfailure by Borrower (or any guarantor) to pay any indebtedness (other than toLender) in excess of One Hundred Thousand Dollars ($100,000) (and exclusive oftrade debt incurred in the ordinary course of business) when due, or anyfailure in the observance or performance of any term, covenant or condition inany document evidencing, securing or relating to such indebtedness, whichfailure continues beyond any applicable cure period.

 

(k)           Receipt by Borrower ofa notice of termination of the Management and Licensing Agreemt from TheWesterN SizzliN Corporation, a Tennessee corporation (“Franchisor”), for theWesterN SizzliN Restaurant located at 3500 S. Jefferson, Falls Church, Virginia22041 (“Franchised Operation”).

 

(1)           If this Note, theSecurity Agreement and the other Loan Documents have not been assigned to theTrust (as defined in the Security Agreemt), the default by Borrower whichcontinues beyond any applicable grace or cure period under the RetainedObligations (as defined in the Security Agreement); provided, however, if thisNote, the Security Agreement and the other Loan Documents are assigned to theTrust, this Clause (1) shall be of no force and effect during the term of suchassignment.

 

(m)          Inthe event that this Note, the Security Agreement and the other Loan Documentsare assigned to the Trust, the default by Borrower which continues beyond any applicablegrace or cure period under the Trust Obligations (as defined in the SecurityAgreement).

 

(n)           Any default byBorrower under the Lease between Janice H. Levin, as landlord, and Borrower, astenant, dated March 23, 1988 (“Lease”), which default is not cured within anyapplicable cure period set forth in such Lease.

 

Uponan occurrence of an Event of Default, Lender shall have the option to declareall or part of the Indebtedness (including this Note) immediately due andpayable. If this Note is not paid at maturity (whether by acceleration orotherwise), Lender shall have all of the rights and remedies provided at law orequity or by Agreement, including, without limit, the right to sell orliquidate all or any part of the Collateral. The remedies of Lender arecumulative and not exclusive.

 

**EXAMINATION OF RECORDS.** Borrower shall at all times keep full andaccurate records of its business and of the Collateral, which records shall beopen to inspection and copying by Lender at all reasonable times.

 

**LIABILITY OF SIGNATORIES.** Borrower, and all guarantors and endorsers,and any other party liable for the Indebtedness evidenced by this Note: (i)severally waive presentment, demand, protest, notice of dishonor, notice ofnon-payment and notice of acceleration of this Note; and (ii) agree that noextension or postponement of the time for payment, or waiver, or indulgence orforbearance granted to Borrower (without limit as to number or period) or anymodification of this Note, or any substitution, or exchange or release of allor part of the Collateral, or addition of any party to this Note, or release ordischarge of, or suspension of any rights and remedies against any party liableon this Note, shall reduce or affect the obligation of any other party liablefor the payment of this Note.

 

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**NON-WAIVER.** No delay by Lender in the exercise of anyright or remedy shall operate as a waiver. No single or partial exercise byLender of any right or remedy shall preclude any future exercise of such rightor remedy or the exercise of any other right or remedy. No waiver or indulgenceby Lender of any default or Event of Default shall be effective unless inwriting and signed by Lender, nor shall a waiver on one occasion be construedas a bar to any right or remedy, or waiver of any default or Event of Defaulton any future occasion.

 

**REIMBURSEMENT OF EXPENSES**. Borrower shall reimburse Lender for all costs and expenses, includingreasonable attorneys’ fees, incurred by Lender in enforcing the rights ofLender under this Note. Such costs and expenses shall include, withoutlimitation, costs or expenses incurred by Lender in any bankruptcy,reorganization, insolvency or other similar proceeding. Any reference in this Noteto attorneys’ fees shall mean fees, charges, costs and expenses of in-houseand/or outside counsel and paralegals, whether or not a suit or proceeding isinstituted, and whether incurred at the trial court level, on appeal, in abankruptcy, administrative or probate proceeding, in consultation with counsel,or otherwise.

 

**WAIVER OF JURY TRIAL.****BORROWER AND LENDER ACKNOWLEDGE THAT THE RIGHT TOTRIAL BY JURY IS A CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED. EACH PARTY,AFTER CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OFTHEIR CHOICE, KNOWINGLY AND VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT, WAIVESANY RIGHT TO TRIAL BY JURY IN THE EVENT OF LITIGATION REGARDING THE PERFORMANCEOR ENFORCEMENT OF, OR IN ANY WAY RELATED TO, THIS NOTE OR THE INDEBTEDNESS.**

** **

**ASSIGNMENT.** This Note is freely assignable, in whole orin part, by Lender without prior notice to or consent of Borrower; provided,however, that Lender (or its assignee) shall provide written notice of suchassignment to Borrower in the event that Lender (or such assignee) desires todesignate a new person or entity as payee and/or a new place of payment for theobligations under this Note. Borrower may not, in whole or in part, directly orindirectly, assign this Note or its rights hereunder or delegate its dutieshereunder without, in each instance, the specific prior written consent ofLender, which consent may be withheld or delayed in Lender’s sole discretion.Lender shall be fully discharged from all responsibility accruing hereunderfrom and after the effective date of any such assignment. Lender’s assigneeshall, to the extent of the assignment, be vested with all the powers andrights of Lender hereunder, and to the extent of such assignment the assigneemay fully enforce such rights and powers, and all references to Lender shallmean and refer to such assignee. Lender shall retain all rights and powershereby given not so assigned, transferred and/or delivered. Borrower herebywaives all defenses which Borrower may be entitled to assert against Lender’sassignee with respect to liability accruing hereunder prior to the effectivedate of any assignment of Lender’s interest herein.

 

**SECURITIZATION.** Borrower understands and agrees that Lendermay, from time to time, assign its rights and powers under this Note, theSecurity Agreement and any other Loan Documents, in whole or in part, inconnection with a securitization program. Borrower agrees to enter into anamendment to this Note, the Security Agreement and any other Loan Documents ifsuch amendments are required by a nationally recognized rating agency inconnection with a securitization program sponsored by Lender and in which thisNote, the Security Agreement any other Loan Documents are to be included;provided that Borrower shall not be obligated to enter into any amendment whichadversely affects Borrower or otherwise adversely alters any of the financialterms of this Note, the Security Agreement and any other Loan Documents.

 

**MISCELLANEOUS.** The terms and provisions of this Note shallbe governed by and construed in accordance with the laws of the Commonwealth ofVirginia. Lender and Borrower agree that any dispute which may arise betweenthem with regard to this Note shall be resolved by litigation in state orfederal court. Litigation may be initiated by Lender or its assignee, at itsdiscretion, in the State of the principal place of business of Lender or itsassignee, the State of the principal place of business of Borrower, or theState where the Collateral is located. **BORROWER HEREBY KNOWINGLY ANDIRREVOCABLY WAIVES ANY OBJECTIONS ON THE**

 

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**GROUNDS OF IMPROPER JURISDICTION ORVENUE TO AN ACTION INITIATED AS SET FORTH ABOVE AND AGREES THAT EFFECTIVESERVICE OF PROCESS MAY BE MADE UPON BORROWER BY REGISTERED MAIL RETURN RECEIPTREQUESTED.** The termsand provisions of this Note may only be changed in writing, executed byBorrower and Lender.

 
|                                  |               |
|---------------------------------------|--------------------|
| **THE  WESTERN SIZZLIN STORES, INC.** |               |
|                                  |               |
|                                  |               |
|                                  |               |   |
| By:                                   | /s/ Victor F. Foti |   |
|                                  |               |
|                                  | Its                | President |   |   |
|                                  |               |
| Address:                              |
|                                  |
| P.O. Box 12167                        |
| Roanoke, VA 24023-2167                |
|                                  |
| Tax I.D. No. 54-1787907               |
|                                       |                    |  |  |  |  |  |  |

 

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Payto the order ofwithout warranty or recourse.

Captec Rinlancial GroupFunding Corporation

 
| By:  | /s/ [ILLEGIBLE] |   |
|------|-----------------|--------|
| Its: |            |   |

 

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**SECURITY AGREEMENT**

** **

THISSECURITY AGREEMENT (“Agreement”) is made as of the 23rd**day of March, 1998, by **THE WESTERNSIZZLIN CORPORATION,** aTennessee corporation, of P.O. Box 12167, Roanoke, Virginia 24023-2167(“Guarantor”) in favor of **CAPTEC FINANCIAL GROUP FUNDING CORPORATION,** a Michigan corporation, of 24 Frank LloydWright Drive, Lobby L, 4th Floor, P.O. Box 544, Ann Arbor, Michigan, 48106(together with its successors, assigns and transferees, “Lender”). Thisinstrument shall become effective on March 31, 1998.

 

**WITNESSETH:**

 

ThisAgreement is made to secure the payment and performance obligations ofGuarantor under those certain Guaranties, effective of even date herewith, madeby Guarantor in favor of Lender (“Guaranties”). The Guaranties secure thepayment and performance obligations of THE WESTERN SIZZLIN STORES, INC., aVirginia corporation and a wholly owned subsidiary of Guarantor (“Borrower”),under those certain loans in the original aggregate principal amount of SixMillion Two Hundred Thousand and 00/100 Dollars ($6,200,000.00) evidenced bythose certain Promissory Notes, each of even dated herewith (“Notes”), made byBorrower in favor of Lender, which Notes are secured by the instrumentsreferenced therein (together with the Notes, “Loan Documents”).

 

1.             **DEFINITIONS **For purposesof this Agreement, the following terms shall be defined as follows:

 

(a)           **Franchise Agreement(s)** - shall mean those Agreement(s) by whichGuarantor grants an entity(ies) or individual(s), other than a Subsidiary, theright to operate a WesterN SizzliN Steak House or WesterN SizzliN Wood GrillBuffet restaurant or to use the WesterN SizzliN or WesterN SizzliN Wood Grilltrademarks, trade names or service marks, which Agreements are specified onSchedule 1 attached hereto, as updated and amended from time to time.

 

(b)           **Subsidiary**- with respect to Guarantor shall mean anycorporation or other entity in which Guarantor or one of its Subsidiaries,holds securities or other interests having the power to election a majority ofthat corporation’s or entity’s board of directors or similar governing body, orotherwise having the power to direct the business and policies of thatcorporation or entity.

 

2.             **COLLATERAL.**

 

**Grant of Security Interest.** Guarantor grants Lender a security interest in all of Guarantor’sfranchise fee and franchise royalty fee accounts receivable now outstanding orhereafter arising owing to Guarantor and to be paid to Guarantor pursuant to theFranchise Agreement(s) including without limitation, franchise fees, managementfees or any other similar fees for the use of trademarks, trade names, servicemarks, advertising services, know-how, management services, materials,equipment and/or labor (collectively, “Franchise Accounts Receivable”), allgeneral intangibles (as defined in the Uniform Commercial Code relating to thedocuments or instruments evidencing the obligations to Guarantor for payment ofthe Franchise Accounts Receivable, and all other instruments and documentsevidencing the Franchise Agreements now owned or hereafter acquired(collectively, the “Collateral”). The Collateral shall also include anydocuments of title evidencing the aforementioned Collateral. PROVIDED, HOWEVER,that Lender assumes no responsibility of performance of any of Guarantor’sobligations with reference to any of said Collateral.

 

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3.**             WARRANTIES AND REPRESENTATIONS.** Guarantor warrants and covenants to Lenderas follows:

 

(a)           **Authority.**  ThisAgreement is the valid and binding obligation of Guarantor, enforceable inaccordance with its terms. If Guarantor is a corporation, partnership, limitedliability company or other organization, Guarantor is organized and validlyexisting in good standing under the laws of its state of establishment, and theexecution, delivery and performance of this Agreement have been duly authorizedby all necessary action of Guarantor’s Board of Directors, partners, orgoverning body and will not violate Guarantor’s governing instruments or otherAgreements.

 

(b)           **Name; Address; Location ofCollateral.**  Guarantor’s name and principal place ofbusiness and the location(s) of the Collateral are accurately set forth on thesignature page and on Schedule 1 of this Agreement.

 

(c)           **Nature of Collateral.** All of the Collateral is held by Guarantorsolely for business purposes, and none of the Collateral constitutes consumergoods. No part of the Collateral consists of equipment used in farmingoperations or farm products or accounts or general intangibles arising from orrelating to the sale of farm products by a farmer. The Collateral was acquiredin the ordinary course of business of Guarantor. There are no setoffs,counterclaims, or defenses against the Collateral, except as provided under theterms of the Franchise Agreements.

 

(d)           **Title to Collateral.** Guarantor has good and marketable title tothe Collateral, free and clear of any liens or encumbrances whatsoever, otherthan Permitted Liens, as hereinafter defined. Guarantor will keep the Collateralfree of all other liens, encumbrances and security interests. Guarantor willdefend the Collateral against all claims and demands of all persons at any timeclaiming any interest in the Collateral. Guarantor warrants that the FranchiseAccounts Receivable are due and owing under the related Franchise Agreements.

 

(e)           **Perfection and Priority of SecurityInterest.**  The execution and delivery of this Agreementcreates a valid security interest in the Collateral, and upon the filing of aUCC-1 financing statement with the Secretary of State of Tennessee and theVirginia State Corporation Commission, Lender will have a second priorityperfected security interest in the Collateral, subject only to the securityinterest of the Permitted Liens.

 

“PermittedLiens” shall mean any mortgage, security interest or other lien or encumbrancethat Central Fidelity National Bank (“CFNB”) may now have or subsequentlyobtain as security for the payment of that certain $500,000.00 Revolving Lineof Credit granted to Guarantor by CFNB (the “Revolving Line of Credit”) and asevidenced by that certain Commercial Note and that certain Security Agreement,both dated May 26, 1995, between Guarantor and CFNB. Lender agrees that thisAgreement and any mortgage, security interest or other lien (includingpossessory liens) or encumbrance that it may presently have or subsequentlycreate or acquire as security for the Guaranties is and shall remain subjectand subordinate in right of priority to any mortgage, security interest or otherlien or encumbrance that CFNB may now have or subsequently obtain as securityfor the payment of the Revolving Line of Credit. Guarantor agrees to executeany instrument or financing statements necessary to evidence the subordinationherein set forth.

 

(f)            **Financing Statements.** Except as disclosed to and accepted by Lender in writing and subject toany Permitted Liens, no financing statement covering any part of the Collateralis on file in any public office. Borrower will execute financing statement(s)in form acceptable to Lender and will pay the cost of filing financingstatement(s) in all public offices wherever filing is deemed desirable byLender. A carbon, photographic or other reproduction of this Agreement shall besufficient as a financing statement under the UCC and may be filed by Lender inany filing office. This Agreement shall be terminated only by the filing of atermination statement(s) in accordance with the applicable provisions of theUCC.

 

(g)           **Paymentof Taxes.**  Guarantor shall pay when due and before anyinterest, collection fees or penalties accrue, all taxes, expenses,assessments, liens or other charges which may now or hereafter be levied orassessed against the Collateral, and shall furnish proof of payment of the sameupon request by Lender or, in the

 

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alternative, post a bondsatisfactory to Lender under the provisions of the applicable law with respectto any lien or claim of lien filed for record within ten (10) days of the dateof filing of said lien or claim.

 

4.**             PROHIBITION ON TRANSFER ORMODIFICATION.** Guarantorshall not transfer, sell, assign or lease or modify the Collateral or anyinterest therein, any part thereof, nor permit any other security interest tobe created therein without the prior written consent of Lender.

 

5.**             PROHIBITION ON CHANGE OF NAME,ORGANIZATION OR LOCATION.**Guarantor shall not conduct Guarantor’s business under any name other than asappears in this Agreement nor change or reorganize the type of Guarantor’sbusiness entity, nor change the location of any of the Collateral without theprior written consent of Lender, which consent shall not be unreasonablywithheld. Guarantor shall maintain its present business form and right to dobusiness.

 

6.**             RIGHT OF SETOFF.** Guarantor hereby grants to Lender the right,exercisable at any time and from time to time, if Guarantor is then in default,to set off or apply against the Guaranties any account or deposit with Lenderof which Guarantor is the or one of the owners or against any other amountswhich may be in the possession of Lender and to the credit of Guarantor.

 

7.**             EXAMINATION OF RECORDS ANDCOLLATERAL.** Guarantor shallat all times keep full and accurate records of its business, includingFranchise Accounts Receivable at Guarantor’s place of business, which recordsshall be open to inspection by Lender during Guarantor’s regular business hours(whether the records are printed or in magnetic, electronic, or machinereadable or other form). Lender is hereby granted the full right to enter uponany property owned by or in the possession of Guarantor to examine and inspectthe Collateral during Guarantor’s regular business hours. Guarantor shall, uponreasonable request by Lender, deliver any or all records to a place of Lender’schoosing.

 

8.**             REIMBURSEMENT OF EXPENSES.** Guarantor shall reimburse Lender for allexpenses, including reasonable attorneys’ fees, incurred by Lender in enforcingthe rights of Lender hereunder, including the storage and liquidation ofCollateral, and any such expenses shall be included in the amount covered bythe Guaranties and shall be immediately due and payable. Such expenses shallinclude, without limitation, any costs or expenses incurred by Lender in anybankruptcy, reorganization, insolvency or other similar proceeding.

 

9*.**            *****RIGHTS ANDOBLIGATIONS OF LENDER.** Inthe event Guarantor fails to pay taxes or other assessments (and does not posta bond, supply additional reserves or provide additional security satisfactoryto Lender) or fails to perform any other of its obligations hereunder, Lendermay (but shall not be required to) without notice to or consent from Guarantor,pay or perform such obligations for the account of Guarantor and the same shallbe added to the amount of the indebtedness covered by the Guaranties andsecured by this Agreement and shall be immediately due and payable. Lendershall not be liable for any loss to the Collateral nor shall such loss reducethe balance due. Guarantor hereby expressly waives any and all claims or rightto partial or complete discharge resulting from Lender’s release of or failureto seek payment from any other party or failure to realize on any instrument orcollateral or to setoff any moneys, or to perfect its lien or realize on any collateralsecurity, notwithstanding Section 3605 of the Uniform Commercial Code. Thisshall include, without limitation, extension of time or forbearance of paymentor performance, bankruptcy, change in terms of notes, guaranties or other loandocument, or waiver by Lender of any required performance of any condition, orthe surrender, release, exchange, dissipation, loss or alteration of anycollateral, in whole or in part.

 

10.**           INDEMNIFICATION.** Guarantor shall indemnify and save Lenderharmless from all claims, obligations, costs, expenses, including attorneys’fees, and causes of action or other rights asserted against Lender relating tothe Collateral. Any such claim, obligation, cost or expense shall be anindebtedness of Guarantor covered by the Guaranties, secured by this Agreementand payable upon demand.

 

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**11.          DEFAULT ANDREMEDIES.**

 

(a)           **Events of Default.** Any of the following events shall, forpurposes of this Agreement, constitute an “Event of Default”:

(i)Failure by Guarantor to pay any amount owing on or with respect to theindebtedness secured by the Guaranties when due, whether by maturity,acceleration or otherwise, which failure continues for five (5) business days.

 

(ii)Any failure by Borrower or Guarantor to comply with, or breach by Borrower orGuarantor of, any of the non-monetary terms, provisions, warranties orcovenants of the Note(s), this Agreement or the other Loan Documents, whichfailure continues for fifteen (15) days after the date of written notice toBorrower or Guarantor from Lender of such default; provided, however, that if:(i) the nature of Borrower’s (or Guarantor’s) noncompliance is such that morethan fifteen (15) days are reasonably required for its cure, (ii) Borrower (orGuarantor) has commenced such cure within said fifteen (15) day period, (iii)Borrower (or Guarantor) diligently prosecutes such cure to completion, (iv)Borrower (or Guarantor) provides Lender with written notice of thenoncompliance, AND (v) Borrower (or Guarantor) furnishes reserves or a securitybond, in an amount satisfactory to Lender in its sole discretion, then Borrower(or Guarantor) shall not be in default.

 

(iii)Institution of remedial proceedings or other exercise of rights and remedies bythe holder of any security interest or other lien against the Collateral or anyportion thereof, except for proceedings with respect to the Permitted Liens;provided, however, if there is a good faith dispute by Borrower or Guarantor asto the validity or reasonableness of the claim which is the basis for suchproceedings, then no Event of Default shall have occurred under this Section ifBorrower or Guarantor provides Lender with written notice of the proceedingsand furnishes reserves or a security bond for the proceedings satisfactory toLender.

 

(iv)The insolvency of Borrower or Guarantor or the admission in writing ofBorrower’s or Guarantor’s inability to pay debts as they mature.

 

(v)Any statement, representation or information made or furnished by or on behalfof Borrower or Guarantor to Lender in connection with or to induce Lender toprovide any of the indebtedness secured by the Guaranties shall prove to befalse or materially misleading when made or furnished.

 

(vi)Institution of bankruptcy, reorganization, insolvency or other similarproceedings by or against Borrower or Guarantor, unless, in the case of apetition filed against Borrower or Guarantor, the same is dismissed withinsixty (60) days of the date of filing.

 

(vii)The issuance or filing of any judgment, attachment, levy, garnishment or thecommencement of any related proceedings or the commencement of any otherjudicial process upon or in respect to Borrower or Guarantor or the Collateral,except with respect to the Permitted Liens, in which the amount in controversyexceeds One Hundred Thousand Dollars ($100,000) and is not covered by theinsurance of Borrower or Guarantor, unless satisfied, or Borrower (or anyguarantor) furnishes reserves or a security bond in an amount satisfactory toLender in its sole discretion. released or discharged within sixty (60) daysafter the date of such issuance, filing or commencement.

 

(viii)Sale or other disposition by Borrower or Guarantor of any substantial portionof assets or property.

 

(ix)Dissolution, merger, consolidation, termination of existence, insolvency,business failure or assignment for the benefit of creditors of or by Borroweror Guarantor; without the prior written consent of Lender, which consent shallnot be unreasonably withheld.

 

(x)Any failure by Borrower or Guarantor to pay any indebtedness (other than toLender) in excess of One Hundred Thousand Dollars ($100,000) (and exclusive oftrade debt incurred in the ordinary course of business) when due, or anyfailure in the observance or performance of any term, covenant or condition inany

 

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document evidencing,securing or relating to such indebtedness, which failure continues beyond anyapplicable cure period.

 

(b)**Remedies.** Upon the occurrence of an Event of Defaultas defined above, unless the same is waived by Lender in writing, Lender shallbe entitled to the following remedies, all of which shall be cumulative and notalternative:

 

(i) **Collection of Franchise Accounts Receivable.** Guarantor shall continue to collect theFranchise Accounts Receivable until Lender notifies Guarantor and the obligorson such Franchise Accounts Receivable, after which time Guarantor shall holdany proceeds collected in trust for Lender and shall not commingle the same andshall turn such proceeds over to the Lender immediately upon receipt thereof.

 

(ii) Guarantor shall, upon request from time to time and at any time byLender, provide Lender with an updated list of Guarantor’s Franchise AccountsReceivable, stating the current name and address of the obligor, the balancedue, and any comments pertaining to the status of the collection and defensesor counterclaims by such obligors to the extent that such information is notreflected in the financial statements of Guarantor to be delivered to Lenderpursuant to the terms of the Guaranties.

 

(iii) Lender may, or upon Lender’s request, Guarantor shall notifyobligors under such accounts of the existence of this Agreement and instructsuch obligors to make future payments directly to Lender at any time it choosesto do so only after default by Guarantor.

 

(iv) Guarantor hereby irrevocably authorizes Lender in Guarantor’s name:(a) To demand, receive, sue for and give receipts as acquittances for anymoneys due or to become due on any Franchise Accounts Receivable (a) withrespect to any Collateral, to assent to any or all extensions or postponementsof the time of payment thereof or any other indulgence in connection therewith,to the substitution, exchange or release of Collateral, to the addition orrelease of any party primarily or secondarily liable, to the acceptance ofpartial payments thereon and the settlement, compromise or adjustment thereof,all in such manner and at such time or times as Lender shall deem advisable;(b) to make all necessary transfers of all or any part of the Collateral inconnection with any sale, lease, or other disposition made pursuant hereto: toexecute and deliver for value all necessary or appropriate bills of sale,assignment and other instruments in connection with any such sale, lease, orother disposition, Guarantor hereby ratifies and confirms all that its saidattorney (or any substitute) shall lawfully do hereunder and pursuant hereto;nevertheless, if so requested by Lender or a purchaser or lessee, Guarantorshall ratify and confirm any sale, lease or other disposition by executing anddelivering to Lender or such purchaser or lessee, all proper bills of sale,assignments, releases, leases, and other instruments as may be designated inany such request. Guarantor understands that Lender has no duty for collectionor preservation, beyond reasonable care of Guarantor’s Franchise AccountsReceivable.

 

(v) **Obtain Possession of Collateral.** Guarantor agrees, upon request of Lender, to assemble the Collateral andmake it available to the Lender at any place reasonably convenient forGuarantor and Lender. Guarantor grants Lender permission to enter upon anypremises owned or occupied by Guarantor for the purpose of taking possession ofthe Collateral or any part of it, including any paper covering such Collateralor such part thereof as remains in Guarantor’s possession, and any and allproceeds of such Collateral as has been sold, wherever and in whatever form.

 

(vi) Lender shall have the right to take possession of the Collateral,with or without demand, and with or without process of law. Lender shall havethe right to sell and dispose of the Collateral and to distribute the proceedsaccording to law. If there is any statutory requirement for notice, thatrequirement shall be met if Lender shall send notice to Borrower at least five(5) days prior to the date of sale, disposition or other event giving rise tothe required notice. Borrower shall be liable for any deficiency remainingafter disposition of the Collateral.

 

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(vii) **Additional Rights and Remedies.** Lender shall also have, and may exercise inaddition to the above any one or more of the rights and remedies under theUniform Commercial Code or any other law.

 

(c)           **Remedies Generally.**

 

(i) All remedies provided for in Section 10(b) shall be available to theextent not prohibited by law. Each remedy shall be cumulative and additional toany other remedy of Lender at law, in equity or by statute. No delay oromission to exercise any right or power accruing upon any default or Event ofDefault shall impair any such right or power or shall be construed to be awaiver of, or acquiescence in, any such default or Event of Default.

 

(ii) Lender may waive any Event of Default and may rescind anydeclaration of maturity of payments on the Indebtedness. In case of such waiveror recision Guarantor and Lender shall be restored to their respective formerpositions and rights under this Agreement. Any waiver by Lender of any defaultor Event of Default shall be in writing and shall be limited to the particulardefault waived and shall not be deemed to waive any other default.

 

(d)           **Application of Proceeds.**   Anyproceeds received by Lender from the exercise of remedies pursuant to Section10(b) of this Agreement shall be applied as follows:

 

(i) First, to pay all costs and expenses incidental to the leasing,foreclosure, sale or other disposition of the Collateral. These costs andexpenses shall include, without limit, any costs and expenses incurred byLender (including, without limit, attorneys’ fees and disbursements), and anytaxes and assessments or other liens and encumbrances prior to the lien of thisAgreement.

 

(ii) Second, to all sums expended or incurred by Lender, directly orindirectly in carrying out any term, covenant or agreement under this Agreementor any related document, together with interest as provided in this Agreement.

 

(iii) Third, to the payment of the Indebtedness. If the proceeds areinsufficient to fully pay the Indebtedness, then application shall be madefirst to late charges and interest accrued and unpaid, then to any applicableprepayment premiums, and then to unpaid fees and other charges, then to theoutstanding principal balance.

 

(iv) Fourth, any surplus remaining shall be paid to Guarantor or towhomsoever may be lawfully entitled.

 

(e)           **Further Actions.** Promptly upon the request of Lender,Guarantor shall execute, acknowledge and deliver any and all further documents,security agreements, financing statements and assurances, and do or cause to bedone all further acts as Lender may require to confirm and protect the lien ofthis Agreement or otherwise to accomplish the purposes of this Agreement.

 

(f)            **Attorneys Fees.** Any reference in this Agreement toattorneys’ fees shall refer to reasonable fees, charges, costs and expenses ofin-house and outside attorneys and paralegals, whether or not a suit orproceeding is instituted, and whether incurred at the trial court level, onappeal, in a bankruptcy, administrative or probate proceeding, in consultationwith counsel, or otherwise. All costs, expenses and fees of any nature forwhich Guarantor is obligated to reimburse or indemnify Lender are part of theindebtedness covered by the Guaranties and secured by this Agreement and arepayable upon demand, unless expressly provided otherwise, with interest untilrepaid at the highest rate charged on any of the Indebtedness (but not toexceed the maximum rate permitted by law).

 

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**12.          MISCELLANEOUS.**

 

(a)           **Notices.** Any notices, demands or othercommunications required or contemplated by this Agreement shall be deemed dulygiven if delivered or mailed, registered mail, return receipt requested,postage fully prepaid, to the addresses of the parties as stated in thisAgreement, or as subsequently directed by the appropriate party in writing, andshall be deemed effective when mailed.

 

(b)           **Non-Waiver.** Failure of Lender to exercise any right hereunder, including theright to declare the balance of the Indebtedness immediately due, shall notconstitute a waiver nor preclude the Lender from exercising such right at anytime. Neither extension of time for payment or any other modification of theterms of the Indebtedness or of this Agreement shall operate to release theliability of Guarantor or permit any delay as to future payments. Acceptance byLender of a partial payment shall not alter the obligation of Guarantor to makethe full payment, nor shall acceptance of a late payment constitute Lender’swaiver of prompt payment of such payment or any subsequent payment. No waivershall be valid unless in writing and signed by an officer of Lender.

 

(c)           **Joint and Several Obligations.**  Inthe event that more than one person or entity executes this Agreement, theobligations of each shall be joint and several.

 

(d)           **Governing Law.**  ThisAgreement shall be construed according to the laws of the State of Tennessee.

 

(e)           **Successors and Assigns.**  ThisAgreement shall be binding upon the successors and assigns of Guarantorincluding, without limit, any debtor in possession or trustee in bankruptcy forGuarantor, and the rights and privileges of Lender under this Agreement shall inureto the benefit of its successors and assigns. This shall not be deemed aconsent by Lender to a conveyance by Guarantor of all or any part of theCollateral or of any ownership interest in Guarantor.

 

(f)            **Notices.** Notice from one party to another relating to this Agreement, ifrequired, shall be deemed effective if made in writing (includingtelecommunications) and delivered to the recipient’s address, telex number ortelecopier number set forth by any of the following means:  (1) hand delivery, (2) registered orcertified mail, postage prepaid, (3) express mail or other overnight courierservice or (4) telecopy, telex or other wire transmission with request forassurance of receipt in a manner typical with respect to communications of thattype. Notice made in accordance with these provisions shall be deemed deliveredon receipt if delivered by hand or wire transmission, on the third business dayafter mailing if mailed by registered or certified mail, or on the nextbusiness day after mailing or deposit with the postal service or an overnightcourier service if delivered by express mail or overnight courier. Guarantor’stelecopier number is (540) 345-0831, and Lender’s telecopier number is (313)994-1376.

 

(g)           **Entire Agreemt; Amendments.**  This Agreement and any Agreement to which it refers state all rights andobligations of the parties and supersede all other Agreements (oral or written)with respect to the security interests granted by this Agreement.   Any amendment of this Agreement shall be inwriting and shall require the signature of Guarantor and Lender.

 

(h)          **PartialInvalidity.** Theinvalidity or unenforceability of any provision of this Agreement shall notaffect the validity or enforceability of the remaining provisions of thisAgreement.

 

(i)            **Inspections.** Any inspection, audit, appraisal orexamination by Lender or its agents of the Collateral or of information ordocuments pertaining to the Collateral is for the sole purpose of protectingLender’s interests under this Agreement and is not for the benefit orprotection of Guarantor or any third party.

 

(j)            **Joint andSeveral Liability.** Inthe event that more than one person or entity executes this Agreement, theobligations of each person or entity shall be joint and several.

 

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**(k)**           **AutomaticReinstatement.**  Notwithstanding any prior revocation,termination, surrender or discharge of this Agreement, the effectiveness ofthis Agreement shall automatically continue or be reinstated, as the case maybe, in the event that:

 

(i)            Any payment receivedor credit given by Lender in respect of the Indebtedness is determined to be apreference, impermissible setoff, fraudulent conveyance, diversion of trustfunds, or otherwise required to be returned to Guarantor or any third partyunder any applicable state or federal law, including, without limit, lawspertaining to bankruptcy or insolvency, in which case this Agreement shall beenforceable as if any such payment or credit had not been received or given, whetheror not Lender relied upon this payment or credit or changed its position as aconsequence of it.

 

(ii)           In the event ofcontinuation or reinstatement of this Agreement, Guarantor agrees upon demandby Lender to execute and deliver to Lender those documents which Lenderdetermines are appropriate to further evidence (in the public records orotherwise) this continuation or reinstatement, although the failure ofGuarantor to do so shall not affect in any way the reinstatement orcontinuation. If Guarantor does not execute and deliver to Lender suchdocuments upon demand, Lender and each officer of Lender is irrevocablyappointed (which appointment is coupled with an interest) the true and lawfulattorney of Guarantor (with full power of substitution) to execute and deliversuch documents in the name and on behalf of Guarantor.

 

(1)          **WAIVER OFJURY TRIAL. GUARANTOR AND LENDER ACKNOWLEDGE THAT THE RIGHT TO TRIALBY JURY IS A CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED.  EACH PARTY, AFTER CONSULTING (OR HAVING HADTHE OPPORTUNITY TO CONSULT) WITH COUNSEL OF THEIR CHOICE, KNOWINGLY ANDVOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT, WAIVES ANY RIGHT TO TRIAL BY JURY INTHE EVENT OF LITIGATION REGARDING THE PERFORMANCE OR ENFORCEMENT OF, OR IN ANYWAY RELATED TO, THIS AGREEMENT OR THE INDEBTEDNESS.**

** **

(m)          **Assignment.**  ThisAgreement is freely assignable, in whole or in part, by Lender without priornotice to or consent of Guarantor; provided, however, that Lender (or itsassignee) shall provide written notice of such assignment to Guarantor in theevent that Lender (or such assignee) desires to designate a new person orentity as payee and/or a new place of payment for the obligations under theNotes. Guarantor may not, in whole or in part, directly or indirectly, assignthis Agreement or its rights hereunder or delegate its duties hereunderwithout, in each instance, the specific prior written consent of Lender, whichconsent may be withheld or delayed in Lender’s sole discretion. Lender shall befully discharged from all responsibility accruing hereunder from and after theeffective date of any such assignment. Lender’s assignee shall, to the extentof the assignment, be vested with all the powers and rights of Lender hereunder(including those granted under Section 10 hereof or otherwise with respect tothe Collateral), and to the extent of such assignment the assignee may fullyenforce such rights and powers, and all references to Lender shall mean andrefer to such assignee. Lender shall retain all rights and powers hereby givennot so assigned, transferred and/or delivered. Guarantor hereby waives alldefenses which Guarantor may be entitled to assert against Lender’s assigneewith respect to liability accruing hereunder prior to the effective date of anyassignment of Lender’s interest herein.

 

(n)           **Securitization.** Guarantor understands and agrees that Lender may, from tune to time,assign its rights and power under the Note(s), this Agreement and any otherLoan Documents, in whole or in part, in connection with a securitizationprogram. Guarantor agrees to enter into an amendment to the Note(s), thisAgreement and any other Loan Documents if such amendments are required by anationally recognized rating agency in connection with a securitization programsponsored by Lender and in which the Note(s), this Agreement and any other LoanDocuments are to be included; provided that Guarantor shall not be obligated toenter into any amendment which adversely affects Guarantor or otherwiseadversely alters any of the financial terms of the Notes, this Agreement andany other Loan Documents.

 

13. **ENTIREAGREEMENT.** This Agreementcontains all of the understandings, promises and undertakings of the partieshereto. All prior understandings and Agreements or statements, oral or written,are rescinded except as stated herein.

 

8

----

 

Schedule 1

To

Security Agreement between The WesterN SizzliNCorporationand Captec Financial Group Funding Corporation

 
| **Title of  Agreement** |   | **Date** |   | **Name of Franchisee** |   | **Location of Franchise** |
|-------------------------|--------|----------|--------|------------------------|--------|---------------------------|
|                    |   |     |   |                   |   |                      |
|                    |   |     |   |                   |   |                      |
|                    |   |     |   |                   |   |                      |

 

9

----

 

14.           **GOVERNING LAW.** This Agreement shall be construed according to the laws of the State ofTennessee.

 

(a)           Except as otherwise provided, all otherterms used herein shall have the meanings assigned to them in Article 9 (or,absent definition in Article 9, in any other Article) of the Uniform CommercialCode.

 

**IN WITNESS WHEREOF** the Guarantor has executed this Agreement onthe day and year first above written.

 

Guarantor’sprincipal place of business is located in the City of Roanoke, Commonwealth ofVirginia.

 
| **Location(s) of the Collateral**                           | **GUARANTOR:**                       |
|-------------------------------------------------------------|--------------------------------------|
|                                                        |                                 |
| 416 South Jefferson Street, 4th Floor                       | **THE  WESTERN SIZZLIN CORPORATION** |
| Roanoke, Virginia 24012 and each                            |                                 |
| of the sites listed on Schedule 1 hereto.                   |                                 |
|                                                        |                                 |
|                                                        | By:                                  | /s/ Victor F. Foti |
|                                                        |                                 |   |
|                                                        | Its:                                 | President |   |
|                                                        |                                 |
| **Guarantor’s  Address**:                              |                                 |
|                                                        |                                 |
| P.O. Box 12167                                              |                                 |
| Roanoke, Virginia  24023-2167                               |                                 |
|                                                        |                                 |
| **Guarantor’s Tax Identification  Number: 54-1684114** |                                 |
|                                                             |                                      |  |  |  |  |

 

10

----

 

Loan No. 06723 

3500 S. Jefferson 

Falls Church, Virginia

 

**GUARANTY**

 

THEWESTERN SIZZLIN CORPORATION, a Tennessee corporation and THE WESTERN S1ZZLINSTORES OF LITTLE ROCK, INC., an Arkansas corporation (each a “Guarantor”), as amaterial inducement to and in consideration of CAPTEC FINANCIAL GROUP FUNDINGCORPORATION, a Michigan corporation, whose address is 24 Frank Lloyd WrightDrive, Lobby L, Ann Arbor, Michigan 48106 (together with its successors,assigns and transferees, “Lender”), making a loan in the original principalamount of Five Hundred Thousand and 00/100 Dollars ($500,000.00) as evidencedby a Promissory Note, dated March  23,1998 (“Note”), made by THE WESTERN SIZZLIN STORES, INC., a Virginia corporation(“Borrower”), which Note is secured by the instruments referenced therein(together with the Note, “Loan Documents”), hereby jointly and severally,unconditionally and irrevocably, personally guarantees to and for the benefitof Lender, and Lender’s successors and assigns, the full and timely payment andperformance of all of the Borrower’s duties, obligations and covenants underthe Loan Documents. This is a guaranty of payment and performance and not ofcollection.

 

ThisGuaranty shall not be affected by Lender’s failure or delay to enforce any ofits rights.

 

Guarantor’sobligations are independent of Borrower’s obligations. If Borrower defaultsunder the Loan Documents, Lender can proceed immediately against Guarantor orBorrower, or both, or Lender can enforce against Guarantor or Borrower, orboth, any rights that it has under the Loan Documents or pursuant to applicablelaws. If any lien created by the Loan Documents terminates and Lender has anyrights it can enforce against Borrower after termination, Lender can enforcethose rights against Guarantor without giving previous notice to Borrower orGuarantor or without making any demand on either of them.

 

Tothe extent permitted by law, Guarantor waives the benefit of any statute oflimitations affecting Guarantor’s liability under this Guaranty. Guarantorwaives the right to require Lender to first or concurrently: (1) proceedagainst Borrower; (2) proceed against or exhaust any security that Lender holdsfrom Borrower; or (3) pursue any other remedy in Lender’s power. The liabilityof Guarantor shall not be affected or exonerated by any indulgence, compromise,settlement or variation of terms which may be extended by Lender to Borrower,or agreed upon by Lender or Borrower, and, unless agreed to in writing byLender, shall not be affected or exonerated by any assignment by Borrower ofits interest in any one or more of the Loan Documents, nor shall the liabilityof the Guarantor be affected or exonerated by the insolvency, bankruptcy(voluntary or involuntary), or reorganization of Borrower, nor by the voluntaryor involuntary liquidation, sale or other disposition of all or substantiallyall of the assets of Borrower, or by the release of any other Guarantor. Lenderand Borrower, without notice to or consent by Guarantor, may at any time ortimes enter into such modifications, extensions, amendments or other covenantsof the Loan Documents as they may deem appropriate, and Guarantor shall not bereleased nor its liability exonerated thereby but shall continue to be fullyliable for the payment and performance of all obligations and duties ofBorrower under the Loan Documents as so modified, extended or amended.

 

Guarantorfurther agrees (1) to indemnify and hold harmless Lender from and against anyclaims, damages, expenses or losses, including to the extent permitted by law,all reasonable attorneys’ fees incurred by counsel of Lender’s choice (whetheror not litigation is commenced), resulting from or arising out of any breach ofany provision of the Loan Documents by Borrower or by reason of Borrower’sfailure to perform any of its obligations thereunder, and (2) to the extentpermitted by law, to pay all costs and expenses, including reasonableattorneys’ fees (whether or not litigation is commenced), incurred by Lender inenforcing this Guaranty.

 

Untilall of Borrower’s obligations to Lender have been discharged in full, Guarantorhas no right of subrogation against Borrower. Guarantor assumes theresponsibility to remain informed of the financial condition of Borrower and ofall other circumstances bearing upon the risk of Borrower’s default, whichreasonable inquiry

 

----

 

would reveal, and agreesthat Lender shall have no duty to advise Guarantor of information known to itregarding such condition or any such circumstances. Lender shall not berequired to inquire into the powers of Borrower or the officers, employees,partners or agents acting or purporting to act on its behalf, and anyindebtedness made or created in reliance upon the professed exercise of suchpowers shall be guaranteed under this Guaranty. Each Guarantor herebyrepresents and warrants to Lender that such Guarantor has received a copy ofeach of the Loan Documents, has read or had the opportunity to read each of theLoan Documents, and understands the terms of the Loan Documents. The provisionsin the Loan Documents relating to the execution of additional documents, legalproceedings by Lender against Borrower, severability of the provisions of theLoan Documents, interpretation of the Loan Documents, notices, waivers(including waiver of a jury trial), limitation on right of recovery againstLender, disclaimer of individual liability, and the applicable laws whichgovern the interpretation of the Loan Documents are incorporated herein intheir entirety by this reference and made a part hereof as though set forth infull herein; any reference in those provisions to “Borrower” shall mean eachGuarantor and any reference in those provisions to the “Loan Documents” shallmean this Guaranty.

 

Tothe extent permitted by law, Guarantor waives its right to enforce any remediesthat Borrower now has, or later may have, against Lender. Guarantor waives anyright to participate in any security now or later held by Lender. Guarantorwaives notice of acceptance of this Guaranty, and all other notices inconnection with this Guaranty or in connection with the liabilities,obligations and duties guaranteed hereby, including notices to Guarantor ofdefault by the Borrower under the Loan Documents. Guarantor hereby waivesdiligence, presentment, demand for performance, notice of nonperformance,protest, notice of protest, notice of dishonor, and notice of acceptance ofthis Guaranty, and waives all notices of the existence, creation, or incurringof new or additional obligations.

 

Ifthere is more than one Guarantor, the liability of each Guarantor shall bejoint and several. Guarantor’s obligations under this Guaranty shall be bindingon Guarantor’s legal representatives, heirs, successors and assigns.

 

IfBorrower disposes of its interest in the property secured by the LoanDocuments, “Borrower”, as used in this Guaranty, shall mean Borrower’ssuccessors or assigns. Assignment of the Loan Documents by Lender (as permittedby the Loan Documents) shall not affect this Guaranty. In the event of anassignment of the Loan Documents by Lender, the term “Lender” as used in thisGuaranty shall mean Lender’s successors or assigns.

 

Guarantorhereby covenants and agrees to deliver to Lender the following: (a) managementprepared and certified consolidated quarterly financial statements forGuarantor within forty-five (45) days after the end of the first three (3)quarters of each fiscal year of Guarantor, and (b) annual consolidatedfinancial statements for Guarantor audited by an independent certified publicaccountant within one hundred twenty (120) days after the end of each fiscalyear of Guarantor. Such financial statements shall be true and correct in allrespects, shall be prepared in accordance with generally accepted accountingprinciples, and shall fairly represent the respective financial conditions ofthe subjects thereof as of the respective dates thereof. At the request ofLender, Guarantor shall obtain the consent of Guarantor’s accountant(s) to theinclusion of Guarantor’s most recent financial statement in any regulatoryfiling or report to be filed by Lender.

 

Ifany one or more of the provisions of this Guaranty shall be held to be invalid,illegal or unenforceable in any respect, such invalidity, illegality orunenforceability shall not affect any other provision of this Guaranty, andthis Guaranty shall be construed as if such invalid, illegal or unenforceableprovision had never been contained herein.

 

ThisGuaranty shall be construed according to the laws of the State of Virginia.Guarantor agrees that any dispute which may arise between Lender and Guarantorwith regard to this Guaranty shall be resolved by litigation in state orfederal court. Litigation may be initiated by Lender or its assignee, at itsdiscretion, in the State of the principal place of business of Lender or itsassignee, the State of the principal place of business of Guarantor, or theState where the Collateral (as defined in the Loan Documents) is located.

 

2

----

 

**GUARANTOR HEREBY KNOWINGLY ANDIRREVOCABLY WAIVES ANY OBJECTIONS ON THE GROUNDS OF IMPROPER JURISDICTION ORVENUE TO AN ACTION INITIATED AS SET FORTH ABOVE AND AGREES THAT EFFECTIVESERVICE OF PROCESS MAY BE MADE UPON GUARANTOR BY REGISTERED MAIL RETURN RECEIPTREQUESTED. GUARANTOR WAIVES, TO THE EXTENT PERMITTED BY LAW, TRIAL BY JURY INANY ACTION BETWEEN THE PARTIES.**

** **

This Guaranty shall become effective on  March 31, 1998. 

 
| **THE  WESTERN SIZZLIN CORPORATION** |               |
|--------------------------------------|--------------------|
|                                 |               |
|                                 |               |
| By:                                  | /s/ Victor F. Foti |   |
|                                 |               |   |
|                                 | Its : President    |   |
|                                      |                    |  |  |

 
| **THE  WESTERN SIZZLIN STORES OF LITTLE ROCK, INC.** |
|------------------------------------------------------|
|                                                 |   |
|                                                 |   |
| By:                                                  | /s/ Victor F. Foti |   |
|                                                 |   |   |
|                                                 | Its : President |   |
|                                                      |  |  |  |

 

3

----

 

Loan No. 067233500 S. JeffersonFalls Church, Virginia

 

**COLLATERAL ASSIGNMENT OF LEASE ANDOPTION RIGHTS**

** **

THISCOLLATERAL ASSIGNMENT OF LEASE AND OPTION RIGHTS (“Assignment”) is made as ofthe 23 day of March, 1998, by **THE WESTERN SIZZLIN STORES, INC.,** a Virginia corporation, whose address is P.O. Box 12167, Roanoke, VA 24023-2167 (“Assignor”), in favor of **CAPTECFINANCIAL GROUP FUNDING CORPORATION,** a Michigan corporation, whose address is 24 Frank Lloyd Wright Drive,Lobby L, 4th Floor, P.O. Box 544, Ann Arbor, Michigan 48106-0544 (“Assignee”).This instrument shall become effective on March 31, 1998.

 

Forgood and valuable consideration, the receipt and sufficiency of which is herebyacknowledged, Assignor presently assigns to Assignee all of Assignor’s right,title and interest in and to its lessee’s interest in that certain lease with **Janice H.Levin,** (“Lessor”) dated asof March 23, 1988, a copy of which is attached hereto as Exhibit A (the“Lease”) respecting the premises commonly known as the Great American Steak& Buffet Company Restaurant located at 3500 S. Jefferson, Falls Church,Virginia (“Premises”). This Assignment is for collateral purposes only, andexcept as specified herein, Assignee shall have no liability or obligation ofany kind whatsoever arising from or in connection with this Assignment or theLease unless Assignee shall take possession of the Premises and assume theobligations of Assignor thereunder.

 

Assignorrepresents and warrants to Assignee that it has full power and authority to soassign the Lease and its interest therein and that Assignor has not previously,and is not obligated to, assign or transfer any of its interest in the Lease orthe Premises.

 

Throughoutthe term of the Lease, Assignor covenants and agrees to exercise all options toextend or renew the term of the Lease not less than ninety (90) days prior tothe last day upon which any such option may be exercised, but in no event lessthan six (6) months prior to of the term of the Lease, unless Assigneeotherwise agrees in writing. Assignor shall send Assignee a copy of the noticeof exercise concurrently with Assignor’s exercise of the option. Upon thefailure of Assignor to so elect or renew the Lease as aforesaid (and thefailure of Assignee to otherwise agree in writing), Assignee shall have theright, but not the obligation, to exercise such extension or renewal option onbehalf of Assignor, and Assignor hereby appoints Assignee (or any of itsemployees) as its attorney-in-fact for the purpose of exercising such extensionor renewal option.

 

Ifan “Event of Default” occurs under the Promissory Note, dated March 23, 1998,in the original principal amount of Five Hundred Thousand and 00/100 Dollars($500,000.00), by Assignor in favor of Assignee (the “Note”) or under anydocuments or instruments securing the Note, Assignee shall have the right andis hereby empowered to take possession of the Premises, expel Assignortherefrom, and, in such event, Assignor shall have no further right, title orinterest in the Lease and shall remain liable to Assignee for all past due rentsAssignee shall be required to pay to the Lessor under the Lease to effectuatethis Assignment.

 

Assignoragrees that it will not suffer or permit any surrender, termination, amendmentor modification of the Lease without the prior written consent of Assignee,which consent shall not be unreasonably withheld. At the request of Assignee,Assignor shall provide Assignee with rent payment or such other informationregarding the Lease as Assignee shall reasonably require.

 

ThisAssignment shall be governed by the laws of the Commonwealth of Virginia.

 

ThisAssignment may be executed in one or more counterparts, each of which shallconstitute an original and all of which together shall constitute one and thesame instrument.

[SIGNATURE PAGE FOLLOWS]

 

----

 

INWITNESS WHEREOF, Assignor has executed this Assignment as of the day and yearnoted above.

 
|       | **ASSIGNOR:**                         |   |
|------------|---------------------------------------|--------|
| Witnesses: |                                  |   |
|       | **THE  WESTERN SIZZLBV STORES, INC.** |   |
|       |                                  |   |
|       | /s/ C.L. Lilly                        |   |   | By: | /s/ Victor F. Foti |   |   |
|       |                                  |   |   | Its: | President |   |   |
|       |                                  |   |   |   |
|       |                                  |   |   |   |
|       | /s/ Robyn B. Mabe                     |   |   |
|       |                                  |   |   |
|       |                                  |   |   |
|       | COMMONWEALTH OF VIRGINIA              | **)**  |   |
|       |                                  | **)**  |   |
|       | COUNTY OF ROANOKE                     | **)**  |   |
|            |                                       |        |  |  |  |  |  |  |  |  |  |  |  |  |

 

 

 

 

I,  Richard R Sayers, a notarypublic in and for the State and County aforesaid, do certify that Victor F.Foti *,*whosename, as President  of The WesterNSizzliN Stores, Inc., is signed to the writing above, bearing date on the 23rdday of  March 1999,  has acknowledged the same before me in mycounty aforesaid.                                                         

 

Givenunder my hand and official seal this 23rd**day of March 1998.

 

Myterm of office expires on the 28th**day Februry 1999
|   | /s/ Richard R Sayers        |
|--------|-----------------------------|
|   | Notary Public               |
|   | [Notary Public’s Seal] |

 

 

 

2

----

 

Loan No. 67233500 S. JeffersonFalls Church, Virginia

 

**CERTIFICATE OF GUARANTOR**

** **

THEWESTERN SIZZLIN STORES OF LITTLE ROCK, INC., an Arkansas corporation(“Guarantor”), for the benefit of CAPTEC FINANCIAL GROUP FUNDING CORPORATION, aMichigan corporation (together with its successors, assigns and transferees,“Lender”), warrants, represents, covenants and agrees that the following aretrue and correct as of the date hereof:

 

1.             Guarantor has received a copy of that certain PromissoryNote, dated March 23, 1998 inthe original principal amount of Five Hundred Thousand and 00/100 Dollars($500,000.00) (“Note”) made by THE WESTERN SIZZLIN STORES, INC., a Virginiacorporation (“Borrower”). Guarantor has also received a copy of the instrumentssecuring the Note, as referenced therein (together with the Note, the “LoanDocuments”). The Loan Documents create a lien with respect to certain real andpersonal property located at 3500 S. Jefferson, Falls Church, Virginia(“Premises”).

 

2.             Guarantor has had the opportunityto review the Certificate of Borrower, dated even herewith, made by Borrowerfor the benefit of Lender, and confirms that the warranties and representationsset forth therein are true and correct as of the date hereof.

 

3.             Guarantor has full power andauthority to enter into that certain Guaranty executed by Guarantor in favor ofLender, dated as of the date of this Certificate (“Guaranty”) and to assume andperform all of Guarantor’s obligations under the Guaranty in accordance withall of the terms and conditions of the Guaranty. The execution and delivery ofthe Guaranty and the performance by Guarantor of Guarantor’s obligations underthe Guaranty and under all documents contemplated by the Guaranty require nofurther action or approval.   TheGuaranty and all other documents contemplated by the Guaranty are fully bindingand enforceable obligations of Guarantor.

 

4.             There are no circumstances, stateof facts or other matters which, with the passage of time or the giving ofnotice, or both, would constitute an event of default under the terms of theGuaranty, or to the best of the Guarantor’s knowledge, under the LoanDocuments.

 

5.             There are no disputes, litigationor other such proceedings pending or, to the best of the Guarantor’s knowledge,threatened against or related to the Guarantor, nor does Guarantor know of anybasis for any such action.

 

6.             Guarantor has furnished to Lenderits most recent annual audited consolidated financial statements and mostrecent management prepared and certified quarterly consolidated financialstatements, which statements were prepared in accordance with generallyaccepted accounting principles and are correct and complete and accuratelypresent the financial condition of Guarantor on the dates thereof.   Further, there has been no material adversechange in the business, property or condition of Guarantor since the date ofthe most recent financial statements.

 

7.             In consideration of the loanevidenced by the Note and secured, in part, by the Loan Documents, the receiptand sufficiency of which Guarantor acknowledges, and in order to induce Lenderto make such loan, Guarantor agrees to indemnify and hold Lender harmlessagainst all claims, liabilities, losses, deficiencies and damages as well asreasonable expenses (including attorney’s fees), interest and penalties relatedthereto, asserted 

 

----

 

by any third party against,or incurred by Lender, by reason of or resulting from any breach, inaccuracy,incompleteness or nonfulfillment of the covenants, representations and/orwarranties of Guarantor contained in this Certificate.

 

ThisCertificate shall become effective on March 31, 1998.

 
|   | **THE  WESTERN SIZZLIN STORES OF LITTLE ROCK, INC.** |               |
|--------|------------------------------------------------------|--------------------|
|   |                                                 |               |
|   | By.                                                  | /s/ Victor F. Foti |   |
|   |                                                 |               |
|   | Its:                                            | President          |
|        |                                                      |                    |  |  |  |

 

2

----

 

Loan No. 067233500 S. JeffersonFalls Church, Virginia

 

**CERTIFICATE OF BORROWER**

 

THEWESTERN SIZZLIN STORES, INC., a Virginia corporation (‘Borrower”), for thebenefit of CAPTEC FINANCIAL GROUP FUNDING CORPORATION, a Michigan corporation(together with its successors, assigns and transferees, “Lender”), warrants,represents, covenants and agrees that the following are true and correct as ofthe date hereof:

 

1.             All warranties and representationsof Borrower contained in this Certificate shall survive the execution of thisCertificate and any advances made in accordance with the Promissory Noteexecuted by Borrower, in favor of Lender, dated even herewith, in the originalprincipal amount of Five Hundred Thousand and 00/100 Dollars ($500,000.00) (the“Note”).

 

2.             Borrower has good, indefeasible andmarketable title to the Collateral (as defined in that certain Security Agreement,dated even herewith, between Borrower and Lender (the “Security Agreement”)).Except for the Security Agreement, there are no instruments, matters oragreements, and Borrower is not a party to any instrument, matter or Agreement,which will in any way encumber, bind or otherwise affect the Collateral orLender.  Borrower has neither done norflailed to do anything, nor has suffered anything to be done, as a result ofwhich the Collateral or any part thereof has been or will be encumbered ortitle thereto has been or will be affected in any way and no person, firm orentity has any present, conditional or contingent rights to acquire all or anyportion of the Collateral.

 

3.             Borrower is a corporation dulyorganized and validly existing in good standing under the laws of theCommonwealth of Virginia. The person or persons executing the Note, theSecurity Agreement and the other Loan Documents (as defined in the SecurityAgreement) have full power and complete authority to execute the Note, theSecurity Agreement and the other Loan Documents, and, when executed, the Note,the Security Agreement and the other Loan Documents will be legal, valid andbinding obligations of Borrower, enforceable in accordance with their terms.

 

4.             As of the date hereof, Borrower isnot “insolvent” within the meaning of Section 548(a)(2)(B) of the United StatesBankruptcy Code.

 

5.             Borrower is in the business ofowning and operating WesterN SizzliN Restaurants, including the restaurantoperation located at 3500 S. Jefferson, Falls Church, Virginia (the “FranchisedOperation”). Borrower’s chief executive office is located at 416 SouthJefferson Street, Roanoke, Virginia 24012, and the Collateral is located atBorrower’s Chief Executive Office and the Franchised Operation.

 

6.             Borrower has furnished to Lenderits most recent annual audited financial statements and most recent managementprepared and certified quarterly financial statements, which statements wereprepared in accordance with generally accepted accounting principles and arecorrect and complete and accurately present the financial condition of Borroweron the dates thereof. Further, there has been no material adverse change in thebusiness, property or condition of Borrower since the date of the most recentfinancial statements.

 

7.             Borrower has complied and willcontinue to comply with all applicable laws, rules, regulations and ordersrelating to Borrower or any aspect of Borrower’s business or assets, including,without limit, all environmental laws, rules, regulations and orders. Borroweragrees to indemnify and hold Lender harmless against and from all claims,losses and costs resulting from any and all violations by Borrower of any laws,rules, regulations and/or orders.

 

----

 

8.             Borrower has not received anywritten notice of, and, to the best knowledge of Borrower, none of Borrower,the Franchised Operation or the premises where the Franchised Operation islocated are in violation of any law, municipal ordinance or other governmentalrequirement of any governmental authority.

 

9.             There are no circumstances, stateof facts or other matters which, with the passage of time or the giving ofnotice, or both, would constitute an Event of Default under the terms of theNote, the Security Agreement or the other Loan Documents.

 

10.           Borrower has filed all federal, stateand local income and other tax returns and other reports required to be filedprior to the date of this Certificate and Borrower has paid all taxes,assessments, withholdings and other governmental charges that are due andpayable prior to the date of this Certificate.

 

11.           All taxes and all installments ofassessments and all other charges of any kind imposed or levied by anygovernmental authority against either Borrower or the Collateral which are dueand payable or constitute a lien at or prior to the date of this Certificate,together with all interest and penalties due thereon, have been paid in full.

 

12.           There is now fully paid andenforceable fire, liability and other forms of insurance in such amounts andcovering such risks as are required under the Security Agreement.

 

13.           There are no disputes, litigation orother such proceedings pending or, to the best of Borrower’s knowledge,threatened against or related to Borrower, the Collateral or the FranchisedOperation, nor does Borrower know of any basis for any such action.

 

14.           In consideration of the loanevidenced by the Note and secured, by the Security Agreemt and the other LoanDocuments, Borrower agrees to indemnify and hold Lender harmless against allclaims, liabilities, losses, deficiencies and damages as well as reasonableexpenses (including attorney’s fees), interest and penalties related thereto,asserted by any third party against, or incurred by Lender, by reason of orresulting from any breach, inaccuracy, incompleteness or nonfulfillment of thecovenants, representations and/or warranties of Borrower contained in thisCertificate.

 

15.           Commencing May 1, 1998 and on thefirst day of each following month, Lender is authorized to initiate an electronicfunds transfer to pay the monthly installment payment owing under the loanevidenced by the Note from the account designated below, and to receivepayments from such account.   Thisauthorization will remain in effect unless the undersigned requests amodification that is agreed to by the Financial Institution and Lender;provided, however, that Lender and its successors, assigns and transferees maymodify the place of payment to be made by Borrower without the consent of theFinancial Institution.

 

Financial Institution:

Financial Institution

Address:

Routing/Transit #:

Account #:

 

[SIGNATURE PAGE FOLLOWS]

 

2

----

 

ThisCertificate shall become effective on March 31, 1998.

 
|   | **THE  WESTERN SIZZLIN STORES, INC.** |
|--------|---------------------------------------|
|   |                                  |
|   | By.                                   | /s/ Victor F. Foti |
|   |                                  |
|   | Its:                             | President |
|        |                                       |  |  |

 

3

----

 

[LETTERHEAD OF WESTERN SIZZLIN STORES, INC.]

 
| TO:    |   | Martha R. Young, (313) 668-7612 |
|--------|--------|---------------------------------|
|   |   | Fax: 747-7147                   |
|   |   |                            |
| FROM:  |   | Calvin Lilly, (540) 345-3195    |
|   |   | Fax: 345-0831                   |
|   |   |                            |
|   |   |                            |
| DATE:  |   | March 24, 1998                  |
|   |   |                            |
| RE:    |   | Closing Items - Follow-up       |

 

Information for account drafting:

 
| Financial Institution:          | Wachovia Bank, N. A.              |
|---------------------------------|-----------------------------------|
|                            |                              |
| Financial Institution  Address: | 111 Franklin Road                 |
|                            | Roanoke, Virginia 24001           |
|                            | Attn:  Kelly Kiser           |
|                            |                              |
| Routing #:                      | 051000253                         |
|                            |                              |
| Account #:                      | 7911787711                        |
|                            | The WesterN SizzliN  Stores, Inc. |

 
| /s/ Calvin Lilly |   |
|------------------|--------|

 

----

 

Loan No. 067233500 S. JeffersonFalls Church, Virginia

 

**CERTIFICATE OF GUARANTOR**

** **

THE WESTERN SIZZLIN CORPORATION, a Tennessee corporation(“Guarantor”), for the benefit of CAPTEC FINANCIAL GROUP FUNDING CORPORATION, aMichigan corporation (together with its successors, assigns and transferees,“Lender”), warrants, represents, covenants and agrees that the following aretrue and correct as of the date hereof:

 

1.             Guarantorhas received a**copyof that certain Promissory Note, dated March 23, 1998 in the original principalamount of Five Hundred Thousand and 00/100 Dollars ($500,000.00) (“Note”) madeby THE WESTERN SIZZLIN STORES, INC., a Virginia corporation (“Borrower”).Guarantor has also received a copy of the instruments securing the Note, as**referenced therein (together with theNote, the “Loan Documents”). The Loan Documents create a lien with respect tocertain real and personal property located at 3500 S. Jefferson, Falls Church,Virginia (“Premises”).

 

2.             Guarantorhas had the opportunity to review the Certificate of Borrower, dated evenherewith, made by Borrower for the benefit of Lender, and confirms that thewarranties and representations set forth therein are true and correct as of thedate hereof.

 

3.             Guarantor has fullpower and authority to enter into that certain Guaranty executed by Guarantorin favor of Lender, dated as of the date of this Certificate (“Guaranty”) andto assume and perform all of Guarantor’s obligations under the Guaranty inaccordance with all of the terms and conditions of the Guaranty. The executionand delivery of the Guaranty and the performance by Guarantor of Guarantor’sobligations under the Guaranty and under all documents contemplated by theGuaranty require no further action or approval.  The Guaranty and all other documents contemplated by the Guarantyare fully binding and enforceable obligations of Guarantor.

 

4.             Thereare no circumstances, state of facts or other matters which, with the passageof time or the giving of notice, or both, would constitute an event of defaultunder the terms of the Guaranty, or to the best of the Guarantor’s knowledge,under the Loan Documents.

 

5.             Thereare no disputes, litigation or other such proceedings pending or, to the bestof the Guarantor’s knowledge, threatened against or related to the Guarantor orthe Premises, nor does Guarantor know of any basis for any such action, exceptas disclosed to Lender on Exhibit A hereto.

 

6.             Guarantor has furnished to Lenderits most recent annual audited consolidated financial statements and mostrecent management prepared and certified quarterly consolidated financialstatements, which statements were prepared in accordance with generallyaccepted accounting principles and are correct and complete and accuratelypresent the financial condition of Guarantor on the dates thereof.   Further, there has been no material adversechange in the business, property or condition of Guarantor since the date ofthe most recent financial statements.

 

7.             Inconsideration of the loan evidenced by the Note and secured, in part, by theLoan Documents, the receipt and sufficiency of which Guarantor acknowledges,and in order to induce Lender to make such loan, Guarantor agrees to indemnifyand hold Lender harmless against all claims, liabilities, losses, deficienciesand damages as well as reasonable expenses (including attorney’s fees),interest and penalties related thereto, asserted by any third party against, orincurred by Lender, by reason of or resulting from any breach, inaccuracy,incompleteness or nonfulfillment of the covenants, representations and/orwarranties of Guarantor contained in this Certificate.

 

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ThisCertificate shall become effective on March 31, 1998.

 
|   | **THE  WESTERN SIZZLIN CORPORATION** |
|--------|--------------------------------------|
|   |                                 |
|   | By                                   | /s/ Victor F. Foti |
|   |                                 |
|   | Its                                  | President |   |
|        |                                      |  |  |  |  |

 

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**The WesterN SizzliN Corporation**

Litigation Proceedings against The WesterN SizzliN Corporation

Exhibit A, to Certificate of Guarantor

 
| **Name/Qanfforj**                                                                                                                                                            |   | **Ammrt  InCanfrovasv** |      | **Status** |                                                                                                                                                                                                                                                                                                    |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------|-----------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                         |   |                    |      |       |                                                                                                                                                                                                                                                                                                    |
| Devid K.  Wachtel, Jr. v. WSC. et al First  Complaint - breach of employment contract; wrongful termination

Second Complaint - Includes officers and directors  in the suit |   | $                       | 1,319,000 |       | Wachtel, president until 2/95 claims wrongful  termination; which, under his contract would mean two years’ of compensation,  approx. $400,000. The termination was well justified. This suit had included  certain directors, whose cases have been dismissed through award of summary  judgment. |   |
|                                                                                                                                                                         |
|                                                                                                                                                                         |
|                                                                                                                                                                         |   |                    |      |       |                                                                                                                                                                                                                                                                                                    |
| Third Complaint - loss  of value of stock   Indemnification for expenses                                                                                                     |   | $                       | 8,500,000 |       | Summary Judgment granted to defendant, case  dismissed; plaintiff has appealed Discovery not complete.                                                                                                                                                                                                  |   |
|                                                                                                                                                                         |
|                                                                                                                                                                         |   |                    |      |       |                                                                                                                                                                                                                                                                                                    |
| Mann v. WSC   Breach of employment                                                                                                                                           |   | $                       | 50,000    |       | Mann is now deceased with very little  discovery.  We expect that the suit  will be dismissed                                                                                                                                                                                                      |   |
|                                                                                                                                                                         |   |                    |      |       |                                                                                                                                                                                                                                                                                                    |
| Durham  Enterprises V. WSC   Denial of awarding a franchise                                                                                                                  |   | $                       | 1,000,000 |       | Summary Judgment granted to defendant, case  dismissed; plaintiff has not appealed.                                                                                                                                                                                                                     |   |
|                                                                                                                                                                         |   |                    |      |       |                                                                                                                                                                                                                                                                                                    |
| Cruthis v. Elgin  Hamner and WSC   Contaminated tea                                                                                                                          |   | $                       | 4,000     |       | Suit primarily against franchise; WSC named as  codefendant; discovery beginning.                                                                                                                                                                                                                       |   |
|                                                                                                                                                                         |   |                    |      |       |                                                                                                                                                                                                                                                                                                    |
| Perry v. WSC and  David Wachtel, Jr.  Business Interference between t between 

Franchisee/seller and  potential buyer - would not allow franchise assumption                |   | $                       | 2,500,000 |       | Discovery is beginning: D & O insurance.                                                                                                                                                                                                                                                            |   |
|                                                                                                                                                                         |
|                                                                                                                                                                         |   |                    |      |       |                                                                                                                                                                                                                                                                                                    |
| WSC v. Moody /  Fowler

Counter claim, In response to WSC’s collection suit for unpaid  royalties                                                                       |   | $                       | 500,000   |       | Discovery Beginning.                                                                                                                                                                                                                                                                                    |   |

 

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