Document:

EX-10.14

 

EXHIBIT 10.14

FORM OF

JOINT DRILLING AND OPERATING AGREEMENT

     This JOINT DRILLING AND OPERATING AGREEMENT is entered into as of ___, 200___by and
between NGAS Partners ___Drilling Program, a Kentucky general partnership (the
“Program”), and Daugherty Petroleum, Inc., a Kentucky corporation (“DPI”).

RECITALS

     A. DPI has organized NGAS Partners ___, Ltd., a Kentucky limited partnership (the
“Partnership”), to invest, through the Program, in a portfolio of natural gas development
wells (“Project Wells”) to be drilled by DPI on drilling sites (the “Prospects”)
located in the southern portion of the Appalachian basin (the “Project Areas”).

     B. The Partnership is being capitalized through a private placement of a minimum of ___ units
of general and limited partner interests (“Units”) at a subscription price of $  per
Unit for $___and a maximum of ___ Units for $___(the “Private Placement”), on
the terms described in a Private Placement Memorandum of the Partnership dated ___ 200___(the
“PPM”).

     C. The Program is being capitalized under the terms of a partnership agreement of even date
herewith between DPI and the Partnership (the “Program Agreement”), providing for the
Partnership’s contribution of subscription proceeds from each incremental closing of ___ Units in
the Private Placement (each, a “Closing”), and for DPI’s proportionate contribution of
$___for each Unit issued at that Closing, representing ___% of total Program capital for the
Project Wells.

     D. Depending on the number of Units sold by the Partnership, the Program will participate in
up to ___ Project Wells on Prospects designated and to be designated under an assignment of drilling
rights of even date herewith between the Program and DPI (the “Prospect Assignment”),
covering ___Prospects for each incremental ___ Units issued at a Closing.

     E. The Program’s working interests in Project Wells drilled and to be drilled on the Prospects
(the “Program Position”) will be subject to proportionate reduction upon exercise of
third-party participation rights under the farmout covering DPI’s interests in portions of the
Project Areas (the “Participating Interests”).

     F. The parties desire to enter into this Agreement to memorialize their arrangements for DPI’s
preparation, drilling, completion and equipping of the Project Wells on the terms and conditions
provided herein.

     Accordingly, in consideration of their mutual promises and intending to be legally bound, the
parties hereby agree as follows:

AGREEMENT

     1. Construction and Definitions. Unless otherwise expressly provided herein, all references
to Recitals, Sections and Schedules refer to recitals, sections and schedules of this Agreement.
As used in this Agreement, the following terms have the respective meanings set forth below:

     “AFE” stands for “authorization for expenditure” and means the projected costs for
drilling and completing a Project Well and furnishing all labor, well equipment and production
facilities necessary to produce the well to sales through DPI’s field-wide gathering systems.

     The tem “affiliate” means any Person directly or indirectly controlling or controlled
by or under direct or indirect common control with a specified Person, and “control” when
used with respect to any specified Person means the power to direct the management and policies of
that Person, directly or indirectly, whether through the ownership of voting securities, by
contract or otherwise.

 

 

     “Agreement” means this Joint Drilling and Operating Agreement, as amended and or
supplemented from time to time.

     “Closing” has the meaning set forth in Recital C.

     “DPI” means Daugherty Petroleum, Inc., a Kentucky corporation, and its successors and
assigns.

     “DPI Position” means the working interest of DPI in Project Wells drilled in the
Project Areas, as established under the Program Agreement, subject to adjustments for the
Participating Interests, for AFE variances under the True-Up Account to be maintained for each
Project Area under the Prospect Assignment and for the reversionary interest of DPI after Payout
under the terms of the Program Agreement.

     “IDC” means expenditures incurred for items having no salvage value and for labor,
fuel, repairs, hauling and supplies used in (i) preparing the surface prior to drilling oil and gas
wells, (ii) drilling, treating and cleaning oil and gas wells and (iii) preparing oil and gas wells
for production, all within the meaning of Treasury Regulation section 1.612-4(a) under the Internal
Revenue Code of 1986, as amended.

     “Indemnified Parties” has the meaning set forth in Section 5(c).

     “JOA Price” has the meaning set forth in Section 3(a).

     “Participating Interests” has the meaning set forth in Recital E.

     “Partnership Position” means the working interest of the Partnership in Project Wells
drilled in each of the Project Areas, as established under the Program Agreement, subject to
adjustments for the Participating Interests, for AFE variances under the True-Up Account to be
maintained under the Prospect Assignment and for the reversionary interest of DPI after Payout
under the terms of Program Agreement.

     “Partnership” means a NGAS Partners ___, Ltd., a Kentucky limited partnership, and
its successors and assigns.

     “Payout” means the point when each holder of Units has received cumulative
distributions from the Partnership aggregating 110% of the Unit subscription price or $  per
Unit.

     “Person” means an individual, any form of business enterprise, including a
corporation, limited liability company, partnership or limited partnership, and any other juridical
entity or its representative, including a trust, estate, custodian, administrator, personal
representative, nominee or any other entity acting on its own behalf or in a representative
capacity.

     “Private Placement,” “PPM” and “Units” have the respective meanings
set forth in Recital B.

     “Program” means a NGAS Partners ___Drilling Program, a Kentucky general
partnership, and its successors and assigns.

     “Program Agreement” has the meaning set forth in Recital C.

     “Program Position” has the meaning set forth in Recital E.

     “Project Areas” and “Project Wells” have the respective meanings set forth in
Recital A.

     “Prospect Assignment” has the meanings set forth in Recital D.

     “Prospects” has the meanings set forth in Recital A.

     “Tangible Costs” means the cost of equipment and supplies used in the drilling,
testing, completing and producing oil and gas from a well to the extent the equipment and supplies
have a salvage value and are capitalized for federal income tax purposes.

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     “True-Up Account” has the meaning set forth in the Prospect Assignment.

     The term “working interest” means an interest in an oil and gas leasehold or well
entitling the holder to receive a specified percentage of the sale proceeds from oil or gas
produced from the leasehold or well and obligating the holder to bear a specified percentage of the
costs of development, operation and production, including the operating costs and expenses
attributable to the underlying royalty and overriding royalty interests.

     2. Work to be Performed.

          (a) Drilling and Completion Services. Either directly or through subcontractors
engaged by DPI in accordance with this Agreement, DPI will:

               (i) Perform updated reviews and evaluations of the latest geological and geophysical data for
the Prospects from available sources;

               (ii) Obtain all regulatory permits, surveys and title opinions required for drilling the
Project Wells on the Prospects;

               (iii) Build necessary roads and prepare the site locations for the Project Wells;

               (iv) Furnish suitable drilling rig, drill pipe and drill collars, and all equipment and tools
necessary to drill the Project Wells to their total depth, and move all equipment and materials in
and out of the site locations;

               (v) Dig all pits necessary for drilling the Project Wells;

               (vi) Furnish all water, fuel, drilling mud, chemicals, bits and air compressors necessary to
drill the Project Wells;

               (vii) Drill each Project Well to its designated bottom hole depth to permit the running of
production casing to total depth;

               (vii) Furnish all logs, cores and tests that a reasonably prudent contractor would undertake
to adequately determine the feasibility and nature of completion work for the Project Wells;

               (viii) For each Project Well for which completion operations are deemed appropriate, (A)
furnish, set and cement production casing, using sufficient cement for good returns at the surface,
(B) furnish suitable completion rigs and all equipment and tools necessary to complete the well,
(C) furnish all treating chemicals, materials and equipment deemed appropriate to stimulate the
well and (D) furnish all labor and well equipment necessary to equip and produce the well to tanks
or available gathering systems, in each case in a workmanlike manner and in accordance with
standard industry practice; and

               (ix) Maintain title to all Project Wells free and clear of any liens for equipment, materials
or services furnished hereunder.

          (b) Scheduling. DPI will use reasonable commercial efforts to spud each Project Well
as soon as practicable after assignment of the associated Prospect, but in no event later than
___, 200_, and to drill each Project Well to its designated bottom hole depth within a
reasonable period of time after the well is spudded, provided that DPI will not be subject to any
penalty or other liability if it is unable to meet the foregoing scheduling objectives.

          (c) Connection of Project Wells. DPI will be responsible and will bear the costs for
constructing or purchasing and maintaining all gathering systems or gathering lines required for
connecting completed Project Wells to its existing gathering systems in the Project Areas,
including related compression and dehydration equipment. Either directly or through its
affiliates, DPI will retain sole ownership of its gathering facilities and equipment.

          (d) Operation of the Project Wells. DPI will have the exclusive right and authority
to control of the

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operation of all Project Wells in accordance with the leases or farmouts for the Prospects,
the terms and conditions of the Program Agreement and the terms and provisions of this Agreement.
As operator of completed Project Wells, DPI will perform all services required for maintaining
their oil and gas production in accordance with standard industry practice, including flowing or
pumping the wells; adjusting chokes or flow devices; gauging tanks; changing meter charts;
supervising gas flow into a gas transportation system; making minor repairs on any related
equipment and machinery; preparing and filing gauge and well reports with governmental agencies and
others entitled to those reports and causing payments for the oil and gas production from the
Project Wells to be made to the Program after timely payments required under the leases or farmouts
to holders of royalty and overriding royalty interests in the Prospects and holders of
Participating Interests in Project Wells within Leatherwood.

          (e) Plugging and Abandonment Obligations. DPI will be responsible for plugging and
abandoning (i) any Project Wells that it determines not to complete, based on logging results or
other considerations it deems relevant, and (ii) all completed Programs Wells at the end of their
economic lives, as determined by DPI in its sole discretion. In connection with the plugging and
abandonment of a Project Well, DPI will perform all site reclamation required under the applicable
leases, farmouts and environmental laws and regulations, including well pit back-filling and
surface restoration. DPI will retain all rights to any salvageable equipment from abandoned
Project Wells or the proceeds from the sale of that equipment.

     3. Drilling and Completion Costs.

          (a) Cost-Plus Pricing. DPI will perform all drilling and completion services and
furnish all drilling equipment and supplies for the Project Wells in accordance with this Agreement
at a cost to the Program (the “JOA Price”) equal to 130% of its proportionate share of
their AFE, as determined by DPI on a field-wide basis, subject to proportionate reduction by the
amount of Participating Interests.

          (b) Payment of JOA Price. The JOA Price for each Project Well will be payable to DPI
by the Program upon assignment to the Program of the Prospect for that Project Well under the
Prospect Agreement. DPI will bear any drilling and completion costs for the Program Position in
the Project Wells exceeding their JOA Price and will be entitled to retain the surplus as part of
its compensation hereunder, subject to proportionate adjustments to the Partnership Position and
the DPI Position in the last 30% of the Project Wells in each Project Area in accordance with the
provisions for the True-Up Account under the Prospect Assignment.

          (c) Allocation of JOA Price. The JOA Price for drilling, completing and equipping the
Project Wells shall be allocated ___% to IDC and ___% to Tangible Costs.

     4. Fees and Direct Expenses.

          (a) Gathering Fees. DPI will be entitled to entitled to fees up to $0.___per Mcf for
gathering natural gas production from the Project Wells, $0.___per Mcf for compressing and
dehydrating gas production from the Program Wells and $0.___per Mcf for transporting the Program’s
natural gas production for delivery through the open-access system operated by NGAS Gathering, LLC,
subject in each case to adjustment for increases in the Consumer Price Index and payable by the
Program monthly upon invoicing by DPI.

          (b) Operating Fees. DPI will be entitled to monthly operating fees for producing
Project Wells based on their operating costs. Depending on the amount of oil production,
dehydration requirements and other variables, monthly operating fees shall range between $___and
$___for each Project Well, subject to adjustment for increases in the Consumer Price Index and
payable by the Program upon invoicing,.

          (c) Plugging and Abandonment Fees. DPI will be entitled to plugging and abandonment
fees at the rate of $6,000 per Project Well, payable by the Program in 60 equal installments of
$100. The plugging and abandonment fee installments for each Project Well will begin with the
first distribution of production proceeds from that well. If a Project Well must be plugged and
abandoned before the total plugging and abandonment fee is fully paid, the Program will be
obligated to complete the fee installments when all plugging, abandonment and reclamation work for
the well is completed. DPI will indemnify the Program against any plugging, abandonment and
reclamation obligations in excess of the specified total fee obligation and will have the right to
retain any salvageable equipment from Project Wells that are plugged and abandoned.

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          (d) Workover Costs. The Program will be responsible for all fees and equipment and
supply costs incurred for any workovers, recompletions or major repairs of Project Wells deemed
appropriate by DPI. If these services performed by third-party contractors, DPI will be entitled
to a fee for supervising the activities in an amount equal to 15% of the third-party fees and
direct costs. If DPI elects to use its own equipment or personnel for these services, it will be
entitled to fees at customary industry rates in the operating area and reimbursement for its direct
costs, payable by the Program upon invoicing from DPI.

          (e) Other Direct Expenses. The Program will be responsible for all third-party fees
and direct expenses incurred in the operation of completed Project Wells for (i) salt water hauling
and electricity, (ii) compliance with applicable regulatory requirements, (iii) transportation,
dehydration and compression services for natural gas production and (iv) any other reasonable and
necessary third-party costs incurred in the operation and maintenance of the Project Wells.

          (f) Proration for Participating Interests. For any Project Well with Participating
Interests, all fees and expenses payable for that well under this Section 4 will be
adjusted to reflect the Program Position in the well.

     5. Liability of Parties.

          (a) Several Liability. The liability of the parties hereunder shall be several, not
joint or collective. Each party shall be responsible only for the performance of its obligations.
Nothing in this Agreement shall create, nor shall this Agreement be construed as creating, a mining
or other partnership, associated or joint venture, or to render the parties liable as partners or
joint ventures.

          (b) Liabilities of DPI. DPI shall exercise ordinary and prudent judgment in
performing its obligations under this Agreement. Neither DPI nor any of its officers, directors or
employees shall be liable or obligated to the Program or the Partnership for any mistake of fact or
judgment made by DPI in the performance of this Agreement, provided the mistake of fact or judgment
did not constitute gross negligence or willful misconduct.

          (c) Indemnification of DPI. The Program shall indemnify and hold harmless the DPI and
its officers, directors, employees and other affiliates (collectively, “Indemnified
Parties”) as follows:

               (i) In any action, suit or proceeding to which an Indemnified Party was or is a party by
reason of the fact that it is or was acting as the driller or operator performing services
hereunder, involving an alleged cause of action arising from the activities of the Indemnified
Party under this Agreement, the Program shall indemnify the Indemnified Party against expenses,
including attorneys’ fees, judgments, fines and amounts paid in settlement actually and reasonably
incurred by the Indemnified Party in connection with the action, suit or proceeding, if the
Indemnified Party’s conduct does not constitute gross negligence or willful misconduct.

               (ii) The indemnification provided by this Section 5(c) shall be in addition to any
other rights to which an Indemnified Party may be entitled under any agreement or as a matter of
law and shall continue inure to the benefit of the heirs, successors, assigns and administrators of
the Indemnified Party.

               (iii) The provisions of this Section 5(c) are for the benefit of Indemnified Parties
and shall not be deemed to create any rights for the benefit of any other Persons.

          (d) Force Majeure. Neither party to this Agreement shall be liable for any failure to
perform its obligations hereunder when the failure is due to force majeure, including (i) acts of
God, including epidemics, landslides, lightning, earthquakes, fire, storm, floods, washouts and
explosions, (ii) civil disturbances, including acts of terrorism, wars, riots strikes, lockouts or
other industrial interruptions, (iii) delay by orders of any court or regulatory authority, (iv)
inability to obtain or unavoidable delay in obtaining necessary permits or other governmental
approvals, (v) inability to obtain or unavoidable delay in obtaining labor, equipment or materials
at reasonable cost, including inability to secure materials by reason of regulatory allocations,
(vi) breakage or accident to gathering lines, machinery or equipment, including damage from
freezing or failure of wells or gathering lines, (vii) inability to obtain easements or
rights-of-way at reasonable cost; (viii) the shut-down of portions of pipeline or other facilities
and (ix) any other cause not reasonably within the control of the party claiming force majeure, but
excluding a party’s payment obligations under this Agreement.

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          (e) Insurance. DPI will (i) maintain $2,000,000 of liability insurance coverage for
its operations, with excess umbrella liability coverage up to $15,000,000, subject to customary
exclusions, (ii) require all subcontractors engaged to perform services hereunder hereto carry
liability insurance in varying amounts, depending on the type of work performed, (iii) comply with
and to require all subcontractors engaged hereunder to comply with the worker’s compensation law of
the state where operations are being conducted and (iv) prior to
commencing operations hereunder, add the Partnership as an additional insured party under its liability insurance policies.

          (f) Regulatory Compliance. In performing services hereunder, DPI will comply with all
applicable laws and regulations and use reasonable commercial efforts to cause all subcontractors
engaged hereunder to comply therewith.

     6. Miscellaneous Provisions.

          (a) Notices. Any notice given under this Agreement shall be made in writing and shall
be deemed to have been duly given or made if delivered personally, mailed with postage prepaid by
registered or certified mail or sent by courier or facsimile to a party at its address set forth or
provided below. Any notice so sent shall be deemed to have been given or delivered (a) at the time
that it is personally delivered, (b) within two business days after the date deposited in the
United States mail or one business day after deposit with an overnight courier if sent by mail or
courier or (c) when receipt is acknowledged, if sent by facsimile. A party may change its address
by giving notice in writing, stating its new address, to the other party.

     If to DPI:

Daugherty Petroleum, Inc.

120 Prosperous Place — Suite 201

Lexington, Kentucky 40509

Attention: William G. Barr III, CEO

Fax: (859) 263-4228

     If to the Program:

NGAS Partners ______ Drilling Program

c/o Daugherty Petroleum, Inc.

120 Prosperous Place — Suite 201

Lexington, Kentucky 40509

Attention: William S. Daugherty, Chairman

Fax:: (859) 263-4228

          (b) Governing Law. This Agreement shall be construed in accordance with and governed
in all respects by the laws of the Commonwealth of Kentucky.

          (c) Successors in Interest. Each and all of the covenants, agreements, terms and
provisions of this Agreement shall be binding on and inure to the benefit of the parties hereto
and, to the extent permitted by this Agreement, their respective successors and assigns.

          (d) Integration. This Agreement, including the Schedule hereto, constitutes the
entire agreement between the parties pertaining to the subject matter hereof and supersedes all
prior and contemporaneous agreements and understandings of the parties in connection herewith.

          (e) Amendments. Any amendment or supplement to this Agreement shall be in writing and
shall be signed by or on behalf of each of the parties.

          (f) Headings. The headings in this Agreement are inserted for descriptive purposes
only and shall not control or alter the meaning of any provision hereof.

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          IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement as of the
day and year first above written.

	 	 	 	 	 	 	 
	 	 	NGAS Partners ______ Drilling Program
	 
	 	 	 	 	 	 
	 	 	By:	 	Daugherty Petroleum, Inc.,
	 	 	 	 	Program Manager
	 
	 	 	 	 	 	 
	 

	 	 	 	By:	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	 	 	William S. Daugherty,

Chairman of the Board
	 
	 	 	 	 	 	 
	 	 	Daugherty Petroleum, Inc.
	 
	 	 	 	 	 	 
	 

	 	By	 	 	 	 
	 	 	 	 	 
	 	 	 	 	William G. Barr III,

	 	 	 	 	Chief Executive Officer

7EX-10.1

 

Exhibit 10.1

FORBEARANCE AGREEMENT

     THIS FORBEARANCE AGREEMENT (“Agreement”), is entered into as of this 26th day of October,
2007, among is made by and between Max & Erma’s Restaurants, Inc., a Delaware corporation (the
“Company”), and National City Bank, individually and as agent (the “Bank”).

WITNESSETH:

     WHEREAS, the Company and the Bank, are parties to that certain Sixth Amended and Restated
Revolving Credit Agreement dated May 4, 2006, as amended by Amendment No. 1 dated as of December
14, 2006 and a letter agreement dated September 4, 2007 (collectively, the “Loan Agreement”); and

     WHEREAS, the Company granted to the Bank a security interest in various collateral pursuant to
(a) the Third Amended and Restated Security Agreement dated January 7, 2000 as amended by Amendment
No. 1 dated October 19, 2001, Amendment No. 2 dated April 30, 2002, Amendment No. 3 dated March 1,
2003, Amendment No. 4 dated as of September 22, 2003 and Amendment No. 5 dated as of the date
hereof (collectively, the “Personal Property Security Agreement”), (b) the Amended and Restated
Intellectual Property Security Agreement dated as of January 7, 2000, as amended by Amendment No. 1
dated October 19, 2001, Amendment No. 2 dated September 22, 2003 and Amendment No. 3 dated January
26, 2007 (collectively, the “Intellectual Property Security Agreement”) and (c) various Leasehold
Open End Mortgage, Fixture Filing, Security Agreements and Assignment of Subleases and Rents dated
as of May 4, 2005 (the “Leasehold Mortgages” and, collectively with the Personal Property Security
Agreement and the Intellectual Property Security Agreement, the “Security Agreements”); and

     WHEREAS, the Company issued to the Bank (a) a Second Amended and Restated Revolving Credit
Note dated as of May 4, 2006 in the original principal amount of $15,000,000 (the “Revolving
Note”), and (b) a Second Amended and Restated Term Promissory Note dated as of May 4, 2006 in the
amount of $12,800,000 (the “Term Note” and, collectively with the Revolving Note, the “Notes”).

     WHEREAS, the Company has indicated that it may not be able to comply with the financial
covenants set forth in the Loan Agreement; and

     WHEREAS, the Bank has agreed to amend the financial covenants of the Loan Agreement upon the
complete performance by the Company of the terms and conditions set forth herein; and

     WHEREAS, terms not otherwise defined herein are used as defined in the Loan Agreement (or, if
not defined in the Loan Agreement, as defined in the Security Agreements (collectively with this
Agreement, the “Loan Documents”)).

 

 

AGREEMENT

     In consideration of the foregoing, the sufficiency of which is acknowledged, the parties agree
as follows:

1. Acknowledgment of Maturity. The parties agree that the Company is presently obligated to pay all
of its obligations under the Loan Agreement to the Bank as the same become due and payable, all
without setoff, counter-claim or defenses. The parties further acknowledge and agree that all of
the Loan Documents are valid and enforceable by the Bank, and that a default under any one document
constitutes a default under all of the Loan Documents and this Agreement.

2. Forbearance Period The Bank agrees to reset the financial covenants of the Loan Agreement as
described in Section 2.1 below from the date hereof until March 31, 2009 (the “Forbearance
Period”). The Bank agrees to comply with this request subject to the performance by the Company of
the arrangements set forth herein. The Bank has not agreed and is not obligated to extend this
Agreement beyond the termination of the Forbearance Period.

     2.1. Financial Covenants. The covenants set forth in Section 6.2 of the Loan Agreement are
hereby suspended until October 27, 2008 and replaced with the following: The Company will maintain
a minimum Adjusted EBITDA of (a) $750,000 for the fiscal quarter ending on October 28, 2007, (b)
$2,200,000 for the fiscal quarter ending on February 17, 2008 and (c) $1,500,000 for the fiscal
quarters ending on May 11, 2008, August 3, 2008 and October 26, 2008. For purposes of this
Agreement, “Adjusted EBITDA” will include an add-back for pre-opening expenses, in addition to the
other add-backs included in the definition of “Adjusted EBITDA” set forth in the Loan Agreement. If
the Company has not complied with the provisions of Section 2.5 below prior to November 1, 2008,
then the covenants set forth in Section 6.2 of the Loan Agreement (specifically, the September 4,
2007 letter agreement) shall be reinstated; provided, however, that Section 6.2(b) and Section
6.2(e) are hereby deleted from the Loan Agreement. Upon termination of the Forbearance Period other
than pursuant to Section 2.5 of this Agreement, the covenants set forth in Section 6.2 of the Loan
Agreement shall be reset to the covenants set forth in the Loan Agreement; provided, however, that
the covenants set forth at Section 6.2(b) and Section 6.2(e) are hereby deleted from the Loan
Agreement.

     2.2. New Restaurants. During the Forbearance Period, the Company shall not commit to open any
new restaurants.

     2.3. Capital Expenditures. The Company shall not permit Capital Expenditures in fiscal 2008
(the fiscal year ended October 26, 2008) to exceed $2,600,000 exclusive of $800,000 already
committed for the remodeling of three restaurants and exclusive of landlord remodeling allowances.
After October 27. 2008 and during the remainder of the Forbearance Period, the Company shall not
permit Capital Expenditures to exceed $1,083,333, exclusive of landlord remodeling allowances.

     2.4. Dividends. During the Forbearance Period, the Company will not declare or pay any
dividends on, or make any distribution with respect to, any shares of capital stock of the Company
of any class.

     2.5. Equity Increase or Sale. The Company will diligently pursue an effort to raise equity or
sell the Company (a “Capital Transaction”) prior to June 30, 2008. The Bank shall have the right
to terminate this Agreement and exercise any available remedies under the Loan Documents if, at any
time, the Bank determines in its sole discretion that the Company is not diligently pursuing the
effort to consummate a Capital Transaction, or if the amount of equity proposed to be raised by the
Company is

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insufficient; provided, however, that the modification of the financial covenants pursuant to
Section 2.1 of this Agreement shall survive and remain effective until March 31, 2009
notwithstanding termination of this Agreement pursuant to this Section 2.5; provided, further,
however that the covenants set forth at Section 6.2(b) and Section 6.2(e) will remain deleted from
the Loan Agreement. If the Company does not close a Capital Transaction by June 30, 2008, then the
Company will immediately commence an effort to obtain a new banking relationship.

     2.6. Malenick Bridge Loan. The Company shall receive a $2,000,000 loan from Donald Malenick
on or prior to October 31, 2007 on terms and conditions satisfactory to the Bank in its sole
discretion (the “Malenick Loan”). The Company will use the proceeds of the Malenick Loan only for
working capital purposes. The Bank shall permit the Malenick Loan to be secured by the Company’s
right to receive a construction allowance payment of $1,200,000 form South Strabane, LLC for
reimbursement of tenant construction improvements to a store in Washington, Pennsylvania. The
documents evidencing the Malenick Loan are attached hereto as Exhibit 2.6.

     2.7. FM Mezzanine Partners, LLC Payments. The Company shall have amended its loan
documentation with FM Mezzanine Partners, LLC so that the interest payments previously required to
be made by the Company thereunder on December 31, 2007 and March 31, 2008 shall be amended as set
forth in the First Amendment to Note Purchase Agreement attached hereto as Exhibit 2.7. to require
the Company to pay reduced interest on such dates, with the remainder of any unpaid interest not
due and payable until the later of (a) the closing of a Capital Transaction (as defined in Section
2.5 above) satisfactory to the Bank or (b) June 30, 2008 (as long as any such payment on or after
June 30, 2008 does not cause the Company to violate any of the terms of the Loan Agreement,
including without limitation the provisions of Section 6.2 thereof). The documents evidencing the
amendments to the FM Mezzanine Partners, LLC loan documents are attached hereto as Exhibit 2.7, and
the Bank hereby consents to such amendments as evidenced thereby.

3. Acknowledgment of Balance Owed. The balance owed to the Bank includes all advances by the
Bank to the Company, all accrued interest and all collection and loan fees, including but not
limited to, service charges, title and UCC search fees, audit fees, environmental audit and
response costs, and fees of inside and outside counsel for the Bank (the “Total Indebtedness”). As
of the date hereof, the outstanding principal and interest on the Loan Documents was as follows:

	 	 	 	 	 	 	 	 	 	 	 	 	 
	Note	 	Principal	 	Interest	 	Total
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Revolving Note
	 	$	15,000,000	 	 	$	249,791.67	 	 	$	15,249,791.67	 
	Term Note
	 	$	9,800,000	 	 	$	207,773.61	 	 	$	10,007,773.61	 

4. Closing Costs; Scheduled Interest and Principal Payments; Fees.

     4.1. Closing Costs. The Company will pay to the Bank on the date hereof all of the
outstanding out-of-pocket expenses of the Bank. This amount includes, without limitation, the legal
fees and expenses of Bailey Cavalieri LLC.

     4.2. Scheduled Interest and Principal Payments. Interest shall accrue on the Notes during the
Forbearance Period at the rate set forth therein, and interest and principal that become
due and payable under the Notes and the Loan Agreement during the Forbearance Period shall be
paid as required therein.

     4.3 Forbearance Fee. If the Company completes a Capital Transaction (as defined in Section 2.5
above) to the satisfaction of the Bank on or before June 30, 2008, then the Company shall pay (upon
the closing of such Capital Transaction) a fee to the Bank equal to one half percent (0.5%) of the
total

3

 

amount owing under the Notes as set forth in Section 3 above. If the Company fails to complete a
Capital Transaction (as defined in Section 2.5 above) to the satisfaction of the Bank on or before
June 30, 2008, then the Company shall pay a fee to the Bank equal to one percent (1.0%) of the
total amount owing under the Notes as set forth in Section 3 above, with such fee being payable
upon the earlier of (a) the closing of a Capital Transaction satisfactory to the bank or (b) the
next four succeeding fiscal quarter ends thereafter, with twenty five percent (25%) of such fee
being payable upon each such date.

5. Acknowledgment of Continued Validity of Security Interest. The security interests granted to
the
Bank by the Company in its property pursuant to the Security Agreements are and will remain as
valid security interests, prior in interest to any other security interest in such property, for
the repayment of the Total Indebtedness.

6. Release and Waiver of Any Claims and Defenses.

     6.1 The Company represents that, from the beginning of time to and including the date of this
Agreement, it has no cause of action, claim or defense of any kind, by way of offset or otherwise,
to payment in full of the Total Indebtedness, to the Loan Documents or any instrument or document
executed in conjunction therewith, including this Agreement, or any claims whatsoever against the
Bank, whether known or unknown, of any nature whatsoever, its past and present shareholders,
directors, officers, attorneys, agents, employees or assigns, and all of their respective heirs,
executors, predecessors, successors and assigns, arising out of the lending relationships between
them and the Bank. To the extent that any claim, set-off or defense exists, the Company, for
itself, its successors and assigns, voluntarily and with full knowledge of its rights and after the
opportunity to consult with legal counsel, releases and waives the same.

     6.2 In addition to and not in limitation of the foregoing Section 6.1, the Company further
acknowledges and agrees that the Bank’s action to date, in connection with or in the administration
of the Loan Documents, has been reasonable, appropriate, and does not constitute and has not
constituted interference with or an attempt to control or actual control of any assets or
operations of any businesses of the Company.

7. Loan Documents. Except as otherwise set forth herein, the Company shall continue to be bound by
the terms, covenants and conditions of the Loan Documents during the Forbearance Period.

8. Warranty of Compliance with Applicable Laws. The Company represents and warrants that it is in
material compliance with any and all applicable federal, state and local ordinances, including but
not limited to those, if applicable, pertaining to labor and taxation.

9. Termination of Financing Arrangements/Events of Default. The forbearance of the Bank hereunder
shall terminate upon the earliest to occur of the following: (a) a default under this Agreement or
a material breach of this Agreement; (b) the occurrence of an Event of Default as defined in the
Loan Documents; or (c) the expiration of the Forbearance Period.

10. Rights and Remedies of the Bank Upon Termination. Upon the termination of the forbearance under
Section 9 above, the Bank may exercise all rights and remedies then available to the Bank, as
stated in the Loan Documents, under the Uniform Commercial Code, and under any other laws of the
State of Ohio.

11. Supremacy. Future administration of the financing arrangements between the Company and the Bank
shall be governed by the terms and conditions of the Loan Documents, except to the
extent amended or supplemented by this Agreement. To the extent that any provision of this
Agreement conflicts with

4

 

any term or condition set forth in the Loan Documents, the provisions of this Agreement shall
supersede and control.

12. Governing Law/Jurisdiction. This Agreement shall be governed by and construed in accordance
with the laws of the State of Ohio, including its conflicts of law rules. In the event that
litigation is deemed necessary by any party to enforce or determine the effect of any provision of
this Agreement, such litigation shall be commenced only in a State or Federal Court located in
Franklin County, Ohio.

13. Severability. If any provision of this Agreement shall be invalid, illegal or otherwise
unenforceable, such provision shall be severable from the remainder of this Agreement, and the
validity, legality and enforceability of the remaining provisions shall not be adversely affected
or impaired thereby and shall remain in full force and effect.

14. The Bank’s Right to Partially Enforce Agreements. No delay on the part of the Bank in the
exercise of any right or remedy hereunder or under any of the Loan Documents shall operate as a
waiver. No single or partial exercise by the Bank of any right or remedy hereunder or under any of
the Loan Documents shall preclude any other right or remedy. No waiver or indulgence by the Bank of
any default remedy hereunder or under any of the Loan Documents shall be effective unless in
writing and signed by the Bank, nor shall a waiver of any default on one occasion be construed as a
waiver of that default on any future occasion.

15. Execution of Additional Documents. The Company will execute and deliver to the Bank such
additional instruments, mortgages, assignments, financing statements and other documents as the
Bank deem appropriate to effectuate this Agreement.

16. Acknowledgment of Reasonableness of Agreement. The Company states that it has carefully read
this Agreement and that it is fair and reasonable, that it has had the opportunity to seek advice
of counsel before signing and that the Bank has, in fact, encouraged the Company to consult with
counsel before signing this Agreement.

17. Incorporation. This Agreement contains the complete and entire understanding of the parties.
Any amendment or modification to this Agreement must be made in writing and signed by the parties.

18. Confession of Judgment. The Company hereby authorizes any attorney at law to appear for it, in
an action on this Agreement, as herein provided, in any court of record in or of the State of Ohio,
or elsewhere, to waive the issuing and service of process against the Company and to confess
judgment in favor of the holder hereof against the Company for the amount that may be due, with
interest at the rate therein mentioned and costs of suit, and to waive and release all errors in
said proceedings and judgment, and all petitions in error, and right of appeal from the judgment
rendered.

5

 

     The Company and the Bank have executed this instrument as of this 26th day of October,
2007.

WARNING — BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT TRIAL. IF YOU DO NOT PAY
ON TIME A COURT JUDGMENT MAY BE TAKEN AGAINST YOU WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A
COURT CAN BE USED TO COLLECT FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR
WHETHER FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT, OR ANY
OTHER CAUSE.

	 	 	 	 	 	 	 	 	 	 	 	 	 
	MAX & ERMA’S RESTAURANTS, INC.	 	 	 	NATIONAL CITY BANK
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	By:

	 	/s/ William C. Niegsch, Jr. 	 	 	 	By:	 	/s/ Douglas E. Houser 
	 	 	 	 	 	 	 	 	 
	 

	 	Name:
	 	William C. Niegsch, Jr.
	 	 	 	 	 	Name:
	 	Douglas E. Houser
	 

	 	Its:
	 	Chief Financial Officer
	 	 	 	 	 	Its:
	 	Senior Vice President

6

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