Document:

Exhibit 10.1

 

CREDIT AGREEMENT

 

THIS CREDIT
AGREEMENT is entered into as of June 28, 2001, by and between
INTERNATIONAL HOUSE OF PANCAKES, INC., a Delaware corporation (“Borrower”),
and WELLS FARGO BANK, NATIONAL ASSOCIATION (“Bank”).

 

RECITALS

 

Borrower has
requested that Bank extend credit to Borrower as described below, and Bank has
agreed to provide such credit to Borrower on the terms and conditions contained
herein.

 

NOW, THEREFORE,
for valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Bank and Borrower hereby agree as follows:

 

ARTICLE I.

DEFINITIONS AND ACCOUNTING TERMS

 

SECTION 1.1         DEFINED
TERMS.  The following terms as used
herein shall have the following meanings (such meanings to be equally
applicable to both the singular and plural forms of the terms defined):

 

“Additional Permitted Subsidiary Guarantees” means those
Guarantees delivered by any Guarantor (other than IHOP) which guarantee Debt of
Borrower the beneficiaries of which are or become a party to, and thereby agree
to undertake and perform the duties, rights and obligations of a party under,
the Intercreditor Agreement.

 

“Advance” means an advance under the Line of Credit.

 

“Affiliate” means any Person (other than a Subsidiary) (a) which
directly or indirectly controls, or is controlled by, or is under common
control with, IHOP, (b) which beneficially owns or holds 10% or more of
any class of the Voting Stock of IHOP, (c) 10% or more of the Voting Stock
of which is beneficially owned or held by IHOP or a Subsidiary of IHOP or (d) any
officer or director of IHOP or any of its Subsidiaries. For purposes of this
definition, “control” of a Person shall mean the power, direct or indirect, (i) to
vote or direct the voting of a majority of the Voting Stock of such Person, or (ii) to
direct or cause the direction of the management and policies of such Person
whether by contract or otherwise.

 

“Agreement” means this Credit Agreement, either as originally
executed or as it may from time to time be supplemented, modified, amended,
restated or extended.

 

“Appropriate Officer” means, with respect to any corporation,
such corporation’s President, Vice President, Chief Executive Officer, Chief
Financial Officer, Treasurer or Controller.

 

“Bank” is defined in the preamble.

 

1

 

“Board” means the Board of Directors of any corporation or a
committee of said corporation having authority to exercise, when the Board of
Directors is not in session, the powers of the Board of Directors (subject to
any designated limitations) in the management of the business and affairs of
said corporation.

 

“Book Value” of an asset of any Person means the value of such
asset as reported in the books and records of such Person in accordance with
GAAP.

 

“Borrower” is defined in the preamble.

 

“Business Asset Acquisition” is defined in Section 6.7
hereof.

 

“Business Day” means any Monday, Tuesday, Wednesday, Thursday or
Friday on which Bank is open for business at its address for notices as
designated herein.

 

“Capitalized Lease” means a lease of Property which in
accordance with GAAP should be capitalized on the balance sheet of any Person.

 

“Capitalized Lease Obligations” means the aggregate rentals due
and to become due under all Capitalized Leases which any Person, as a lessee,
would be required to reflect as a liability on the consolidated balance sheet
of such Person in accordance with GAAP.

 

“Closing Date” means the date on which all conditions precedent
set forth in Article 4 have been met.

 

“Compliance Certificate” means a certificate in the form of Exhibit A,
properly completed and signed by an Appropriate Officer of IHOP and Borrower.

 

“Consolidated Debt” means the Debt of IHOP, Borrower and their
Subsidiaries, as determined on a consolidated basis in accordance with GAAP.

 

“Consolidated Income Available for Fixed Charges” means the sum
of (a) Consolidated Net Income, (b) consolidated income tax expense
of IHOP and its Subsidiaries in accordance with GAAP and (c) Fixed
Charges.

 

“Consolidated Net Income or Loss” means the Net Income or Loss
of IHOP, Borrower and their Subsidiaries, as determined on a consolidated basis
in accordance with GAAP.

 

“Consolidated Tangible Net Worth” means shareholders’ equity of
IHOP and its Subsidiaries less intangible assets booked after December 31,
1999, less Restricted Investments in excess of 10% of shareholders’
equity of IHOP and its Subsidiaries at any date of determination, all as
determined for IHOP and its Subsidiaries on a consolidated basis in accordance
with GAAP.

 

“Debt” with respect to any Person means, without duplication, (a) all
indebtedness of such Person for borrowed money, (b) the liability of such
Person

 

2

 

created by
granting a Lien to which the property or assets of such Person are subject
whether or not such Person has assumed or become legally liable for the payment
of any obligation (provided that, if such obligation has not been assumed or
become the legal liability of such Person, the amount of the liability shall be
deemed to be in an amount not to exceed the Fair Market Value of the property
to which the Lien relates, as determined in good faith by such Person), (c) Capitalized
Lease Obligations of such Person, to the extent such obligations exceed 95% of
the amount of accounts receivable by such Person as lessor under direct
financing leases with franchisees so long as such direct financing leases are,
at the time of determination to the best knowledge of the lessor thereunder,
valid and enforceable against their lessees and are current as to payment and
not otherwise in default to the extent that there is a reasonable likelihood
that any such lease would be terminated by the lessor prior to its stated
expiration and (d) the aggregate amount of all Guarantees given by such
Person with respect to any of the foregoing.

 

“Default” means any Event of Default and/or any event that, with
the passage of time or the giving of notice or both, would constitute an Event
of Default.

 

“Disposition” means any sale, transfer, assignment, lease,
conveyance or other disposition of any asset except for sales, transfers,
assignments, leases conveyances or other dispositions solely between IHOP,
Borrower and/or the other Guarantors.

 

“ERISA” means the Employee Retirement Income Security Act of
1974, as from time to time amended.

 

“Event of Default” shall have the meaning specified in Section 7.1.

 

“Fair Market Value” means what a willing buyer would pay to a
willing seller in an arm’s-length transaction.

 

“Fixed Charges” means the sum of (a) Interest Expense and (b) rental
expense under operating leases, all as determined for IHOP and its Subsidiaries
on a consolidated basis in accordance with GAAP.

 

“Fixed Rate Notes” means, collectively, (a) Borrower’s
7.79% senior notes due in 2002 in the original aggregate principal amount of $32,000,000
issued on November 19, 1992 pursuant to the Note Purchase Agreements-1992
and (b) Borrower’s 7.42% senior notes due in 2008 in the original
aggregate principal amount of $35,000,000 issued on November 1, 1996
pursuant to the Note Purchase Agreements-1996.

 

“GAAP” means generally accepted accounting principles in the
United States in effect from time to time.

 

“Governmental Agency” means (a) any international, foreign,
federal, state, county or municipal government, or political subdivision
thereof, (b) any governmental or quasi-governmental agency, authority,
board, bureau, commission,

 

3

 

department,
instrumentality or public body, or (c) any court, administrative tribunal
or public utility.

 

“Gross Assets” means the total assets and Properties of IHOP and
its Subsidiaries less accumulated depreciation, as indicated on the audited
balance sheets of IHOP and its Subsidiaries for the fiscal year end immediately
prior to the date of any determination.

 

“Guarantee” means any guarantee or other contingent liability
(other than any endorsement for collection or deposit in the ordinary course of
business), direct or indirect, with respect to any obligations of another
Person, through an agreement or otherwise, including, without limitation, (a) any
other endorsement or discount with recourse or undertaking substantially
equivalent to or having economic effect similar to a guarantee in respect of any
such obligations and (b) any agreement (i) to purchase, or to advance
or supply funds for the payment or purchase of, any such obligations, (ii) to
purchase, sell or lease Property, products, materials or supplies, or
transportation or services, in respect of enabling such other Person to pay any
such obligation or to assure the owner thereof against loss regardless of the
delivery or nondelivery of the Property, products, materials or supplies or
transportation or services or (iii) to make any loan, advance or capital
contribution to or other investment in, or to otherwise provide funds to or
for, such other Person in respect of any liability for a dividend, stock
liquidation payment or expense) or to assure a minimum equity, working capital
or other balance sheet condition in respect of any such obligation. The amount
of liability of any Person attributable to any Guarantee shall be equal to the
maximum amount for which such Person could be liable under such Guarantee.

 

“Guarantors” means, collectively, IHOP, IHOP Properties, IHOP
Realty and IHOP Restaurants, together with any and all other Persons that may
now or hereafter guaranty the obligations of Borrower to Bank with respect to
the Line of Credit or any part thereof.

 

“IHOP” means IHOP Corp., a Delaware corporation, or any
successor thereto.

 

“IHOP Guaranties” is defined in Section 2.4.

 

“IHOP Properties” means IHOP Properties, Inc., a Delaware
corporation which is an indirect wholly-owned Subsidiary of Borrower.

 

“IHOP Realty” means IHOP Realty Corp., a Delaware corporation
which is a wholly-owned Subsidiary of Borrower.

 

“IHOP Restaurants” means IHOP Restaurants, Inc., a
California corporation which is a wholly-owned Subsidiary of Borrower.

 

“Intercreditor Agreement” means the Intercreditor Agreement
dated as of June 28, 2001 among the 1992 Noteholders (as defined therein),
the 1996 Noteholders (as defined therein), Bank and additional creditors which
may become a party thereto

 

4

 

from time to time,
substantially in the form attached hereto as Exhibit B, either as
originally executed or as it may from time to time be supplemented, modified,
amended, restated or extended.

 

“Interest Expense” means interest expense, determined for IHOP
and its Subsidiaries on a consolidated basis in accordance with GAAP.

 

“Investment” when used with reference to any investment of IHOP,
Borrower or any of their Subsidiaries, means any investment so classified under
GAAP (and, specifically, shall not include trade receivables which are
classified as current assets under GAAP), and, whether or not so classified,
includes (a) any loan or advance made by IHOP, Borrower or any of their
Subsidiaries to any other Person, and (b) any ownership or similar
interest in any other Person; and the amount of any Investment shall be the
original principal or capital amount thereof less all cash returns of principal
or equity thereof (and without adjustment by reason of the financial condition
of such other Person).

 

“Laws” means, collectively, all international, foreign, federal,
state and local statutes, treaties, rules, regulations, ordinances, codes and
administrative or judicial precedents.

 

“Lien” means any security interest, mortgage, pledge, lien,
claim, charge, encumbrance, conditional sale or title retention agreement,
lessor’s interest under a Capitalized Lease or analogous instrument, in, of or
on any of a Person’s Property (whether held on the date hereof or hereafter
acquired), or any signed or filed financing statement which names such Person
as the debtor, or the execution of any security agreement or the like
authorizing any other Person as the secured party thereunder to file such a
financing statement; provided that neither (a) the interest of a lessee or
a sublessee in its capacity as lessee or sublessee under a lease or sublease
entered into by IHOP, Borrower or any of their Subsidiaries in the ordinary
course of business nor (b) the rights of franchisees in their capacities
as franchisees to use and possession of certain properties and rights pursuant
to franchise documentation entered into by IHOP, Borrower or any of their
Subsidiaries in the ordinary course of business shall be deemed to constitute a
Lien for purposes hereof.

 

“Line of Credit” shall have the meaning specified in Section 2.1(a).

 

“Line of Credit Maturity Date” means May 31, 2004, or such
later date as may then be in effect pursuant to Section 2.1(d).

 

“Line of Credit Note” shall have the meaning specified in Section 2.1(a).

 

“Loan Documents” means, collectively, this Agreement, the Line
of Credit Note, the IHOP Guaranties and any other certificates, documents or
agreements of any type or nature heretofore or hereafter executed or delivered
by Borrower and/or any other Person (or any Affiliate) to Bank in any way
relating to or in furtherance of the Agreement, in each case either as
originally executed or as the same may from time to time be supplemented,
modified, amended, restated or extended.

 

5

 

“Material Adverse Effect” means any change or changes or effect
or effects that individually or in the aggregate are or are likely to be
materially adverse to (a) the assets, business, operations, income,
prospects or condition (financial or otherwise) of IHOP and its Subsidiaries
taken as a whole or Borrower and its Subsidiaries taken as a whole, (b) the
transactions contemplated by this Agreement, or (c) taken as a whole, the
ability of Borrower and IHOP to fulfill their respective obligations under this
Agreement and the Line of Credit Note.

 

“Net Income or Loss” of any Person, with respect to any period,
shall mean the net income or net loss of such Person after excluding the sum of
(a) any net loss or any undistributed net income of any Person other than
a Subsidiary of such Person, (b) the net income or net loss of any
Subsidiary of such Person earned or incurred prior to the date on which it
became a Subsidiary of such Person, (c) the gain or loss (net of any tax
effect) resulting from the sale of any capital assets other than in the
ordinary course of business, and (d) extraordinary or nonrecurring gains
or losses (net of any tax effect), all as determined for the relevant period in
accordance with GAAP.

 

“Note Purchase Agreements” means, collectively, the Note Purchase
Agreements-1992 and the Note Purchase Agreements-1996.

 

“Note Purchase Agreements 1992” means the several Senior Note
Purchase Agreements dated as of November 19, 1992 among Borrower, IHOP and
the purchasers identified in Schedule I thereto.

 

“Note Purchase Agreements-1996” means the several Senior
Note Purchase Agreements dated as of November 1, 1996 among Borrower, IHOP
and the purchasers identified in Schedule 1 thereto.

 

“Opinion of Counsel” means the favorable written legal opinion
of Mark Weisberger, as internal counsel to Borrower and the Guarantors,
together with copies of all factual certificates and legal opinions upon which
such counsel has relied.

 

“Person” means any entity, whether an individual, trustee,
corporation, general partnership, limited partnership, joint stock company,
trust, unincorporated organization, bank, business association, firm, joint
venture, government agency or authority, or otherwise.

 

“Permitted Lien” is defined in Section 6.2.

 

“Prime Rate” means the rate of interest most recently announced
by Bank at its principal office in San Francisco as its “Prime Rate.” The Prime
Rate is one of Bank’s base rates and serves as the basis upon which effective
rates of interest are calculated for those loans making reference thereto and
is evidenced by the recording thereof after its announcements in such internal
publication or publications as Bank may designate. Any change in the interest
rate resulting from a change in such Prime Rate shall become effective on the
Business Day on which each change in the Prime Rate is announced by Bank. The
Prime Rate may not necessarily be the lowest interest rate at which Bank is
willing to extend credit facilities.

 

6

 

“Property” with respect to any Person, means any interest in any
kind of property or asset, whether real, personal or mixed, tangible or
intangible, of such Person.

 

“Request for Extension” means a request for an extension of the
Line of Credit Maturity Date substantially in the form of Exhibit C,
signed by an Appropriate Officer of IHOP and Borrower and properly completed to
provide all information required to be included therein.

 

“Responsible Official” means (a) when used with reference
to a Person other than an individual, any corporate officer of such
Person, general partner of such Person, corporate officer of a corporate
general partner of such Person, or corporate officer of a corporate general
partner of a partnership that is a general partner of such Person, or any other
responsible official thereof duly acting on behalf thereof, and (b) when
used with reference to a Person who is an individual, such Person. Any document
or certificate hereunder that is signed or executed by a Responsible Official
of a Person shall be conclusively presumed to have been authorized by all
necessary corporate, partnership and/or other action on the part of that
Person.

 

“Restricted Investments” shall mean all Investments made by
IHOP, Borrower or their Subsidiaries in or to any Person except (a) Investments
in notes of franchisees and receivables of franchisees in the ordinary course
of business other than notes and receivables held in settlement of franchise
obligations, and in Property of IHOP or its Subsidiaries to be used in the
ordinary course of business; (b) Investments in Subsidiaries; (c) Investments
in obligations issued or unconditionally guarantied by the United States of
America or any agency thereof in each case maturing within one year from the
date of acquisition thereof; (d) Investments in obligations issued by any
political subdivision of the United States of America or any public
instrumentality thereof maturing within one year from the date of acquisition
thereof and, at the time of acquisition, having one of the two highest ratings
obtainable from either Standard & Poor’s Corporation or Moody’s
Investors Service, Inc. or some other mutually agreeable rating system if
either of these entities no longer exists; (e) commercial paper maturing
no more than 270 days from the date of creation thereof and, at the time of
acquisition, having one of the two highest ratings obtainable from either
Standard & Poor’s Corporation or Moody’s Investors Service, Inc.
or some other mutually agreeable rating system if either of these entities no
longer exists; (f) certificates of deposit, repurchase agreements or
bankers’ acceptances maturing within one year from the date of acquisition
thereof issued by Borrower’s cash management concentration bank (provided that
such bank is rated investment grade or better by either Standard &
Poor’s Corporation or Moody’s Investors Services, Inc. or some other
mutually agreeable rating system if either of these entities no longer exists),
Wells Fargo Bank, N.A., or other commercial banks located in the United States
of America and Canada having combined capital, surplus and undivided profits of
not less than $100,000,000 and who have a rating at all times from Standard &
Poor’s Corporation or Moody’s Investors Services, inc., or some other mutually agreeable
rating system if either of these entities no longer exists, of “A-” or better; (g) Investments
in mutual funds and money market accounts, which funds or accounts 

 

7

 

are traded on a
national exchange or are managed by a commercial bank and which invests solely
in Investments which satisfy the criteria set forth in the foregoing clauses (c) through
(f); and (h) other Investments existing on the Closing Date.

 

“Subsidiary” means, with respect to any Person, any corporation
or other entity (a) organized under the laws of the United States, the
District of Columbia or Canada or any state or political subdivision of any
thereof, (b) all or substantially all of whose assets and business
operations are located or conducted within the United States of America or
Canada and (c) of which at least 51% of the outstanding Voting Stock is at
the time directly or indirectly owned or controlled by such Person or by one or
more of such Person’s wholly-owned Subsidiaries.

 

“Total Capitalization” means the sum of (i) Consolidated
Debt of IHOP, Borrower and their Subsidiaries and (ii) Consolidated
Tangible Net Worth.

 

“Voting Stock” with respect to any Person shall mean capital
stock of such Person of any class or classes, the holders of which are
ordinarily, in the absence of contingencies, entitled to vote for the election
of members of the Board (or Persons performing similar functions) of such
Person.

 

SECTION 1.2         USE
OF DEFINED TERMS.  Any defined term
used in the plural shall refer to all members of the relevant class, and any
defined term used in the singular shall refer to any one or more of the members
of the relevant class.

 

SECTION 1.3         ACCOUNTING
TERMS.  All accounting terms used in
this Agreement shall be applied on a consolidated basis for IHOP, Borrower and
their Subsidiaries, unless otherwise specifically indicated herein. All
accounting terms not specifically defined in this Agreement shall be construed
in conformity with, and all financial data required to be submitted by this
Agreement shall be prepared in conformity with, GAAP applied on a consistent
basis, as in effect on the date hereof, except as otherwise specifically
prescribed herein.

 

SECTION 1.4         EXHIBITS
AND SCHEDULES.  All exhibits and
schedules to this Agreement, either as originally existing or as the same may
from time to time be supplemented, modified or amended, are incorporated herein
by this reference.

 

ARTICLE II.

CREDIT TERMS

 

SECTION 2.1         LINE
OF CREDIT.

 

(a)           Line
of Credit.  Subject to the terms and
conditions of this Agreement, Bank hereby agrees to make Advances to Borrower
from time to time up to and including the “Maturity Date” (as such term is
defined in the Line of Credit Note described below), not to exceed at any time
the aggregate principal amount of Twenty-Five Million Dollars ($25,000,000,00)
(“Line of Credit”), the proceeds of which shall be used for Borrower’s working
capital and other general corporate purposes. Borrower’s obligation to repay

 

8

 

Advances under the Line
of Credit shall be evidenced by a promissory note substantially in the form of Exhibit D
attached hereto (“Line of Credit Note”), all terms of which are incorporated
herein by this reference.

 

(b)           Letter
of Credit Subfeature.  As a subfeature
under the Line of Credit, Bank agrees from time to time during the term thereof
to issue or cause an affiliate to issue standby letters of credit for the
account of Borrower for general corporate purposes, including without
limitation to finance the acquisition and development of real estate in the
ordinary course of Borrower’s business (each, a “Letter of Credit” and
collectively, “Letters of Credit”); provided however, that the aggregate
undrawn amount of all outstanding Letters of Credit shall not at any time
exceed Five Million Dollars ($5,000,000.00). The form and substance of each
Letter of Credit shall be subject to approval by Bank, in its sole discretion. Each
Letter of Credit shall be issued for a term not to exceed eighteen (18) months,
as designated by Borrower; provided however, that no Letter of Credit shall
have an expiration date more than ninety (90) days beyond Line of Credit
Maturity Date. The undrawn amount of all Letters of Credit shall be reserved
under the Line of Credit and shall not be available for borrowings thereunder. Each
Letter of Credit shall be subject to the additional terms and conditions of the
Letter of Credit agreements, applications and any related documents required by
Bank in connection with the issuance thereof. Each draft paid under a Letter of
Credit shall be deemed an Advance under the Line of Credit and shall be repaid
by Borrower in accordance with the terms and conditions of this Agreement
applicable to such Advances; provided however, that if Advances under the Line
of Credit are not available, for any reason, at the time any draft is paid,
then Borrower shall pay to Bank within two (2) Business Days of Bank’s
written demand therefor the full amount of such draft, together with interest
thereon from the date such draft is paid to the date such amount is fully
repaid by Borrower, at the rate of interest applicable to Advances under the
Line of Credit. In such event Borrower agrees that Bank, in its sole
discretion, may debit any account maintained by Borrower with Bank for the
amount of any such draft.

 

(c)           Borrowing
and Repayment.  Borrower may from
time to time during the term of the Line of Credit borrow, partially or wholly
repay its outstanding borrowings, and reborrow, subject to all of the limitations,
terms and conditions contained herein or in the Line of Credit Note; provided
however, that the total outstanding borrowings under the Line of Credit shall
not at any time exceed the maximum principal amount available thereunder, as set
forth above.

 

(d)           Extension
of Line of Credit Maturity Date. 
Provided that Borrower has theretofore delivered to Bank the financial
statements required under Section 5.3 for the immediately preceding
fiscal year and immediately preceding fiscal quarter, as applicable, Borrower
may, by delivery of a written Request for Extension to Bank, request that the
Line of Credit Maturity Date (as then in effect) be extended by one year (365
or 366 days, as the case may be). The Request for Extension shall not be
delivered earlier than March 31, 2004 nor later than April 30, 2004
(or each March 31 and April 30 in a subsequent year if the Line of
Credit Maturity Date has been extended to such year). Bank shall use its best
efforts to respond either affirmatively or negatively (in its sole and absolute
discretion) to such Request for Extension by written notice to Borrower within
thirty (30) days after receipt thereof from Borrower. If Bank so notifies
Borrower in writing that Bank consents to the extension of the

 

9

 

Line of Credit Maturity
Date, then the Line of Credit Maturity Date shall be deemed so extended and the
term “Line of Credit Maturity Date” shall be deemed amended to mean the date
which is one year subsequent to the then effective Line of Credit Maturity Date.
If Bank, in its sole and absolute discretion, notifies Borrower in writing
within said thirty (30) day period that it does not consent to such extension
of the Line of Credit Maturity Date, or fails to respond in writing within said
thirty (30) day period, the Line of Credit Maturity Date shall not be so
extended.

 

SECTION 2.2         INTEREST/FEES.

 

(a)           Interest.  The outstanding principal balance of the Line
of Credit shall bear interest, and the amount of each draft paid under any
Letter of Credit shall bear interest from the date such draft is paid to the
date such amount is fully repaid by Borrower, at the rate(s) of interest set
forth in the Line of Credit Note.

 

(b)           Computation
and Payment.  Interest shall be
computed on the basis of a 360-day year, actual days elapsed. Interest
shall be payable at the times and place set forth in each promissory note or
other instrument required hereby.

 

(c)           Unused
Commitment Fee.  Borrower shall pay
to Bank a fee equal to three-eighths of one percent (0.375%) per annum
(computed on the basis of a 360-day year, actual days elapsed) on the
average daily unused amount of the Line of Credit, which fee shall be
calculated on a quarterly basis by Bank and shall be due and payable by
Borrower in arrears each January 1, April 1, July 1 and October 1.

 

(d)           Letter
of Credit Fees.  Borrower shall pay
to Bank (i) fees upon the issuance of each Letter of Credit equal to one
and one-quarter percent (1.250%) per annum (computed on the basis of a 360-day
year, actual days elapsed) of the face amount thereof, and (ii) fees upon
the payment or negotiation of each draft under any Letter of Credit and fees upon
the occurrence of any other activity with respect to any Letter of Credit
(including without limitation, the transfer, amendment or cancellation of any
Letter of Credit) determined in accordance with Bank’s standard fees and
charges then in effect for such activity.

 

SECTION 2.3         COLLECTION
OF PAYMENTS.  To the extent Borrower
shall not have otherwise paid any of the following on or before their due date,
Borrower authorizes Bank to collect all principal, interest and fees due under
the Line of Credit by charging Borrower’s deposit account number 4950038554
with Bank, or any other deposit account maintained by Borrower with Bank, for
the full amount thereof. Should there be insufficient funds in any such deposit
account to pay all such sums when due, the full amount of such deficiency shall
be immediately due and payable by Borrower. Notwithstanding the foregoing, Bank
shall not charge any such deposit account for fees due hereunder or any other
Loan Document (other than unused commitment fees referenced in Section 2.2(c)
above) without having first provided Borrower five (5) Business Days prior
written notice (or such longer notice period as may be required hereunder or
under any other applicable Loan Document) that any such fees are due and
payable.

 

10

 

SECTION 2.4         GUARANTIES.  All indebtedness of Borrower to Bank under the
Line of Credit shall be guaranteed jointly and severally by each of the IHOP
Guarantors as evidenced by and subject to the terms of guaranties in form and
substance satisfactory to Bank (collectively, the “IHOP Guaranties”).

 

ARTICLE III.

REPRESENTATIONS AND WARRANTIES

 

Borrower makes the
following representations and warranties to Bank, which representations and
warranties shall survive the execution of this Agreement and shall continue in
full force and effect until the full and final payment, and satisfaction and
discharge, of all obligations of Borrower to Bank subject to this Agreement.

 

SECTION 3.1         LEGAL
STATUS.  Borrower is a corporation, duly
organized and existing and in good standing under the laws of the State of
Delaware, and is qualified or licensed to do business (and is in good standing
as a foreign corporation, if applicable) in all jurisdictions in which such
qualification or licensing is required.

 

SECTION 3.2         AUTHORIZATION
AND VALIDITY.  This Agreement and each
other Loan Document required hereby or at any time hereafter delivered to Bank
in connection herewith have been duly authorized, and upon their execution and
delivery in accordance with the provisions hereof will constitute legal, valid
and binding agreements and obligations of Borrower or the party which executes
the same, enforceable in accordance with their respective terms.

 

SECTION 3.3         NO
VIOLATION.  The execution, delivery and
performance by IHOP, Borrower and their Subsidiaries of each of the Loan
Documents to which they are a party do not violate any provision of any Law or
regulation, or contravene any provision of the Articles of Incorporation or
By-Laws of IHOP, Borrower or any such Subsidiary, or result in any breach of or
default under any contract, obligation, indenture or other instrument to which
IHOP, Borrower or any such Subsidiary, is a party or by which IHOP, Borrower or
any such Subsidiary, may be bound.

 

SECTION 3.4         LITIGATION.  There are no pending, or to the best of Borrower’s
knowledge threatened, actions, claims, investigations, suits or proceedings by
or before any governmental authority, arbitrator, court or administrative
agency which could have a Material Adverse Effect other than those disclosed by
Borrower to Bank in writing prior to the date hereof.

 

SECTION 3.5         CORRECTNESS
OF FINANCIAL STATEMENT.  The financial
statement of IHOP and its Subsidiaries dated December 31, 2000, a true
copy of which has been delivered by Borrower to Bank prior to the date hereof, (a) is
complete and correct and presents fairly the consolidated financial condition
of IHOP and its Subsidiaries, (b) discloses (as of such date) all
liabilities of IHOP and its Subsidiaries that are required to be reflected or
reserved against under GAAP, whether liquidated or unliquidated, fixed or
contingent, and (c) has been prepared in accordance with GAAP consistently
applied. Since

 

11

 

the date of such
financial statement there has been no material adverse change in the financial
condition of IHOP and its Subsidiaries, nor has IHOP, Borrower or any of their
Subsidiaries mortgaged, pledged, granted a security interest in or otherwise
encumbered any of its assets or properties except as permitted herein.

 

SECTION 3.6         INCOME
TAX RETURNS.  Borrower has no knowledge
of any pending assessments or adjustments of any income tax payable with
respect to any year for IHOP, Borrower or any of their Subsidiaries.

 

SECTION 3.7         NO
SUBORDINATION.  There is no agreement,
indenture, contract or instrument to which IHOP, Borrower or any of their
Subsidiaries is a party or by which IHOP, Borrower or any of their Subsidiaries
may be bound that requires the subordination in right of payment of any of
their respective obligations subject to this Agreement to any other obligation
of any of them.

 

SECTION 3.8         PERMITS,
FRANCHISES.  IHOP, Borrower and their Subsidiaries
possess, and will hereafter possess, all permits, consents, approvals,
franchises and licenses required and rights to all trademarks, trade names, patents,
and fictitious names, if any, necessary to enable it to conduct the business in
which they are now engaged in compliance with applicable law.

 

SECTION 3.9         ERISA.  To the best of Borrower’s knowledge, after
due inquiry, each of IHOP, Borrower and their Subsidiaries is in compliance in
all material respects with all applicable provisions of the Employee Retirement
Income Security Act of 1974, as amended or recodified from time to time; none
of IHOP, Borrower or any of their Subsidiaries has violated any provision of
any defined employee pension benefit plan (as defined in ERISA) maintained or
contributed to by any of them (each, a “Plan”); no Reportable Event as
defined in ERISA has occurred and is continuing with respect to any Plan
initiated by IHOP, Borrower and their Subsidiaries; each of IHOP, Borrower and
their Subsidiaries has met its minimum funding requirements under ERISA with
respect to each Plan; and each Plan will be able to fulfill its benefit
obligations as they come due in accordance with the Plan documents and under
GAAP.

 

SECTION 3.10       NO
MATERIAL ADVERSE CHANGE.  Since the date
of the financial statements referenced in Section 3.5 above, no
circumstance or event has occurred that constitutes a Material Adverse Effect.

 

SECTION 3.11       OTHER
OBLIGATIONS.  To the best of Borrower’s knowledge,
after due inquiry, none of IHOP, Borrower or any of their Subsidiaries is in
default on any obligation of $1,000,000 or more for borrowed money, any
purchase money obligation of $1,000,000 or more, or any other lease,
commitment, contract, instrument or obligation involving an amount payable by
Borrower of $1,000,000 or more.

 

SECTION 3.12       ENVIRONMENTAL
MATTERS.  Except as disclosed by Borrower
to Bank in writing prior to the date hereof, to the best of Borrower’s
knowledge, after due inquiry, each of IHOP, Borrower and their Subsidiaries are
in compliance in all material respects with all applicable federal or state
environmental, hazardous waste, health

 

12

 

and safety statutes, and
any rules or regulations adopted pursuant thereto, which govern or affect
any of their respective operations and/or properties, including without
limitation, the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, the Superfund Amendments and Reauthorization Act of
1986, the Federal Resource Conservation and Recovery Act of 1976, and the
Federal Toxic Substances Control Act, as any of the same may be amended,
modified or supplemented from time to time. To the best of Borrower’s
knowledge, after due inquiry, none of the operations of IHOP, Borrower and
their Subsidiaries is the
subject of any federal or state investigation evaluating whether any remedial
action involving an expenditure exceeding $1,000,000 (either singularly or in
the aggregate) is needed to respond to a release of any toxic or hazardous
waste or substance into the environment. None of IHOP, Borrower or any of their
Subsidiaries has any contingent liability exceeding $1,000,000 (either singularly
or in the aggregate) in connection with any release of any toxic or hazardous
waste or substance into the environment.

 

ARTICLE IV.

CONDITIONS

 

SECTION 4.1         CONDITIONS
OF INITIAL EXTENSION OF CREDIT.  The obligation
of Bank to extend the initial credit contemplated by this Agreement is subject
to the fulfillment to Bank’s satisfaction of all of the following conditions:

 

(a)           Documentation.  Bank shall have received, in form and substance satisfactory to
Bank, each of the following, duly executed by all applicable parties:

 

(i)            This
Agreement.

 

(ii)           The Line
of Credit Note.

 

(iii)          The
IHOP Guaranties.

 

(iv)          The
Intercreditor Agreement.

 

(v)           A
Continuing Standby Letter of Credit Agreement, which agreement shall constitute
a “Letter of Credit Agreement” for purposes of Section 2.1(b).

 

(vi)          With
respect to each of Borrower and the Guarantors, such documentation as Bank may
reasonably require to establish the due organization, valid existence and good
standing of Borrower and each such Guarantor in its jurisdiction of formation,
its qualification to engage in business in California or, if different, the
jurisdiction of its principal place of business, its authority to execute,
deliver and perform the Loan Documents to which it is a party, the identity,
authority and capacity of each responsible official thereof authorized to act
on its behalf, including, without limitation, copies of its certificates or
articles of incorporation and amendments thereto certified by the applicable
Secretary of State (or equivalent government official), bylaws and amendments
thereto certified by a responsible official of such party, certificates of good
standing and/or qualifications to engage in

 

13

 

business,
certified copies of corporate resolutions, incumbency certificates,
certificates of responsible officials and the like.

 

(vii)         The
Opinion of Counsel.

 

(viii)        Written
evidence that Borrower’s prior revolving (unsecured) credit facility with Bank
of America, N.A. (formerly known as Bank of America National Trust and Savings
Association, successor by merger to Bank of America Illinois) have been or will
be concurrently terminated.

 

(ix)           Such other
documents as Bank reasonably may require under any other Section of this
Agreement.

 

(b)           Financial
Condition.  There shall have been no
material adverse change, as determined by Bank, in the financial condition or
business of Borrower or any Guarantor.

 

(c)           Insurance.  Borrower shall have delivered to Bank
evidence of insurance coverage on all Borrower’s and the Guarantors’ Property,
in form, substance, amounts, covering risks and issued by companies
satisfactory to Bank.

 

SECTION 4.2         CONDITIONS
OF EACH EXTENSION OF CREDIT.  The obligation
of Bank to make each extension of credit requested by Borrower hereunder shall
be subject to the fulfillment to Bank’s satisfaction of each of the following
conditions:

 

(a)           Compliance.  The representations and warranties contained
herein and in each of the other Loan Documents shall be true on and as of the
date of the signing of this Agreement and on the date of each extension of
credit by Bank pursuant hereto, with the same effect as though such
representations and warranties had been made on and as of each such date, and
on each such date, no Default or Event of Default shall have occurred and be continuing
or shall exist.

 

(b)           Documentation.  Bank shall have received all additional
documents which reasonably may be required by Bank in connection with such
extension of credit.

 

ARTICLE V.

AFFIRMATIVE COVENANTS

 

Borrower covenants
that so long as Bank remains committed to extend credit to Borrower pursuant
hereto, or any liabilities (whether direct or contingent, liquidated or
unliquidated) of Borrower to Bank under any of the Loan Documents remain outstanding,
and until payment in full of all obligations of Borrower subject hereto,
Borrower shall (and shall cause each of its Subsidiaries to), unless Bank
otherwise consents in writing:

 

SECTION 5.1         PUNCTUAL
PAYMENTS.  Punctually pay all principal, interest,
fees or other liabilities due under any of the Loan Documents at the times and
place and in the manner specified therein.

 

14

 

SECTION 5.2         ACCOUNTING
RECORDS.  Maintain adequate books and records
in accordance with GAAP consistently applied, and permit any representative of
Bank, at any reasonable time upon two (2) Business Days’ prior notice, to
inspect, audit and examine such books and records, to make copies of the same,
and to inspect the properties of Borrower, with any such inspection, audit, or
examination to occur during regular business hours. Notwithstanding the
foregoing, no prior notice for any such inspection, audit or examination shall
be required during any time that an Event of Default shall remain in effect.

 

SECTION 5.3         FINANCIAL
STATEMENTS.  Provide to Bank all of the following,
in form and detail satisfactory to Bank:

 

(a)           as
soon as available and in any event within 45 days after the end of each of the
first three fiscal quarters of each fiscal year of IHOP, as of the end of any
such fiscal quarter;

 

(i)            Form 10-Q
for IHOP, consolidated balance sheets of IHOP and its Subsidiaries as of the
end of each such fiscal quarter and consolidated statements of earnings and
cash flow of IHOP and its Subsidiaries for such fiscal quarter and for the
period commencing at the end of the previous fiscal year and ending with the
end of such fiscal quarter, certified by an Appropriate Officer of IHOP; and

 

(ii)           a
Compliance Certificate executed by an Appropriate Officer of IHOP and Borrower
setting forth computations or other pertinent information in reasonable detail
showing as at the end of such fiscal quarter (A) whether or not the
financial covenants set forth in Sections 6.3 through 6.9 hereof, inclusive, have been met,
accompanied by calculations setting forth the maximum amount of Debt that could
have been incurred pursuant to Section 6.3 hereof, and the maximum
amount of dividends or distributions that could have been declared or paid
pursuant to Section 6.6 hereof, and (B) whether or not Liens
on property or assets of IHOP or its Subsidiaries or securing Debt of IHOP or
its Subsidiaries, as the case may be, exceed the threshold set forth in Section 6.2(i)
hereof, accompanied by calculations setting forth the maximum amount of
additional Debt secured by Liens that could have been incurred under Section 6.2(i) hereof;

 

(b)           as
soon as available and in any event within 90 days after the end of each fiscal
year of IHOP, a Compliance Certificate as of such year end and a copy of the annual report to shareholders
for such fiscal year for IHOP and its Subsidiaries, including therein
consolidated balance sheets of IHOP and its Subsidiaries as of the end of such
fiscal year and consolidated statements of operations and cash flow of IHOP and
its Subsidiaries for such fiscal year, in each case certified (without any
material qualification) in a manner reasonably acceptable to Bank by
PriceWaterhouseCoopers, another of the so-called “Big 5” accounting firms or
any other accounting firm reasonably acceptable to Bank, and consolidating
balance sheets of IHOP and its Subsidiaries as of the end of such fiscal year
and consolidating statements of operations of IHOP and its Subsidiaries as of
the end of such fiscal year, certified by an Appropriate Officer of IHOP;

 

15

 

(c)           as
soon as available and in any event within 15 days, any information filed by
IHOP, Borrower or any of their Subsidiaries with the Securities and Exchange Commission
with respect to IHOP, Borrower and/or any of their Subsidiaries;

 

(d)           as
soon as available, any other public information released generally by IHOP,
Borrower of any of their Subsidiaries to financial or investment institutions,
brokers, investment bankers or any other entity in the financial community; and

 

(e)           as
soon as possible after an Appropriate Officer of IHOP or Borrower has knowledge
of the occurrence of a Default or Event of Default, IHOP or Borrower shall furnish
Bank with the details thereof.

 

In addition to the
foregoing, Borrower shall furnish Bank with copies of such other statements,
reports, notices and information as Bank may from time to time reasonably
request in writing.

 

SECTION 5.4         COMPLIANCE.
 Preserve and maintain all licenses,
permits, governmental approvals, rights, privileges and franchises necessary
for the conduct of Borrower’s and each Guarantor’s business, and comply with
the provisions of all documents pursuant to which Borrower or any such
Guarantor is organized and/or which govern Borrower’s or such Guarantor’s
continued existence and with the requirements of all Laws, rules, regulations
and orders of any Governmental Agency applicable to Borrower, any Guarantor
and/or any of their respective businesses.

 

SECTION 5.5         INSURANCE.  Maintain and keep in force insurance of the types
and in amounts customarily carried in lines of business similar to that of
Borrower or any such Guarantor, including but not limited to fire, extended
coverage, public liability, flood, property damage and workers’ compensation,
and deliver to Bank from time to time at Bank’s request schedules setting forth
all insurance then in effect.

 

SECTION 5.6         FACILITIES.  Keep all properties useful or necessary to Borrower’s
or any such Guarantor’s business in good repair and condition, and from time to
time make necessary repairs, renewals and replacements thereto as are necessary
in the reasonable opinion of Borrower’s and/or any such Guarantor’s management.

 

SECTION 5.7         TAXES
AND OTHER LIABILITIES.  Pay and discharge
prior to delinquency any and all indebtedness, obligations, assessments and
taxes, both real or personal, including without limitation federal and state
income taxes and state and local property taxes and assessments, except such (a) as
Borrower or any such Guarantor may in good faith contest or as to which a bona
fide dispute may arise, and (b) for which Borrower or such Guarantor has
made provision, to Bank’s satisfaction, for eventual payment thereof in the
event Borrower or such Guarantor is obligated to make such payment.

 

SECTION 5.8         LITIGATION.
 Promptly give notice in writing to Bank
of any litigation pending or threatened against Borrower or any such Guarantor
with a claim that is $1,000,000 or more in excess of the amount thereof that is
fully covered by insurance.

 

16

 

SECTION 5.9         NOTICE
TO BANK.  Promptly (but in no event more
than five (5) days after the occurrence of each such event or matter) give
written notice to Bank in reasonable detail of: (a) the occurrence of any
Default or Event of Default; (b) any change in the name or the
organizational structure of Borrower or any Guarantor; (c) the occurrence
and nature of any Reportable Event or Prohibited Transaction, each as defined in
ERISA, or any funding deficiency with respect to any Plan; or (d) any
termination or cancellation of any insurance policy which Borrower or any
Guarantor is required to maintain, or any uninsured or partially uninsured loss
through liability or property damage, or through fire, theft or any other cause
affecting Borrower’s or such Guarantor’s property in excess of an aggregate of
$1,000,000.

 

ARTICLE VI.

NEGATIVE COVENANTS

 

Borrower further
covenants that so long as Bank remains committed to extend credit to Borrower
pursuant hereto, or any liabilities (whether direct or contingent, liquidated
or unliquidated) of Borrower to Bank under any of the Loan Documents remain
outstanding, and until payment in full of all obligations of Borrower subject
hereto, Borrower will not (and will not permit any Subsidiary of Borrower to ) without
Bank’s prior written consent:

 

SECTION 6.1         USE
OF FUNDS.  Use any of the proceeds of any
credit extended hereunder except for the purposes stated in Section 2.1(a)
hereof.

 

SECTION 6.2         RESTRICTIONS
ON LIENS.  Directly or indirectly,
create, assume or suffer to exist any Lien upon any of their respective
Properties or assets whether now owned or hereafter acquired, except for:

 

(a)           Liens
for taxes, assessments or governmental charges or claims the payment of which
is not at the time required by Section 5.7;

 

(b)           Statutory
Liens of landlords, and Liens of carriers, warehousemen, mechanics, materialmen
and other Liens imposed by law incurred in the ordinary course of business for
sums not yet delinquent or being diligently contested in good faith, so long as
a reserve or other appropriate provision, if any, shall have been made
therefor;

 

(c)           Liens
(other than any Lien imposed by ERISA) incurred or deposits made in the
ordinary course of business in connection with obligations not due or
delinquent with respect to workers’ compensation, unemployment insurance and
other types of social security, or to secure the performance of tenders,
statutory obligations, surety and appeal bonds, bids, leases, government
contracts, performance and return-of-money bonds and other similar obligations
(exclusive of obligations for the payment of borrowed money);

 

(d)           Any
attachment or judgment Lien (including judgment or appeal bonds) which shall,
within 30 days after the entry thereof, have been discharged or execution thereof
stayed pending appeal, or which shall have been discharged within 30 days after
the expiration of any such stay, or which is being diligently contested in good
faith so long as a reserve or other appropriate provision, if any, as shall be
required by GAAP shall have been made therefor;

 

17

 

(e)           Easements,
rights-of-way, restrictions and other similar rights in land which do not,
individually or in the aggregate, materially detract from the value of such
Property and do not interfere with the ordinary conduct of the business of
IHOP, Borrower or any of their Subsidiaries; 

 

(f)            Liens
securing Debt of a Subsidiary to Borrower;

 

(g)           Liens
(other than Liens created pursuant to Capitalized Leases) (i) existing on
the date hereof, securing Debt not exceeding $1,500,000 in the aggregate in
principal amount, and (ii) whether now or hereafter existing, securing
Debt provided Borrower by Bank of America NA, provided that such Debt at no
time shall exceed $12,000,000 in aggregate principal outstanding;

 

(h)           Liens
pursuant to Capitalized Leases existing on the Closing Date and Liens created
following the Closing Date pursuant to Capitalized Leases so long as, with
respect to Liens pursuant to Capitalized Leases created following the Closing
Date, the Debt represented by such Capitalized Leases is permitted pursuant to Section 6.3;
and

 

(i)            Liens
including Liens arising out of purchase money financing not otherwise permitted
by the foregoing clauses of this Section 6.2 securing Debt (without
duplication) of IHOP, Borrower or any Subsidiary of IHOP or Borrower, provided
that the sum of (i) the principal amount of such Debt plus (ii) unsecured
Debt (other than Additional Permitted Subsidiary Guarantees) of Subsidiaries of
IHOP (other than Borrower) and Subsidiaries of Borrower not otherwise permitted
under Section 6.5(a) does not exceed at any time 15% of
Consolidated Tangible Net Worth.

 

The Liens referred to in Section 6.2(a)
through (i) are herein collectively referred to as “Permitted Liens,”
and individually, as a “Permitted Lien.”

 

SECTION 6.3         LIMITATION
ON CONSOLIDATED DEBT.  Permit the ratio of
(i) Consolidated Debt to (ii) Total Capitalization to exceed 0.50 to
1.00 as of the last day of any quarterly accounting period of IHOP and its
Subsidiaries.

 

SECTION 6.4         CONSOLIDATED
TANGIBLE NET WORTH.  Permit Consolidated
Tangible Net Worth at any time to be less than the sum of $150,000,000 plus 50%
of Consolidated Net Income on a cumulative basis from December 31, 1999,
to and including any date of determination.

 

SECTION 6.5         LIMITATION
ON DEBT OF SUBSIDIARIES.  Permit any of the
Subsidiaries (other than Borrower) to incur any Debt other than:

 

(a)           Debt
owed to IHOP or Borrower or to a wholly-owned Subsidiary of IHOP or Borrower in
each case by a direct or indirect wholly-owned Subsidiary of the creditor
thereunder, and

 

(b)           additional
Debt (other than Additional Permitted Subsidiary Guarantees), provided that the
sum of the aggregate principal amount of such Debt plus the aggregate principal
amount of all other Debt (without duplication) of IHOP, Borrower and

 

18

 

any of their Subsidiaries
which is secured by Permitted Liens permitted by Section 6.2(i) does
not exceed 15% of Consolidated Tangible Net Worth.

 

SECTION 6.6         RESTRICTED
PAYMENTS; RESTRICTED INVESTMENTS.  Permit
IHOP, directly or indirectly, through any Subsidiary or otherwise, (a) to
pay or declare any dividend on any class of its capital stock (but IHOP or any
such Subsidiary may declare and pay dividends payable solely in capital stock
or warrants, rights or options to acquire capital stock) or make any other
distribution on account of any class of its capital stock; retire, redeem,
purchase or otherwise acquire, directly or indirectly, any shares of any class
of its capital stock or any warrants, rights or options to acquire any such
shares (other than any such redemption, retirement, purchase or other
acquisition in which the consideration paid by IHOP or such Subsidiary consists
solely of shares of capital stock of IHOP); or make or provide for any
mandatory sinking fund payments required in connection with any class of its
capital stock (all of the foregoing being called “Restricted Payments”)
or (b) make any Restricted Investment, unless after giving effect to any
Restricted Payment or Restricted Investment the cumulative aggregate amount of
all Restricted Payments and Restricted Investments made by IHOP and its
Subsidiaries after September 30, 1992 would not exceed the sum of: (i) $2,000,000,
plus (ii) 50% of cumulative Consolidated Net Income from September 30,
1992 through the date of determination (or if IHOP and its Subsidiaries on a
consolidated basis have a cumulative Consolidated Net Loss for such period,
then minus 100% of such Consolidated Net Loss), plus (iii) the
net proceeds from the issuance or sale of any shares of any class of equity
securities of IHOP which are not mandatorily redeemable or otherwise subject to
repurchase, retirement, call, put or other reacquisition prior to or on the
respective maturity dates of the Fixed Rate Notes (and not subject to
acceleration or redemption, repurchase, retirement, call, put or other
reacquisition prior to the respective maturity dates of the Fixed Rate Notes)
received after September 30, 1992; provided that at the time of any such
Restricted Payment or Restricted Investment, both immediately before and
immediately after giving effect thereto, no Default or Event of Default shall
have occurred and be continuing. So long as no Default or Event of Default has
occurred or would be continuing after giving effect thereto, this Section 6.6
shall not prevent (a) the payment of any dividend within 60 days after the
date of its declaration if the dividend would have been permitted on the date
of its declaration, or (b) the acquisition, repurchase, retirement, call,
put or redemption of any shares of capital stock of IHOP out of the proceeds of
the substantially concurrent sale (other than to a Subsidiary of IHOP) of,
shares of capital stock of IHOP, provided that any such acquisition,
repurchase, retirement, call, put or redemption shall be deemed to be a
Restricted Payment for the purpose of determining the ability of IHOP and its
Subsidiaries to make future Restricted Payments.

 

SECTION 6.7         SALE
OF ASSETS.  Effect a Disposition of any
assets unless (x) no Default or Event of Default has occurred (except in the
case of subclause (a) below) and is continuing, and (y) one of the
following applies:

 

(a)           such
Disposition is in the ordinary course of business, including, without
limitation, sales and leases of operating restaurants in accordance with
Borrower’s ordinary course franchising operations and is made pursuant to the reasonable business
judgment of Borrower in accordance with past practice;

 

19

 

(b)           in
each fiscal year, IHOP, Borrower and their respective Subsidiaries may effect
Dispositions of assets for Fair Market Value and which (i) have an
aggregate Book Value, together with all other assets disposed of in that fiscal
year (other than Dispositions permitted by clause (a), (c) or (d) of
this Section 6.7, of less than 10% of Gross Assets on a consolidated
basis determined as at the date of such sale; (ii) generate, together with
all other assets disposed of in that fiscal year (other than Dispositions
permitted by clause (a), (c) or (d) of this Section 6.7),
net income, which is less than 10% of the Consolidated Net Income (in each
case, determined as of the end of the immediately preceding fiscal year); and (iii) together
with all assets previously disposed of since September 30, 1996 (other
than Dispositions permitted by clause (a), (c) or (d) of this Section 6.7,
have an aggregate Book Value of less than 25% of Gross Assets on a consolidated
basis determined as at the date of such sale, provided that after giving effect
to any Disposition described in this subsection (b), IHOP, Borrower or any
of their Subsidiaries could incur at least $1 of additional Debt without being
in default of their obligations under Section 6.3.

 

(c)           such
Dispositions are made for Fair Market Value and the proceeds of such
Disposition are used (i) within six months following such Disposition, to
purchase assets (“Business Asset Acquisition”) used in the operations of
Borrower or (ii) to repay Debt of IHOP or its Subsidiaries which is not
junior in right of payment to the Line of Credit Note; provided that if the
aggregate principal amount of all outstanding Advances, Letters of Credit and
unreimbursed drawings under Letters of Credit shall exceed $4,000,000, then the
proceeds of such disposition shall be used to repay the Line of Credit Note
until the aggregate principal amount of all outstanding Advances, Letters of
Credit and unreimbursed drawings under Letters of Credit shall have been
reduced to $4,000,000; or

 

(d)           the
assets disposed of were disposed of for Fair Market Value (taking into
consideration the rental rate to be paid by Borrower in connection with the
Disposition and leaseback of the assets so disposed of) and were constructed or
acquired following September 30, 1992 and are immediately leased back from
the purchaser thereof by IHOP or any of its Subsidiaries; provided that no
assets may be sold and leased back pursuant to this clause (d) following
the third anniversary of the acquisition or construction of such assets by IHOP,
Borrower or any of their Subsidiaries.

 

SECTION 6.8         CONSOLIDATION
OR MERGER.  Enter into any transaction of
merger or consolidation, whether in one transaction or a series of related or
unrelated transactions and whether at the same time or over a period of time,
provided that:

 

(a)           (i)            Borrower
may merge with IHOP or any of IHOP’s other Subsidiaries, (ii) IHOP may
merge with Borrower or any of IHOP’s other Subsidiaries and (iii) any
Subsidiary may merge with IHOP, Borrower or any other Subsidiary, so long as,
with respect to any mergers of Borrower or any Guarantor (including IHOP) in
which such party is not the surviving Person, (a) the surviving Person of
such transaction shall be a solvent United States or Canadian corporation, and
such surviving Person shall have assumed in writing all of the obligations of
Borrower, as the case may be, under this Agreement, the Line of Credit Note
and/or any applicable IHOP Guaranty, as the case may be, a copy of which
writing shall be provided to Bank not less than 10 Business Days prior to any
such transaction and which shall be acceptable in form and substance to Bank, (b) at
the time of, and immediately after

 

20

 

giving effect to, any
such consolidation or merger, no Default or Event of Default shall have
occurred and be continuing, and (c) immediately after any such
consolidation or merger, the surviving Person could incur an additional $1 of
Debt pursuant to Section 6.3 hereof; and

 

(b)           IHOP
or Borrower may merge with any other Person so long as (i) the surviving
Person of such transaction shall be a solvent United States or Canadian
corporation, and such surviving Person shall have assumed in writing all of the
obligations of Borrower under the Line of Credit Note and this Agreement or of
IHOP under its IHOP Guaranty, as the case may be, a copy of which writing shall
be provided to Bank not less than 10 Business Days prior to any such
transaction and which shall be acceptable in form and substance to Bank, (ii) at
the time of, and immediately after giving effect to, any such consolidation or
merger, no Default or Event of Default shall have occurred and be continuing,
and (iii) immediately after any such consolidation or merger, the
surviving or continuing Person could incur an additional $1 of Debt pursuant to
Section 6.3 hereof.

 

SECTION 6.9         MAINTENANCE
OF FIXED CHARGE COVERAGE.  Permit, as of
the last day of any quarterly accounting period, the ratio of Consolidated
Income Available for Fixed Charges (excluding extraordinary losses or gains or
non-recurring charges) to Fixed Charges for the period consisting of any four
of the immediately preceding four quarterly accounting periods to be less than
1.50 to 100.

 

SECTION 6.10       TRANSACTIONS
WITH AFFILIATES.  Directly or indirectly,
enter into or permit to exist any transaction (including, without limitation,
the purchase, sale, lease or exchange of any Property or the rendering of any
service), with any Affiliate on terms that are less favorable to IHOP, Borrower
or such Subsidiary, as the case may be, than those that would be obtainable at
the time in an arms’-length transaction with any Person who is not such an
Affiliate; provided however, that this Section shall not prohibit the
payment of compensation and benefits to directors and officers of IHOP,
Borrower and their Subsidiaries in the ordinary course of business and
consistent with past practices.

 

SECTION 6.11       ACQUISITION
OF MARGIN SECURITIES.  Own, purchase or
acquire (or enter into any contract to purchase or acquire) any “margin
security” as defined by any regulation of the Board of Governors of the United States
Federal Reserve System as now in effect or as the same may hereafter be in
effect unless, prior to any such purchase or acquisition or entering into any
such contract, Bank shall have received an opinion of counsel satisfactory to
Bank to the effect that such purchase or acquisition will not cause this
Agreement or the Line of Credit Note to be in violation of Regulation G or
any other regulation of such Board then in effect.

 

SECTION 6.12       CONDUCT
OF BUSINESS.  Engage in any business
activity if, such business activity would result in a substantial change in the
general nature of the business of IHOP and its Subsidiaries, taken as a whole,
from that engaged in as of December 31, 2000.

 

21

 

SECTION 6.13       FURTHER
UNDERTAKINGS.

 

(a)           incur
capital expenditures (net of all proceeds relating to sale/leaseback transactions)
in excess of $80,000,000 during any fiscal year;

 

(b)           expend
more than $5,000,000 in any fiscal year in connection with the purchase of the
capital stock of, or the acquisition of all or substantially all of the assets
of, any other Person; provided however that to the extent that IHOP’s capital
stock is given in connection with any such acquisition, the value of such stock
shall be excluded from this calculation and provided, further that expenditures
incurred by Borrower in connection with the acquisition of restaurants or
leasehold interests for restaurants or with the reacquisition of franchises in
the ordinary course of Borrower’s business shall also be excluded from this calculation;

 

(c)           amend
the amortization schedule in effect as of the Closing Date as set forth in
the Note Purchase Agreements in such a manner as to increase the amount of, or accelerate,
payments of principal thereunder prior to the Line of Credit Maturity Date;

 

(d)           make
any optional prepayment of the principal of any indebtedness outstanding under
the Note Purchase Agreements prior to the Line of Credit Maturity Date unless,
after giving effect thereto, the aggregate principal amount of all outstanding
Advances, Letters of Credit and unreimbursed drawings under Letters of Credit
does not exceed $4,000,000; or

 

(e)           notwithstanding
the provisions of Section 6.7 hereof, make any Disposition of any
of its accounts receivable or general intangibles.

 

ARTICLE VII.

EVENTS OF DEFAULT

 

SECTION 7.1         The
occurrence of any of the following shall constitute an “Event of Default” under
this Agreement:

 

(a)           Borrower
shall fail to pay when due any principal or interest, or, within five (5) days
after Bank’s written notice, any fees or other amounts payable under any of the
Loan Documents.

 

(b)           Any
financial statement or certificate furnished to Bank in connection with, or any
representation or warranty made by Borrower or any other party under this Agreement
or any other Loan Document shall prove to be incorrect, false or misleading in
any material respect when furnished or made.

 

(c)           Any default in the performance of or
compliance with any obligation, agreement or other provision contained herein
or in any other Loan Document (other than those referred to in subsections (a) and
(b) above), and with respect to any such default which by its nature can
be cured, such default shall continue for a period of thirty (30) days from its
occurrence.

 

22

 

(d)           Any
default in the payment or performance of any obligation, or any defined event
of default, under the terms of any contract or instrument (other than any of
the Loan Documents) pursuant to which Borrower of any Guarantor has incurred
any debt or other liability to Bank.

 

(e)           Borrower
or any Guarantor (i) fails to pay the principal, or any principal
installment, of any present or future debt or other liability of $2,500,000 or
more, or any guaranty of present or future debt or other liability of
$2,500,000 or more on its part to be paid, when due (or with any stated grace
period), whether at the stated maturity, upon acceleration, by reason of
required prepayment or otherwise or (ii) fails to perform or observe any
other term, covenant or agreement on its part to be performed or observed, or
suffers any event to occur, in connection with any individual item of present
or future debt or other liability of $2,500,000 or more, or of any guaranty of
present or future debt or other liability of $2,500,000 or more, if as a result
of such failure or sufferance any holder or holders thereof (or an agent or
trustee on its or their behalf) has a right to declare such debt or other
liability due before the date on which it otherwise would become due.

 

(f)            The
filing of a notice of judgment lien against Borrower or any Guarantor; or the
recording of any abstract of judgment against Borrower or any Guarantor in any
county in which Borrower or such Guarantor has an interest in real property; or
the service of a notice of levy and/or of a writ of attachment or execution, or
other like process, against the assets of Borrower or any Guarantor or the entry
of a judgment against Borrower or any Guarantor, in any such case in any amount
in excess of $2,500,000, and which is not stayed, dismissed or satisfied within
thirty (30) days from the filing, recording, service or entry thereof, as
applicable.

 

(g)           Borrower
or any Guarantor shall become insolvent, or shall suffer or consent to or apply
for the appointment of a receiver, trustee, custodian or liquidator of itself or
any of its property, or shall generally fail to pay its debts as they become
due, or shall make a general assignment for the benefit of creditors; Borrower
or any Guarantor shall file a voluntary petition in bankruptcy, or seeking
reorganization, in order to effect a plan or other arrangement with creditors
or any other relief under the Bankruptcy Reform Act, Title 11 of the
United States Code, as amended or recodified from time to time (“Bankruptcy
Code”), or under any state or federal law granting relief to debtors, whether
now or hereafter in effect; or any involuntary petition or proceeding pursuant
to the Bankruptcy Code or any other applicable state or federal law relating to
bankruptcy, reorganization or other relief for debtors is filed or commenced
against Borrower or any Guarantor and is not stayed or dismissed within ninety
(90) days, or Borrower or any such Guarantor shall file an answer admitting the
jurisdiction of the court and the material allegations of any involuntary
petition; or Borrower or any such Guarantor shall be adjudicated a bankrupt, or
an order for relief shall be entered against Borrower or any such Guarantor by
any court of competent jurisdiction under the Bankruptcy Code or any other
applicable state or federal law relating to bankruptcy, reorganization or other
relief for debtors.

 

(h)           The
dissolution or liquidation of Borrower or any Guarantor or Borrower or any such
Guarantor or any of their directors, stockholders or members, shall take action
seeking to effect the dissolution or liquidation of Borrower or such Guarantor.

 

23

 

(i)            IHOP
shall fail to own 100% of the issued and outstanding common stock of Borrower.

 

SECTION 7.2         REMEDIES.  Upon the occurrence of any Event of Default: (a) all
indebtedness of Borrower under each of the Loan Documents, any term thereof to
the contrary notwithstanding, shall at Bank’s option and without notice become
immediately due and payable without presentment, demand, protest or notice of
dishonor, all of which are hereby expressly waived by each Borrower; (b) the
obligation, if any, of Bank to extend any further credit under any of the Loan
Documents shall immediately cease and terminate; and (c) Bank shall have
all rights, powers and remedies available under each of the Loan Documents, or
accorded by law. All rights, powers and remedies of Bank may be exercised at
any time by Bank and from time to time after the occurrence of an Event of
Default, are cumulative and not exclusive, and shall be in addition to any
other rights, powers or remedies provided by law or equity.

 

ARTICLE VIII.

MISCELLANEOUS

 

SECTION 8.1         NO
WAIVER.  No delay, failure or discontinuance
of Bank in exercising any right, power or remedy under any of the Loan
Documents shall affect or operate as a waiver of such right, power or remedy;
nor shall any single or partial exercise of any such right, power or remedy
preclude, waive or otherwise affect any other or further exercise thereof or
the exercise of any other right, power or remedy. Any waiver, permit, consent
or approval of any kind by Bank of any breach of or default under any of the
Loan Documents must be in writing and shall be effective only to the extent set
forth in such writing.

 

SECTION 8.2         NOTICES.
 All notices, requests and demands which
any party is required or may desire to give to any other party under any
provision of this Agreement must be in writing delivered to each party at the
following address:

 

	
  BORROWER:

  	
  INTERNATIONAL HOUSE OF
  PANCAKES, INC.

  
	
   

  	
  450 N. Brand Boulevard,
  7th Floor

  
	
   

  	
  Glendale, California
  91203-2306

  
	
   

  	
  Attention: General
  Counsel

  
	
   

  	
  Tel. No.: (818)240-6055

  
	
   

  	
  Fax No.: (818)240-0270

  
	
   

  	
   

  
	
  BANK:

  	
  WELLS FARGO BANK,
  NATIONAL ASSOCIATION

  
	
   

  	
  Los Angeles RCBO

  
	
   

  	
  333 South Grand Avenue,
  Third Floor

  
	
   

  	
  Los Angeles, California
  90071

  
	
   

  	
  Attention: IHOP Account
  Officer

  
	
   

  	
  Tel. No.: (213)253-6832

  
	
   

  	
  Fax No.: (213)687-3501

  

 

or to such other address
as any party may designate by written notice to all other parties. Each such
notice, request and demand shall be deemed given or made as follows: (a) if
sent

 

24

 

by hand delivery, upon
delivery; (b) if sent by mail, upon the earlier of the date of receipt or
three (3) days after deposit in the U.S. mail, certified mail or
registered, return receipt requested; (c) if sent by commercial overnight
courier (such as Federal Express, United Parcel Service or DHL), on the
scheduled delivery date; and (d) if sent by telecopy, upon receipt.

 

SECTION 8.3         COSTS,
EXPENSES AND ATTORNEYS’ FEES.  Borrower shall
pay to Bank immediately upon demand the full amount of all payments, advances,
charges, costs and expenses, including reasonable attorneys’ fees (to include
outside counsel fees and all allocated costs of Bank’s in-house counsel),
expended or incurred by Bank in connection with (a) (i) the
negotiation and preparation of this Agreement and the other Loan Documents, (ii) the
preparation of any amendments and waivers hereto and thereto, and (iii) if
and only if, a Default or Event of Default shall have occurred and be continuing,
Bank’s administration of this Agreement and the Loan Documents, including
without limitation Bank’s costs and expenses to inspect, audit and examine the
books and records of Borrower and its Subsidiaries; (b) the enforcement of
Bank’s rights and/or the collection of any amounts which become due to Bank
under any of the Loan Documents, and (c) the prosecution or defense of any
action in any way related to any of the Loan Documents, including without
limitation, any action for declaratory relief, whether incurred at the trial or
appellate level, in an arbitration proceeding or otherwise, and including any
of the foregoing incurred in connection with any bankruptcy proceeding
(including without limitation, any adversary proceeding, contested matter or
motion brought by Bank or any other Person) relating to any Borrower or any
other Person.

 

SECTION 8.4         SUCCESSORS,
ASSIGNMENT.  This Agreement shall be binding
upon and inure to the benefit of the heirs, executors, administrators, legal
representatives, successors and assigns of the parties; provided however, that
Borrower may not assign or transfer its interest hereunder without Bank’s prior
written consent. Bank reserves the right to sell, assign, transfer, negotiate
or grant participations in all or any part of, or any
interest in, Bank’s rights and benefits under each of the Loan Documents. In
connection therewith, Bank may disclose all documents and information which
Bank now has or may hereafter acquire relating to any credit subject hereto,
Borrower or its business, or any Guarantor or the business of such Guarantor.

 

SECTION 8.5         ENTIRE
AGREEMENT; AMENDMENT.  This Agreement and
the other Loan Documents constitute the entire agreement between Borrower and
Bank with respect to each credit subject hereto and supersede all prior
negotiations, communications, discussions and correspondence concerning the
subject matter hereof. This Agreement may be amended or modified only in
writing signed by each party hereto.

 

SECTION 8.6         NO
THIRD PARTY BENEFICIARIES.  This
Agreement is made and entered into for the sole protection and benefit of the
parties hereto and their respective permitted successors and assigns, and no
other Person shall be a third party beneficiary of, or have any direct or
indirect cause of action or claim in connection with, this Agreement or any
other of the Loan Documents to which it is not a party.

 

SECTION 8.7         TIME.  Time is of the essence of each and every
provision of this Agreement and each other of the Loan Documents.

 

25

 

SECTION 8.8         SEVERABILITY
OF PROVISIONS.  If any provision of this Agreement
shall be prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity without
invalidating the remainder of such provision or any remaining provisions of
this Agreement.

 

SECTION 8.9         COUNTERPARTS.  This Agreement may be executed in any number
of counterparts, each of which when executed and delivered shall be deemed to
be an original, and all of which when taken together shall constitute one and
the same Agreement.

 

SECTION 8.10       GOVERNING
LAW.  This Agreement shall be governed by
and construed in accordance with the laws of the State of California.

 

SECTION 8.11       INDEMNITY
BY BORROWER.  Borrower agrees to indemnify,
save and hold harmless Bank and its directors, officers, agents, attorneys and
employees (collectively, the “Indemnitees”) from and against: (a) Any and
all claims, demands, actions or causes of action that are asserted against any
Indemnitee if the claim, demand, action or cause of action arises out of or
relates to the relationship between Borrower and Bank under any of the Loan
Documents or the transactions contemplated thereby; (b) Any and all
administrative or investigative proceedings by any Governmental Agency or
authority arising out of or related to any claim, demand, action or cause of
action described in clause (a) above; and (c) Any and all
liabilities, losses, costs or expenses (including reasonable attorneys’ fees
and disbursements and other professional services) that any Indemnitee suffers
or incurs as a result of the assertion of any of the foregoing; provided that
no Indemnitee shall be entitled to indemnification for any loss caused by its
own or its employees’ or agents’ gross negligence or willful misconduct. Each
Indemnitee is authorized to employ counsel in enforcing its rights hereunder
and in defending against any claim, demand, action, cause of action or
administrative or investigative proceeding covered by this Section 8.11;
provided that the Indemnitees as a group may retain only one law firm to
represent them with respect to any such matter unless there is, under
applicable standards of professional conduct, conflict on any significant issue
between the positions of any two or more Indemnitees. Any obligation or
liability of Borrower to any Indemnitee under this Section 8.11 shall
be and hereby is covered by the Loan Documents shall survive the expiration or
termination of this Agreement and the repayment of the Line of Credit and the
payment and performance of all other obligations owed to Bank.

 

SECTION 8.12       NONLIABILITY
OF BANK.  Borrower acknowledges and agrees
that:

 

(a)           By
accepting or approving anything required to be observed, performed, fulfilled
or given to Bank pursuant to the Loan Documents, including any certificate,
financial statement, insurance policy or other document, Bank shall not be
deemed to have warranted or represented the sufficiency, legality,
effectiveness or legal effect of the same, or of any term, provision or
condition thereof, and such acceptance or approval thereof shall not constitute
a warranty or representation to anyone with respect thereto by Bank; and

 

(b)           The
relationship between Borrower and Bank in connection with this Agreement and
the other Loan Documents is, and shall at all times remain, solely that of a

 

26

 

borrower and lender; Bank
shall not under any circumstance be construed to be a partner or joint venturer
of Borrower; Bank shall not under any circumstances be deemed to be in a
relationship of confidence or trust or a fiduciary relationship with Borrower,
or to owe any fiduciary duty to Borrower as a result of the transactions
arising under this Agreement and the other Loan Documents; Bank does not
undertake or assume any responsibility or duty to Borrower to select, review,
inspect, supervise, pass judgment upon or inform Borrower of any matter in
connection with its property or the operations of Borrower; Borrower shall rely
entirely upon its own judgment with respect to such matters; and any review,
inspection, supervision, exercise of judgment or supply of information
undertaken or assumed by Bank in connection with such matters is solely for the
protection of Bank and neither Borrower nor any other Person is entitled to
rely thereon.

 

SECTION 8.13       FURTHER
ASSURANCES.  Borrower shall, at its
expense and without expense to Bank, do, execute and deliver such further acts
and documents as Bank from time to time reasonably requires for the assuring
and confirming unto Bank of the rights hereby created or intended now or
hereafter so to be, or for carrying out the intention or facilitating the
performance of the terms of any Loan Document.

 

SECTION 8.14       CONFIDENTIALITY.  Bank agrees (and any assignee of all or part
of Bank’s interests hereunder and any holder of a participation interest in the
Line of Credit Note shall be required) to hold any confidential information
that it may receive from Borrower pursuant to this Agreement in confidence, except for
disclosure: (a) to legal counsel and accountants for IHOP, Borrower or any
of their Subsidiaries or Bank; (b) to other professional advisors to IHOP,
Borrower or any of their Subsidiaries or Bank; provided that the recipient has
been informed in advance of the confidential nature of such information; (c) to
regulatory officials having jurisdiction over Bank; (d) as required by law
or legal process or in connection with any legal proceeding or litigation
involving Bank and IHOP, Borrower or any of their Subsidiaries or any Affiliate
thereof; and (e) to another financial institution in connection with a
disposition or proposed disposition to that financial institution of all or
part of Bank’s interests hereunder or a participation interest in the Line of
Credit Note, provided that the recipient has been informed in advance of the
confidential nature of such information. For purposes of the foregoing, “confidential
information” shall mean any information respecting IHOP, Borrower or their
Subsidiaries reasonably considered by IHOP, Borrower or such Subsidiary, as
applicable, to be confidential, other than (i) information previously
filed with any Governmental Agency and available to the public, (ii) information
previously published in any public medium from a source other than, directly or
indirectly, Bank, and (iii) information previously disclosed by IHOP,
Borrower or any Subsidiary to any Person not associated with IHOP, Borrower or
such Subsidiary, as applicable, without a confidentiality agreement or
obligation substantially similar to this Section 814. Nothing in this Section shall
be construed to create or give rise to any fiduciary duty on the part of Bank
to IHOP, Borrower or any of their Subsidiaries.

 

SECTION 8.15       ARBITRATION.

 

(a)           Arbitration.
 The parties hereto agree, upon demand by
any party, to submit to binding arbitration all claims, disputes and
controversies between or among them (and their respective employees, officers,
directors, attorneys, and other agents), whether in

 

27

 

tort, contract or
otherwise arising out of or relating to in any way (i) the loan and
related Loan Documents which are the subject of this Agreement and its
negotiation, execution, administration, repayment, modification, extension,
substitution, formation, inducement, enforcement, default or termination; or (ii) requests
for additional credit.

 

(b)           Governing
Rules.  Any arbitration proceeding
will (i) proceed in a location in Los Angeles, California selected by the
American Arbitration Association (“AAA”); (ii) be governed by the
Federal Arbitration Act (Title 9 of the United States Code), notwithstanding
any conflicting choice of law provision in any of the documents between the parties;
and (iii) be conducted by the AAA, or such other administrator as the
parties shall mutually agree upon, in accordance with the AAA’s commercial dispute
resolution procedures, unless the claim or counterclaim is at least
$1,000,000.00 exclusive of claimed interest, arbitration fees and costs in
which case the arbitration shall be conducted in accordance with the AAA’s
optional procedures for large, complex commercial disputes (the commercial
dispute resolution procedures or the optional procedures for large, complex commercial
disputes to be referred to, as applicable, as the “Rules”). If there is
any inconsistency between the terms hereof and the Rules, the terms and
procedures set forth herein shall control. Any party who fails or refuses to
submit to arbitration following a demand by any other party shall bear all
costs and expenses incurred by such other party in compelling arbitration of
any dispute. Nothing contained herein shall be deemed to be a waiver by any
party that is a bank of the protections afforded to it under 12 U.S.C. §91
or any similar applicable state law.

 

(c)           No
Waiver of Provisional Remedies.  The
arbitration requirement does not limit the right of any party to obtain
provisional or ancillary remedies before, during or after the pendency of any
arbitration proceeding. This exclusion does not constitute a waiver of the
right or obligation of any party to submit any dispute to arbitration or
reference hereunder.

 

(d)           Arbitrator
Qualifications and Powers.  Any
arbitration proceeding in which the amount in controversy is $5,000,000.00 or
less will be decided by a single arbitrator selected according to the Rules,
and who shall not render an award of greater than $5,000,000.00. Any dispute in
which the amount in controversy exceeds $5,000,000.00 shall be decided by
majority vote of a panel of three arbitrators; provided however, that all three
arbitrators must actively participate in all hearings and deliberations. The
arbitrator will be a neutral attorney licensed in the State of California or a
neutral retired judge of the state or federal judiciary of California, in
either case with a minimum of ten years experience in the substantive law
applicable to the subject matter of the dispute to be arbitrated. The
arbitrator will determine whether or not an issue is arbitratable and will give
effect to the statutes of limitation in determining any claim. In any
arbitration proceeding the arbitrator will decide (by documents only or with a
hearing at the arbitrator’s discretion) any pre-hearing motions which are
similar to motions to dismiss for failure to state a claim or motions for
summary adjudication. The arbitrator shall resolve all disputes in accordance
with the substantive law of California and may grant any remedy or relief that
a court of such state could order or grant within the scope hereof and such
ancillary relief as is necessary to make effective any award. The arbitrator
shall also have the power to award recovery of all costs and fees, to impose sanctions
and to take such other action as the arbitrator deems necessary to the same
extent a

 

28

 

judge could pursuant to
the Federal Rules of Civil Procedure, the California Rules of Civil
Procedure or other applicable law. Judgment upon the award rendered by the
arbitrator may be entered in any court having jurisdiction. The institution and
maintenance of an action for judicial relief or pursuit of a provisional or
ancillary remedy shall not constitute a waiver of the right of any party,
including the plaintiff, to submit the controversy or claim to arbitration if
any other party contests such action for judicial relief.

 

(e)           Discovery.
 In any arbitration proceeding discovery
will be permitted in accordance with the Rules. All discovery shall be
expressly limited to matters directly relevant to the dispute being arbitrated
and must be completed no later than 20 days before the hearing date and within
180 days of the filing of the dispute with the AAA. Any requests for an
extension of the discovery periods, or any discovery disputes, will be subject
to final determination by the arbitrator upon a showing that the request for
discovery is essential for the party’s presentation and that no alternative
means for obtaining information is available.

 

(f)            Class
Proceedings and Consolidations.  The
resolution of any dispute arising pursuant to the terms of this Agreement shall
be determined by a separate arbitration proceeding and such dispute shall not
be consolidated with other disputes or included in any class proceeding.

 

(g)           Payment
Of Arbitration Costs And Fees.  The
arbitrator shall award all costs and expenses of the arbitration proceeding.

 

(h)           Miscellaneous.
 To the maximum extent practicable, the
AAA, the arbitrators and the parties shall take all action required to conclude
any arbitration proceeding within 180 days of the filing of the dispute with
the AAA. No arbitrator or other party to an arbitration proceeding may disclose
the existence, content or results thereof, except for disclosures of
information by a party required in the ordinary course of its business or by applicable
law or regulation. If more than one agreement for arbitration by or between the
parties potentially applies to a dispute, the arbitration provision most
directly related to the Loan Documents or the subject matter of the dispute
shall control. This arbitration provision shall survive termination, amendment
or expiration of any of the Loan Documents or any relationship between the
parties.

 

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

 

 

	
  INTERNATIONAL HOUSE OF

  	
   

  	
  WELLS FARGO BANK,

  
	
  PANCAKES, INC., a
  Delaware corporation

  	
   

  	
  NATIONAL ASSOCIATION

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
    /s/ Richard
  K. Herzer

  	
   

  	
   

  	
  By:

  	
  /s/ [ILLEGIBLE]

  	
   

  
	
   

  	
    Richard K.
  Herzer

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Title:

  	
    President

  	
   

  	
   

  	
  Title:

  	
  Relationship Manager

  	
   

  
									

 

29Exhibit 10.2

 

SECOND AMENDMENT TO
CREDIT AGREEMENT

 

THIS
SECOND AMENDMENT TO CREDIT AGREEMENT (this “Amendment”) is entered into as of May 31,
2005, by and between INTERNATIONAL HOUSE OF PANCAKES, INC., a Delaware
corporation (“Borrower”), and WELLS FARGO BANK, NATIONAL ASSOCIATION (“Bank”).

 

RECITALS

 

WHEREAS,
Borrower is currently indebted to Bank pursuant to the terms and conditions of
that certain Credit Agreement between Borrower and Bank dated as of June 28,
2001, as amended from time to time (“Credit Agreement”);

 

WHEREAS,
Bank and Borrower have agreed to certain changes in the terms and conditions
set forth in the Credit Agreement and have agreed to amend the Credit Agreement
to reflect said changes;

 

NOW,
THEREFORE, for valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree that the Credit Agreement shall
be amended as follows:

 

1.                                       The
definition of “Consolidated Income Available for Fixed Charges” in Section 1.1
is hereby amended and restated in its entirety to read as follows:

 

“Consolidated Income Available for Fixed Charges”
means the sum of (a) Consolidated Net Income, (b) consolidated
income tax expense of IHOP and its Subsidiaries in accordance with GAAP, (c) depreciation
and amortization expense, (d) Interest Expense, and (e) rental
expense under operating leases, less capital expenditures.

 

2.                                       The
definition of “Consolidated Tangible Net Worth” in Section 1.1 is hereby
amended and restated in its entirety to read as follows:

 

“Consolidated Tangible Net Worth” means
shareholders’ equity of IHOP and its Subsidiaries less intangible
assets, less Restricted Investments in excess of 10% of shareholders’
equity of IHOP and its Subsidiaries at any date of determination, all as
determined for IHOP and its Subsidiaries on a consolidated basis in accordance
with GAAP.

 

3.                                       The
definition of “Fixed Charges” in Section 1.1 is hereby amended and
restated in its entirety to read as follows:

 

“Fixed Charges” means the sum of (a) Interest
Expense, (b) rental expense under operating leases, (c) the current
portion of long term debt, plus (d) the current portion of Capitalized
Lease Obligations, all as determined

 

1

 

for
IHOP and its Subsidiaries on a consolidated basis in accordance with GAAP.

 

4.                                       The
definition of “Line of Credit Maturity Date” in Section 1.1 is hereby
amended and restated in its entirety to read as follows:

 

“Line of Credit Maturity Date” means May 31,
2008, or such later date as may then be in effect pursuant to Section 2.1(d).

 

5.                                       Section 2.1(c) is
hereby amended by adding at the end thereof the following:

 

Notwithstanding
the foregoing, Borrower shall maintain a zero balance on advances under the
Line of Credit for a period of at least thirty (30) consecutive days during any
given rolling eighteen (18) month period.

 

6.                                       The
following provision is hereby added to the Credit Agreement as Section 2.1(e):

 

(e)  Cancellation of the Line of Credit.  Borrower may choose to cancel the Line of
Credit upon five (5) Business Days written notice to Bank, provided
(i) Borrower repays all Advances outstanding under the Line of Credit, (ii) Borrower
pays all unused commitment fees accrued through the date of such cancellation,
and (iii) if any Letters of Credit are outstanding upon such cancellation,
then as security for the reimbursement obligations of Borrower to Bank under
such Letters of Credit, Borrower shall grant to Bank a security interest of
first priority in cash maintained in a deposit account with Bank in an amount
equal to the sum of the undrawn amount of each such Letter of Credit plus the
amount of any unreimbursed draws under each such Letter of Credit, plus any
unpaid fees relating to any such Letter of Credit, pursuant to such security agreement
and other documents as Bank may require, all in form and substance satisfactory
to Bank.  Upon satisfaction of all of the
foregoing conditions, the Line of Credit shall be deemed cancelled, and Bank
shall have no further obligation to make Advances or issue Letters of Credit
thereunder, and Borrower shall have no further obligation to pay any additional
unused commitment fees in connection therewith.

 

7.                                       Section 2.2(c) is
hereby amended by deleting the reference therein to “three-eighths of one percent
(0.375) per annum” and by substituting in its place “one-quarter of one percent
(0.25%) per annum.”

 

8.                                       Section 2.2(d) is
hereby amended by deleting the reference therein to “one and one-quarter
percent (1.25%) per annum” and by substituting in its place “one half percent
(0.50%) per annum.”

 

9.                                       Section 6.3
is hereby amended by deleting the reference therein to “0.50 to 1.00” and by
substituting in its place “0.45 to 1.00.”

 

2

 

10.                                 Section 6.4
is hereby amended and restated in its entirety to read as follows:

 

SECTION 6.4. 
CONSOLIDATED TANGIBLE NET WORTH. 
Permit Consolidated Tangible Net Worth at any time from and after December 31,
2004 to be less than the sum of $214,000,000 plus 25% of Consolidated Net Income
on a cumulative basis from December 31, 2004, to and including any date of
determination.

 

11.                                 Section 6.6
is hereby amended and restated in its entirety to read as follows:

 

SECTION 6.6. 
RESTRICTED PAYMENTS; RESTRICTED INVESTMENTS.

 

(a)                                  Restricted
Payments.  Permit IHOP, directly or
indirectly, through any Subsidiary or otherwise, to pay or declare any dividend
on any class of its capital stock (but IHOP or any such Subsidiary may declare
and pay dividends payable solely in capital stock or warrants, rights or
options to acquire capital stock) or make any other distribution on account of
any class of its capital stock; retire, redeem, repurchase or otherwise
acquire, directly or indirectly, any shares of any class of its capital stock
or any warrants, rights or options to acquire any such shares (other than any
such redemption, retirement, purchase or other acquisition in which the
consideration paid by IHOP or such Subsidiary consists solely of shares of
capital stock of IHOP); or make or provide for any mandatory sinking fund
payments required in connection with any class of its capital stock (all of the
foregoing being called “Restricted Payments”) unless at the time
of any such Restricted Payment, both immediately before and immediately after
giving effect thereto, no Default or Event of Default shall have occurred and
be continuing.  Moreover, so long as no
Default or Event of Default shall have occurred and be continuing after giving
effect to any such transaction, this Section 6.6(a) shall not prevent
(i) the payment of any dividend within 60 days after the date of its
declaration if the dividend would have been permitted on the date of its
declaration, or (ii) the acquisition, repurchase, retirement, call, put or
redemption of any shares of capital stock of IHOP out of the proceeds of the
substantially concurrent sale (other than to a Subsidiary of IHOP) of, shares
of capital stock of IHOP.

 

(b)                                 Restricted
Investments.  Permit IHOP, directly
or indirectly, through any Subsidiary or otherwise, to make any Restricted
Investment, unless after giving effect to any Restricted Investment the
cumulative aggregate amount of all Restricted Investments made by IHOP and its
Subsidiaries after December 31, 2004 would not exceed the sum of (i) $84,230,000
plus (ii) 50% of cumulative Consolidated Net Income from December 31,
2004 through the date of determination (or if IHOP and its

 

3

 

Subsidiaries
on a consolidated basis have a cumulative Consolidated Net Loss for such
period, then minus 100% of such Consolidated Net Loss), plus (iii) the
net proceeds from the issuance or sale of any shares of any class of equity
securities of IHOP which are not mandatorily redeemable or otherwise subject to
repurchase, retirement, call, put or other reacquisition prior to or on the
respective maturity dates of the Fixed Rate Notes (and not subject to
acceleration or redemption, repurchase, retirement, call, put or other
reacquisition prior to the respective maturity dates of the Fixed Rate Notes)
received after December 31, 2004; provided that at the time of any such
Restricted Investment, both immediately before and immediately after giving
effect thereto, no Default or Event of Default shall have occurred and be
continuing.

 

12.                                 Section 6.9
is hereby amended by deleting therefrom the reference to “1.50 to 1.00” and by
substituting in its place “1.25 to 1.00.”

 

13.                                 Section 6.13(a) is
hereby deleted in its entirety, without substitution therefor.

 

14.                                 The
Line of Credit Note referred to in the Credit Agreement shall hereinafter mean
and refer to the promissory note executed by Borrower in substantially the form
of Exhibit A attached to this Amendment.

 

15.                                 Except
as specifically provided herein, all terms and conditions of the Credit
Agreement remain in full force and effect, without waiver or modification.  All terms defined in the Credit Agreement
shall have the same meaning when used in this Amendment.  This Amendment and the Credit Agreement shall
be read together, as one document.

 

16.                                 The
effectiveness of this Amendment shall be conditioned upon receipt by Bank of
the following documents, each properly executed by a responsible official of
each party thereto:

 

(a)                                  An
original counterpart of this Amendment executed by Borrower;

 

(b)                                 The
new Line of Credit Note executed by Borrower in substantially the form attached
to this Amendment as Exhibit A; and

 

(c)                                  Such
other documents as Bank may reasonably require in connection with this
Amendment and the transactions described herein.

 

17.                                 Borrower
hereby remakes all representations and warranties contained in the Credit
Agreement and reaffirms all covenants set forth therein.  Borrower further certifies that as of the
date of this Amendment there exists no Event of Default as defined in the
Credit Agreement, nor any condition, act or event which with the giving of
notice or the passage of time or both would constitute any such Event of
Default.

 

4

 

IN
WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed
as of the day and year first written above.

 

	
  INTERNATIONAL
  HOUSE OF

  	
  WELLS FARGO
  BANK,

  
	
  PANCAKES, INC.,

  	
  NATIONAL ASSOCIATION

  
	
  a Delaware corporation

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ Julia A.
  Stewart

  	
   

  	
  By:

  	
  /s/ John N.
  Cate

  	
   

  
	
   

  	
  Julia A. Stewart

  	
   

  	
  John N. Cate

  
	
   

  	
  President and
  CEO

  	
   

  	
  Vice President

  
						

 

 

5

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00086-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00086-of-00352.parquet"}]]