Document:

<PAGE>

                                                                    EXHIBIT 10.2

                      AMENDED, RESTATED, AND CONSOLIDATED
                           GENERAL CONTINUING GUARANTY
                           ---------------------------

          THIS AMENDED, RESTATED, AND CONSOLIDATED GENERAL CONTINUING GUARANTY
("Guaranty"), dated as of July 19, 2000, is executed and delivered by PRANDIUM,
INC., a Delaware corporation formerly known as Family Restaurants, Inc.
("Prandium"), FRI-MRD CORPORATION, a Delaware corporation ("FRI-MRD"), FRI-ADMIN
CORPORATION, a Delaware corporation ("FRI-Admin"), KOO KOO ROO, INC., a Delaware
corporation ("KKR"), THE HAMLET GROUP, INC., a California corporation ("HGI"),
and each of the Subsidiaries of Debtor (as hereinafter defined) identified on
the signature pages hereto (individually and collectively, the "Subsidiary
Guarantors"; together with Prandium, FRI-MRD, FRI-Admin, KKR, and HGI, each, a
"Guarantor," and collectively, the "Guarantors"), in favor of FOOTHILL CAPITAL
CORPORATION, a California corporation ("Guarantied Party"), in light of the
following:

          WHEREAS, Debtor, Guarantors, and Guarantied Party are parties to that
certain Loan and Security Agreement, dated as of January 10, 1997 (as amended,
modified, and otherwise supplemented through the date hereof, the "Existing Loan
Agreement");

          WHEREAS, pursuant to the terms and conditions of the Existing Loan
Agreement, (a) Prandium entered into that certain General Continuing Guaranty,
dated as of January 10, 1997 (the "Prandium Guaranty") in favor of Guarantied
Party; (b) FRI-MRD entered into that certain General Continuing Guaranty, dated
as of January 10, 1997 (the "FRI-MRD Guaranty") in favor of Guarantied Party;
(c) FRI-Admin entered into that certain General Continuing Guaranty, dated as of
January 10, 1997 (the "FRI-Admin Guaranty") in favor of Guarantied Party; (d)
the Subsidiary Guarantors entered into that certain Combined General Continuing
Guaranty, dated as of January 10, 1997 (the "Subsidiary Guaranty") in favor of
Guarantied Party;(e) KKR entered into that certain General Continuing Guaranty,
dated as of October 30, 1998 (the "KKR Guaranty") in favor of Guarantied Party;
and (f) HGI entered into that certain General Continuing Guaranty, dated as of
October 30, 1998 (the "HGI Guaranty"; together with the Prandium Guaranty, the
FRI-MRD Guaranty, the FRI-Admin Guaranty, the Subsidiary Guaranty, and the KKR
Guaranty, collectively, the "Existing Guaranties") in favor of Guarantied Party;
and

          WHEREAS, Borrower, Guarantors, and Guarantied Party desire to amend
and restate the Existing Loan Agreement in its entirety as provided in that
certain Amended and Restated Loan and Security Agreement, dated as of the date
hereof (the "Loan Agreement"), it being understood that no repayment of the
obligations under the Existing Loan Agreement is being effected thereby, but
merely an amendment and restatement in accordance with the terms thereof; and

          WHEREAS, pursuant to the Loan Agreement and as one of the conditions
thereof, Guarantors and Guarantied Party have agreed to amend, restate, and
consolidate the Existing Guaranties in their entirety as provided in this
Guaranty, it being understood that no
<PAGE>

satisfaction of the obligations under the Existing Guaranties is being effected
hereby, but merely an amendment, restatement, and consolidation in accordance
with the terms hereof.

          NOW, THEREFORE, in consideration of the foregoing, Guarantors hereby
agree, in favor of Guarantied Party, as follows:

          1.   Definitions and Construction.
               ----------------------------

               (a)  Definitions. Capitalized terms used herein and not otherwise
                    -----------
defined herein shall have the meanings ascribed to them in the Loan Agreement.
The following terms, as used in this Guaranty, shall have the following
meanings:

                    "Debtor" shall mean Chi-Chi's, Inc., a Delaware corporation.
                     ------

                    "Guarantied Obligations" shall mean the due and punctual
                     ----------------------
payment of the principal of, and interest (including, any and all interest
which, but for the application of the provisions of the Bankruptcy Code, would
have accrued on such amounts) on, and premium, if any, on the Indebtedness owed
by Debtor to Guarantied Party pursuant to the terms of the Loan Documents.

                    "Guarantied Party" shall have the meaning set forth in the
                     ----------------
preamble to this Guaranty.

                    "Guarantor" and "Guarantors" shall have the meaning set
                     ---------       ----------
forth in the preamble to this Guaranty.

                    "Guarantor Security Agreement" means that certain Amended,
                     ----------------------------
Restated, and Consolidated Guarantor Security Agreement among Guarantors and
Guarantied Party, dated as of the date hereof.

                    "Guaranty" shall have the meaning set forth in the preamble
                     --------
to this Guaranty.

                    "Indebtedness" shall mean any and all Obligations, whether
                     ------------
recovery is or hereafter becomes barred by any statute of limitations or
otherwise becomes unenforceable for any reason whatsoever, including any act or
failure to act by Guarantied Party.

                    "Loan Agreement" shall mean that certain Amended and
                     --------------
Restated Loan and Security Agreement, dated as of the date hereof, entered into
among Debtor, Gurantors, and Guarantied Party.

                    "Permitted Liens" shall have the meaning set forth in the
                     ---------------
Guarantor Security Agreement.

                                      -2-
<PAGE>

                    "Restricted Subsidiary" means any Subsidiary of Prandium
                     ---------------------
(other than FRI-MRD and its Subsidiaries) that has not been designated by
Prandium as an Unrestricted Subsidiary.

                    "Unrestricted Subsidiary" means any Subsidiary of Prandium
                     -----------------------
(other than FRI-MRD and its Subsidiaries) that is (a) now existing or hereafter
created or acquired, and (b) designated in writing by Prandium to Guarantied
                     ---
Party as an Unrestricted Subsidiary.

               (b)  Construction. Unless the context of this Guaranty clearly
                    ------------
requires otherwise, references to the plural include the singular, references to
the singular include the plural, the part includes the whole, the terms
"include" and "including" are not limiting, and the term "or" has the inclusive
meaning represented by the phrase "and/or."  The words "hereof," "herein,"
"hereby," "hereunder," and other similar terms refer to this Guaranty as a whole
and not to any particular provision of this Guaranty.  Any reference in this
Guaranty to any of the following documents includes any and all alterations,
amendments, restatements, extensions, modifications, renewals, or supplements
thereto or thereof, as applicable: the Loan Agreement; this Guaranty; and the
other Loan Documents.  This Guaranty has been reviewed by Guarantor, Guarantied
Party, and their respective counsel, and shall be construed and interpreted
according to the ordinary meaning of the words used so as to fairly accomplish
the purposes and intentions of Guarantied Party and Guarantor.

          2.   Guarantied Obligations. Each Guarantor, jointly and severally,
               ----------------------
hereby irrevocably and unconditionally guaranties to Guarantied Party, as and
for its own debt, until final and indefeasible payment thereof has been made,
(a) the payment of the Guarantied Obligations, in each case when and as the same
shall become due and payable, whether at maturity, pursuant to a mandatory
prepayment requirement, by acceleration, or otherwise; it being the intent of
each Guarantor that the guaranty set forth herein shall be a guaranty of payment
and not a guaranty of collection; and (b) the punctual and faithful performance,
keeping, observance, and fulfillment by Debtor of all of the agreements,
conditions, covenants, and Obligations of Debtor contained in the Loan
Agreement, and under each of the other Loan Documents.

          3.   Continuing Guaranty. This Guaranty includes Guarantied
               -------------------
Obligations arising under successive transactions continuing, compromising,
extending, increasing, modifying, releasing, or renewing the Guarantied
Obligations, changing the interest rate, payment terms, or other terms and
conditions thereof, or creating new or additional Guarantied Obligations after
prior Guarantied Obligations have been satisfied in whole or in part. To the
maximum extent permitted by law, each Guarantor hereby waives any right to
revoke this Guaranty as to future Indebtedness. If such a revocation is
effective notwithstanding the foregoing waiver, each Guarantor acknowledges and
agrees that (a) no such revocation shall be effective until written notice
thereof has been received by Guarantied Party, (b) no such revocation shall
apply to any Guarantied Obligations in existence on such date (including any
subsequent continuation, extension, or renewal thereof,

                                      -3-
<PAGE>

or change in the interest rate, payment terms, or other terms and conditions
thereof), (c) no such revocation shall apply to any Guarantied Obligations made
or created after such date to the extent made or created pursuant to a legally
binding commitment of Guarantied Party in existence on the date of such
revocation, and (d) any payment by Debtor or from any source other than the
revoking Guarantor subsequent to the date of such revocation shall first be
applied to that portion of the Guarantied Obligations as to which the revocation
is effective and which are not, therefore, guarantied hereunder, and to the
extent so applied shall not reduce the maximum obligation of such Guarantor
hereunder.

          4.   Performance Under this Guaranty. In the event that Debtor fails
               -------------------------------
to make any payment of any Guarantied Obligations, on or before the due date
thereof, or if Debtor shall fail to perform, keep, observe, or fulfill any other
obligation referred to in clause (b) of Section 2 hereof in the manner provided
                          -----------------------
in the Loan Agreement or the other Loan Documents, as applicable, Guarantors,
jointly and severally, immediately shall cause such payment to be made or each
of such obligations to be performed, kept, observed, or fulfilled.

          5.   Primary Obligations. This Guaranty is a primary and original
               -------------------
obligation of each Guarantor, is not merely the creation of a surety
relationship, and is an absolute, unconditional, and continuing guaranty of
payment and performance which shall remain in full force and effect without
respect to future changes in conditions until full and final payment in cash (or
other consideration acceptable to Guarantied Party in its sole discretion and
agreed to by Guarantied Party) of the Guarantied Obligations and the termination
of all commitments of Guarantied Party to extend Credit to Debtor or any
Guarantor.  Each Guarantor agrees that it is directly, jointly and severally
with any other guarantor of the Guarantied Obligations, liable to Guarantied
Party, that the obligations of such Guarantor hereunder are independent of the
obligations of Debtor or any other guarantor, and that a separate action may be
brought against such Guarantor, whether such action is brought against Debtor or
any other guarantor or whether Debtor or any other guarantor is joined in such
action.  Each Guarantor agrees that its liability hereunder shall be immediate
and shall not be contingent upon the exercise or enforcement by Guarantied Party
of whatever remedies it may have against Debtor or any other guarantor, or the
enforcement of any lien or realization upon any security Guarantied Party may at
any time possess.  Each Guarantor agrees that any release which may be given by
Guarantied Party to Debtor or any other guarantor shall not release such
Guarantor.  Each Guarantor consents and agrees that Guarantied Party shall be
under no obligation to marshal any property or assets of Debtor or any other
guarantor in favor of such Guarantor, or against or in payment of any or all of
the Guarantied Obligations.

          6.   Waivers.
               -------

               (a)  To the fullest extent permitted by applicable law, each
Guarantor hereby waives: (i) notice of acceptance hereof; (ii) notice of any
loans or other financial accommodations made or extended under the Loan
Agreement, or the creation or existence of any Guarantied Obligations; (iii)
notice of the amount of the Guarantied Obligations, subject, however, to
Guarantor's right to make inquiry of Guarantied Party to

                                      -4-
<PAGE>

ascertain the amount of the Guarantied Obligations at any reasonable time; (iv)
notice of any adverse change in the financial condition of Debtor or of any
other fact that might increase such Guarantor's risk hereunder; (v) notice of
presentment for payment, demand, protest, and notice thereof as to any
instrument among the Loan Documents; (vi) notice of any unmatured Event of
Default or Event of Default under the Loan Agreement; and (vii) all other
notices (except if such notice is specifically required to be given to such
Guarantor under this Guaranty or any other Loan Documents to which such
Guarantor is a party) and demands to which such Guarantor might otherwise be
entitled.

               (b)  To the fullest extent permitted by applicable law, each
Guarantor hereby waives the right by statute or otherwise to require Guarantied
Party to institute suit against Debtor or to exhaust any rights and remedies
which Guarantied Party has or may have against Debtor. In this regard, each
Guarantor agrees that it is bound to the payment of each and all Guarantied
Obligations, whether now existing or hereafter arising, as fully as if such
Guarantied Obligations were directly owing to Guarantied Party by such
Guarantor. Each Guarantor further waives any defense arising by reason of any
disability or other defense (other than the defense that the Guarantied
Obligations shall have been fully and finally performed and indefeasibly paid)
of Debtor or by reason of the cessation from any cause whatsoever of the
liability of Debtor in respect thereof.

               (c)  To the fullest extent permitted by applicable law, each
Guarantor hereby waives: (i) any rights to assert against Guarantied Party any
defense (legal or equitable), set-off, counterclaim, or claim which such
Guarantor may now or at any time hereafter have against Debtor or any other
party liable to Guarantied Party on account of or with respect to the Guarantied
Obligations; (ii) any defense, set-off, counterclaim, or claim, of any kind or
nature, arising directly or indirectly from the present or future lack of
perfection, sufficiency, validity, or enforceability of the Guarantied
Obligations or any security therefor; (iii) any defense arising by reason of any
claim or defense based upon an election of remedies by Guarantied Party
including any defense based upon an election of remedies by Guarantied Party
under the provisions of (S)(S) 580d and 726 of the California Code of Civil
Procedure, or any similar law of California or any other jurisdiction; (iv) the
benefit of any statute of limitations affecting such Guarantor's liability
hereunder or the enforcement thereof, and any act which shall defer or delay the
operation of any statute of limitations applicable to the Guarantied Obligations
shall similarly operate to defer or delay the operation of such statute of
limitations applicable to such Guarantor's liability hereunder.

               (d)  Until such time as all of the Guarantied Obligations have
been fully, finally, and indefeasibly paid in full in cash (or other
consideration acceptable to Guarantied Party in its sole discretion and agreed
to by Guarantied Party) each Guarantor hereby waives and postpones: (i) any
right of subrogation such Guarantor has or may have as against Debtor with
respect to the Guarantied Obligations; (ii) any right to proceed against Debtor
or any other Guarantor with respect to any portion of the Obligations, now or
hereafter, for contribution, indemnity, reimbursement, or any other suretyship
rights and claims (irrespective of whether direct or indirect, liquidated or
contingent), with respect to

                                      -5-
<PAGE>

the Guarantied Obligations; and (iii) any right to proceed or to seek recourse
against or with respect to any property or asset of Debtor.

               (e)  If any of the Guarantied Obligations at any time are secured
by a mortgage or deed of trust upon real property, Guarantied Party may elect,
in its sole discretion, upon a default with respect to the Guarantied
Obligations, to foreclose such mortgage or deed of trust judicially or
nonjudicially in any manner permitted by law, before or after enforcing this
Guaranty, without diminishing or affecting the liability of Guarantors
hereunder. Each Guarantor understands that (a) by virtue of the operation of
California's antideficiency law applicable to nonjudicial foreclosures, an
election by Guarantied Party nonjudicially to foreclose such a mortgage or deed
of trust probably would have the effect of impairing or destroying rights of
subrogation, reimbursement, contribution, or indemnity of such Guarantor against
Debtor or other guarantors or sureties, and (b) absent the waiver given by such
Guarantor herein, such an election would estop Guarantied Party from enforcing
this Guaranty against such Guarantor. Understanding the foregoing, and
understanding that such Guarantor is hereby relinquishing a defense to the
enforceability of this Guaranty, each Guarantor hereby waives any right to
assert against Guarantied Party any defense to the enforcement of this Guaranty,
whether denominated "estoppel" or otherwise, based on or arising from an
election by Guarantied Party nonjudicially to foreclose any such mortgage or
deed of trust securing the Guarantied Obligations. Each Guarantor understands
that the effect of the foregoing waiver may be that such Guarantor may have
liability hereunder for amounts with respect to which such Guarantor may be left
without rights of subrogation, reimbursement, contribution, or indemnity against
Debtor or other guarantors or sureties. Each Guarantor also agrees that the
"fair market value" provisions of Section 580a of the California Code of Civil
Procedure shall have no applicability with respect to the determination of such
Guarantor's liability under this Guaranty.

               (f)  WITHOUT LIMITING THE GENERALITY OF ANY OTHER WAIVER OR OTHER
PROVISION SET FORTH IN THIS GUARANTY, EACH GUARANTOR HEREBY WAIVES, TO THE
MAXIMUM EXTENT SUCH WAIVER IS PERMITTED BY LAW, ANY AND ALL BENEFITS OR DEFENSES
ARISING DIRECTLY OR INDIRECTLY UNDER ANY ONE OR MORE OF CALIFORNIA CIVIL CODE
(S)(S) 2799, 2808, 2809, 2810, 2815, 2819, 2820, 2821, 2822, 2838, 2839, 2845,
2847, 2848, 2849, AND 2850, CALIFORNIA CODE OF CIVIL PROCEDURE (S)(S) 580a,
580b, 580c, 580d, AND 726, AND CHAPTER 2 OF TITLE 14 OF THE CALIFORNIA CIVIL
CODE.

               (g)  WITHOUT LIMITING THE GENERALITY OF ANY OTHER WAIVER OR OTHER
PROVISION SET FORTH IN THIS GUARANTY, EACH GUARANTOR WAIVES ALL RIGHTS AND
DEFENSES ARISING OUT OF AN ELECTION OF REMEDIES BY THE GUARANTIED PARTY, EVEN
THOUGH THAT ELECTION OF REMEDIES, SUCH AS A NONJUDICIAL FORECLOSURE WITH RESPECT
TO SECURITY FOR A GUARANTEED OBLIGATION, HAS DESTROYED SUCH GUARANTOR'S RIGHTS
OF SUBROGATION AND

                                      -6-
<PAGE>

REIMBURSEMENT AGAINST THE DEBTOR BY THE OPERATION OF SECTION 580d OF THE
CALIFORNIA CODE OF CIVIL PROCEDURE OR OTHERWISE.

          7.   Releases. Each Guarantor consents and agrees that, without notice
               --------
to or by any Guarantor and without affecting or impairing the obligations of
Guarantors hereunder, Guarantied Party may, by action or inaction, compromise or
settle, extend the period of duration or the time for the payment, or discharge
the performance of, or may refuse to, or otherwise not enforce, or may, by
action or inaction, release all or any one or more parties to, any one or more
of the terms and provisions of the Loan Agreement or any of the other Loan
Documents or may grant other indulgences to Debtor in respect thereof, or may
amend or modify at any time (or from time to time) any one or more of the Loan
Agreement or any of the other Loan Documents in any manner permitted thereunder,
or may, by action or inaction, release or substitute any other guarantor, if
any, of the Guarantied Obligations, or may enforce, exchange, release, or waive,
by action or inaction, any security for the Guarantied Obligations or any other
guaranty of the Guarantied Obligations, or any portion thereof.

          8.   No Election. Guarantied Party shall have the right to seek
               -----------
recourse against each Guarantor to the fullest extent provided for herein and no
election by Guarantied Party to proceed in one form of action or proceeding, or
against any party, or on any obligation, shall constitute a waiver of Guarantied
Party's right to proceed in any other form of action or proceeding or against
other parties unless Guarantied Party has expressly waived such right in
writing.  Specifically, but without limiting the generality of the foregoing, no
action or proceeding by Guarantied Party under any document or instrument
evidencing the Guarantied Obligations shall serve to diminish the liability of
any Guarantor under this Guaranty except to the extent that Guarantied Party
finally and unconditionally shall have realized indefeasible payment by such
action or proceeding.

          9.   Indefeasible Payment. The Guarantied Obligations shall not be
               --------------------
considered indefeasibly paid for purposes of this Guaranty unless and until all
payments to Guarantied Party are no longer subject to any right on the part of
any person whomsoever, including Debtor, Debtor as a debtor in possession, or
any trustee (whether appointed under the Bankruptcy Code or otherwise) of
Debtor's assets to invalidate or set aside such payments or to seek to recoup
the amount of such payments or any portion thereof, or to declare same to be
fraudulent or preferential.  In the event that, for any reason, all or any
portion of such payments to Guarantied Party is set aside or restored, whether
voluntarily or involuntarily, after the making thereof, the obligation or part
thereof intended to be satisfied thereby shall be revived and continued in full
force and effect as if said payment or payments had not been made and
Guarantors, jointly and severally, shall be liable for the full amount
Guarantied Party is required to repay plus any and all costs and expenses
(including attorneys fees) paid by Guarantied Party in connection therewith.

          10.  Financial Condition of Debtor. Each Guarantor represents and
               -----------------------------
warrants to Guarantied Party that it is currently informed of the financial
condition of Debtor and of all other circumstances which a diligent inquiry
would reveal and which bear upon the

                                      -7-
<PAGE>

risk of nonpayment of the Guarantied Obligations. Each Guarantor further
represents and warrants to Guarantied Party that it has read and understands the
terms and conditions of the Loan Agreement and the other Loan Documents. Each
Guarantor hereby covenants that it will continue to keep itself informed of
Debtor's financial condition, the financial condition of other guarantors, if
any, and of all other circumstances which bear upon the risk of nonpayment or
nonperformance of the Guarantied Obligations.

          11.  [Intentionally Omitted.]

          12.  Payments; Application. All payments to be made hereunder by any
               ---------------------
Guarantor shall be made in lawful money of the United States of America at the
time of payment, shall be made in immediately available funds, and shall be made
without deduction (whether for taxes or otherwise) or offset.  All payments made
by any Guarantor hereunder shall be applied as follows:  first, to all
reasonable out-of-pocket costs and expenses (including reasonable attorneys
fees) actually incurred by Guarantied Party in enforcing this Guaranty or in
collecting the Guarantied Obligations; second, to all accrued and unpaid
interest, premium, if any, and fees owing to Guarantied Party constituting
Guarantied Obligations; and third, to the balance of the Guarantied Obligations.

          13.  Attorneys Fees and Costs. Guarantors, jointly and severally,
               ------------------------
agree to pay promptly all reasonable attorneys fees and all other reasonable
costs and expenses which may be incurred by Guarantied Party in the enforcement
of this Guaranty or in any way arising out of, or consequential to the
protection, assertion, or enforcement of the Guarantied Obligations (or any
security therefor), irrespective of whether suit is brought.

          14.  Notices. Unless otherwise specifically provided in this
               -------
Guaranty, any notice or other communication relating to this Guaranty or any
other agreement entered into in connection therewith shall be in writing and
shall be personally delivered or sent by registered or certified mail, postage
prepaid, return receipt requested, or by prepaid telex, TWX, telefacsimile, or
telegram (with messenger delivery specified) to any Guarantor or to Guarantied
Party, as the case may be, at its addresses set forth below:

If to any Guarantor:     c/o PRANDIUM, INC.
                         18831 Von Karman Avenue
                         Irvine, California 92612
                         Attn: Mr. Robert D. Gonda
                         Telecopy No.: (714) 757-7984

with a copy to:          SKADDEN, ARPS, SLATE,
                         MEAGHER & FLOM LLP
                         300 S. Grand Avenue
                         Los Angeles, California 90071
                         Attn: David Reamer, Esq.
                         Telecopy No.: (213) 687-5600

                                      -8-
<PAGE>

If to Guarantied Party:  FOOTHILL CAPITAL CORPORATION
                         11111 Santa Monica Boulevard, Suite 1500
                         Los Angeles, California 90025-3333
                         Attn: Business Finance Division Manager
                         Telecopy No.: (310) 575-3435

with a copy to:          BROBECK, PHLEGER & HARRISON LLP
                         550 South Hope Street
                         Los Angeles, California 90071
                         Attn: John Francis Hilson, Esq.
                         Telecopy No.: (213) 745-3345

               The parties hereto may change the address at which they are to
receive notices hereunder, by notice in writing in the foregoing manner given to
the other. All notices or demands sent in accordance with this Section 14, other
                                                               ----------
than notices by Guarantied Party in connection with Sections 9504 or 9505 of the
Code, shall be deemed received on the earlier of the date of actual receipt or
three (3) calendar days after the deposit thereof in the mail. Guarantor
acknowledges and agrees that notices sent by Guarantied Party in connection with
Sections 9504 or 9505 of the Code shall be deemed sent when deposited in the
mail or transmitted by telefacsimile or other similar method set forth above.

          15.  Cumulative Remedies. No remedy under this Guaranty, under the
               -------------------
Loan Agreement, or any other Loan Document is intended to be exclusive of any
other remedy, but each and every remedy shall be cumulative and in addition to
any and every other remedy given under this Guaranty, under the Loan Agreement,
or any other Loan Document, and those provided by law. No delay or omission by
Guarantied Party to exercise any right under this Guaranty shall impair any such
right nor be construed to be a waiver thereof. No failure on the part of
Guarantied Party to exercise, and no delay in exercising, any right under this
Guaranty shall operate as a waiver thereof; nor shall any single or partial
exercise of any right under this Guaranty preclude any other or further exercise
thereof or the exercise of any other right.

          16.  Severability of Provisions. Any provision of this Guaranty which
               --------------------------
is prohibited or unenforceable under applicable law shall be ineffective to the
extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof.

          17.  Entire Agreement; Amendments. This Guaranty constitutes the
               ----------------------------
entire agreement among Guarantors and Guarantied Party pertaining to the subject
matter contained herein. This Guaranty may not be altered, amended, or modified,
nor may any provision hereof be waived or noncompliance therewith consented to,
except by means of a writing executed by all Guarantors and Guarantied Party.
Any such alteration, amendment, modification, waiver, or consent shall be
effective only to the extent specified therein and for the specific purpose for
which given. No course of dealing and no delay or waiver of any

                                      -9-
<PAGE>

right or default under this Guaranty shall be deemed a waiver of any other,
similar or dissimilar, right or default or otherwise prejudice the rights and
remedies hereunder.

          18.  Successors and Assigns.  This Guaranty shall be binding upon each
               ----------------------
Guarantor and its successors and assigns and shall inure to the benefit of the
successors and assigns of Guarantied Party permitted under the Loan Agreement
and the Other Loan Documents; provided, however, no Guarantor shall assign this
                              --------  -------
Guaranty or delegate any of its duties hereunder without Guarantied Party's
prior written consent and any unconsented to assignment shall be absolutely
void.  In the event of any assignment or other transfer of rights by Guarantied
Party in accordance with the Loan Agreement, the rights and benefits herein
conferred upon Guarantied Party shall automatically extend to and be vested in
such assignee or other transferee.

          19.  No Third Party Beneficiary.  This Guaranty is solely for the
               --------------------------
benefit of Guarantied Party and its successors and permitted assigns and may not
be relied on by any other Person.

          20.  CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER
               ------------------------------------------

               THE VALIDITY OF THIS GUARANTY, ITS CONSTRUCTION, INTERPRETATION,
AND ENFORCEMENT, AND THE RIGHTS OF THE PARTIES HERETO WITH RESPECT TO ALL
MATTERS ARISING HEREUNDER OR RELATED HERETO SHALL BE DETERMINED UNDER, GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA.

               THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN
CONNECTION WITH THIS GUARANTY SHALL BE TRIED AND LITIGATED ONLY IN THE STATE AND
FEDERAL COURTS LOCATED IN THE COUNTY OF LOS ANGELES, STATE OF CALIFORNIA,
PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR
--------  -------
OTHER PROPERTY MAY BE BROUGHT, AT GUARANTIED PARTY'S OPTION, IN THE COURTS OF
ANY JURISDICTION WHERE GUARANTIED PARTY ELECTS TO BRING SUCH ACTION OR WHERE
SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND.  EACH GUARANTOR AND GUARANTIED
PARTY WAIVES, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY
HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE
EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 20.
                                                         ----------

               GUARANTORS AND GUARANTIED PARTY HEREBY WAIVE THEIR RESPECTIVE
RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT
OF THIS GUARANTY OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN, INCLUDING
CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER

                                     -10-
<PAGE>

COMMON LAW OR STATUTORY CLAIMS. EACH GUARANTOR AND GUARANTIED PARTY REPRESENTS
THAT IT HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS
JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF
LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A
TRIAL BY THE COURT.

    21.  Certain Covenants Applicable to Guarantors.
         ------------------------------------------

               (a)  No Guarantor shall pay dividends or make distributions with
respect to its Stock, or repurchase or redeem shares of its Stock, except to the
extent permitted in the Loan Agreement.

               (b)  No Guarantor shall pay management or other fees to any
Affiliate of Apollo (other than customary director's fees paid to directors
generally).

               (c)  Except as otherwise provided below, (i) if, after the
Closing Date, any Guarantor acquires any real or personal property or assets,
such Guarantor shall grant to Guarantied Party first priority (except for
Permitted Liens) security interests in any or all of such real or personal
property or assets, and (ii) if, after the Closing Date, any Guarantor forms or
acquires any additional Subsidiary, such Guarantor shall (A) grant or cause to
be granted to Guarantied Party a first priority security interest in all Stock
of such Subsidiary (not including the Stock of HGI owned by FRI-MRD) owned by
such Guarantor or any Subsidiary of such Guarantor, (B) cause such Subsidiary,
if it is a Restricted Subsidiary, to guarantee payment and performance of the
Obligations pursuant to a written guaranty similar in form and substance to this
Guaranty (including similar representations, warranties, and covenants, except
for any provisions that are unique to any Guarantor and therefore inapplicable
to such Restricted Subsidiary), and (C) except for HGI, cause such Subsidiary,
if it is a Restricted Subsidiary, to grant to Guarantied Party first priority
(except for Permitted Liens) security interests in any or all of the real or
personal property or assets of such Subsidiary pursuant to a written security
agreement similar in form and substance to the Guarantor Security Agreement
(including similar representations, warranties, and covenants, except for any
provisions that are unique to any Guarantor and therefore inapplicable to such
Restricted Subsidiary).

               (d)  From and after the Closing Date, up to but not more than
$10,000,000 in the aggregate of assets of Prandium and the Restricted
Subsidiaries may be transferred to, contributed to, or invested in Unrestricted
Subsidiaries.

               (e)  No Guarantor shall transfer, sell, or otherwise dispose of
any real property or interest in real property that is subject to any mortgage
or deed of trust in favor of Guarantied Party without the prior written consent
of Guarantied Party to any such transfer, sale, or disposition.

                                     -11-
<PAGE>

               (f)  No Guarantor shall cause, suffer, or permit any now existing
or hereafter created or acquired Unrestricted Subsidiary to own, operate or
manage any Chi-Chi's restaurant.

    22.  Effectiveness. This Guaranty shall be binding and deemed
         -------------
effective upon the later of (a) the execution of this Guaranty by Guarantors and
(b) the Closing Date.

                -   remainder of page intentionally left blank -

                                     -12-
<PAGE>

          IN WITNESS WHEREOF, the undersigned has executed and delivered this
Guaranty as of the date first written above.

                                       PRANDIUM, INC.,
                                       a Delaware corporation

                                       By:     /s/ Robert T. Trebing, Jr.
                                       Title:  Executive V.P. and CFO

                                       FRI-MRD CORPORATION,
                                       a Delaware corporation

                                       By:     /s/ Robert T. Trebing, Jr.
                                       Title:  President

                                       FRI-ADMIN CORPORATION,
                                       a Delaware corporation

                                       By:     /s/ Robert T. Trebing, Jr.
                                       Title:  President

                                       KOO KOO ROO, INC.
                                       a Delaware corporation

                                       By:     /s/ Robert T. Trebing, Jr.
                                       Title:  Vice President

                                       THE HAMLET GROUP, INC.,
                                       a California corporation

                                       By:     /s/ Robert T. Trebing, Jr.
                                       Title:  Vice President

                                      S-1
<PAGE>

Subsidiaries of Debtor              CCMR OF TIMONIUM, INC.,
                                    a Delaware corporation

                                    By:     /s/ Robert T. Trebing, Jr.
                                    Title:  Vice President

                                    CCMR OF MARYLAND, INC.,
                                    a Delaware corporation

                                    By:     /s/ Robert T. Trebing, Jr.
                                    Title:  Vice President

                                    CHI-CHI'S OF KANSAS, INC.,
                                    a Kansas corporation

                                    By:     /s/ Robert T. Trebing, Jr.
                                    Title:  Vice President

                                    CHI-CHI'S OF GREENBELT, INC.,
                                    a Kentucky corporation

                                     By:    /s/ Robert T. Trebing, Jr.
                                     Title:  Vice President

                                     CHI-CHI'S FRANCHISE OPERATIONS CORPORATION
                                     a Kentucky corporation

                                     By:    /s/ Robert T. Trebing, Jr.
                                     Title: Vice President

                                      S-2
<PAGE>

                                     CCMR OF CANTONSVILLE, INC.,
                                     a Kentucky corporation

                                     By:     /s/ Robert T. Trebing, Jr.
                                     Title:  Vice President

                                     CCMR OF GREENBELT, INC.,
                                     a Kentucky corporation

                                     By:     /s/ Robert T. Trebing, Jr.
                                     Title:  Vice President

                                     CCMR OF RITCHIE HIGHWAY, INC.,
                                     a Kentucky corporation

                                     By:     /s/ Robert T. Trebing, Jr.
                                     Title:  Vice President

                                     CHI-CHI'S MANAGEMENT CORPORATION,
                                     a Kentucky corporation

                                     By:     /s/ Robert T. Trebing, Jr.
                                     Title:  Vice President

                                     CCMR OF CUMBERLAND, INC.,
                                     a Kentucky corporation

                                     By:     /s/ Robert T. Trebing, Jr.
                                     Title:  Vice President

                                      S-3
<PAGE>

                                     CCMR OF HARFORD COUNTY, INC.,
                                     a Kentucky corporation

                                     By:     /s/ Robert T. Trebing, Jr.
                                     Title:  Vice President

                                     CHI-CHI'S OF SOUTH CAROLINA, INC.,
                                     a Kentucky corporation

                                     By:     /s/ Robert T. Trebing, Jr.
                                     Title:  Vice President

                                     MAINTENANCE SUPPORT GROUP, INC.,
                                     a Kentucky corporation

                                     By:     /s/ Robert T. Trebing, Jr.
                                     Title:  Vice President

                                     CCMR OF FREDERICK, INC.,
                                     a Kentucky corporation

                                     By:     /s/ Robert T. Trebing, Jr.
                                     Title:  Vice President

                                     CCMR OF INNER HARBOR, INC.,
                                     a Kentucky corporation

                                     By:     /s/ Robert T. Trebing, Jr.
                                     Title:  Vice President

                                      S-4
<PAGE>

                                     CHI-CHI'S OF WEST VIRGINIA, INC.,
                                     a Kentucky corporation

                                     By:     /s/ Robert T. Trebing, Jr.
                                     Title:  Vice President

                                     CCMR ADVERTISING AGENCY, INC.,
                                     a Kentucky corporation

                                     By:     /s/ Robert T. Trebing, Jr.
                                     Title:  Vice President

                                     CCMR OF GOLDEN RING, INC.,
                                     a Kentucky corporation

                                     By:    /s/ Robert T. Trebing, Jr.
                                     Title:  Vice President

                                      S-5<PAGE>

                                                                    Exhibit 10.3

                             AMENDED AND RESTATED
                            SUBORDINATION AGREEMENT
                            -----------------------

          THIS AMENDED AND RESTATED SUBORDINATION AGREEMENT (this "Agreement"),
dated as of July 19, 2000, is made among FOOTHILL CAPITAL CORPORATION, a
California corporation ("Foothill"), FRI-MRD CORPORATION, a Delaware corporation
("Debtor"), and PRANDIUM, INC., a Delaware corporation formerly known as Family
Restaurants, Inc.("Prandium").

          WHEREAS, Borrower, Prandium, the Subsidiaries of Prandium identified
therein, and Foothill are parties to that certain Loan and Security Agreement,
dated as of January 10, 1997 (as amended, modified, and otherwise supplemented
through the date hereof, the "Existing Loan Agreement");

          WHEREAS, pursuant to the terms and conditions of the Existing Loan
Agreement, Prandium, Debtor, and Foothill entered into that certain
Subordination Agreement, dated as of January 10, 1997 (the "Existing
Subordination Agreement"); and

          WHEREAS, Borrower, Prandium, the Subsidiaries of Prandium identified
therein, and Foothill desire to amend and restate the Existing Loan Agreement in
its entirety as provided in that certain Amended and Restated Loan and Security
Agreement, dated as of the date hereof (the "Loan Agreement"), it being
understood that no repayment of the obligations under the Existing Loan
Agreement is being effected thereby, but merely an amendment and restatement in
accordance with the terms thereof; and

          WHEREAS, pursuant to the Loan Agreement and as one of the conditions
thereof, Prandium, Debtor, and Foothill have agreed to amend and restate the
Existing Subordination Agreement in its entirety as provided in this Agreement,
it being understood that no satisfaction of the obligations under the Existing
Subordination Agreement is being effected hereby, but merely an amendment,
restatement, and consolidation in accordance with the terms hereof.

          NOW, THEREFORE, in consideration of the mutual promises, covenants,
conditions, representations, and warranties set forth herein and for other good
and valuable consideration, the parties hereto agree as follows:

          1.  Definitions; Interpretation.
              ---------------------------

              (a)   Terms Defined in Loan Agreement. All capitalized terms used
                    -------------------------------
in this Agreement and not otherwise defined herein shall have the meanings
assigned to them in the Loan Agreement.

              (b)   Certain Defined Terms. As used in this Agreement, the
                    ---------------------
following terms shall have the following meanings:

          "Borrower" means Chi-Chi's, Inc., a Delaware corporation.
           --------
<PAGE>

          "Dollars" means and refers to United States of America dollars or such
           -------
coin or currency of the United States of America as at the time of payment shall
be legal tender for the payment of public and private debts in the United States
of America.

          "FRI-MRD Subsidiaries" means all of the Subsidiaries of Debtor,
           --------------------
including without limitation, Borrower, and the Chi-Chi's Subsidiaries.

          "Insolvency Event" has the meaning set forth in Section 3.
           ----------------                               ---------

          "Senior Debt" means the indebtedness, liabilities and other monetary
           -----------
obligations of Debtor to Foothill under or in connection with the Loan
Agreement, the Guaranty, and the other Loan Documents, including all unpaid
principal of the Loans, all reimbursement obligations in connection with the
Letters of Credit, or L/C Guaranties, all interest accrued thereon, all fees due
under the Loan Agreement, and all other amounts payable by Debtor to Foothill
thereunder or in connection therewith, whether now existing or hereafter
arising, and whether due or to become due, absolute or contingent, liquidated or
unliquidated, determined or undetermined.

          "Subordinated Debt" means all indebtedness, liabilities and other
           -----------------
monetary obligations of Debtor owing to Prandium, whether now existing or
hereafter arising, and whether due or to become due, absolute or contingent,
liquidated or unliquidated, determined or undetermined, including all principal
under the Subordinated Debt Instruments, all interest accrued thereon, all fees,
and all other amounts payable by Debtor to Prandium under or in connection with
the Subordinated Debt Instruments and any other documents or instruments related
thereto.

          "Subordinated Debt Instruments" means any instrument, agreement,
           -----------------------------
document, or contract, whether now existing or hereafter arising, that evidences
any Subordinated Debt.

          "Subordinated Debt Payment" means any payment or distribution by or on
           -------------------------
behalf of Debtor, directly or indirectly, of assets of Debtor of any kind or
character, whether in cash, property or securities (other than additional
Subordinated Debt Instruments), including on account of the purchase, redemption
or other acquisition of Subordinated Debt, as a result of any collection, sale
or other disposition of collateral, or by setoff, exchange or in any other
manner, for or on account of the Subordinated Debt.

              (c)   Interpretation. Unless the context of this Agreement clearly
                    --------------
requires otherwise, references to the plural include the singular, references to
the singular include the plural, the term "including" is not limiting, and the
term "or" has, except where otherwise indicated, the inclusive meaning
represented by the phrase "and/or." The words "hereof," "herein," "hereby,"
"hereunder," and similar terms in this Agreement refer to this Agreement as a
whole and not to any particular provision of this Agreement. Section,
subsection, clause, schedule, and exhibit references are to this Agreement
unless otherwise specified. References to agreements and other contractual
instruments shall be deemed to include all subsequent amendments and other
modifications thereto. References to statutes or regulations are to be construed
as including all statutory and regulatory provisions consolidating, amending or

                                      -2-
<PAGE>

replacing the statute or regulation referred to. The captions and headings are
for convenience of reference only and shall not affect the construction of this
Agreement.

          2.  Subordination to Payment of Senior Debt.  All payments on account
              ---------------------------------------
of the Subordinated Debt shall be subject, subordinate and junior, in right of
payment and exercise of remedies, to the extent and in the manner set forth
herein, to the prior payment, in full, in cash (or other consideration
acceptable to Foothill in its sole discretion and agreed to by Foothill) of the
Senior Debt.

          3.  Subordination Upon Any Distribution of Assets of Debtor.  In the
              --------------------------------------------------------
event of any payment or distribution of assets of Debtor of any kind or
character, whether in cash, property, or securities, upon the dissolution,
winding up, or total or partial liquidation or reorganization, readjustment,
arrangement, or similar proceeding relating to Debtor or its property, whether
voluntary or involuntary, or in bankruptcy, insolvency, receivership,
arrangement or similar proceedings or upon an assignment for the benefit of
creditors, or upon any other marshaling or composition of the assets and
liabilities of Debtor, or otherwise (such events, collectively, the "Insolvency
Events"):  (i) all amounts owing on account of the Senior Debt shall first be
paid, in full, in cash, or payment provided for in cash (or other consideration
acceptable to Foothill in its sole discretion and agreed to by Foothill), before
any Subordinated Debt Payment is made; and (ii) to the extent permitted by
applicable law, any Subordinated Debt Payment to which Prandium would be
entitled except for the provisions hereof, shall, in the event of any such
Insolvency Event, be paid or delivered by the trustee in bankruptcy, receiver,
assignee for the benefit of creditors, or other liquidating agent making such
payment or distribution directly to Foothill for application to the payment of
the Senior Debt in accordance with clause (i), after giving effect to any
concurrent payment or distribution or provision therefor to Foothill in respect
of such Senior Debt.

          4.  Payments on Subordinated Debt.  So long as any Senior Debt shall
              ------------------------------
remain outstanding and unpaid, if any Blockage Event shall have occurred and be
continuing, Debtor shall not make, directly or indirectly, and Prandium shall
not accept or receive, any Subordinated Debt Payment.

          5.  Subordination of Remedies.  So long as any Senior Debt shall
              --------------------------
remain outstanding and unpaid, if any Blockage Event shall have occurred and be
continuing, Prandium shall not, without the prior written consent of Foothill:

                    (i)    accelerate, make demand, or otherwise make due and
          payable prior to the original stated maturity thereof any Subordinated
          Debt or bring suit or institute any other actions or proceedings to
          enforce their rights or interests under or in respect of the
          Subordinated Debt Instruments;

                    (ii)   exercise any rights under or with respect to
          guaranties of the Subordinated Debt, if any;

                    (iii)  exercise any rights to set-offs and counterclaims in
          respect of any indebtedness, liabilities or obligations of Prandium to
          Debtor against any of the Subordinated Debt; or

                                      -3-
<PAGE>

                    (iv)   commence, or cause to be commenced, or join with any
          creditor other than Foothill in commencing, any bankruptcy, insolvency
          or receivership proceeding against Debtor.

          6.  Payment Over to Foothill.  In the event that, notwithstanding the
              ------------------------
provisions of Sections 3, 4, and 5, any Subordinated Debt Payments shall be
              --------------------
received in contravention of such Sections 3, 4, or 5 by Prandium before all
                                  -------------------
Senior Debt is paid, in full, in cash (or other consideration acceptable to
Foothill in its sole discretion and agreed to by Foothill), such Subordinated
Debt Payments shall be held in trust for the benefit of Foothill and shall be
paid over or delivered to Foothill for application to the payment, in full, in
cash (or other consideration acceptable to Foothill in its sole discretion and
agreed to by Foothill) of all Senior Debt remaining unpaid to the extent
necessary to give effect to such Sections 3, 4, and 5, after giving effect to
                                 --------------------
any concurrent payments or distributions to Foothill in respect of the Senior
Debt.

          7.  Authorization to Foothill.  If, while any Subordinated Debt is
              --------------------------
outstanding, any Insolvency Event shall occur relating to Debtor or its
property:  (i) Foothill is hereby irrevocably authorized and empowered (in the
name of Prandium or otherwise), but shall have no obligation, to demand, sue
for, collect, and receive every payment or distribution in respect of the
Subordinated Debt and give acquittance therefor and to file claims and proofs of
claim and take such other action (including voting the Subordinated Debt) as it
may deem necessary or advisable for the exercise or enforcement of any of the
rights or interests of Foothill; and (ii) Prandium shall promptly take such
action as Foothill reasonably may request (A) to collect the Subordinated Debt
for the account of Foothill and to file appropriate claims or proofs of claim in
respect of the Subordinated Debt, (B) to execute and deliver to Foothill such
powers of attorney, assignments, and other instruments as it may request to
enable it to enforce any and all claims with respect to the Subordinated Debt,
and (C) to collect and receive any and all Subordinated Debt Payments to the
extent permitted by applicable law.

          8.  Certain Agreements of Prandium.
              -------------------------------

              (a)   No Benefits.  Prandium understands that there may be various
                    ------------
agreements among Foothill and Debtor evidencing and governing the Senior Debt,
and Prandium acknowledges and agrees that such agreements are not intended to
confer any benefits on Prandium and that Foothill shall have no obligation to
Prandium or any other Person to exercise any rights, enforce any remedies, or
take any actions which may be available to them under such agreements.

              (b)   No Interference. Prandium acknowledges that Debtor has
                    ---------------
granted Foothill a security interest in all of Debtor's assets, and agrees that,
so long as Prandium holds Subordinated Debt, Prandium will not interfere with or
in any manner oppose a disposition of any Collateral by Foothill in accordance
with the terms of the agreements governing such grants and applicable law.

              (c)   Reliance by Foothill.  Prandium acknowledges and agrees that
                    --------------------
Foothill will have relied upon and will continue to rely upon the subordination
provisions

                                      -4-
<PAGE>

provided for herein and the other provisions hereof in entering into the Loan
Documents and making or issuing the Loans, Letters of Credit, or L/C Guaranties
thereunder.

              (d)   Waivers. Prandium waives any and all notice of the
                    -------
incurrence of the Senior Debt or any part thereof and any right to require
marshaling of assets.

              (e)   Obligations of Prandium Not Affected. Prandium agrees that
                    ------------------------------------
at any time and from time to time, without notice to or the consent of Prandium,
without incurring responsibility to Prandium, and without impairing or releasing
the subordination provided for herein or otherwise impairing the rights of
Foothill hereunder: (i) the time for Debtor's performance of or compliance with
any of its agreements contained in the Loan Documents may be extended or such
performance or compliance may be waived by Foothill; (ii) the agreements of
Debtor with respect to the Loan Documents may from time to time be modified by
Debtor and Foothill for the purpose of adding any requirements thereto or
changing in any manner the rights and obligations of Debtor or Foothill
thereunder; (iii) the manner, place or terms for payment of Senior Debt or any
portion thereof may be altered or the terms for payment extended, or the Senior
Debt may be renewed in whole or in part; (iv) the maturity of the Senior Debt
may be accelerated in accordance with the terms of any present or future
agreement by Debtor and Foothill; (v) any Collateral may be sold, exchanged,
released or substituted in accordance with the Loan Documents and any Lien in
favor of Foothill may be terminated, subordinated, or fail to be perfected or
become unperfected; (vi) any Person liable in any manner for Senior Debt may be
discharged, released, or substituted; and (vii) all other rights against Debtor,
any other Person, or with respect to any Collateral may be exercised (or
Foothill may waive or refrain from exercising such rights) in accordance with
the Loan Documents.

              (f)   Rights of Foothill Not to Be Impaired. No right of Foothill
                    -------------------------------------
to enforce the subordination provided for herein or to exercise its other rights
hereunder shall at any time in any way be prejudiced or impaired by any act or
failure to act by Debtor hereunder or under or in connection with the other Loan
Documents or by any noncompliance by Debtor with the terms and provisions and
covenants herein or in any other Loan Document, regardless of any knowledge
thereof Foothill may have or otherwise be charged with.

              (g)   Financial Condition of Debtor. Prandium shall not have any
                    -----------------------------
right to require Foothill to obtain or disclose any information with respect to:
(i) the financial condition or character of Debtor or the ability of Debtor to
pay and perform Senior Debt; (ii) the Senior Debt; (iii) the Collateral or other
security for any or all of the Senior Debt; (iv) the existence or nonexistence
of any guarantees of, or any other subordination agreements with respect to, all
or any part of the Senior Debt; (v) any action or inaction on the part of
Foothill or any other Person; or (vi) any other matter, except as otherwise
expressly required by any provision of any Loan Document or law (except to the
extent that any otherwise applicable requirement of law has been waived by
Prandium pursuant to a legally enforceable waiver).

              (h)   Acquisition of Liens or Guaranties. Unless otherwise
                    ----------------------------------
expressly permitted under the Loan Documents, Prandium shall not, without the
prior consent of Foothill, acquire any right or interest in or to any Collateral
or accept any guaranties for the Subordinated Debt.

                                      -5-
<PAGE>

          9.  Subrogation.
              ------------

              (a)   Subrogation. Until the payment and performance in full of
                    -----------
all Senior Debt, Prandium shall not have, and shall not directly or indirectly
exercise, any rights that it may acquire by way of subrogation under this
Agreement, by any payment or distribution to Foothill hereunder or otherwise.

              (b)   Payments Over to Prandium. If any payment or distribution to
                    -------------------------
which Prandium would otherwise have been entitled but for the provisions of
Section 3, 4, or 5 shall have been applied pursuant to the provisions of Section
------------------                                                       -------
3, 4, or 5 to the payment of all amounts payable under the Senior Debt, Prandium
----------
shall be entitled to receive from Foothill any payments or distributions
received by Foothill in excess of the amount sufficient to pay in full all
amounts payable under or in respect of the Senior Debt. If any such excess
payment is made to Foothill, Foothill shall promptly remit such excess to
Prandium and until so remitted shall hold such excess payment for the benefit of
Prandium.

         10.  Continuing Agreement; Reinstatement.
              -----------------------------------

              (a)   Continuing Agreement. This Agreement is a continuing
                    --------------------
agreement of subordination and shall continue in effect and be binding upon
Prandium until payment and performance in full of the Senior Debt and
termination or cash collateralization of the Letters of Credit, and L/C
Guaranties. The subordinations, agreements, and priorities set forth herein
shall remain in full force and effect regardless of whether any party hereto in
the future seeks to rescind, amend, terminate, or reform, by litigation or
otherwise, its respective agreements with Debtor.

              (b)   Reinstatement. This Agreement shall continue to be effective
                    -------------
or shall be reinstated, as the case may be, if, for any reason, any payment of
the Senior Debt by or on behalf of Debtor shall be rescinded or must otherwise
be restored by Foothill, whether as a result of an Insolvency Event or
otherwise.

         11.  Transfer of Subordinated Debt.  Prandium may not assign or
              -----------------------------
transfer its rights and obligations under the Subordinated Debt Instruments or
any interest in the Subordinated Debt without the prior written consent of
Foothill (which consent shall not be unreasonably withheld), and any such
transferee or assignee, as a condition to acquiring the Subordinated Debt
Instruments or interest in the Subordinated Debt shall agree to be bound hereby,
in form reasonably satisfactory to Foothill.

         12.  Obligations of Debtor Not Affected.  The provisions of this
              ----------------------------------
Agreement are intended solely for the purpose of defining the relative rights
against Debtor of Prandium, on the one hand, and Foothill, on the other hand.
Nothing contained in this Agreement shall (i) impair, as between Debtor and
Prandium, the obligation of Debtor to pay the principal of or interest on the
Subordinated Debt Instruments and its other obligations with respect to the
Subordinated Debt as and when the same shall become due and payable in
accordance with the terms thereof, or (ii) otherwise affect the relative rights
against Debtor of Prandium, on the one hand, and the creditors of Debtor (other
than Foothill), on the other hand.

                                      -6-
<PAGE>

         13.  Endorsement of Subordinated Debt Instruments; Further Assurances
              ----------------------------------------------------------------
and Additional Acts.
--------------------

              (a)   Endorsement of Subordinated Debt Instrument. At the request
                    -------------------------------------------
of Foothill, the Subordinated Debt Instruments and all other documents and
instruments evidencing any of the Subordinated Debt shall be endorsed with a
legend noting that the Subordinated Debt Instruments and such other documents
and instruments are subject to this Agreement, and Prandium shall promptly
deliver to Foothill evidence of the same.

              (b)   Further Assurances and Additional Acts. Each of Prandium and
                    --------------------------------------
Debtor shall execute, acknowledge, deliver, file, notarize and register at its
own reasonable expense all such further agreements, instruments, certificates,
financing statements, documents and assurances, and perform such acts as
Foothill reasonably shall deem necessary or appropriate to effectuate the
purposes of this Agreement, and promptly provide Foothill with evidence of the
foregoing reasonably satisfactory in form and substance to Foothill.

         14.  Notices.  Unless otherwise specifically provided herein, any
              --------
notice or other communication herein required or permitted to be given shall be
in writing and shall be delivered in the manner set forth in the Loan Agreement.

         15.  No Waiver; Cumulative Remedies.  No failure on the part of
              -------------------------------
Foothill to exercise, and no delay in exercising, any right, remedy, power, or
privilege hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any such right, remedy, power, or privilege preclude any
other or further exercise thereof or the exercise of any other right, remedy,
power, or privilege.  The rights and remedies under this Agreement are
cumulative and not exclusive of any rights, remedies, powers, and privileges
that may otherwise be available to Foothill.

         16.  Costs and Expenses.
              -------------------

              (a)   Payments by Debtor. Debtor agrees to pay to Foothill on
                    ------------------
demand the reasonable out-of-pocket costs and expenses of Foothill, and the
reasonable fees and disbursements of counsel to Foothill, in connection with the
negotiation, preparation, execution, and delivery of this Agreement, and any
amendments, modifications, or waivers of the terms thereof.

              (b)   Payments by Debtor and Prandium. Each of Debtor and Prandium
                    -------------------------------
jointly and severally agrees to pay to Foothill on demand all reasonable out-of-
pocket costs and expenses of Foothill, and the fees and disbursements of
counsel, in connection, following a breach hereof, with the enforcement or
attempted enforcement of, and preservation of rights or interests under, this
Agreement, including any reasonable out-of-pocket losses, costs and expenses
sustained by Foothill as a result of any failure by any of Prandium to perform
or observe its obligations contained in this Agreement.

         17.  Survival.  All covenants, agreements, representations and
              ---------
warranties made in this Agreement shall, except to the extent otherwise provided
herein, survive the execution and delivery of this Agreement, and shall continue
in full force and effect so long as any Senior Debt remains unpaid and any
Letters of Credit, or L/C Guaranties, remain outstanding.  Without

                                      -7-
<PAGE>

limiting the generality of the foregoing, the obligations of Debtor and Prandium
under Section 16 shall survive the satisfaction of the Senior Debt and the
      ----------
termination or cash collateralization of the Letters of Credit, and L/C
Guaranties.

         18.  Benefits of Agreement.  This Agreement is entered into for the
              ----------------------
sole protection and benefit of the parties hereto and their successors and
assigns, and no other Person shall be a direct or indirect beneficiary of, or
shall have any direct or indirect cause of action or claim in connection with,
this Agreement.

         19.  Binding Effect.  This Agreement shall be binding upon, inure to
              ---------------
the benefit of and be enforceable by Debtor, Prandium, and Foothill and their
respective successors and assigns.

         20.  Governing Law.  THIS AGREEMENT SHALL BE GOVERNED BY, AND
              --------------
CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF CALIFORNIA.

         21.  Submission to Jurisdiction.  PRANDIUM HEREBY (i) SUBMITS TO THE
              ---------------------------
EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF CALIFORNIA AND THE FEDERAL
COURTS OF THE UNITED STATES SITTING IN THE STATE OF CALIFORNIA FOR THE PURPOSE
OF ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, (ii)
AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD
AND DETERMINED IN SUCH COURTS, (iii) IRREVOCABLY WAIVES (TO THE EXTENT PERMITTED
BY APPLICABLE LAW) ANY OBJECTION WHICH THEY NOW OR HEREAFTER MAY HAVE TO THE
LAYING OF VENUE OF ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY OF THE FOREGOING
COURTS, AND ANY OBJECTION ON THE GROUND THAT ANY SUCH ACTION OR PROCEEDING IN
ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM AND (iv) AGREES THAT A
FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE
ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER
PERMITTED BY LAW.

         22.  Entire Agreement; Amendments and Waivers.
              -----------------------------------------

              (a)   Entire Agreement. This Agreement constitutes the entire
                    ----------------
agreement of Debtor, Foothill, and Prandium with respect to the matters set
forth herein and supersedes any prior agreements, commitments, drafts,
communications, discussions, and understandings, oral or written, with respect
thereto.

              (b)   Amendments and Waivers. No amendment to any provision of
                    ----------------------
this Agreement shall in any event be effective unless the same shall be in
writing and signed by Debtor, Prandium, and Foothill; and no waiver of any
provision of this Agreement, or consent to any departure by Debtor or Prandium
therefrom, shall in any event be effective unless the same shall be in writing
and signed by Foothill. Any such amendment, waiver, or consent shall be
effective only in the specific instance and for the specific purpose for which
given.

                                      -8-
<PAGE>

         23.  Conflicts.  In case of any conflict or inconsistency between any
              ----------
terms of this Agreement, on the one hand, and the Subordinated Debt Instruments,
on the other hand, then the terms of this Agreement shall control.

         24.  Severability.  Whenever possible, each provision of this
              -------------
Agreement shall be interpreted in such manner as to be effective and valid under
all applicable laws and regulations.  If, however, any provision of this
Agreement shall be prohibited by or invalid under any such law or regulation in
any jurisdiction, it shall, as to such jurisdiction, be deemed modified to
conform to the minimum requirements of such law or regulation, or, if for any
reason it is not deemed so modified, it shall be ineffective and invalid only to
the extent of such prohibition or invalidity without affecting the remaining
provisions of this Agreement or the validity or effectiveness of such provision
in any other jurisdiction.

         25.  Interpretation.  This Agreement is the result of negotiations
              ---------------
between, and has been reviewed by counsel to, Foothill, Prandium, and Debtor and
is the product of all parties hereto.  Accordingly, this Agreement shall not be
construed against Foothill merely because of Foothill's involvement in the
preparation hereof.

         26.  Counterparts.  This Agreement may be executed in any number of
              -------------
counterparts and by different parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute but one and the same agreement.  Delivery of an
executed counterpart of this Agreement shall be equally as effective as delivery
of a manually executed counterpart hereof.  Any party hereto delivering a
counterpart of this Agreement by telefacsimile shall also deliver a manually
executed counterpart, but the failure to so deliver a manually executed
counterpart shall not affect the validity, enforceability, or binding nature
hereof.

         27.  Termination of Agreement.  Upon payment and performance in full
              -------------------------
of the Senior Debt and the termination or cash collateralization of the Letters
of Credit, and L/C Guaranties, this Agreement shall terminate and Foothill shall
promptly execute and deliver to Debtor and Prandium such documents and
instruments as shall be necessary to evidence such termination; provided,
however, that the obligations of Debtor and Prandium under Section 16 shall
survive such termination.

                 -remainder of page intentionally left blank-

                                      -9-
<PAGE>

          IN WITNESS WHEREOF, the undersigned has executed and delivered this
Agreement as of the date first written above.

                                            FRI-MRD CORPORATION,
                                            a Delaware corporation

                                            By: /s/ Robert T. Trebing, Jr.

                                            Title:  President

                                            PRANDIUM, INC.,

                                            a Delaware corporation

                                            By: /s/ Robert T. Trebing, Jr.

                                            Title:  Executive V.P. and CFO

                                            FOOTHILL CAPITAL CORPORATION,
                                            a California corporation

                                            By: /s/ Teresa Bolick

                                            Title:  Vice President

                                      S-1

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