<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 6, 1996
REGISTRATION NO. 333-04725
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
EINSTEIN BROS. BAGELS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
DELAWARE 5812 84-1294908
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL CLASSIFICATION IDENTIFICATION NUMBER)
INCORPORATION OR CODE NUMBER)
ORGANIZATION)
1526 COLE BOULEVARD, SUITE 200
GOLDEN, COLORADO 80401
TELEPHONE (303) 202-9300
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
PAUL A. STRASEN
VICE PRESIDENT AND GENERAL COUNSEL
EINSTEIN BROS. BAGELS, INC.
1526 COLE BOULEVARD, SUITE 200
GOLDEN, COLORADO 80401
TELEPHONE (303) 202-3463
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
AMY S. POWERS DAVID A. SCHUETTE
BELL, BOYD & LLOYD MAYER, BROWN & PLATT
THREE FIRST NATIONAL PLAZA 190 SOUTH LASALLE STREET
CHICAGO, ILLINOIS 60602 CHICAGO, ILLINOIS 60603
TELEPHONE: (312) 372-1121 TELEPHONE: (312) 782-0600
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
AMENDING PART II AND FILING CERTAIN EXHIBITS.
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<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated expenses to be borne by the
Company in connection with the registration, issuance, and distribution of the
securities being registered hereby, other than underwriting discounts and
commissions. All amounts are estimates except the SEC registration fee, the
NASD filing fee, and the Nasdaq listing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............. $ 20,380
NASD filing fee................................................. 6,410
Nasdaq listing fee.............................................. 17,500
Transfer agent and registrar's fee and expenses................. 10,000
Blue Sky fees and expenses...................................... 25,000
Printing and engraving expenses................................. 200,000
Legal fees and expenses......................................... 350,000
Accounting fees and expenses.................................... 150,000
Miscellaneous................................................... 27,710
--------
Total....................................................... $800,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law authorizes
indemnification of directors, officers, employees, and agents of the Company;
allows the advancement of costs of defending against litigation; and permits
companies incorporated in Delaware to purchase insurance on behalf of
directors, officers, employees, and agents against liabilities whether or not
in the circumstances such companies would have the power to indemnify against
such liabilities under the provisions of the statute.
The Company's Restated Certificate of Incorporation provides for
indemnification of the Company's officers and directors to the fullest extent
permitted by Section 145 of the Delaware General Corporation Law. The Company
intends to obtain directors and officers insurance covering its executive
officers and directors.
The Company's Restated Certificate of Incorporation eliminates, to the
fullest extent permitted by Delaware law, liability of a director to the
Company or its stockholders for monetary damages for a breach of such
director's fiduciary duty of care except for liability where a director (a)
breaches his or her duty of loyalty to the Company or its stockholders, (b)
fails to act in good faith or engages in intentional misconduct or knowing
violation of law, (c) authorizes payment of an illegal dividend or stock
repurchase, or (d) obtains an improper personal benefit. While liability for
monetary damages has been eliminated, equitable remedies such as injunctive
relief or rescission remain available. In addition, a director is not relieved
of his or her responsibilities under any other law, including the federal
securities laws.
Insofar as indemnification by the Company for liabilities arising under the
Securities Act of 1933, as amended (the "Securities Act"), may be permitted to
directors, officers, and controlling persons of the Company pursuant to the
foregoing provisions, the Company has been advised that in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
On March 24, 1995, in connection with the formation of the Company, the
Company issued to the shareholders of Brackman Bros., Inc. ("Brackman") and to
Bagel & Bagel, Inc. ("Bagel & Bagel") an aggregate of 1,147,500 shares of
Common Stock as partial consideration for all of the outstanding shares of
Brackman and substantially all of the assets of Bagel & Bagel. On such date,
the Company also sold to certain
II-1
<PAGE>
accredited investors an aggregate of 3,536,361 shares of Common Stock for
$20.8 million in cash. The above-mentioned securities were sold without
registration under the Securities Act in reliance on Section 4(2) of the
Securities Act and Rule 506 of Regulation D promulgated under the Securities
Act.
On March 31, 1995, in connection with the formation of the Company, the
Company issued to Offerdahl's Bagel Gourmet, Inc. ("Offerdahl's") an aggregate
of 885,996 shares of Common Stock as partial consideration for substantially
all of the assets of Offerdahl's and a non-recourse promissory note in the
aggregate amount of $437,497. Such securities were sold without registration
under the Securities Act in reliance on Section 4(2) of the Securities Act and
Rule 506 of Regulation D promulgated under the Securities Act.
On August 10, 1995, the Company issued to the shareholder of Baltimore Bagel
Co. ("Baltimore Bagel") an aggregate of 6,250 shares of Series A Preferred
Stock in connection with the merger of Baltimore Bagel into a wholly owned
subsidiary of the Company. Such shares were issued without registration under
the Securities Act in reliance on Section 4(2) of the Securities Act and Rule
506 of Regulation D promulgated under the Securities Act.
On December 29, 1995, the Company sold a warrant to purchase an aggregate of
1,012,500 shares of Common Stock to Bagel Store Development Funding, L.L.C.,
formerly known as Einstein Bros. Equity Funding, L.L.C., at an exercise price
of $6.47 per share. The cash purchase price for the warrant was $45,000. Such
warrant was sold without registration under the Securities Act in reliance on
Section 4(2) of the Securities Act and Rule 506 of Regulation D promulgated
under the Securities Act.
On January 15, 1996, the Company sold warrants to purchase an aggregate of
1,237,050 shares of Common Stock to certain accredited investors at an
exercise price of $6.47 per share. The aggregate purchase price for the
warrants was $1,100, which purchase price was paid by delivery of promissory
notes from the accredited investors. An aggregate of 540,675 shares of Common
Stock have been issued pursuant to the exercise of certain of such warrants
for an aggregate exercise price of $3,499,900. Such warrants, and the shares
of Common Stock issued upon exercise thereof, were sold without registration
under the Securities Act in reliance on Section 4(2) of the Securities Act and
Rule 506 of Regulation D promulgated under the Securities Act.
On February 1, 1996, the Company sold to certain accredited investors (all
of whom were former shareholders of Noah's New York Bagels, Inc.) an aggregate
of 855,225 shares of Common Stock for a cash purchase price of $10.52 per
share. Such shares were issued without registration under the Securities Act
in reliance on Section 4(2) of the Securities Act and Rule 506 of Regulation D
promulgated under the Securities Act.
On April 5, 1996, the Company sold to Mark A. Goldston, President and Chief
Executive Officer and a director of the Company, 28,508 shares of Common Stock
for a cash purchase price of $10.52 per share. Such shares were sold without
registration under the Securities Act in reliance on Section 4(2) of the
Securities Act in reliance on Rule 506 of Regulation D promulgated under the
Securities Act.
On May 28, 1996, in connection with entering into its secured revolving
credit facility, the Company issued a warrant to purchase an aggregate of
15,375 shares of Common Stock to one accredited investor at an exercise price
of $11.58. Such warrant was issued without registration under the Securities
Act and Rule 506 of Regulation D promulgated under the Securities Act.
Since its inception, the Company has granted options for 3,719,555 shares of
Common Stock pursuant to its 1995 Stock Option Plan, as amended, at exercise
prices ranging from $5.88 to $11.58 per share, of which options to purchase
296,169 shares of Common Stock have been exercised. Such options were issued
without registration under the Securities Act in reliance on Section 4(2) and
Rule 701 promulgated under the Securities Act.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The exhibits to the Registration Statement are listed in the Exhibit
Index which appears elsewhere in this Registration Statement and is hereby
incorporated herein by reference.
(b) Financial Statement Schedules:
<TABLE>
<S> <C>
Schedule II--Valuation and Qualifying Accounts........................... II-6
</TABLE>
All other schedules are omitted because of the absence of the condition
under which they are required or because the information is included in the
consolidated financial statements or notes thereto.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes to provide to the Underwriters,
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers, and controlling persons of
the Company pursuant to the provisions described under Item 14 above or
otherwise, the Company has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Company of expenses incurred or paid by a director, officer, or
controlling person of the Company in the successful defense of any action,
suit, or proceeding) is asserted against the Company by such director,
officer, or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication
of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT, OR AMENDMENT THERETO, TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN GOLDEN,
COLORADO, ON JUNE 5, 1996.
Einstein Bros. Bagels, Inc.
/s/ Mark R. Goldston
By: _________________________________
Mark R. Goldston
President and Chief Executive
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT, OR AMENDMENT THERETO, HAS BEEN SIGNED BELOW BY THE
FOLLOWING PERSONS IN THE CAPACITIES INDICATED ON JUNE 5, 1996.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ Mark R. Goldston President, Chief Executive Officer and
___________________________________________ Director (Principal Executive Officer)
Mark R. Goldston
/s/ Michael Beaudoin Vice President and Chief Financial Officer
___________________________________________ (Principal Financial and Accounting
Michael Beaudoin Officer)
/s/ Noah Alper Director
___________________________________________
Noah Alper
/s/ Scott A. Beck Director
___________________________________________
Scott A. Beck
/s/ Kyle T. Craig Director
___________________________________________
Kyle T. Craig
/s/ M. Laird Koldyke Director
___________________________________________
M. Laird Koldyke
/s/ Gail Lozoff Director
___________________________________________
Gail Lozoff
/s/ John H. Muehlstein, Jr. Director
___________________________________________
John H. Muehlstein, Jr.
/s/ John A. Offerdahl Director
___________________________________________
John A. Offerdahl
/s/ Lloyd D. Ruth Director
___________________________________________
Lloyd D. Ruth
/s/ David G. Stanchak Director
___________________________________________
David G. Stanchak
</TABLE>
II-4
<PAGE>
EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT(+) PAGE*
------- ------------------------- ----
<C> <S> <C>
1** Form of Purchase Agreement with Underwriters.
2.1(a)** Agreement to Contribute Shares dated February 17, 1995 among
the Company, Brackman Brothers, Inc. ("Brackman") and the
shareholders of Brackman (the "Brackman Agreement").
2.1(b)** Amendment to Agreement to Contribute Shares dated March 24,
1995 among the Company, Brackman and the shareholders of
Brackman (the "Amendment to Brackman Agreement").
2.2** Agreement to Contribute Assets dated March 2, 1995 among the
Company, Bagel & Bagel, Inc. and Richard Lozoff (the "Bagel
& Bagel Agreement").
2.3** Agreement to Contribute Assets dated March 23, 1995 among
the Company, Offerdahl's Bagel Gourmet, Inc.
("Offerdahl's") and the stockholders of Offerdahl's (the
"Offerdahl's Agreement").
2.4** Agreement and Plan of Merger dated August 10, 1995 among the
Company, Baltimore Bagel Co., BBC Acquiring Corporation and
Michael E. Brau and Rachel C. Brau, individually and as
trustees of the Brau Living Trust dated January 23, 1990
(the "Baltimore Bagel Agreement").
2.5** Merger Agreement dated as of January 22, 1996, as amended,
among the Company, NNYB Acquisition Corporation, Noah's New
York Bagels, Inc. ("Noah's"), and the shareholders and
optionholders of Noah's (the "Noah's Agreement").
3.1*** Restated Certificate of Incorporation of the Company
("Certificate of Incorporation").
3.2** Amended and Restated Bylaws of the Company ("Bylaws").
4.1*** Certificate of Incorporation (included in Exhibit 3.1).
4.2** Bylaws (included in Exhibit 3.2).
4.3*** Certificate representing Common Stock.
4.4** Amended and Restated Registration Rights Agreement dated
February 1, 1996 by and among the Company and certain
stockholders of the Company.
4.5** Form of Concurrent Private Placement Agreement between
Boston Chicken, Inc. ("Boston Chicken") and the Company
("Concurrent Private Placement Agreement").
4.6** Form of Registration Agreement between Boston Chicken and
the Company.
5.1*** Opinion of Bell, Boyd & Lloyd.
10.1** Amended and Restated Loan Agreement dated May 17, 1996
between Boston Chicken, Inc. ("Boston Chicken") and the
Company.
</TABLE>
- --------
+In the case of incorporation by reference to documents filed by Boston
Chicken under the Securities Exchange Act of 1934, as amended, Boston
Chicken's file number under that Act is 0-22802.
*This information appears only in the manually signed original of the
Registration Statement.
**Previously filed.
***To be filed by amendment.
Exhibit-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT(+) PAGE*
------- ------------------------- ----
<C> <S> <C>
10.2** Form of Concurrent Private Placement Agreement (included in
Exhibit 4.5).
10.3(a)** Secured Demand Note of the Company dated January 30, 1996
payable to Boston Chicken ("Secured Demand Note")
(incorporated by reference to Exhibit 10.23(d) Boston
Chicken's 1995 annual report on Form 10-K).
10.3(b)** First Amendment to Secured Demand Note dated as of March 7,
1996.
10.4** Brackman Agreement and Amendment to Brackman Agreement
(included in Exhibits 2.1(a) and 2.1(b) hereof).
10.5** Bagel & Bagel Agreement (included in Exhibit 2.2 hereof).
10.6** Offerdahl's Agreement (included in Exhibit 2.3 hereof).
10.7** Baltimore Bagel Agreement (included in Exhibit 2.4 hereof).
10.8** Noah's Agreement (included in Exhibit 2.5 hereof).
10.9** Credit Agreement dated as of May 17, 1996 among the
Company, the Lenders named therein, and Bank of America
Illinois, as Agent.
10.10 Amended and Restated 1995 Stock Option Plan of the Company.
10.11 1996 Non-Employee Director Stock Option Plan of the
Company.
10.12** Amended and Restated Accounting and Administration Services
Agreement dated as of May 28, 1996 between Boston Chicken
and the Company.
10.13(a)** Financial Services Agreement dated as of March 24, 1995
between Boston Chicken and the Company ("Financial
Services Agreement") (incorporated by reference to Exhibit
10.15 to Boston Chicken's 1994 annual report on Form 10-
K).
10.13(b)** First Amendment to Financial Services Agreement dated as of
March 7, 1996.
10.13(c)** Financial Services Agreement Termination Agreement
effective as of May 20, 1996.
10.14** Amended and Restated Real Estate Services Agreement dated
as of May 28, 1996 between Boston Chicken and the Company.
10.15** Amended and Restated Computer and Communications Systems
Services Agreement dated as of May 28, 1996 between Boston
Chicken and the Company.
10.16** Assignment and Reimbursement Agreement dated March 24, 1995
between Boston Chicken and the Company.
10.17(a)** Employment Agreement dated March 24, 1995 between Daniel V.
Colangelo and the Company.
10.17(b)** Amendment to Employment Agreement and Transition and
Consulting agreement dated January 16, 1996 between Daniel
V. Colangelo and the Company, as amended March 6, 1996.
10.18** Letter Agreement dated April 5, 1996 between Mark R.
Goldston and the Company.
10.19** Employment Agreement dated March 24, 1995 between Gail
Lozoff and the Company.
10.20** Secured Loan Agreement dated October 2, 1995 between Doc's
Cheese Company, L.L.C. ("Doc's") and the Company.
</TABLE>
- --------
+In the case of incorporation by reference to documents filed by Boston
Chicken under the Securities Exchange Act of 1934, as amended, Boston
Chicken's file number under that Act is 0-22802.
*This information appears only in the manually signed original of the
Registration Statement.
**Previously filed.
***To be filed by amendment.
Exhibit-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT(+) PAGE*
------- ------------------------- ----
<C> <S> <C>
10.21**(++) Supply Agreement dated October 2, 1995 between Doc's and
the Company.
10.22** License Agreement dated October 2, 1995 between Doc's and
the Company.
10.23** Option agreement dated October 2, 1995 between Doc's and
the Company.
10.24(++) Project and Approved Supplier Agreement among Harlan Bagel
Supply Company, Harlan Bakeries, Inc. and the Company.
10.25 Option Agreement among Harlan Bagel Supply Company, Hal P.
Harlan, Hugh P. Harlan, Doug H. Harlan and the Company
(included in Exhibit 10.24).
10.26 Right of First Refusal Agreement among Harlan Bakeries,
Inc., Hal P. Harlan, Hugh P. Harlan, Doug H. Harlan and
the Company (included in Exhibit 10.24).
10.27** Aircraft dry leases dated January 16, 1996 between the
Company and Bowana Aviation, Inc.
10.28** Form of Fourth Amended and Restated Limited Liability
Company Agreement of Bagel Store Development Funding,
L.L.C. ("Bagel Funding").
10.29** Warrant Purchase Agreement dated as of December 29, 1995
between the Company and Bagel Funding (including form of
warrant to purchase 1,012,500 shares of Common Stock).
10.30** Form of agreement between the Company and Bagel Funding
relating to the Company's purchase of Bagel Funding's
interests in area developers.
10.31 Form of Area Development Agreement between the Company and
its Area Developers (included in Exhibit 99).
10.32 Form of Franchise Agreement between the Company and its
Area Developers (included in Exhibit 99).
10.33 Form of Secured Loan Agreement between the Company and its
Area Developers (included in Exhibit 99).
10.34** Employment Agreement dated March 31, 1995 between John A.
Offerdahl and the Company.
11** Statement re: Computation of Loss Per Share.
21.1** Subsidiaries of the Company.
23.1** Consent of Arthur Andersen LLP with respect to the Audited
Consolidated Financial Statements of the Company.
23.2** Consent of Deloitte & Touche LLP with respect to the
Audited Consolidated Financial Statements of Noah's New
York Bagels, Inc.
23.3** Consent of Mayer Hoffman McCann L.C. with respect to the
Audited Financial Statements of Bagel & Bagel, Inc.
23.4** Consent of Arthur Andersen LLP with respect to the Audited
Combined Financial Statements of Offerdahl's Bagel
Gourmet, Inc.
23.5** Consent of Arthur Andersen LLP with respect to the Audited
Financial Statements of Baltimore Bagel Co.
23.6*** Consent of Bell, Boyd & Lloyd (included in Exhibit 5.1).
27** Financial Data Schedule
99 Uniform Franchise Offering Circular.
</TABLE>
- --------
(+)In the case of incorporation by reference to documents filed by Boston
Chicken under the Securities Exchange Act of 1934, as amended, Boston
Chicken's file number under that Act is 0-22802.
(++)Confidential treatment requested.
*This information appears only in the manually signed original of the
Registration Statement.
**Previously filed.
***To be filed by amendment.
Exhibit-3
<PAGE>
EXHIBIT 10.10
EINSTEIN BROS. BAGELS, INC.
AMENDED AND RESTATED
1995 STOCK OPTION PLAN
(as of May 28, 1996)
1. STATEMENT OF PURPOSE. The purpose of this Amended and Restated 1995
Stock Option Plan (the "Plan") is to benefit Einstein Bros. Bagels, Inc. (the
"Company") by offering certain present and future employees, officers, and
consultants of the Company and its subsidiaries, if any, a favorable opportunity
to become holders of the common stock of the Company ("Common Stock") over a
period of years, thereby giving them a long-term stake in the growth and
prosperity of the Company and encouraging the continuance of their involvement
with the Company.
2. ADMINISTRATION. The Plan shall be administered by a committee which
shall consist of at least two members of the Board of Directors of the Company,
each of whom is a "disinterested person" (as such term is defined under Rule
16b-3 of the Securities Exchange Act of 1934 (the "Exchange Act").
3. ELIGIBILITY. Options may be granted to employees of the Company and
its subsidiaries, if any, who are employed on a full time basis, and to officers
and consultants of the Company and its subsidiaries, if any. The Committee may
grant options to eligible employees, officers and consultants of the Company and
its subsidiaries selected initially and from time to time thereafter by the
Committee based on the importance of their services; provided, however, that
notwithstanding any other provision of the Plan, the maximum number of shares
subject to all options granted to an individual in any calendar year shall in no
event exceed 300,000 (the "Individual Cap"), subject to adjustment as provided
in Section 11. Eligible individuals may be selected individually or by groups or
categories, as determined by the Committee in its discretion. No non-employee
director of the Company shall receive an award under the Plan.
4. GRANTING OF OPTIONS. The Committee may grant options under which up
to a total of not in excess of 24,444.444 shares of the Common Stock may be
purchased from the Company, subject to adjustment as provided in Section 11. No
option shall be granted under the Plan subsequent to February 1, 2005. Options
granted under the Plan are intended not to be treated as incentive stock options
as defined in Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code").
In the event that an option expires or is terminated or canceled
unexercised as to any shares, such released shares may again be optioned
(including a grant in substitution for a canceled option). Shares subject to
options may be made available from unissued or reacquired shares of Common
Stock.
<PAGE>
Nothing contained in the Plan or in any option granted pursuant thereto
shall confer upon any optionee any right to be continued in the employment of
the Company, or interfere in any way with the right of the Company to terminate
his or her employment at any time.
5. OPTION PRICE. The options shall be granted at an exercise price,
subject to the provisions of Section 11 hereof, equal to the fair market value
at the time the option is granted, of the shares of Common Stock subject to the
option.
6. DURATION OF OPTIONS, INCREMENTS, AND EXTENSIONS. Subject to the
provisions of Section 9 hereof, each option shall be for a term of ten years.
Each option shall become exercisable with respect to 10% of the total number of
shares subject to the option on the first anniversary of the date of grant, an
additional 20% on the second anniversary of the date of grant, an additional 30%
on the third anniversary of the date of grant, and the balance on the fourth
anniversary of the date of grant (the "Vesting Schedule"). Notwithstanding the
foregoing, the Committee may in its discretion accelerate the exercisability of
any option subject to such terms and conditions as the Committee deems necessary
and appropriate to effectuate the purpose of the Plan including, without
limitation, a requirement that the optionee grant to the Company an option to
repurchase all or a portion of the number of shares acquired upon exercise of
the accelerated option for their fair market value on the date of grant. Subject
to the foregoing, all or any part of the shares to which the right to purchase
has accrued may be purchased at the time of such accrual or at any time or times
thereafter during the option period.
7. RIGHT OF COMPANY TO REPURCHASE SHARES ISSUED AS A RESULT OF
ACCELERATED, EXERCISED OPTIONS. Notwithstanding any other provision in the Plan
to the contrary:
(a) in the event that (i) the Committee, in its sole discretion,
determines that all or some portion of the vesting of an option granted
pursuant to the Plan shall be accelerated so that all or some portion of
such option may be exercised prior to the date on which it would have been
exercised pursuant to the Vesting Schedule described in Section 6 hereof,
and (ii) such option is exercised for some or all of the shares of Common
Stock subject to such option, then that portion of shares under such option
(the "Excess Shares") equal to the total number of shares under such option
less the number of shares which would have been issued if the option had
been exercised pursuant to the Vesting Schedule may not, except as provided
in paragraph (b) of this Section 7, be sold or otherwise transferred to any
third party until such date as the option for any portion of the Excess
Shares would have been exercisable if the option had been exercised
pursuant to the Vesting Schedule; and
(b) in the event the employment of the optionee (or former optionee)
with the Company is terminated for any reason other than death, permanent
disability or retirement, the Company shall have the right to purchase from
the optionee, at the option price paid by him, the Excess Shares acquired
upon the exercise of an option granted under the Plan; provided, however,
that the Company shall not make any such purchase if such purchase would
give rise to short-swing profit liability as described in Section 16 of the
Securities Exchange Act of 1934 when matched with a bona fide market
transaction.
2
<PAGE>
If not sooner exercised, the Company's right to repurchase shall expire
with respect to any portion of the Excess Shares on the date that the
option for any such portion of the Excess Shares would have become
exercisable pursuant to the Vesting Schedule.
8. EXERCISE OF OPTION. As a condition to the exercise of any option, the
fair market value of the Common Stock on the date of exercise must equal or
exceed the option price referred to in Section 5 hereof. An option may be
exercised by giving written notice to the Company, attention of the Secretary,
specifying the number of shares to be purchased, accompanied by the full
purchase price for the shares to be purchased either in cash, by check, by a
promissory note in a form specified by the Committee and payable to the Company
no later than 15 business days after the date of exercise of the option, or, if
so approved by the Committee, by shares of the Common Stock of the Company, or
by a combination of these methods of payment. For this purpose, the per share
value of Common Stock of the Company shall be the fair market value on the date
of exercise. The Committee may in its discretion permit an optionee to deliver a
promissory note in a form specified by the Committee and payable to the Company
no later than the fifteenth day of April in the year following the year of
exercise of any option in payment of any withholding tax requirements of the
Company with respect to such exercise.
9. TERMINATION OF RELATIONSHIP -- EXERCISE THEREAFTER.
(a) In the event the relationship between the Company and an officer
or employee who is an optionee is terminated for any reason other than
death, permanent disability, or retirement, such optionee's option shall
expire and all rights to purchase shares pursuant thereto shall terminate
on the date of termination of employment, except that, to the extent the
option is exercisable on the date of termination, such option may be
exercised for a period of fifteen days after termination of employment (or
until the scheduled termination of the option, if earlier); provided,
however, that with respect to all or any portion of any option held by such
optionee, the Committee may, in its sole discretion, accelerate
exercisability, permit vesting to continue in accordance with the Vesting
Schedule, or permit such option to remain exercisable for a term after the
fifteen-day period specified above (but in no event beyond its specified
term), subject to such terms and conditions, if any, as determined by the
Committee in its sole discretion. Temporary absence from employment because
of illness, vacation, and approved leaves of absence and transfer among the
Company and its subsidiaries shall not be considered to terminate
employment or to interrupt continuous employment.
(b) In the event of termination of said relationship because of death
or permanent disability (as that term is defined in Section 22(e)(3) of the
Code, as now in effect or as subsequently amended), the option may be
exercised in full (to the extent not previously exercised) without regard
to the Vesting Schedule, by the optionee or, if he or she is not living, by
his or her heirs, legatees, or legal representative, as the case may be,
during its specified term prior to two years after the date of death or
permanent disability. In the event of termination of employment because of
early, normal or deferred retirement under an approved retirement program
of the Company (or such other plan or
3
<PAGE>
arrangement as may be approved by the Committee, in its discretion, for
this purpose), the option may be exercised by the optionee (or, if he or
she dies after such retirement, by his or her heirs, legatees, or legal
representative, as the case may be), to the extent that any portion thereof
would be exercisable on the date of such retirement (or with respect to
such greater portion as determined by the Committee), at any time during
its specified term prior to one year after the date of such retirement.
(c) Except as otherwise determined by the Committee, upon the
termination of a relationship between the Company or any subsidiary and a
consultant who is an optionee, such optionee's option shall expire and all
rights to purchase shares pursuant thereto shall terminate.
10. NON-TRANSFERABILITY OF OPTIONS. During the lifetime of the optionee,
options shall be exercisable only by the optionee, and options shall not be
assignable or transferable by the optionee otherwise than by will or by the laws
of descent and distribution, or pursuant to a qualified domestic relations order
as defined by (a) the Code or (b) Title I of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), or the rules or regulations
thereunder. This restriction on transferability is effective only so long as it
is required pursuant to Section 16 under the Exchange Act. At the time such
restriction on transferability is no longer so required, the Committee, in its
discretion, may permit the assignment or transfer of an option on such terms and
subject to such conditions as the Committee may deem necessary or appropriate or
as otherwise may be required by applicable law or regulation.
11. ADJUSTMENT. The number of shares subject to the Plan and to options
granted under the Plan (and the Individual Cap) shall be adjusted as follows:
(a) in the event that the outstanding shares of Common Stock of the Company are
changed by any stock dividend, stock split or combination of shares, the number
of shares subject to the Plan and to options granted thereunder and the
Individual Cap shall be proportionately adjusted; (b) in the event of any
merger, consolidation or reorganization of the Company with any other
corporation or corporations, there shall be substituted, on an equitable basis
as determined by the Committee, for each share of Common Stock then subject to
the Plan, whether or not at the time subject to outstanding options, and for
each share of Common Stock included in the Individual Cap the number and kind of
shares of stock or other securities to which the holders of shares of Common
Stock of the Company will be entitled pursuant to the transaction; and (c) in
the event of any other relevant change in the capitalization of the Company, the
Committee shall provide for an equitable adjustment in the number of shares of
Common Stock then subject to the Plan, whether or not then subject to
outstanding options, and in the Individual Cap. In the event of any such
adjustment the purchase price per share shall be proportionately adjusted.
12. AMENDMENT OF PLAN. The Committee may amend or discontinue the Plan at
any time; provided, however, that:
(a) no amendment or discontinuance shall change or impair any options
previously granted without the consent of the optionee; and
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<PAGE>
(b) no amendment shall, without the affirmative vote of the holders
of a majority of the outstanding shares of all of the classes of stock of
the Company voting in person or by proxy, and entitled to vote at a duly
held stockholders meeting, or without the written consent of the holders of
a majority of the outstanding shares of all of the classes of stock
entitled to vote, (i) materially increase the benefits accruing to
participants under the Plan, (ii) materially increase the number of
securities which may be issued under the Plan, or (iii) materially modify
the requirements as to eligibility for participation in the Plan.
13. EXCHANGE ACT COMPLIANCE. With respect to persons subject to Section 16
of the Exchange Act, transactions under the Plan are intended to comply with all
applicable conditions of Rule 16b-3 or its successors under the Exchange Act. To
the extent any provision of the Plan or action by the Committee fails to so
comply, it may be deemed null and void to the extent permitted by law and deemed
advisable by the Committee. Anything contained in the Plan to the contrary
notwithstanding, any disposition of an option otherwise permitted by the terms
of the Plan, or of the Common Stock acquired upon exercise of an option, shall
be subject to compliance with the requirements of paragraph (c)(1) of Rule 16b-3
promulgated under the Exchange Act applicable to such disposition, and any date,
period or procedure specified or referred to in the Plan with respect to any
such disposition shall be adjusted, if necessary, so as to give effect to this
Section 13.
14. EMPLOYMENT AND CONSULTING AGREEMENTS. Anything contained in the Plan
to the contrary notwithstanding, in the event that an employment agreement or
consulting agreement entered into by the Company or a subsidiary of the Company
provides that options shall be granted under the Plan to an employee or
consultant on terms and conditions that differ from the terms and conditions set
forth herein, the terms and conditions set forth in such employment or
consulting agreement shall control.
15. EFFECTIVE DATE. The Plan was amended and restated by the board of
directors on May 7, 1996 and, on that date, the board of directors authorized
its submission to the stockholders of the Company for their approval by written
consent.
16. MISCELLANEOUS PROVISIONS.
(a) No employee or other person shall have any claim or right to be
granted an option under the Plan. Determinations made by the Committee under the
Plan need not be uniform and may be made selectively among eligible individuals
under the Plan, whether or not such eligible individuals are similarly situated.
(b) No participant or other person shall have any right with respect to
the Plan, the Common Stock reserved for issuance under the Plan or any option,
contingent or otherwise, until all other terms, conditions and provisions of the
Plan and the option applicable to such recipient (and each person claiming under
or through him) have been met.
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<PAGE>
(c) No shares of Common Stock shall be issued hereunder with respect to
any option unless counsel for the Company shall be satisfied that such issuance
will be in compliance with applicable federal, state, local and foreign legal,
securities exchange and other applicable requirements.
(d) It is the intent of the Company that the Plan comply in all respects
with Rule 16b-3 under the Exchange Act and that any ambiguities or
inconsistencies in construction of the Plan be interpreted to give effect to
such intention and that if any provision of the Plan is found not to be in
compliance with Rule 16b-3, such provision shall be deemed null and void to the
extent required to permit the Plan to comply with Rule 16b-3.
(e) The Company shall have the right to deduct from any payment made under
the Plan any federal, state, local or foreign income or other taxes required by
law to be withheld with respect to such payment. It shall be a condition to the
obligation of the Company to issue Common Stock, other securities or property,
or other forms of payment, or any combination thereof, upon exercise, settlement
or payment of any option under the Plan, that the participant (or any
beneficiary or person entitled to act) pay to the Company, upon its demand, such
amount as may be required by the Company for the purpose of satisfying any
liability to withhold federal, state, local or foreign income or other taxes. If
the amount requested is not paid, the Company may refuse to issue Common Stock,
other securities or property, or other forms of payment, or any combination
thereof. Notwithstanding anything in the Plan to the contrary, the Committee
may, in its discretion, permit an eligible participant (or any beneficiary or
person entitled to act) to elect to pay a portion or all of the amount requested
by the Company for such taxes with respect to such option, at such time and in
such manner as the Committee shall deem to be appropriate (including, but not
limited to, by authorizing the Company to withhold, or agreeing to surrender to
the Company on or about the date such tax liability is determinable, Common
Stock, other securities or property, or other forms of payment, or any
combination thereof, owned by such person or a portion of such forms of payment
that would otherwise be distributed, or have been distributed, as the case may
be, pursuant to such option to such person, having a fair market value equal to
the amount of such taxes).
(f) The expense of the Plan shall be borne by the Company.
(g) By accepting any option or other benefit under the Plan, each
participant and each person claiming under or through such person shall be
conclusively deemed to have indicated his acceptance and ratification of, and
consent to, any action taken under the Plan by the Company or the Committee.
(h) Unless otherwise determined by the Committee in its sole discretion,
options granted prior to May 7, 1996 shall be governed by the Plan as in effect
prior to such date.
6
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Exhibit 10.11
EINSTEIN BROS. BAGELS, INC.
1996 STOCK OPTION PLAN
FOR NON-EMPLOYEE DIRECTORS
1. STATEMENT OF PURPOSE. The principal purpose of this Stock Option Plan
for Non-Employee Directors (the "Plan") is to benefit Einstein Bros. Bagels,
Inc. (the "Company") through offering its directors who are not employees or
officers of the Company or its subsidiaries, if any, a favorable opportunity to
become holders of the common stock of the Company ("Common Stock"), thereby
giving them a long term stake in the growth and prosperity of the Company, in
order to enable them to represent the viewpoint of other stockholders of the
Company more effectively and to encourage them to continue serving as directors
of the Company.
2. ELIGIBILITY. Options shall be granted under this Plan only to members
of the Board of Directors who are not employees or officers of the Company or
its subsidiaries, if any.
3. GRANTING OF OPTIONS. Each director of the Company who is eligible to
be granted an option under the Plan shall receive an automatic grant of an
option for shares having a fair market value of $50,000 at the date of grant, as
determined in good faith by the board of directors on such date, each time he or
she is elected a director of the Company; provided however, that the initial
grant of options under the Plan for shares having a fair market value of $50,000
shall be made on the date of the adoption and approval of the Plan by the Board
of Directors. The aggregate number of shares which shall be available for such
options under this Plan shall be 100,000 shares. Such number of shares, and the
number of shares subject to options outstanding under the Plan, shall be subject
in all cases to adjustment as provided in Paragraph 9. No option shall be
granted under the Plan subsequent to May 28, 2006. Options granted under the
Plan are intended not to be treated as incentive stock options as defined in
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code").
Notwithstanding any of the foregoing to the contrary, in the event an
option expires unexercised as to any shares, such shares may again be optioned.
Shares subject to options may be made available from unissued or reacquired
shares of Common Stock.
Nothing contained in the Plan or in any option granted pursuant thereto
shall in itself confer upon any optionee any right to continue serving as a
director of the Company or interfere in any way with any right of the Board of
Directors or stockholders of the Company pursuant to the certificate of
incorporation or by-laws of the Company or applicable law to remove such
director.
4. OPTION PRICE. Subject to adjustment under Paragraph 9, the option
price shall be the fair market value at the time the option is granted of the
shares of Common Stock subject to the option.
<PAGE>
5. DURATION OF OPTIONS, INCREMENTS AND EXTENSIONS. Subject to the
provisions of Paragraph 7, each option shall be for a term of ten years and
shall become exercisable at the end of one year of service as a director of the
Company.
6. EXERCISE OF OPTION. An option may be exercised by giving written
notice to the Company, attention of the Secretary, specifying the number of
shares to be purchased, accompanied by the full purchase price for the shares to
be purchased either in cash, by check, by a promissory note in a form specified
by the board of directors and payable to the Company no later than 15 business
days after the date of exercise of the option, or by shares of the Common Stock
of the Company, or by a combination of these methods of payment. For this
purpose, the per share value of the Company's Common Stock shall be the fair
market value at the time of exercise for the shares being purchased. The Board
of Directors may in its discretion permit an optionee to deliver a promissory
note in a form specified by the Board of Directors and payable to the Company no
later than the fifteenth day of April in the year following the year of exercise
of any option in payment of any withholding tax requirements of the Company with
respect to such exercise.
7. TERMINATION -- EXERCISE THEREAFTER. In the event an optionee ceases to
be a director of the Company for any reason other than death, permanent
disability or resignation, such optionee's option shall expire and all rights to
purchase shares pursuant thereto shall terminate, except that any then
exercisable option shall be exercisable for a period of 15 days after the date
of such termination (or until the scheduled termination of the option, if
earlier).
In the event of death or permanent disability (as that term is defined in
Section 22(e)(3) of the Code, as now in effect or as it shall be subsequently
amended), an exercisable option may be exercised in full by the optionee or, if
he is not living, by his or her heirs, legatees, or legal representative, as the
case may be, during its specified term prior to two years after the date of
death or permanent disability; provided, however, that in the event an optionee
hereunder should die or become permanently disabled (as such term is defined
herein) prior to the end of one year of service as a director of the Company,
then such optionee's option shall become immediately exercisable as of the date
of such death or permanent disability and shall be exercisable for a period of
two years after such date. In the event of resignation, an exercisable option
may be exercised by the optionee (or, if he or she dies within three months
after such termination, by his or her heirs, legatees, or legal representative,
as the case may be), at any time during its specified term prior to three months
after the date of such resignation.
8. NON-TRANSFERABILITY OF OPTIONS. During the lifetime of the optionee,
options shall be exercisable only by the optionee, and options shall not be
assignable or transferable by the optionee otherwise than by will or by the laws
of descent and distribution, or pursuant to a qualified domestic relations order
as defined by (a) the Code or (b) Title I of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), or the rules or regulations
thereunder. This restriction on transferability is effective only so long as it
is required pursuant to Section 16 under the Securities Exchange Act of 1934, as
amended ("Exchange Act"). At the time such restriction on transferability is no
longer so required, the board of directors, in its discretion, may permit the
assignment or transfer of an option on such terms and subject to such
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<PAGE>
conditions as the board may deem necessary or appropriate or as otherwise may be
required by applicable law or regulation.
9. ADJUSTMENT. The number of shares subject to the Plan and to options
granted under the Plan shall be adjusted as follows: (a) in the event that the
Company's outstanding Common Stock is changed by any stock dividend, stock split
or combination of shares, the number of shares subject to the Plan and to
options granted thereunder shall be proportionately adjusted; (b) in the event
of any merger, consolidation or reorganization of the Company with any other
corporation or corporations, there shall be substituted on an equitable basis as
determined by the board of directors, for each share of Common Stock then
subject to the Plan, whether or not at the time subject to outstanding options,
the number and kind of shares of stock or other securities to which the holders
of Common Stock of the Company will be entitled pursuant to the transaction; and
(c) in the event of any other relevant change in the capitalization of the
Company, the board of directors shall provide for an equitable adjustment in the
number of shares of Common Stock then subject to the Plan, whether or not then
subject to outstanding options. In the event of any such adjustment the
purchase price per share shall be proportionately adjusted.
10. AMENDMENT OF PLAN. The board of directors may amend or discontinue
the Plan at any time; provided, however:
(a) that no amendment or discontinuance shall change or impair any options
previously granted without the consent of the optionee;
(b) that no amendment shall, without the affirmative vote of the holders of
a majority of the outstanding shares of all classes of stock of the Company
voting in person or by proxy, and entitled to vote at a duly held stockholders
meeting, or without the written consent of the holders of a majority of the
outstanding shares of all classes of stock entitled to vote, (i) materially
increase the benefits accruing to participants under the Plan, (ii) materially
increase the number of securities which may be issued under the Plan, or (iii)
materially modify the requirements as to eligibility for participation in the
Plan;
(c) that the provisions of the Plan relating to the amount and price of
securities to be issued under the Plan, or the timing of such issuances, shall
not be amended more than once every six months, other than to comport with
changes in the Code, ERISA, or the rules or regulations thereunder.
11. Effective Date. The board of directors adopted and approved the Plan
on May 28, 1996 and authorized its submission to the stockholders of the Company
for their approval by written consent.
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12. MISCELLANEOUS.
(a) No shares of Common Stock shall be issued hereunder with respect to any
option unless counsel for the Company shall be satisfied that such issuance will
be in compliance with applicable federal, state, local and foreign legal,
securities exchange and other applicable requirements.
(b) It is the intent of the Company that the Plan comply in all respects
with Rule 16b-3 under the Exchange Act, that any ambiguities or inconsistencies
in construction of the Plan be interpreted to give effect to such intention and
that if any provision of the Plan is found not to be in compliance with Rule
16b-3, such provision shall be deemed null and void to the extent required to
permit the Plan to comply with Rule 16b-3.
(c) The Company shall have the right to deduct from any payment made under
the Plan any federal, state, local or foreign income or other taxes required by
law to be withheld with respect to such payment. It shall be a condition to the
obligation of the Company to issue Common Stock, other securities or property,
or other forms of payment, or any combination thereof, upon exercise, settlement
or payment of any option under the Plan, that the participant (or any
beneficiary or person entitled to act) pay to the Company, upon its demand, such
amount as may be required by the Company for the purpose of satisfying any
liability to withhold federal, state, local or foreign income or other taxes.
If the amount requested is not paid, the Company may refuse to issue Common
Stock, other securities or property, or other forms of payment, or any
combination thereof. Notwithstanding anything in the Plan to the contrary, the
Board of Directors may, in its discretion, permit an eligible participant (or
any beneficiary or person entitled to act) to elect to pay a portion or all of
the amount requested by the Company for such taxes with respect to such option,
at such time and in such manner as the Board of Directors shall deem to be
appropriate (including, but not limited to, by authorizing the Company to
withhold, or agreeing to surrender to the Company on or about the date such tax
liability is determinable, Common Stock, other securities or property, or other
forms of payment, or any combination thereof, owned by such person or a portion
of such forms of payment that would otherwise be distributed, or have been
distributed, as the case may be, pursuant to such option to such person, having
a fair market value equal to the amount of such taxes).
(d) The expense of the Plan shall be borne by the Company.
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<PAGE>
Exhibit 10.24
PROJECT AND
APPROVED SUPPLIER AGREEMENT
MAY 24, 1996
AMONG
EINSTEIN BROS. BAGELS, INC.
HARLAN BAGEL SUPPLY COMPANY, LLC
HARLAN BAKERIES, INC.,
HAL P. HARLAN,
HUGH P. HARLAN
AND
DOUG H. HARLAN
<PAGE>
PROJECT AND
APPROVED SUPPLIER AGREEMENT
This agreement (the "Agreement") is made and entered into as of this 24th
day of May, 1996 by and among Einstein Bros. Bagels, Inc., a Delaware
corporation ("Einstein Bros."), Harlan Bagel Supply Company, LLC, an Indiana
limited liability company (the "Supplier"), Harlan Bakeries, Inc., an Indiana
corporation ("Harlan"), Hal P. Harlan, Hugh P. Harlan and Doug H. Harlan. The
Supplier and Harlan are herein sometimes collectively referred to as the "Harlan
Companies", and Hal P. Harlan, Hugh P. Harlan and Doug H. Harlan are herein
sometimes collectively referred to as the "Harlans."
RECITALS
--------
Einstein Bros., directly and through its wholly-owned subsidiaries, owns
and operates retail bagel stores, and Einstein Bros. has also granted franchise
rights to own and operate retail bagel stores under trademarks owned by Einstein
Bros. and its subsidiaries and using Einstein Bros.' system. Concurrently with
the execution and delivery of this Agreement, (i) the Supplier is entering into
a lease agreement with Harlan, pursuant to which the Supplier is agreeing to
lease from Harlan a production facility that is currently being constructed by
Harlan adjacent to Harlan's existing production facility in Avon, Indiana, and
(ii) the Supplier is purchasing from Harlan and Einstein Bros. certain
production equipment, and contract rights to acquire certain production
equipment, owned by them. Harlan desires to complete the construction of such
production facility and the Supplier desires to complete the installation of a
bagel production line in such production facility. Subject to the completion of
the production facility and the installation of the bagel production line,
Einstein Bros. desires to designate Supplier as an approved supplier of Einstein
Bros., to supply frozen bagel dough products to Einstein Bros. and its
subsidiaries and franchisees, and the Supplier desires to sell such products to
Einstein Bros. and Einstein Bros.'s subsidiaries and franchisees, all on the
terms and subject to the conditions hereinafter set forth.
COVENANTS
---------
In consideration of the premises and the mutual covenants and agreements
herein contained, the parties hereto agree as follows:
ARTICLE 1.0 DEFINITIONS
1.1 As used herein the following terms shall have the meaning given them
below:
"Bagel Equipment" shall mean all of the equipment included in the Bagel
Line and all other equipment required for the operation of the Bagel Line.
2
<PAGE>
"Bagel Line" shall mean the Winkler bagel line that is being purchased by
the Supplier, together with the other components of the bagel production line
that is to be installed in the Production Facility, including without limitation
mixers, bagel cooking unit, proofer, retarder, blast freezer and packaging
equipment.
"Calendar Quarter" shall mean each three-month period ending on March 31,
June 30, September 30 or December 31 during the Term.
"Closing" shall have the meaning ascribed to it in Section 2.1.
"Einstein Bros. Allocated Charges" shall mean those costs of Einstein Bros.
charged to the Supplier as described in Section 7.8.
"Einstein Bros. Franchisee" shall mean a franchisee of Einstein Bros.
"Einstein Bros. Subsidiary" shall mean a subsidiary of Einstein Bros.
"Encumbrances" shall mean liens, mortgages, pledges, charges, encumbrances,
assessments, restrictions, covenants, easements or title defects of any nature
whatsoever.
"Equipment Financing" shall mean the lease of $6.5 million of equipment by
the Equipment Lender to Einstein Bros. and the sublease of equipment by Einstein
Bros. to the Supplier referred to in the letter dated April 12, 1996 from the
Equipment Lender to Einstein Bros. (which sublease shall result in all of the
costs and expenses, including all financing costs, incurred by Einstein Bros. in
connection with the lease of the equipment being passed through to the
Supplier).
"Equipment Financing Cost" shall have the meaning ascribed to it in the
Option Agreement.
"Equipment Financing Documents" shall mean the lease agreement between the
Equipment Lender and Einstein Bros. and the sublease agreement between Einstein
Bros. and the Supplier contemplated by the letter dated April 12, 1996 from the
Equipment Lender to Einstein Bros., together with all other agreements,
instruments and documents contemplated by such agreements.
"Equipment Lender" shall mean General Electric Capital Corporation, as
agent for itself and its participants and/or assignees.
"Financing Documents" shall mean the Equipment Financing Documents and the
Working Capital Financing Documents.
"Formulations" shall have the meaning ascribed to it in Section 6.5.
"Lease" shall have the meaning ascribed to it in Section 2.1.3.
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<PAGE>
"Leasehold Premises" shall have the meaning ascribed to it in Section 3.6.
"Materials Cost" shall mean the Supplier's cost of ingredients and
packaging used in manufacturing the Products during each Calendar Quarter,
determined in the manner set forth in Exhibit G hereto. For this purpose,
ingredients shall include corn meal used in manufacturing the Products.
"Monthly Period" shall mean each calendar month during the Term.
"Mortgage" shall mean a mortgage loan on the land and buildings owned by
Harlan, consisting of the Production Facility and the facility adjacent thereto,
made by the Mortgage Lender.
"Mortgage Holder" shall mean LaSalle National Bank, Key Corp. or such other
lender as may be selected by Harlan.
"Occupancy Cost" shall have the meaning ascribed to it in the Option
Agreement.
"Option Agreement" shall have the meaning ascribed to it in Section 2.1.10.
"Procedures" shall have the meaning ascribed to it in Section 6.5.
"Production Facility" shall mean the 75,000 square foot production facility
under construction in Avon, Indiana as described in the Lease.
"Products" shall mean frozen bagel dough products.
"Proprietary Information" shall have the meaning ascribed to it in
Article 12.0.
"Short-Term Supply Agreement" shall mean the approved supplier agreement
dated November 1, 1995 between Einstein Bros. and Harlan.
"Specifications" shall have the meaning ascribed to it in Section 6.5.
"Term" shall mean the period commencing on the date hereof and continuing
until the date this Agreement expires or is terminated pursuant to Article 13.0
hereof.
"Title Policy" shall have the meaning ascribed to it in Section 2.1.4.
"Working Capital Financing" shall mean the loan by the Working Capital
Lender to the Supplier.
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<PAGE>
"Working Capital Financing Documents" shall mean the revolving credit
agreement between the Working Capital Lender and the Supplier, together with all
other agreements, instruments and documents contemplated by such agreement.
"Working Capital Lender" shall mean LaSalle National Bank, Illinois, Key
Corp. or such other lender as may be selected by Harlan.
ARTICLE 2.0 THE CLOSING; CONDITIONS TO CLOSING; COVENANTS PENDING CLOSING;
TERMINATION PRIOR TO CLOSING
2.1 On the terms and subject to the conditions set forth in this
Agreement, the parties agree to close the Equipment Financing and the Working
Capital Financing at the offices of Einstein Bros., within three business days
after the satisfaction of the conditions set forth in Sections 2.2 and 2.3
hereof (the "Closing"). At the Closing:
2.1.1 The parties hereto and the Equipment Lender shall execute and
deliver the Equipment Financing Documents.
2.1.2 The Harlan Companies, the Harlans and the Working Capital
Lender shall execute and deliver the Working Capital Financing Documents.
2.1.3 Harlan and the Supplier shall execute and deliver a lease of
the Production Facility in the form set forth as Exhibit A hereto (the
"Lease"), and Harlan and the Supplier shall record a memorandum of lease within
45 days of the date of the Closing. The Lease shall provide for building rental
expense equivalent to that portion of the level-payment principal and interest
amortization on the Mortgage allocable to the Production Facility, with such
allocation being made based on the relative book values of the premises covered
by the Lease and the other premises covered by the Mortgage.
2.1.4 Harlan shall deliver to the Supplier a title insurance policy,
satisfactory in form and substance to Einstein Bros., insuring the Supplier's
interest in the Production Facility under the Lease (the "Title Policy").
2.1.5 Harlan shall deliver to the Supplier a currently dated survey
of the real estate being leased to the Supplier under the Lease, which survey
shall be satisfactory in form and substance to Einstein Bros.
2.1.6 The Supplier shall grant to Einstein Bros. a security interest
in all of its right, title and interest in and to the Lease, pursuant to a
leasehold mortgage satisfactory in form and substance to Einstein Bros.
2.1.7 Harlan shall execute and deliver to the Mortgage Holder the
Mortgage and the Mortgage Holder shall execute and deliver to the Supplier a
subordination and nondisturbance agreement satisfactory in form and substance to
Einstein Bros., the Equipment Lender and the Working Capital Lender (the
"Subordination and Nondisturbance Agreement").
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2.1.8 Einstein Bros. and Harlan shall each execute and deliver to the
Supplier, and the Supplier shall execute and deliver to each of Einstein Bros.
and Harlan, an assignment and assumption agreement, in the form of Exhibit B
hereto, and an assignment and bill of sale, in the form of Exhibit C hereto,
pursuant to which (a) the Supplier shall purchase from Einstein Bros. and Harlan
(i) all rights under contracts entered into by Einstein Bros. or Harlan for the
purchase of equipment for use in the Production Facility, including without
limitation the contracts identified in Schedule 2.1.8 hereof (the "Equipment
Contracts"), and (ii) all such equipment that has been purchased by Einstein
Bros. or Harlan, and (b) the Supplier shall assume any executory obligations
under the Equipment Contracts. The Supplier shall pay to each of Einstein Bros.
and Harlan in cash the amounts previously paid by each of them in respect of
such Equipment Contracts and equipment with interest thereon at a rate equal to
the rate of interest announced by Bank of America Illinois from time to time as
its reference rate, plus 1%.
2.1.9 The Harlans shall contribute to the Supplier, as an equity
contribution, $250,000 in cash, less any amounts previously contributed by them.
2.1.10 Einstein Bros. shall execute and deliver to the Supplier, and
the Supplier shall execute and deliver to Einstein Bros., an option agreement in
the form set forth as Exhibit D hereto (the "Option Agreement").
2.1.11 Harlan, and each of the Harlans shall execute and deliver an
agreement granting to Einstein Bros. a right of first refusal to acquire shares
of capital stock or assets of Harlan, which agreement shall be in the form set
forth as Exhibit E hereto (the "Right of First Refusal Agreement").
2.1.12 The Supplier shall deliver to Einstein Bros. (a) a certificate
of existence of the Supplier from the State of Indiana, certified as of a date
no earlier than 10 days prior to the Closing by the Secretary of State of
Indiana, and (b) resolutions of the board of managers of the Supplier approving
the execution and delivery by the Supplier of this Agreement, and the other
agreements contemplated hereby (including without limitation the Lease and the
Option Agreement), and the performance of the other transactions contemplated
hereby, certified by the secretary of the Supplier.
2.1.13 Harlan shall deliver to Einstein Bros. (a) a certificate of
existence from the State of Indiana, certified as of a date no earlier than 10
days prior to the Closing by the Secretary of State of Indiana, and (b)
resolutions of the board of directors of Harlan approving the execution and
delivery by Harlan of this Agreement and the other agreements contemplated
hereby (including without limitation the Lease and the Right of First Refusal
Agreement), and the performance of the other transactions contemplated hereby,
certified as of the date of the Closing by the secretary of Harlan.
2.1.14 Henderson, Daily, Withrow and DeVoe shall deliver to Einstein
Bros. its legal opinion in the form set forth as Exhibit F hereto.
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2.1.15 The Harlan Companies shall deliver to Einstein Bros.
certificates of insurance that satisfy the requirements of Section 11.5 hereof.
2.1.16 Einstein Bros. shall deliver to the Harlan Companies (a) a
good standing certificate from the State of Delaware, certified as of the date
of the Closing by the Secretary of State of Delaware, and (b) a resolution of
the board of directors of Einstein Bros. approving the execution and delivery by
Einstein Bros. of this Agreement and the performance of the other transactions
contemplated hereby, certified as of the date of the Closing by the secretary or
assistant secretary of Einstein Bros.
2.1.17 P&L II Bagels, L.L.C., a Delaware limited liability company
("P&L II"), or another entity identified by Einstein Bros., shall transfer to
Supplier a warrant to acquire 102.99 shares of common stock of Einstein Bros.
for a purchase price of $1,456.47 per share (which number of shares and per
share amount shall be appropriately adjusted to reflect any stock split, stock
dividend or other similar change in the capitalization of Einstein Bros.),
Einstein Bros. shall waive any restriction on the exercise of the warrant (other
than the adoption by Supplier of an option plan acceptable to Einstein Bros. for
the grant of options to acquire such shares of stock to employees of Supplier
other than the Harlans) and Supplier shall exercise such warrant.
2.2 The obligation of Einstein Bros. to consummate the transactions
contemplated hereby shall be subject to the fulfillment or waiver at or prior to
the Closing of each of the following conditions:
2.1.1 The representations and warranties of the Harlan Companies
contained in this Agreement shall have been true and correct in all material
respects at and as of the date hereof, and they shall be true and correct in all
material respects at and as of the Closing with the same force and effect as
though made at and as of that time. The Harlan Companies and the Harlans shall
have performed and complied with all of their obligations required by this
Agreement to be performed or complied with at or prior to the Closing. The
Harlan Companies and the Harlans shall have delivered to Einstein Bros. a
certificate, dated as of the date of the Closing and signed by each of them,
certifying that such representations and warranties are thus true and correct
and that all such obligations have been thus performed and complied with.
2.2.2 Each of the agreements and other instruments and documents
required by Section 2.1 hereof to be executed and delivered by persons other
than Einstein Bros. shall have been executed and delivered.
2.2.3 There shall not be pending or threatened any action or
proceeding by or before any court or other governmental body which shall seek to
restrain, prohibit or invalidate this Agreement or any transaction contemplated
hereby.
2.2.4 The terms of the Equipment Financing Documents shall have been
approved under Einstein Bros.' secured credit agreement and the lenders
thereunder shall have
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released any security interest they may have in the Equipment Contracts or any
of the equipment to be transferred pursuant to Section 2.1.8.
2.3 The obligations of the Harlans and the Harlan Companies to consummate
the transactions contemplated hereby shall be subject to the fulfillment or
waiver at or prior to the Closing of each of the following conditions:
2.3.1 The representations and warranties of Einstein Bros. contained
in this Agreement shall have been true and correct in all material respects at
and as of the date hereof, and they shall be true and correct in all material
respects at and as of the Closing with the same force and effect as though made
at and as of that time. Einstein Bros. shall have performed and complied with
all of its obligations required by this Agreement to be performed or complied
with at or prior to the Closing. Einstein Bros. shall have delivered to the
Harlans and the Harlan Companies a certificate, dated as of the date of the
Closing and signed by an officer of Einstein Bros., certifying that such
representations and warranties are thus true and correct and that all such
obligations have been thus performed and complied with.
2.3.2 Each of the agreements and other instruments and documents
required by Section 2.1 hereof to be executed and delivered by persons other
than the Harlans and the Harlan Companies shall have been executed and
delivered.
2.3.3 There shall not be pending or threatened any action or
proceeding by or before any court or other governmental body which shall seek to
restrain, prohibit or invalidate this Agreement or any transaction contemplated
hereby.
2.4 Each of the parties hereto agrees to use reasonable best efforts to
cause to be satisfied as soon as practicable all of the conditions to the
Closing set forth in Sections 2.2 and 2.3 hereof that are in the control of such
party.
2.5 The Supplier agrees that pending the Closing it shall not, without the
prior written consent of Einstein Bros., (a) engage in any business other than
the manufacture of Products for sale under this Agreement, (b) sell, lease,
transfer or otherwise dispose of any of its assets, other than sales of the
Products hereunder, (c) redeem, purchase or otherwise acquire from any of its
members all or any part of their equity interest in the Supplier or pay any
dividends or make any other distributions or payments to such members, or
persons or entities related to them, (d) incur indebtedness other than the
Equipment Financing and the Working Capital Financing, (e) incur any material
obligations or liabilities (other than its obligations under this Agreement) or
enter into any material transaction (other than the transactions contemplated by
this Agreement) other than in the ordinary course of business, (f) merge or
consolidate with any other entity, effect any change in its capital structure,
make any investment in any other entity, liquidate or dissolve, (g) amend its
articles of organization or operating agreement, (h) issue additional equity
interests, (i) enter into any transaction with any Affiliate (as defined in
Section 6.2) except on terms at least as favorable as those that could be
obtained from an unrelated third party, or (j) agree to do any of the foregoing.
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2.6 This Agreement may be terminated by the Harlan Companies or by
Einstein Bros. in the event the Closing has not occurred by August 31, 1996. In
the event of such termination, Einstein Bros. and its agents and representatives
shall have the right to have access to the Leasehold Premises in order to remove
from the Leasehold Premises all assets owned by Einstein Bros.
ARTICLE 3.0 REPRESENTATIONS AND WARRANTIES OF THE HARLAN COMPANIES
In order to induce Einstein Bros. to enter into this Agreement and to
perform its obligations hereunder, the Harlan Companies jointly and severally
represent and warrant to Einstein Bros. that:
3.1 Each of the Harlan Companies is duly organized and validly existing
under the laws of the jurisdiction of its incorporation, with full corporate
power and authority to enter into this Agreement and to carry out the
transactions and agreements contemplated hereby. The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by all necessary corporate action
of each of the Harlan Companies.
3.2 This Agreement has been duly executed and delivered by each of the
Harlan Companies and is a valid and binding obligation of each of them,
enforceable in accordance with its terms. Neither the execution and delivery of
this Agreement by the Harlan Companies nor the consummation of the transactions
contemplated hereby will: (a) conflict with or violate any provision of its
organizational documents, or of any law, ordinance or regulation or any decree
or order of any court or administrative or other governmental body which is
either applicable to, binding upon or enforceable against either of the Harlan
Companies or (b) result in a breach of, constitute a default under, result in
the acceleration of, create in any party the right to accelerate, terminate,
modify or cancel, or require any notice under, any mortgage, contract,
agreement, indenture, will, trust or other instrument which is either binding
upon or enforceable against either of the Harlan Companies or the assets and
properties of either of them. No permit, consent, approval or authorization of,
or declaration to or filing with, any regulatory or other governmental authority
is required in connection with the execution and delivery of this Agreement by
the Harlan Companies and the consummation by them of the transactions
contemplated hereby, except for such of the foregoing as are identified in
Schedule 3.8 hereto, all of which have been obtained, and except for documents
the Harlan Companies have executed and which are to be recorded pursuant to the
Financing Documents.
3.3 Schedule 3.3 hereto accurately and completely sets forth, with respect
to each of the Harlan Companies: (a) the number of shares of each class of its
capital stock or other units of equity interest which are issued and outstanding
and (b) the name and address of, and the number of shares of each class of
capital stock or other units of equity interest owned by, each of its
shareholders or other equity owners. All voting rights in each of the Harlan
Companies are vested exclusively in its shares of capital stock, in the case of
Harlan, and in units of equity interest, in the case of the Supplier, and other
than shareholder agreements or operating agreements which have been provided to
Einstein Bros. (the "Shareholder Agreements"), there
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are no voting trusts, proxies or other agreements or understandings with respect
to the voting of the capital stock or other units of equity interest of either
of the Harlan Companies. Except pursuant to the Shareholder Agreements and the
right of first refusal to be granted pursuant to Section 2.1.11, there are no
outstanding warrants, options or rights of any kind to acquire from either of
the Harlan Companies, or from the shareholders or other equity owners of either
of the Harlan Companies, any shares of capital stock or other units of equity
interest of either of the Harlan Companies, and neither of the Harlan Companies
has any obligation to acquire any of its issued and outstanding shares of
capital stock or other units of equity interest from any holder thereof.
3.4 Set forth in Schedule 3.4 are the following financial statements of
the Harlan Companies:
3.4.1 balance sheets of Harlan at December 31, 1994 and
December 31, 1995;
3.4.2 statements of operations and cash flow of Harlan for the years
ended December 31, 1994 and December 31, 1995; and
3.4.3 a balance sheet of the Supplier at May 24, 1996.
Such financial statements present fairly in all material respects the financial
position of each of the Harlan Companies covered thereby at said balance sheet
dates and the results of operations and cash flows of Harlan for each of the
said periods covered, and they have been prepared in conformity with generally
accepted accounting principles applied on a consistent basis. The balance sheet
of Harlan at December 31, 1995 is herein sometimes referred to as the "Harlan
Balance Sheet," and the balance sheet of the Supplier at May 24, 1996 is herein
sometimes referred to as the "Supplier Balance Sheet."
3.5 Neither of the Harlan Companies has any liabilities or obligations,
accrued, absolute, contingent or otherwise, except: (a) to the extent reflected
or taken into account in determining net worth in the Harlan Balance Sheet or
the Supplier Balance Sheet and not heretofore paid or discharged; (b)
contractual obligations of Harlan incurred in the ordinary course of business;
(c) liabilities of Harlan incurred in the ordinary course of business since the
date of the Harlan Balance Sheet; (d) obligations of the Harlan Companies under
this Agreement and the other documents now or hereafter executed in connection
therewith, and (e) obligations of the Harlan Companies under contracts
identified in Schedule 3.9.
3.6 The premises to be covered by the Lease (the "Leasehold Premises"):
(a) have direct access to public roads or access to public roads by means of a
perpetual access easement, such access being sufficient to satisfy the
reasonably anticipated transportation requirements of the Supplier's business to
be conducted at the Leasehold Premises; and (b) are served by all utilities,
including but not limited to water, electricity, natural gas, sewer and
telephone, in such quantity and quality as are sufficient to satisfy the
reasonably anticipated production levels and business activities of the
Supplier's business to be conducted at the Leasehold Premises. Neither of the
Harlan Companies has received notice of: (a) any condemnation proceeding with
respect
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to any portion of the Leasehold Premises, and, to the best of their knowledge,
no proceeding is contemplated by any governmental authority; or (b) any special
assessment which may affect the Leasehold Premises and to the best of their
knowledge, no such special assessment is contemplated by any governmental
authority.
3.7 The Supplier has good and marketable title to all of its assets and
properties, free and clear of all Encumbrances, except as set forth in the
Financing Documents or the Title Policy.
3.8 The Harlan Companies possess all licenses and other required
governmental or official approvals, permits or authorizations, the failure to
possess which would have a material adverse effect on the business, financial
condition or results of operations of either of the Harlan Companies. All such
licenses, approvals, permits and authorizations are in full force and effect,
the Harlan Companies are in material compliance with their requirements, and no
proceeding is pending or to the best of the knowledge of the Harlan Companies,
threatened to revoke or amend any of them. Schedule 3.8 hereto contains an
accurate and complete list of all such licenses, approvals, permits and
authorizations. None of such licenses, approvals, permits and authorizations
are or will be impaired or in any way affected by the execution and delivery of
this Agreement, the Lease or the Financing Documents, or the consummation of the
transactions contemplated hereby.
3.9 Schedule 3.9 hereto accurately and completely lists each contract to
which either of the Harlan Companies is a party related to the construction of
the Production Facility, including without limitation the acquisition of raw
materials and supplies and the procurement of architectural, engineering or
construction management services, and each contract to which either of the
Harlan Companies is a party related to the acquisition of equipment for use in
the Production Facility. Except for change orders, if any, with respect to the
construction of the Production Facility, none of such contracts has been amended
or modified and each of them is in full force and effect. Neither of the Harlan
Companies is in breach of or default under any of such contracts, and no event
has occurred which with the passage of time or the giving of notice or both
would cause a material breach of or default under any such contract. Neither of
the Harlan Companies is aware of any breach of or default under any such
contract by the other party thereto.
3.10 There are no actions, suits, claims, governmental investigations or
arbitration proceedings ("Actions") pending or, to the best of the knowledge of
the Harlan Companies, threatened against or affecting either of the Harlan
Companies or any of their assets or properties and, to the best of the knowledge
of the Harlan Companies, there is no basis for any of the foregoing. Except for
Harlan's settlement agreement with the West Central Conservancy District, there
are no outstanding orders, decrees or stipulations issued by any federal, state,
local or foreign judicial or administrative authority in any proceeding to which
either of the Harlan Companies is or was a party.
3.11 Each of the Harlan Companies is in material compliance with all laws,
regulations and orders applicable to it, its assets, properties and business.
Neither of the Harlan Companies
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has received notification of any asserted past or present failure to comply with
any laws, and to the best of their knowledge, no proceeding with respect to any
such violation is contemplated.
3.12
3.12.1 Neither of the Harlan Companies has transported, stored,
treated or disposed, nor has either of them allowed or arranged for any
third parties to transport, store, treat or dispose of Hazardous Substances
or other waste to or at any location other than a site lawfully permitted
to receive such Hazardous Substances or other waste for such purposes, nor
has either of them performed, arranged for or allowed by any method or
procedure such transportation, storage, treatment or disposal in
contravention of any laws or regulations. Neither of the Harlan Companies
has disposed, or allowed or arranged for any third parties to dispose, of
Hazardous Substances or other waste upon the Leasehold Premises, except as
permitted by law. For purposes of this Section 3.12.1, the term "Hazardous
Substances" shall have the meaning given it in the Comprehensive
Environmental Response, Compensation and Liability Act (42 U.S.C. Sections
9601, et seq.), as amended, and the regulations promulgated pursuant
thereto ("CERCLA"), or any similar state law.
3.12.2 Since the acquisition of the Leasehold Premises, Harlan has
not permitted to occur, nor is there presently occurring, a Release of any
Hazardous Substance on, into or beneath the surface of the Leasehold
Premises, except that the parties acknowledge that Harlan discharges
wastewater into the sewage treatment plant of the West Central Conservancy
District. For purposes of this Section 3.12.2, the term "Release" shall
mean releasing, spilling, leaking, pumping, pouring, emitting, emptying,
discharging, injecting, escaping, leaching, disposing or dumping.
3.12.3 Neither of the Harlan Companies has transported or disposed,
nor has it allowed or arranged for any third parties to transport or
dispose, any Hazardous Substance or other waste to or at a site which,
pursuant to CERCLA or any similar state law: (a) has been placed on the
National Priorities List or its state equivalent, or (b) the Environmental
Protection Agency or the relevant state agency has proposed or is proposing
to place on the National Priorities List or its state equivalent. Neither
of the Harlan Companies has received notice, or has any knowledge of any
facts which could give rise to any notice, that either of the Harlan
Companies is a potentially responsible party for a federal or state
environmental cleanup site or for corrective action under CERCLA or any
other applicable law or regulation. Neither of the Harlan Companies has
submitted nor was either of them required to submit any notice pursuant to
Section 103(c) of CERCLA with respect to the real estate that is covered by
the Lease. Neither of the Harlan Companies has received any written or
oral request for information in connection with any federal or state
environmental cleanup site. Neither of the Harlan Companies has undertaken
(or been requested to undertake) any response or remedial actions or clean-
up action of any kind at the request of any federal, state or local
governmental entity, or at the request of any other person or entity.
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3.12.4 Neither of the Harlan Companies uses, or has used, any
Underground Storage Tanks, and, except as set forth in Schedule 3.12
hereto, the Harlan Companies are not aware of any Underground Storage Tanks
previously or currently on or under the Leasehold Premises. For purposes
of this Section 3.12.4, the term "Underground Storage Tanks" shall have the
meaning given it in the Resource Conservation and Recovery Act (42 U.S.C.
Sections 6901 et seq.).
3.12.5 Schedule 3.12 hereto identifies (a) all environmental audits,
assessments or occupational health studies relating to the assets,
properties or business of either of the Harlan Companies undertaken by
governmental agencies or either of the Harlan Companies or their agents;
(b) the results of any ground, water, soil, air or asbestos monitoring
undertaken with respect to the Leasehold Premises, except for tests of
sewage discharge, which are summarized in Schedule 3.12; (c) all written
communications between either of the Harlan Companies and any environmental
agencies within the past three years; and (d) all citations issued to
either of the Harlan Companies within the past three years under the
Occupational Safety and Health Act (29 U.S.C. Sections 651 et seq.).
ARTICLE 4.0 REPRESENTATIONS AND WARRANTIES OF EINSTEIN BROS.
In order to induce the Harlan Companies to enter into this Agreement and to
perform their obligations hereunder, Einstein Bros. represents and warrants to
the Harlan Companies that:
4.1 Einstein Bros. is duly organized and legally existing under the laws
of the State of Delaware, with full corporate power and authority to enter into
this Agreement and to carry out the transactions and agreements contemplated
hereby. The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action of Einstein Bros.
4.2 This Agreement has been duly executed and delivered by Einstein Bros.
and is a valid and binding obligation of Einstein Bros., enforceable in
accordance with its terms. Neither the execution and delivery of this Agreement
by Einstein Bros. nor the consummation of the transactions contemplated hereby
will: (a) conflict with or violate any provision of the certificate of
incorporation of bylaws of Einstein Bros. or of any decree or order of any court
or administrative or other governmental body which is either applicable to,
binding upon or enforceable against Einstein Bros.; or (b) assuming the approval
of, and release of security interests by, Einstein Bros.' lenders as set forth
in Section 2.2.4 hereof, result in a breach of, constitute a default under,
result in the acceleration of, create in any party the right to accelerate,
terminate, modify or cancel, or require any notice under, any mortgage,
contract, agreement, indenture or other instrument which is either binding upon
or enforceable against Einstein Bros. No permit, consent, approval or
authorization of, or declaration to or filing with, any regulatory or other
government authority is required in connection with the execution and delivery
of this Agreement by Einstein Bros. and the consummation of the transactions
contemplated hereby.
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4.3 There are no Actions pending or, to the best of the knowledge of
Einstein Bros., threatened against or affecting Einstein Bros. or any of its
assets or properties which Actions are related to this Agreement or Einstein
Bros.' obligations hereunder and, to the best of the knowledge of Einstein
Bros., there is no basis for any of the foregoing. There are no outstanding
orders, decrees or stipulations issued by any federal, state, local or foreign
judicial or administrative authority in any proceeding to which Einstein Bros.
is or was a party related to this Agreement or Einstein Bros.' obligations under
this Agreement.
4.4 Einstein Bros. is in material compliance with all laws, regulations
and orders applicable to its performance under this Agreement. Einstein Bros.
has received no notification of any asserted past or present failure to comply
with any such laws, and to the best of its knowledge, no proceeding with respect
to any such violation is contemplated.
ARTICLE 5.0 CERTAIN COVENANTS OF THE HARLAN COMPANIES REGARDING THE PROJECT AND
THE PRODUCTION FACILITY.
5.1 Harlan agrees to complete the construction of the Production Facility.
Without limiting the generality of the foregoing, Harlan shall invest $750,000
in cash equity in the construction of the Production Facility. The Supplier
will complete the acquisition of the Bagel Equipment and the installation of the
Bagel Line, subject to the approval of Einstein Bros., with such changes therein
as may be reasonably requested by Einstein Bros. The Supplier agrees to consult
with Einstein Bros.' consultant, The Dennis Group, or such other consultant as
Einstein Bros. may engage, to the extent requested by Einstein Bros. during the
installation of the Bagel Line.
5.2 The Supplier will cause the Bagel Line to be installed and ready for
testing on or about July 1, 1996 and operational on or about August 1, 1996,
subject to events beyond the reasonable control of the Supplier.
5.3 The Harlan Companies agree that the use of any portion of the
Production Facility or the Bagel Line for production of any products for persons
other than Einstein Bros., Einstein Bros. Subsidiaries, Einstein Bros.
Franchisees and Authorized Recipients shall be subject to Einstein Bros.' prior
written approval, which shall not be unreasonably withheld. The parties agree
that it shall not be unreasonable for Einstein Bros.' approval to be subject to
(i) Einstein Bros. being satisfied that Proprietary Information of Einstein
Bros. will not be subject to a risk of unauthorized use or disclosure by reason
of such use of the Production Facility, (ii) Einstein Bros. being satisfied that
such use of the Production Facility will not interfere with or otherwise
adversely effect the use of the Production Facility to produce Products under
this Agreement, (iii) adjustment of the Toll Charge on terms mutually acceptable
to Einstein Bros. and Harlan, to permit sharing of the benefits of leveraging
Occupancy Cost, and (iv) adjustment of the manner in which the Shortfall Amount
is calculated pursuant to Section 7.5 hereof, on mutually acceptable terms.
ARTICLE 6.0 DESIGNATION OF THE SUPPLIER AS AN APPROVED SUPPLIER; PURCHASE AND
SALE OF THE PRODUCTS
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6.1 Einstein Bros. hereby designates the Supplier as an approved supplier
of Products to Einstein Bros., Einstein Bros. Subsidiaries, Einstein Bros.
Franchisees and Authorized Recipients (as hereinafter defined). On the terms
and subject to the conditions set forth herein, and during the Term hereof, the
Supplier agrees to sell to Einstein Bros., Einstein Bros. Subsidiaries, Einstein
Bros. Franchisees and Authorized Recipients Products produced by the Supplier at
the Production Facility.
6.2 Subject to the last sentence of this Section 6.2, Harlan Companies
jointly and severally agree that during the Term, and for a period of one year
thereafter, none of the Harlan Companies or any Affiliate of the Harlan
Companies shall, without the prior written consent of Einstein Bros., produce
any bagels or bagel dough for sale or distribution to any specialty bagel retail
establishment (which shall be defined for this purpose as any retail
establishment (including any retail delicatessen and any doughnut shop or other
specialty bakery store but excluding delicatessens located in supermarkets,
convenience stores or grocery stores that do not use a brand name of a specialty
bagel retailer) that derives a significant amount of its revenue from the sale
of bagels and bagel-related products). In addition, the Harlan Companies
jointly and severally agree that during the Term, none of the Harlan Companies
or any Affiliate of the Harlan Companies shall enter into any agreement to
produce pre-proofed raw frozen bagels for Maplehurst Bakeries, Inc.
("Maplehurst") or any Affiliate of Maplehurst unless Maplehurst has agreed in
writing that the restrictions set forth in Section 3.1 of the supply agreement
dated as of August 2, 1994 between Harlan and Maplehurst do not apply to the
supply of Products by the Harlan Companies under this Agreement or the Short-
Term Supply Agreement. For purposes of this Section 6.2 and Section 2.5, an
"Affiliate" shall mean any person or entity that controls or is controlled by,
or is under common control with, such person, and the term "control" (including
the terms "controlling," "controlled by" and "under common control with") shall
mean the possession, direct or indirect, of the power to direct or cause the
direction of the management and policies of a person, whether through the
ownership of voting shares, by contract, or otherwise. The restriction set
forth in the first sentence of this Section 6.2 and the obligations of Einstein
Bros. under Section 8.1 shall terminate on September 30, 1997 if the parties
hereto have not on or before such date entered into an amendment to this
Agreement providing for the installation of a second bagel line in the
Production Facility.
6.3 Notwithstanding any other provision of this Agreement to the contrary,
Einstein Bros. may at any time arrange upon reasonable notice to the Supplier
for the Products to be sold to Einstein Bros., Einstein Bros. Subsidiaries and
Einstein Bros. Franchisees through one or more subsidiaries, affiliates, joint
ventures, area developers, franchisees, vendors, processors or other persons
("Authorized Recipients") or for the Products otherwise to be sold directly to
such other Authorized Recipients, subject to the Supplier's right to be
reasonably satisfied as to the creditworthiness of any Authorized Recipients.
In such event (a) orders may be placed with the Supplier by such Authorized
Recipients, rather than by Einstein Bros., Einstein Bros. Subsidiaries or
Einstein Bros. Franchisees, and the obligation to pay for the Products delivered
to any Authorized Recipient shall be solely that of the Authorized Recipient and
not the obligation of Einstein Bros. or any Einstein Bros. Subsidiary or
Einstein Bros. Franchisee, (b) the provisions of this Article governing the
purchase and sale of the Products shall continue to
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govern the purchase and sale of such Products, (c) the provisions of Article 7.0
shall govern the pricing of the Products to Authorized Recipient, and (d) the
product warranties in Article 9.0, the covenants in Sections 10.1 and 10.2, and
the indemnification and insurance provisions in Article 11.0 shall be made for
the benefit of Einstein Bros. or the Einstein Bros. Subsidiary or Einstein Bros.
Franchisee that ultimately purchases the Products, as well as for the benefit of
the Authorized Recipient. The Supplier may cease the supply of Products to
Einstein Bros. or any Einstein Bros. Subsidiary, Einstein Bros. Franchisee or
Authorized Recipient, as the case may be, if any balance owed to the Supplier by
such entity is not paid within 45 days after it has become due. Einstein Bros.
will cooperate with Supplier to resolve any disputes with Einstein Bros.
Subsidiaries, Einstein Bros. Franchisees or Authorized Recipients.
6.4 Einstein Bros., Einstein Bros. Subsidiaries, Einstein Bros.
Franchisees and Authorized Recipients shall notify the Supplier from time to
time of the quantity of Products they wish to purchase from the Supplier by
placing purchase orders with the Supplier. Each order shall be filled by the
Supplier within seven days after the Supplier's receipt of the order. During
the term hereof, the Supplier shall sell to Einstein Bros., Einstein Bros.
Subsidiaries, Einstein Bros. Franchisees and Authorized Recipients the Products
ordered by them, up to a maximum aggregate of 1,400,000 dozen bagels per Monthly
Period. Einstein Bros. agrees to use reasonable best efforts to provide the
Supplier, at the beginning of each Monthly Period, with rolling good faith
estimates of the volume of Products it expects to be ordered from the Supplier
under this Section 6.4 in such Monthly Period and the two succeeding Monthly
Periods, but such estimates shall be used for planning purposes only and shall
not be deemed orders or otherwise create any commitment whatsoever on the part
of Einstein Bros.
6.5 The Products shall be produced (a) using such formulations as Einstein
Bros. shall specify from time to time in writing (the "Formulations"), (b) in
accordance with such size, weight and other specifications as Einstein Bros.
shall establish from time to time in writing (the "Specifications"), and (c) in
accordance with such manufacturing procedures as Einstein Bros. shall specify
from time to time in writing (the "Procedures"), including the Formulations,
Specifications and Procedures set forth in the Schedule of Formulations,
Specifications and Procedures delivered concurrently with the execution and
delivery of this Agreement. The Formulations, Specifications and Procedures
that are not specified in writing as of the date hereof shall be committed to
writing by Einstein Bros. as soon as reasonably practicable and shall be in such
form as Einstein Bros. deems appropriate to minimize disclosure of Proprietary
Information (as defined in Section 12.1), and the Supplier agrees that it shall
not analyze or reverse engineer any such Formulations, Specifications and
Procedures or any ingredients supplied for use therein. All Formulations,
Specifications and Procedures are subject to change upon reasonable written
notice from Einstein Bros. to the Supplier at any time, except that (x) the
Supplier shall have such time as may be reasonably necessary for the Supplier to
implement such changed Formulations, Specifications and Procedures in its
production of the Products, and (y) certain changes in Formulations,
Specifications and
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Procedures may result in an adjustment to the Toll Charge, as provided in
Section 7.4. All Formulations, Specifications and Procedures shall be owned
exclusively by Einstein Bros. but the Supplier shall have a royalty-free
nonexclusive license, without the right to grant sublicenses, to use such
Formulations, Specifications and Procedures solely to produce Products for sale
to Einstein Bros., Einstein Bros. Subsidiaries, Einstein Bros. Franchisees and
Authorized Recipients under this Agreement.
6.6 Einstein Bros. shall have the right to have one or more of its
employees or representatives who are engaged in Einstein Bros.' product
development present at the Production Facility at any time that the Supplier is
producing the Products and all such individuals will comply with the Supplier's
established policies and procedures applicable to similarly situated employees
and will be bound by the confidentiality provisions of Article 12.0 hereof.
6.7 The Products shall be packaged using such packaging materials and
labeling as shall be determined by Einstein Bros. The Supplier agrees to
maintain an inventory of such packaging materials and labels which shall be
consistent with the quantity of Products estimated in the rolling good faith
estimates made by Einstein Bros. pursuant to Section 6.4 above or as otherwise
reasonably directed by Einstein Bros. All trademarks, trade names and trade
dress appearing on or in packaging and labeling shall be the exclusive property
of Einstein Bros. but the Supplier shall have a royalty-free nonexclusive
license, without the right to grant sublicenses, to use such trademarks and
trade dress solely to package and label the Products manufactured in accordance
with the provisions of this Agreement for sale to Einstein Bros., Einstein Bros.
Subsidiaries, Einstein Bros. Franchisees and Authorized Recipients under this
Agreement.
6.8 Einstein Bros. shall be responsible for arranging for the procurement
of ingredients and raw materials used to produce the Products and, at Einstein
Bros.' option, Einstein Bros. may supply any ingredients or raw materials
directly to the Supplier (with Einstein Bros., at its option, owning such
ingredients or raw materials).
6.9 Products supplied hereunder shall be shipped F.O.B. the Production
Facility, and ownership and risk of loss with respect to the Products supplied
hereunder shall pass to Einstein Bros. or the Einstein Bros. Subsidiary,
Einstein Bros. Franchisee or Authorized Recipient when delivered to a carrier at
the F.O.B. point.
6.10 Payment terms shall be (a) net 15 days, together with interest at a
rate of 12% per annum from the date any amounts are past due or (b) such other
terms as are mutually agreed by the Supplier, on the one hand, and any of the
Einstein Bros. Subsidiaries or Einstein Bros. Franchisees or Authorized
Recipients that purchase Products from the Supplier, on the other hand. In no
event shall Einstein Bros. be construed as a guarantor of payment (or any other
obligation) of any Einstein Bros. Franchisee or Authorized Recipient, but
Einstein Bros. will be responsible for any obligation of any Einstein Bros.
Subsidiaries.
ARTICLE 7.0 PRICING
7.1 The Products shall be sold to Einstein Bros., Einstein Bros.
Subsidiaries, Einstein Bros. Franchisees and Authorized Recipients at the
Materials Cost plus the Loss Factor, plus a toll charge of [ ]* per
bagel (the "Toll Charge"), which Toll Charge shall be subject to adjustment as
provided in Sections 7.3, 7.4, 7.5, 7.6 and 7.8 hereof. The Loss Factor will be
* Confidential treatment requested.
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equal to [ ]*; provided,
however, that the parties agree to review the Loss Factor in January, 1997 and
from time to time thereafter, if justified by actual experience using Einstein
Bros.' Formulations, Specifications and Procedures, and to adjust the Loss
Factor, if appropriate, which adjustments may be both prospective and
retroactive. Einstein Bros. agrees to share with the Supplier such information
available to it (and permitted to be disclosed by it) regarding the experience
of Einstein Bros. and any other suppliers of the Products to Einstein Bros.
using Einstein Bros.' Formulations, Specifications and Procedures as may be
relevant to such review.
7.2 The Materials Cost shall be determined based upon a Statement of
Materials Cost for each Monthly Period which shall be prepared by the Supplier
in accordance with the provisions of Exhibit G. The Materials Cost shall be
redetermined as of the end of each Monthly Period during the Term as set forth
in Section 7.2 hereof and the prices based upon such redetermination shall take
effect beginning with products shipped on or after the first business day of the
Monthly Period following the redetermination. Each Statement of Materials Cost
shall be delivered to Einstein Bros. within ten business days after the end of
the Monthly Period to which it relates and shall include the information
required by Exhibit G. Within 90 days after the end of each calendar year
during the Term, commencing with the calendar year ending December 31, 1996, the
Supplier shall cause to be delivered the Statement of Materials Cost for the
last Monthly Period in each of the Calendar Quarters during which this Agreement
was in effect during such calendar year, accompanied by a report of Ernst &
Young, or such other independent accountants as the Supplier may select from
time to time to do the regular annual review of its financial statements and who
may be approved by Einstein Bros. (such approval not to be unreasonably
withheld), in the form set forth in Exhibit H. The fees and expenses of such
independent accountants shall be borne by the Supplier. The Supplier
acknowledges that a copy of each Statement of Materials Cost (and each report of
independent accountants thereon) may be provided by Einstein Bros. to any
Einstein Bros. Franchisee.
7.3 The Toll Charge shall be adjusted, effective as of June 1 of each year
during the Term hereof, beginning on June 1, 1997, by multiplying the Toll
Charge in effect immediately prior to such adjustment by the product of (1-Fixed
Cost /Toll Charge) and a fraction the numerator of which is the CPI for the
calendar year and the denominator of which is the CPI for the prior calendar
year. For this purpose, (a) "Fixed Cost" shall mean the sum of the building
rental expense and Equipment Financing Cost for the 12-month period ending on
March 31 of such calendar year (or such lesser period commencing on the Closing
and ending on March 31, 1997) divided by 218,400,000 (or an amount equal to
1,400,000 dozen multiplied by the number of Monthly Periods in such shorter
period commencing on the Closing and ending on March 31, 1997), (b) the CPI for
any calendar year shall be equal to the average of the Consumer Price Index as
of the close of the 12-month period ending on March 31 of such calendar year,
and (c) the Consumer Price Index means the Consumer Price Index for the urban
area including Indianapolis, Indiana published by the Department of Labor, or in
the event such index ceases to
* Confidential treatment requested.
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be published for any reason, such other index designed to approximate as closely
as practicable the Consumer Price Index which the parties shall select.
7.4 In the event that changes in Formulations, Specifications or
Procedures result in additional costs or savings to Harlan or the Supplier that
are not reflected in Materials Cost, the parties shall make appropriate
adjustments in the Toll Charge to reflect such costs or savings. In addition,
the parties agree that Einstein Bros. shall bear as part of its research and
development, the cost of Product losses and production related costs that arise
from the development of Products or test runs of the Products. Costs associated
with such research and development shall be reimbursed within 30 days of
invoice.
7.5 In the event that orders are placed under Section 6.4 for fewer than
the following minimum amounts during the periods provided below, then the Toll
Charge shall be adjusted as provided in this Section 7.5:
(a) 2,520,000 dozen bagels, during the third Calendar Quarter of 1996;
(b) 3,150,000 dozen bagels, during the fourth Calendar Quarter of
1996; or
(c) 3,570,000 dozen bagels, during any consecutive twelve-week period
commencing after January 1, 1997.
In the event orders are placed under Section 6.4 for fewer than the minimum
amounts stated herein in any calendar quarter or twelve week period (the
"Shortfall Measuring Period"), then the Toll Charge applicable each Monthly
Period during the one-year period commencing on the first day after such
Shortfall Measuring Period or such shorter period remaining during the term of
this Agreement (the "Recovery Period") shall be increased by an amount
sufficient to result in the recovery over the Recovery Period, in equal amounts
during each Monthly Period in the Recovery Period, of the difference between the
minimum amounts stated herein and the amounts actually purchased during the
Shortfall Measuring Period multiplied by [ ]* per bagel (such amount
being herein sometimes referred to as the "Shortfall Amount").
7.6 In the event that Harlan accepts an offer of Einstein Bros. under
Section 8.1 to increase Harlan's capacity hereunder, then, commencing on the
Second Line Commencement Date (as defined in Section 8.1), the Toll Charge would
(a) be adjusted to the then current Toll Charge less [ ]* per bagel and
(b) be additionally adjusted by reducing the Toll Charge to confer upon Einstein
Bros. and the other purchasers of Products hereunder the savings realized from
the leveraging of Occupancy Cost (excluding utility costs that vary with
production volumes) and Equipment Financing Cost over a larger number of bagels,
with the Supplier to receive the benefit of any savings from operating
efficiencies (such as more efficient utilization of plant labor).
* Confidential treatment requested.
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7.7 The Supplier shall provide to Einstein Bros. and the accountants
referred to in Section 7.2 all information requested by them in order to permit
(a) the preparation of each report referred to in Section 7.2 and the
determination of the Materials Cost therefrom, and (b) each adjustment to the
Toll Charge provided for herein. The Supplier shall also permit Einstein Bros.
(and its representatives) and such accountants to have access to its books and
records, and to meet with members of the Supplier's management, at any time upon
reasonable notice during normal business hours. The Supplier shall also permit
accountants selected by Einstein Bros. to have access to its books and records,
and to meet with members of the Supplier's management, at any time upon
reasonable notice during normal business hours, provided, however, that (a) the
fees and expenses of such accountants shall be borne by Einstein Bros., and (b)
it shall be a condition to the covenant of the Supplier in this Section 7.7 to
give such accountants access to the Supplier's books and records that such
accountants shall agree in writing to be bound by the confidentiality provisions
of Article 12.0 hereof.
7.8 Einstein Bros. may charge the Supplier for various costs incurred by
Einstein Bros. in connection with research and development, product development,
procurement or other costs related to the development, production, distribution
and sale of the Products, and such costs shall result in an addition to the
purchase price for the Products over a negotiated period.
ARTICLE 8.0 ADDITIONAL BAGEL LINE
8.1 In the event Einstein Bros. decides to contract for the construction
or long-term continuous use east of the Rocky Mountains of an additional 16-
pocket bagel line for the production of raw frozen bagel dough products for the
dedicated use by Einstein Bros., Einstein Bros. Subsidiaries and Einstein Bros.
Franchisees, whether owned and operated by Einstein Bros., Einstein Bros.
Subsidiaries or an independent supplier, other than one 16-pocket-line to be
located in the Eastern United States and other than any bagel lines to be
located in New England (which shall consist of Connecticut, Maine,
Massachusetts, New Hampshire, Rhode Island and Vermont) then, subject to the
satisfaction of the conditions hereinafter set forth in this Section 8.1,
Einstein Bros. will offer to the Supplier in writing (the "Offer") the right to
enter into an amendment to this Agreement pursuant to which the Supplier would
agree to cause a second bagel line to be installed in the Production Facility,
in accordance with plans approved by Einstein Bros., and to become operational
within 180 days of the Offer (the date on which such bagel line becomes
operational being herein referred to as the "Second Line Commencement Date").
The Offer will give Supplier a period of 45 days to accept the Offer and to
enter into the amendment. In any such amendment, Einstein Bros. and the
Supplier would agree to double the number of bagels specified in Section 6.4 and
7.6 (subject to a phase-in of the minimum amounts required under Section 7.5
similar to that provided in Section 7.5 with respect to the first bagel line)
and to adjust the Toll Charge in the manner provided in Section 7.6. Einstein
Bros.' obligation to make the Offer shall be subject to the satisfaction, on or
before the date (the "Determination Date") on which Einstein Bros. wishes to
commence negotiations for the construction of the additional bagel line, of each
of the following conditions: (a) the Supplier shall have achieved acceptable
levels of Product quality, as determined by Einstein Bros., (b) the Supplier
shall have achieved acceptable levels of customer service, as determined by
Einstein
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Bros., and (c) the Supplier's Profit (as hereinafter defined) for all monthly
periods in which orders have been placed under Section 6.4 for at least
1,190,000 dozen bagels shall not be less than .10 cents per bagel. For this
purpose, the "Supplier's Profit" for a period shall be equal to the Supplier's
Formula Profit (as defined in the Option Agreement) for such period divided by
the number of bagels sold in such period.
ARTICLE 9.0 PRODUCT WARRANTIES
9.1 The Supplier warrants to Einstein Bros. and all Einstein Bros.
Subsidiaries and Einstein Bros. Franchisees that purchase Products from the
Supplier that:
9.1.1 each shipment of Products supplied hereunder shall be
manufactured in accordance with the provisions of Section 6.5 hereof, shall be
of good and merchantable quality and shall be fit for the purposes for which
they are intended to be used, except to the extent any lack of merchantability
or lack of fitness for the intended purposes is attributable to the use by the
Supplier of the Formulations, Procedures and Specifications;
9.1.2 none of the Products supplied hereunder shall be adulterated or
misbranded within the meaning of the Federal Food Drug and Cosmetics Act, as
amended, except to the extent misbranding is attributable to the use of the
Formulations, Procedures or Specifications, and none of the Products will be an
article which may not be introduced into interstate commerce under the
provisions of Section 404, 409 or 706 of that Act; and
9.1.3 none of the Products supplied hereunder shall be adulterated or
misbranded within the meaning of any applicable provision of any state or
municipal law, which provision is similar to any provision of the Federal Food,
Drug and Cosmetics Act, as amended, except to the extent misbranding is
attributable to the use of the Formulations, Procedures or Specifications.
The foregoing warranties shall survive inspection and acceptance of any of the
Products, and payment therefor, by Einstein Bros., Einstein Bros. Subsidiaries
and Einstein Bros. Franchisees.
ARTICLE 10.0 OTHER COVENANTS OF THE PARTIES
10.1 Each party agrees to comply with all governmental laws, regulations
and orders applicable to its operations under this Agreement, and to bear any
and all taxes, fees or other governmental charges applicable to its operations.
Harlan and the Supplier agree to comply with the Lease.
10.2 The Supplier agrees to permit representatives of Einstein Bros. to
inspect the Leasehold Premises at any time to assure compliance with the terms
of this Agreement and all such individuals will comply with the Supplier's
established policies and procedures applicable to similarly situated employees
and will be bound by the confidentiality provisions of Article 12.0 hereof.
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10.3 Harlan and the Supplier agree that they shall not, without the prior
written consent of Einstein Bros., amend or modify the Lease or the assignment
and assumption agreement between Harlan and the Supplier. The Supplier also
agrees that it shall not, without the prior written consent of Einstein Bros.,
agree to amend or modify the Subordination and Nondisturbance Agreement.
10.4 Harlan and Einstein Bros. agree that the Short-Term Supply Agreement
shall remain in effect in accordance with its terms, except that (a) commencing
June 1, 1996, the price of the products sold thereunder shall be equal to the
price determined in accordance with this Agreement, (b) commencing 60 days
after the Bagel Line has become fully operational, either Einstein Bros. or
Harlan may terminate the Short-Term Supply Agreement, effective on not less than
30 days' notice to the other party, and (c) Section 2.2 of the Short-Term Supply
Agreement shall no longer apply.
10.5 Harlan agrees that it will not sell the bagel cooker used under the
Short-Term Supply Agreement (the "Cooker") to any third party unless it has
first offered in writing to Einstein Bros. the right to purchase the Cooker for
the same purchase price and on the other terms that it proposes to sell the
Cooker to a third party, which offer shall remain open a period of not less than
30 days. Any offer hereunder may be accepted only in writing, which written
acceptance shall specify a place of closing and a closing date not later than 30
days following the date of such acceptance. Similarly, Harlan agrees that it
will not enter into any agreements or commitments with any third party that
require the use of the Cooker and that are not terminable on less than 30 days'
notice unless it has first given notice to Einstein Bros. of such proposed
agreement or commitment, which notice shall describe the term of such proposed
agreement or commitment and the economic terms thereof, including the expected
profit to Harlan from such proposed agreement or commitment and which notice
shall also include an offer to Einstein Bros. of the right to reserve the
availability of the Cooker for a term equivalent to the term of such proposed
third-party agreement or commitment and for an amount, payable in cash, equal to
the amount of depreciation expense allocable to the Cooker that would be
recognized during such term, using the method of depreciation used by Harlan in
preparing its regular financial statements.
10.6 Except as may be contemplated by the Option Agreement, each of
Einstein Bros., on the one hand, and the Supplier and Harlan, on the other
hand, agrees that they will not at any time prior to the first anniversary of
the expiration of the Lease, solicit or hire any employee of any other party,
unless such employee has been terminated by the other party, or unless such
employee terminated his or her employment with the other party at least one year
prior to the date of the first such solicitation or hiring.
10.7 Harlan agrees to devote to Supplier such of its resources as may be
necessary to assist Supplier in timely and completely performing all of the
Supplier's obligations under this Agreement.
ARTICLE 11.0 INDEMNIFICATION AND INSURANCE
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11.1 The Supplier agrees to indemnify Einstein Bros. and all Einstein Bros.
Subsidiaries and Einstein Bros. Franchisees for, and hold Einstein Bros. and all
Einstein Bros. Subsidiaries and Einstein Bros. Franchisees that purchase
Products harmless from and against, all expenses, losses, costs, deficiencies,
liabilities and damages (including related counsel fees) incurred or suffered by
them resulting from: (a) any breach of any representation or warranty made by
the Supplier in or pursuant to this Agreement; (b) any default in the
performance of any of the covenants or agreements made by the Supplier in this
Agreement; (c) any claim or action by any consumer or any other third party
arising out of the production or sale of the Products by the Supplier (including
any claims or actions for personal injury and any products liability claims or
action), provided, however, that the Supplier shall have no obligation to
indemnify Einstein Bros. or any Einstein Bros. Subsidiary or Einstein Bros.
Franchisee with respect to any claim or action to the extent such claim or
action is attributable to the alteration, handling or misbranding of Products
after they have been delivered to Einstein Bros. or any Einstein Bros.
Subsidiary or Einstein Bros. Franchisee or is attributable to the use by the
Supplier of the Formulations, Procedures and Specifications; or (d) any claim or
action brought by any federal, state, local or foreign governmental agency in
connection with the production or sale of the Products by the Supplier
(including without limitation any claim or action under any law or regulation
relating to public health, the sale of food and drugs, and the safe conduct of
business), provided, however, that the Supplier shall have no obligation to
indemnify Einstein Bros. or any Einstein Bros. Subsidiary or Einstein Bros.
Franchisee with respect to any claim or action to the extent such claim or
action is attributable to the alteration, handling or misbranding of Products
after they have been delivered to Einstein Bros. or any Einstein Bros.
Subsidiary or Einstein Bros. Franchisee or is attributable to the use by the
Supplier of the Formulations, Procedures and Specifications.
11.2 Einstein Bros. agrees to indemnify the Supplier for, and to hold the
Supplier harmless from and against, all expenses, losses, costs, deficiencies,
liabilities and damages (including related counsel fees) incurred or suffered by
the Supplier resulting from: (a) any breach of any representation or warranty
made by Einstein Bros. in or pursuant to this Agreement; (b) any default in the
performance of any of the covenants or agreements made by Einstein Bros. in this
Agreement; (c) any claim or action by any consumer, governmental agency or any
other third party, including any claim of infringement or violation of, or
conflict with, any patent or trade secret of any third party, to the extent such
claim or action is attributable to the use by the Supplier of the Formulations,
Procedures and Specifications or is attributable to the alteration, handling or
misbranding of Products after they have been delivered to Einstein Bros., or any
Einstein Bros. Subsidiary, Einstein Bros. Franchisee or Authorized Recipient; or
(d) any claim or action by any third party alleging infringement or violation
of, or conflict with, any trademarks, trade names or trade dress, to the extent
such claim or action is attributable to the use of trademarks, trade names or
trade dress used in accordance with Einstein Bros.' instructions pursuant to
Section 6.7.
11.3 The parties agree that each party shall have the exclusive right to
control the defense (and the right to establish the terms of any settlement) of
any claim or action by any third party that could result in such party having an
indemnification obligation under Section 11.1 or Section 11.2 with counsel of
such party's selection, that each party will promptly give the other
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party written notice of any claim or action of which it becomes aware that could
result in such other party having an indemnification obligation under Section
11.1 or Section 11.2, and that each party will fully cooperate with the other
party in the defense of any claim or action by the other party hereunder.
11.4 Einstein Bros. and the Supplier acknowledge and agree that Einstein
Bros., Einstein Bros. Subsidiaries and Einstein Bros. Franchisees, on the one
hand, and the Supplier, on the other hand, may be required to enter into
indemnity agreements with Authorized Recipients. Einstein Bros. and the
Supplier agree that (a) in the event Einstein Bros. or any Einstein Bros.
Subsidiary or Einstein Bros. Franchisee is obligated to make indemnity payments
under any such agreement resulting from any of the matters described in clauses
(a) through (d), inclusive, of Section 11.1 hereof, the Supplier shall indemnify
Einstein Bros. or such Einstein Bros. Subsidiary or Einstein Bros. Franchisee
for, and hold Einstein Bros. and such Einstein Bros. Subsidiary or Einstein
Bros. Franchisee harmless from and against, such payment in accordance with
Section 11.1 hereof, and (b) in the event the Supplier is obligated to make
indemnity payments under any such agreement resulting from any of the matters
described in clauses (a) through (d), inclusive, of Section 11.2 hereof,
Einstein Bros. shall indemnify the Supplier, and hold the Supplier harmless from
and against, such payment in accordance with Section 11.2 hereof.
11.5 The Supplier represents and warrants that it carries: (a) policies of
worker's compensation and employer's liability insurance that comply with all
state and federal laws, and (b) policies of comprehensive general liability
insurance covering the Supplier's premises and operations, including premises
and operations coverage, owner's and contractor's protective coverage, products
and completed operations coverage, full blanket contractual coverage and broad
form property damage coverage, with a combined single limit of $9,000,000 naming
Einstein Bros. as an additional insured and containing endorsements (i)
providing that the Supplier's comprehensive general liability coverage
(including products liability) (the "Supplier CGL Coverage") is primary relative
to Einstein Bros. or any Einstein Bros. Subsidiary or Einstein Bros. Franchisee,
and that any other insurance maintained by Einstein Bros. or any Einstein Bros.
Subsidiary or Einstein Bros. Franchisee with respect to the risks covered by the
Supplier CGL Coverage is excess and non-contributing, and (ii) waiving any and
all rights of subrogation against Einstein Bros., Einstein Bros. Subsidiaries
and Einstein Bros. Franchisees with respect to the Supplier CGL Coverage, and
(iii) providing for a continuation of the Supplier CGL Coverage beyond the
expiration or termination of this Agreement for claims made following such
expiration or termination that are attributable to the manufacture of Products
by the Supplier during the term of this Agreement. The Supplier also represents
and warrants that all premiums which have become due on such policies have been
paid, that such policies are in full force and effect, and that such policies
may not be canceled, changed or allowed to lapse through non-renewal, failure to
pay premiums or otherwise except upon not less than 60 days' prior written
notice to the Supplier and Einstein Bros., except that such notice period need
not exceed 10 days in the case of failure to pay premiums. The Supplier has
previously delivered to Einstein Bros. evidence of the foregoing insurance
coverages by providing to Einstein Bros. a satisfactory Accord Certificate of
Coverage of Einstein Bros. as an additional insured, and will hereafter provide
Einstein Bros. with a satisfactory Accord Certificate of Coverage upon the
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issuance of any renewal or replacement policies. The Supplier agrees to
maintain such policies in full force and effect, in the amount set forth above,
throughout the term of this Agreement, and to maintain Einstein Bros. as an
additional insured under such policies.
ARTICLE 12.0 CONFIDENTIALITY
12.1 As used in this Agreement, the term "Proprietary Information" shall
mean any knowledge or information, written or oral, which relates in any manner
to the respective businesses of the Supplier and Einstein Bros. which is
confidential and proprietary information of the disclosing party, whether or not
disclosed prior to, on or after the date hereof, including, without limitation,
the business concepts, recipes, food preparation methods, equipment, operating
techniques, marketing methods, financial information, demographic and trade area
information, prospective site locations, market penetration techniques, plans,
or schedules, customer profiles, preferences, or statistics, menu breakdowns,
itemized costs, franchisee composition, territories, and development plans,
products, production techniques and all related trade secrets or confidential or
proprietary information treated as such by the disclosing party, whether by
course of conduct, by letter or report, or by the use of any appropriate
proprietary stamp or legend designating such information or item to be
confidential or proprietary. As used in this Article 12.0, the term "disclosing
party" shall mean the party to this Agreement which discloses or makes available
Proprietary Information to the receiving party, and the term "receiving party"
shall mean the party to this Agreement to whom Proprietary Information is
disclosed or made available by the disclosing party.
12.2 Without limiting the generality of Section 12.1 hereof, the parties
acknowledge and agree that the Formulations, Specifications and Procedures are
the Proprietary Information of Einstein Bros. and will be treated as Proprietary
Information that does not become stale with the passage of time for purposes of
the last sentence of Section 12.3 hereof.
12.3 The receiving party shall hold all Proprietary Information in strict
confidence, shall use such Proprietary Information only for the benefit of the
disclosing party and shall disclose such Proprietary Information only to the
receiving party's employees and agents who have a need to know such Proprietary
Information in order to assist the receiving party in performing its obligations
under this Agreement provided such employees and agents each have individually
entered into a confidentiality agreement in form satisfactory to the disclosing
party or are otherwise obligated by a written agreement with the receiving party
to maintain the confidence of the Proprietary Information, which agreement the
parties hereby agree may be directly enforced by the disclosing party. The
receiving party shall not disclose Proprietary Information to any other person
or entity. The obligations hereunder to maintain the confidentiality of
Proprietary Information shall continue: (a) for five years from the date of
disclosure of the Proprietary Information, in the case of Proprietary
Information that by its nature becomes stale with the passage of time (e.g.,
financial information, development plans) and (b) indefinitely, in the case of
the Proprietary Information that by its nature does not become stale with the
passage of time (e.g. trade secrets, production techniques, recipes).
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12.4 The obligations of the parties specified in Section 12.3 shall not
apply to any Proprietary Information which (a) is disclosed in a printed
publication available to the public prior to the date of this Agreement, or
becomes known to the public through no act of the receiving party or its
employees, agents or other person or entity which has received such Proprietary
Information from or through the receiving party, provided, however, that a
combination of ingredients or processes that has not been disclosed to, or
become known by, the public shall remain subject to Section 12.3 notwithstanding
the fact that the identity of such ingredients or processes may be known, (b) is
approved for release by written authorization of an officer of the disclosing
party, (c) can be established by the receiving party by documentary evidence to
have been in the legitimate and lawful possession of the receiving party at the
time revealed by the disclosing party to the receiving party, (d) is lawfully
received by the receiving party without restriction from a third party
subsequent to this Agreement, which third party did not obtain the Proprietary
Information through improper means or disclose the Proprietary Information
without authorization, or (e) is required to be disclosed by law or regulation
or by proper order of a court of applicable jurisdiction after adequate notice
to the disclosing party, sufficient to permit the disclosing party to seek a
protective order therefor, the imposition of which protective order the
receiving party agrees to approve and support. In addition, after consultation
with the disclosing party, the receiving party may disclose only that
Proprietary Information that the receiving party believes in good faith it is
required to disclose (x) in connection with any filing that is made or
disclosure document that is prepared for the purpose of complying with federal
or state securities or franchise laws, rules or regulations or (y) to comply
with the rules of any stock exchange or quotation system or any other regulatory
requirements; provided, however, that in any event trade secrets, production
techniques, recipes and similar Proprietary Information of a disclosing party
will not be disclosed by the receiving party without the written consent of the
disclosing party.
12.5 The receiving party (and each employee, agent, or other person or
entity which has received such Proprietary Information from or through the
receiving party) shall, upon the request of the disclosing party, return all
documents and other tangible manifestations of Proprietary Information received
from the disclosing party, including all copies and reproductions thereof. The
receiving party will thereafter certify in writing to the disclosing party that
all Proprietary Information has either been returned to the disclosing party or
destroyed.
ARTICLE 13.0 TERM
13.1 The initial term of this Agreement shall commence on the date hereof
and continue until June 1, 2003.
13.2 The provisions of Articles 9.0, 10.0, 11.0 and 12.0 and any other
provisions hereof requiring performance by a party following termination shall
survive the expiration or any termination of this Agreement.
13.3 Upon expiration or termination of this Agreement for any reason,
Einstein Bros. shall purchase from the Supplier all finished Products in
inventory, all packaging materials and
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labeling in inventory purchased by the Supplier pursuant to Section 6.7 hereof,
and the ingredients and raw materials in the Supplier's inventory, at the
Supplier's cost, F.O.B. the Production Facility, and Einstein Bros. shall pay to
the Supplier any Shortfall Amount that has not previously been recovered under
Section 7.5 and any amounts charged to, but not previously recovered by, the
Supplier under Section 7.8.
ARTICLE 14.0 MISCELLANEOUS
14.1 Einstein Bros., Harlan and the Supplier may amend, modify and
supplement this Agreement in such manner as may be agreed upon by them in
writing.
14.2 Each party to this Agreement shall pay all of the expenses incurred by
it in connection with this Agreement, including without limitation its legal and
accounting fees and expenses, and the commission, fees and expenses of any
person employed or retained by it to bring about, or to represent it in, the
transactions contemplated hereby.
14.3 This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns, except that the
Supplier may not assign its rights or delegate its duties hereunder without the
prior written consent of Einstein Bros.
14.4 This instrument and the exhibits attached hereto and the Short-Term
Supply Agreement contain the entire agreement of the parties hereto with respect
to the purchase and sale of the Products from the Supplier and Harlan and the
other transactions contemplated herein, and supersede all prior understandings
and agreements of the parties with respect to the subject matter hereof. Any
reference herein to this Agreement shall be deemed to include the exhibits
attached hereto. In the event of any inconsistency between this Agreement and
any purchase order, confirmation or similar document or instrument of Einstein
Bros., any Einstein Bros. Subsidiary or Einstein Bros. Franchisee or the
Supplier, this Agreement shall govern.
14.5 Except as expressly set forth in this Agreement or hereafter agreed in
writing by the Supplier and Einstein Bros., (a) Einstein Bros. is not promising,
committing to or guaranteeing that any business relationship with the Supplier
or the Supplier's status as an approved supplier will continue for any specified
time period, and (b) Einstein Bros. is not agreeing to reimburse the Supplier
for any costs, expenses, investments or other amounts incurred or expended by
the Supplier (and no such amounts have been or will be incurred or expended in
reliance on continued business from Einstein Bros. or Einstein Bros.
Subsidiaries or Einstein Bros. Franchisees).
14.6 The descriptive headings in this Agreement are inserted for
convenience only and do not constitute a part of this Agreement.
14.7 This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original.
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14.8 Any notice, request, information or other document to be given
hereunder shall be in writing. Any notice, request, information or the document
shall be deemed duly given three business days after it is sent by registered or
certified mail, postage prepaid, to the intended recipient, addressed as
follows:
If to the Supplier or Harlan, addressed to such party at the following
address:
Harlan Bakeries, Inc.
7597 East U.S. Highway 36
Avon, Indiana 46168-7971
Attention: Hugh P. Harlan
with a copy to such party at the following address:
Harlan Sprague Dawley, Inc.
P. O. Box 29176
Indianapolis, Indiana 46229
Attention: Hal P. Harlan
and a copy to:
Henderson, Daily, Withrow & DeVoe
2600 One Indiana Square
Indianapolis, Indiana 46204
Attention: Roberts E. Inveiss, Esq.
If to Einstein Bros., addressed as follows:
Einstein Bros. Bagels, Inc.
1526 Cole Blvd., Suite 200
Golden, Colorado 80401
Attention: Vice President of Production, Logistics and
Procurement
with a copy to:
Einstein Bros. Bagels, Inc.
1526 Cole Blvd., Suite 200
Golden, Colorado 80401
Attention: General Counsel
Any party may send any notice, request, information or other document to be
given hereunder using any other means (including personal delivery, courier,
messenger service, fax or ordinary mail), but no such notice, request,
information or other document shall be deemed duly given unless and until it is
actually received by the party for whom it is intended. Any party may
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change the address to which notices hereunder are to be sent to it by giving
written notice of such change of address in the manner herein provided for
giving notice.
14.9 This Agreement shall be governed by and construed in accordance with
the laws of the State of Colorado applicable to contracts made and to be
performed wholly therein.
14.10 In the event of a breach or threatened breach of any of the
provisions of Section 6.2 or Article 12.0 of this Agreement, the parties
acknowledge and agree that the non-breaching party will not have an adequate
remedy at law and therefore will be entitled to enforce any such provision by
temporary or permanent injunctive or mandatory relief as a remedy for any such
breach, and that such remedy shall not be deemed to be the exclusive remedy for
any such breach but shall be in addition to all other remedies, subject,
however, to the provisions of Section 14.11 hereof.
14.11 In no event shall either party hereto seek, or be liable to the
other party hereto for, speculative, exemplary or punitive damages.
14.12 No press release or other public or trade announcement or statement
related to this Agreement or the transactions contemplated hereby (or the
existence of any discussions or negotiations between the parties regarding any
other possible transactions) will be issued, and no disclosure of this Agreement
or the terms hereof will made, by either of the Harlan Companies without the
prior approval of Einstein Bros. Einstein Bros. agrees to use reasonable best
efforts to consult with the Harlan Companies prior to issuing any press release
or public or trade announcement or statement relating to this Agreement or the
transactions contemplated hereby.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
EINSTEIN BROS. BAGELS, INC.
By /s/ Paul A. Strasen, Vice President
--------------------------------------
HARLAN BAGEL SUPPLY COMPANY, LLC
By /s/ Doug H. Harlan, Vice President
--------------------------------------
HARLAN BAKERIES, INC.
By Hugh P. Harlan, President
--------------------------------------
/s/ Hal P. Harlan
-----------------------------------------
Hal P. Harlan
/s/ Hugh P. Harlan
-----------------------------------------
Hugh P. Harlan
/s/ Doug H. Harlan
-----------------------------------------
Doug H. Harlan
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Exhibits
--------
Exhibit A Form of Lease of Production Facility
Exhibit B Form of Assignment and Assumption Agreement
Exhibit C Form of Assignment and Bill of Sale
Exhibit D Option Agreement
Exhibit E Right of First Refusal Agreement
Exhibit F Opinion of Henderson, Daily, Withrow & DeVoe
Exhibit G Determination of Materials Cost
Exhibit H Form of Statement of Independent Accountants
<PAGE>
Schedules
---------
Schedule 2.1.8 Equipment Contracts
Schedule 3.4 Financial Statements of the Harlan Companies
Schedule 3.8 Licenses and Permits of the Harlan Companies
Schedule 3.9 Production Facility and Equipment Contracts
Schedule 3.12 Environmental Matters
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EXHIBIT A
---------
LEASE AGREEMENT
---------------
THIS LEASE AGREEMENT (this "Lease") is made this _____ day of
___________, 1996 ("Lease Date"), by and between HARLAN BAKERIES, INC., an
Indiana corporation ("Landlord"), and HARLAN BAGEL SUPPLY COMPANY, LLC, an
Indiana limited liability company ("Tenant") (the words "Landlord" and
"Tenant" to include their respective legal representatives, successors and
permitted assigns where the context requires or permits).
WITNESSETH:
1. Basic Lease Provisions. The following constitute the "Basic Lease
Provisions" of this Lease:
(a) Demised Premises: As described in Section 2 of this Lease.
(b) Building Square Footage: Approximately 75,000 square feet.
(c) Annual Base Rent: $__________________.
(d) Monthly Base Rent Installments: $___________________.
(e) Lease Commencement Date: The date of this Lease.
(f) Base Rent Commencement Date: The Lease Commencement Date.
(g) Primary Term: Lease Commencement Date through June 1, 2003.
(h) Permitted Use: Production of bagel dough products, general
office and other related uses.
(i) Addresses for notice:
Landlord and Tenant:
7597 East U.S. Highway 36
Avon, Indiana 46168-7971
Fax: (317) 272-1110
<PAGE>
With a copy to:
Hal P. Harlan
Harlan Sprague Dawley, Inc.
P.O. Box 29176
Indianapolis, Indiana 46229
Fax: (317) 894-4473
(j) Address for rental payments:
7597 East U.S. Highway 36
Avon, Indiana 46168-7971
2. Demised Premises.
(a) For and in consideration of the rent hereinafter reserved and
the mutual covenants hereinafter contained, Landlord does hereby lease and
demise unto Tenant, and Tenant does hereby lease and accept from Landlord,
that certain building consisting of approximately 75,000 square feet (the
"Building") and the land underlying such building (the "Demised Premises")
as depicted on Exhibit "A" attached hereto and by this reference made a
part hereof. Landlord also hereby grants to Tenant the right to use
throughout the Term, in common with others, the driveways, parking lots,
walkways, rest rooms, locker rooms, break rooms and offices located on the
land and improvements adjacent to the Demised Premises, as depicted on
Exhibit "A" (collectively, the "Common Areas"). This Lease and the rights
of Landlord and Tenant under this Lease are subject to the matters set
forth on Exhibit "B" attached hereto (herein referred to collectively as
"Permitted Encumbrances").
(b) Landlord represents and warrants that Tenant will have direct
vehicular and pedestrian access to Production Drive from the Demised
Premises.
3. Term. To have and to hold the Demised Premises for a primary
term (the "Primary Term") which shall commence on the Lease Commencement
Date and shall expire June 1, 2003 (the Primary Term, and any and all
renewals extensions thereof, are herein referred to collectively as the
"Term"). The Term of this Lease shall end on the final day thereof without
the requirement of notice from either party to the other. The term "Lease
Year", as used in this Lease, shall mean the 12-month period commencing on
the Lease Commencement Date, and each 12-month period thereafter during the
Term; provided, however, that if the Lease Commencement Date is a day other
than the first day of a calendar month, the first Lease Year shall also
include the period between the Lease Commencement Date and the end of the
calendar month in which the Lease Commencement Date occurs and, thereafter,
each Lease Year shall commence on the anniversary of the first calendar day
of the first full calendar month after the Lease Commencement Date. If this
Lease terminates in accordance with its terms on a day other than the last
day of the final Lease Year, Base Rent (as defined in Section 4) and
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Additional Rent (as defined in Section 5) for the Lease Year in which such
termination occurs shall be prorated as of the date of such termination.
4. Base Rent. Tenant shall pay to Landlord at the address set forth
in Section l(j) as base rent for the Demised Premises, commencing on the
Lease Commencement Date (herein, the "Base Rent Commencement Date") and
continuing throughout the Term in lawful money of the United States the
annual amount set forth in Section 1(c) payable in equal monthly
installments as set forth in Section l(d) (the "Base Rent"), payable in
advance, without demand and without abatement, reduction, set-off or
deduction (except as expressly provided in Section 23.1 of this Lease), on
the first day of each calendar month during the Term. If the Base Rent
Commencement Date shall fall on a day other than the first day of a
calendar month, the Base Rent shall be apportioned pro rata on a per diem
basis for the period between such Base Rent Commencement Date and the first
day of the following calendar month and such apportioned sum shall be paid
on the Base Rent Commencement Date.
5. Quiet Enjoyment. Landlord covenants that Tenant, upon performing
the terms, conditions and covenants of this Lease, shall have quiet and
peaceful possession of the Demised Premises as against Landlord, any person
claiming title to or an interest in the Demised Premises adverse to
Landlord, and any person claiming title to or an interest in the Demised
Premises by, through or under Landlord. In addition, Landlord shall not
interfere with Tenant's reasonable use of the Common Areas.
6. Additional Rent. Any amounts required to be paid by Tenant under
this Lease (in addition to Base Rent) and any charges or expenses incurred
by Landlord on behalf of Tenant pursuant to the terms of this Lease,
including, without limitation, any expenses incurred for taxes, insurance,
maintenance, repairs, replacements and utilities which are the obligation
of Tenant hereunder, shall be considered additional rent (herein,
"Additional Rent") payable in the same manner and upon the same terms and
conditions as Base Rent reserved hereunder except as expressly set forth
herein to the contrary. To the extent that Landlord incurs expenses on
behalf of Tenant pursuant to this Lease, to pay a cost or expense, the
amount of which is not fixed and is therefore within the reasonable control
of Landlord, such as, by way of example, maintenance or repairs which
Tenant has failed to perform pursuant to Section 11(a) of this Lease (and
as distinguished from property taxes and other costs which are fixed and as
to which Landlord has no control or discretion), such expenses shall be
reasonably incurred by Landlord. Any failure on the part of Tenant to pay
such Additional Rent when due shall entitle Landlord to the remedies
available to it for non-payment of Base Rent, including, without
limitation, late charges and interest thereon at the Interest Rate (as
herein defined) pursuant to Section 33 hereof. Tenant's obligations for
payment of Additional Rent shall begin to accrue on the Base Rent
Commencement Date.
7. Use of Demised Premises. The Demised Premises shall be used for
the Permitted Use set forth in Section l(h) and for no other purpose.
Landlord represents and warrants to Tenant that, as of the Lease Date, the
Permitted Use is a permitted use under
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the zoning classification pertaining to the Demised Premises, in accordance
with the local Zoning Ordinance applicable to the Demised Premises, without
any requirement for obtaining a special or conditional use permit or zoning
variance. As of the Lease Date, Landlord has no actual knowledge of any
proposed change in such Zoning Ordinance which would restrict the Permitted
Use. Until such time as Einstein Bros. exercises its option to purchase the
assets of Tenant and assumes Tenant's obligations under this Lease pursuant
to an Option Agreement dated ________, 1996 between Einstein Bros. Bagels,
Inc., a Delaware corporation ("Einstein Bros."), Tenant, Doug H. Harlan,
Hal P. Harlan and Hugh P. Harlan (the "Option Agreement"), Landlord shall
be entitled to non-exclusive use of warehouse storage space in the
Building, provided such use does not interfere with or pre-empt Tenant's
use of such storage space.
8. Insurance. Tenant covenants and agrees that from and after the
Lease Commencement Date, Tenant will carry and maintain, at its sole cost
and expense, the insurance described in Section 10.5 of that certain
Project and Approved Supplier Agreement dated as of ____________, 1996,
between Einstein Bros., Tenant, Landlord, Doug H. Harlan, Hal P. Harlan and
Hugh P. Harlan (the "Supply Agreement"), including insurance for all of
Tenant's personal property. If Einstein Bros. becomes the tenant under
this Lease, Einstein Bros. will carry similar insurance.
9. Utilities. Commencing on the Lease Commencement Date and
continuing through the remainder of the Term, Tenant shall be responsible
for maintaining the portion of the utility lines located within the Demised
Premises and shall pay as Additional Rent its prorata share of all rents
and charges for water and sewer services and all costs and charges for gas,
steam, electricity, fuel, light, power, telephone, heat and any other
utility or service used or consumed on and after the Lease Commencement
Date in or servicing the Demised Premises and all other costs and expenses
involved in the care, management and use thereof to the extent charged by
the applicable utility companies ("Tenant's Utility Cost"). Landlord and
Tenant shall cooperate and use reasonable efforts to have utility service
to the Demised Premises separately metered. With respect to utility
service to the Demised Premises that is not separately metered, Tenant's
Utility Cost shall be determined in a manner reasonably acceptable to
Landlord and Tenant.
10. Taxes and Other Impositions.
(a) Commencing on the Lease Commencement Date and continuing
through the remainder of the Term, Tenant shall (subject only to the
limitation set forth in subsection (b) of this Section 10) be obligated to
pay as Additional Rent its prorata share of the Real Estate Taxes and Other
Impositions (as hereinafter defined) assessed against the land owned by
Landlord of which the Demised Premises are a part and which accrue during
the Term. Tenant's prorata share shall be determined based on the square
footage of the Demised Premises (as to improvements subject to such Real
Estate Taxes and Other Impositions) and the square footage of the land
included in the Demised Premises (as to land subject to such Real Estate
Taxes and Other Impositions). Tenant acknowledges and agrees that Real
Estate Taxes and Other Impositions are payable by
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Tenant on an accrual basis and, accordingly, Tenant shall be liable for all
Real Estate Taxes and Other Impositions which accrue from and after the
Lease Commencement Date and thereafter throughout the Term, without regard
for the date or dates on which installments of Real Estate Taxes and Other
Impositions may, in fact, be due. With respect to any Real Estate Taxes or
Other Impositions, Tenant shall have the right to file with or against the
authority imposing such tax or imposition a protest or challenge of the
validity of any such sum provided that (i) Tenant shall timely file and
diligently pursue such protest or challenge and keep Landlord apprised in
writing of the status thereof, and (ii) the existence of the protest or
challenge will prevent the exercise by any taxing authority of any right or
remedy, affecting the Demised Premises or Landlord, which may be available
as a result of nonpayment of the sum being protested or challenged. If
Tenant does not pursue a protest or challenge of any Real Estate Taxes or
Other Impositions, Landlord shall have the right to do so provided that (x)
Landlord shall timely file and diligently pursue such protest or challenge
and keep Tenant apprised in writing of the status thereof, and (y) the
existence of the protest or challenge will prevent the exercise by any
taxing authority of any right or remedy, affecting the Demised Premises or
Tenant, which may be available as a result of nonpayment of the sum being
protested or challenged. Landlord or Tenant shall have the right, at their
option, to terminate or vacate any pending protest or challenge instituted
by said party, so long as the other party is provided with ten (10) days
prior written notice of the intent to terminate or vacate and provided an
opportunity to assume the protest or challenge. Landlord or Tenant shall,
as relevant and at no expense to said party, provide the other party with
such cooperation as may reasonably be required in connection with such
protest or challenge.
(b) The term "Real Estate Taxes and Other Impositions", as used
in this Lease shall mean all ad valorem taxes, bond payments assessed
against or payable with respect to the Demised Premises for public or
municipal improvements of any kind or any other public purpose permitted by
law, water and sanitary taxes, assessments, liens, licenses and permit fees
or any other taxes imposed, assessed or levied against the Demised
Premises, and all other charges, impositions or burdens of whatever kind
and nature, whether or not particularized by name, and whether general or
special, ordinary or extraordinary, foreseen or unforeseen, which accrue at
any time during the Term upon or with respect to the Demised Premises, or
on any part of the foregoing or any appurtenances thereto, or directly upon
this Lease or the rent payable hereunder or amounts payable by any
subtenants or other occupants of the Demised Premises, or upon this
transaction or any documents to which Tenant is a party or successor-in-
interest, or against Landlord because of Landlord's estate or interest
herein, by any governmental authority, or under any law, including among
others, all rental, sales, use, inventory or other similar taxes and any
special tax bills and general, special or other assessments and liens or
charges made on local or general improvements or any governmental or public
power or authority whatsoever. Notwithstanding the foregoing, if any Real
Estate Taxes or Other Impositions shall be created, levied, assessed,
adjudged, imposed, charged or become a lien with respect to a period of
time which commences before the Lease Commencement Date or ends after the
expiration date of the Term (other than an expiration date of the Term by
reason of breach of any of the terms hereof by Tenant),
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<PAGE>
then Tenant shall only be required to pay that portion which accrues during
the Term. If Tenant is permitted to pay (by the assessing and collecting
governmental authorities) and elects to pay Real Estate Taxes or Other
Impositions in installments, Tenant shall nevertheless pay any and all
installments thereof which are due prior to the expiration of the Term or
sooner termination of the Term. Landlord agrees to deliver to Tenant,
promptly after receipt thereof by Landlord, copies of all notices of Real
Estate Taxes and Other Impositions which Landlord receives.
(c) Real Estate Taxes and Other Impositions (or a portion
thereof) which may accrue during the final Lease Year may not be payable
until a date after the end of the Term. At such time as the actual tax
bill or bills (to the extent that the tax year or years covered by such
bill or bills are within the final Lease Year) become available for the
final Lease Year, Landlord shall send to Tenant copies of such bills.
Tenant shall pay the amount payable by Tenant to Landlord within thirty
(30) calendar days after receipt of a copy of the tax bill from Landlord,
establishing the amount due. The provisions of this Section 10(c) shall
survive expiration or termination of this Lease.
(d) Tenant shall furnish Landlord, not later than thirty (30)
days after the last day upon which they may be paid without any fine,
penalty, interest or additional cost (subject, however, to Section 10(a),
above), evidence of the payment of all Real Estate Taxes and Other
Impositions.
11. Maintenance and Repairs.
(a) With respect to that portion of the Term during which Harlan
Bagel Supply Company, LLC is the Tenant, Tenant shall, at its own cost and
expense, but subject to the obligations of Landlord under this Section
11(a) and Section 11(c) of this Lease, maintain the Demised Premises,
exterior and interior, in good condition and repair. During such portion
of the Term, Landlord shall, using the services of the maintenance crew
employed by Landlord to maintain the improvements on the land owned by
Landlord of which the Demised Premises are a part, repair, maintain and
replace the electrical systems, heating, air conditioning and ventilation
systems, plate glass, windows and doors, sprinkler and plumbing systems,
sewage facilities within the Demised Premises, fixtures, interior walls,
ceilings, floor coverings, windows, doors, storefronts, plate glass,
skylights, lamps, fans and any exhaust equipment and systems, electrical
motors, and all other appliances and equipment of every kind and nature
located in, upon or about the Demised Premises including without
limitation, exterior lighting and fencing upon the Demised Premises.
Tenant shall pay as Additional Rent the reasonable cost of such services
provided to the Demised Premises, as determined by Landlord in its
reasonable judgment.
(b) With respect to that portion of the Term during which Harlan
Bagel Supply Company, LLC is not the Tenant, Tenant shall, at its own cost
and expense, but subject to the obligations of Landlord under Section 11(c)
of this Lease, maintain the Demised Premises, exterior and interior, in
good condition and repair, including without
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limitation repair, maintenance and replacement of electrical systems,
heating, air conditioning and ventilation systems, plate glass, windows and
doors, sprinkler and plumbing systems, sewage facilities within the Demised
Premises, fixtures, interior walls, ceilings, floor coverings, windows,
doors, storefronts, plate glass, skylights, lamps, fans and any exhaust
equipment and systems, electrical motors, and all other appliances and
equipment of every kind and nature located in, upon or about the Demised
Premises including without limitation, exterior lighting and fencing upon
the Demised Premises.
(c) Throughout the Term, Landlord shall, at its own cost and
expense, maintain in good condition and repair and replace as necessary the
footings, foundation, floor slab (but not floor coverings), structural
steel, exterior walls and roof of the Demised Premises. Landlord shall also
maintain in good condition and repair all Common Areas, for which Tenant
shall pay its prorata share as Additional Rent. Tenant's prorata share
shall be equal to a fraction, the numerator of which is the square footage
of the Demised Premises, and the denominator of which is the square footage
of all improvements on the land owned by Landlord of which the Demised
Premises are a part. Notwithstanding the foregoing provisions of this
subsection 11(c), the obligation of Landlord to perform maintenance,
repairs or replacements shall not extend to maintenance, repairs or
replacements of any Tenant Change (as defined in Section 19 of this Lease)
or maintenance, repairs or replacements to the extent made necessary as a
result of a failure by Tenant to perform its obligations under this Lease
or as a result of negligent or willful acts or omissions of Tenant or its
employees, agents or contractors.
12. Tenant's Personal Property, Indemnity. All of Tenant's personal
property in the Demised Premises, including Trade Fixtures, as hereinafter
defined, shall be and remain at Tenant's sole risk, and Landlord shall not
be liable for and Tenant hereby releases Landlord from any and all
liability for theft thereof or any damage thereto occasioned by any acts or
negligence of any third persons, or any act of God, except to the extent
caused by the negligence or willful misconduct of Landlord, its agents,
employees and contractors. As to personal injury or property damage
(including personal property of Tenant), Landlord shall not be liable for
any injury to the person or property of Tenant or other persons in or about
the Demised Premises, Tenant expressly agreeing to indemnify and save
Landlord harmless in all such cases, except to the extent occasioned by the
negligence or willful misconduct of Landlord, its agents, employees or
contractors. Tenant further agrees to reimburse Landlord for any
reasonable costs or expenses, including without limitation attorneys' fees,
which Landlord may actually and reasonably incur in investigating, handling
or litigating any claim against Landlord by a third person which is within
the scope of the indemnity by Tenant under this Section 12. Tenant shall
have the option to defend Landlord with counsel selected by Tenant and
reasonably acceptable to Landlord. In the event that Tenant selects counsel
to defend Landlord, said counsel will not have authority to settle the
litigation without Landlord's consent, which consent shall not be
unreasonably withheld. The provisions of this Section 12 shall survive the
expiration or termination of this Lease with respect to any damage, injury,
or death occurring before such expiration or termination.
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13. Trade Fixtures. Tenant shall have the right to install or to
have installed in the Demised Premises trade fixtures and equipment
required by Tenant or used by it in its business ("Trade Fixtures"). If
installed by Tenant, Tenant shall be obligated to remove any or all such
Trade Fixtures from time to time during and upon termination of this Lease,
which Trade Fixtures are and shall remain the personal property of Tenant;
provided, however, that Tenant shall repair and restore any damage or
injury to the Demised Premises (to the condition in which the Demised
Premises existed prior to such installation) caused by the installation
and/or removal of any such Trade Fixtures. Tenant shall be obligated to
remove prior to expiration of the Term all Trade Fixtures installed by
Tenant, unless Landlord otherwise consents to keeping the Trade Fixtures at
the Demised Premises.
14. Signs. No sign, advertisement or notice shall be inscribed,
painted, affixed, or displayed on the windows or exterior walls of the
Demised Premises or on any public area of the Building, except in
accordance with all applicable laws and/or ordinances, and with the written
approval of Landlord. Any and all permitted signs shall be installed,
maintained and removed by Tenant, at Tenant's sole expense. All signs
installed by Tenant shall be removed by Tenant prior to expiration of the
Term and all damage caused by such removal shall be repaired by Tenant, all
at Tenant's expense.
15. No Landlord's Lien. Tenant intends to store its personal
property, and to install Trade Fixtures, on the Demised Premises. Landlord
hereby expressly waives all interest in such personal property and Trade
Fixtures, including without limitation any interest under a common law or
statutory landlord's lien or distress for rent statute. Tenant shall have
full right and authority, at any time and from time to time, and
notwithstanding that an Event of Default (as defined in Section 23) may
have occurred and be continuing, to remove such personal property and Trade
Fixtures from the Demised Premises. Notwithstanding anything in this Lease
to the contrary, any personal property and Trade Fixtures of Tenant
remaining in the Demised Premises upon termination of this Lease by lapse
of time or otherwise shall remain the personal property of Tenant, and
Tenant shall have the right following such termination to remove such
personal property and Trade Fixtures from the Demised Premises. Those
items of Tenant's personal property and Trade Fixtures that Tenant has not
removed from the Demised Premises within forty-five (45) days after the
termination of this Lease by lapse of time or otherwise shall become the
property of Landlord.
16. Governmental Regulations.
(a) Tenant shall promptly comply throughout the Term of this
Lease, at Tenant's sole cost and expense, with all present and future laws,
ordinances and regulations of all applicable governing authorities relating
to all or any part of the Demised Premises, foreseen or unforeseen,
ordinary as well as extraordinary, or to the use or manner of use of the
Demised Premises or to the sidewalks, parking areas, curbs and access ways
adjoining the Demised Premises. In the event that such law, ordinance or
regulation requires a renovation, improvement or replacement to the Demised
Premises,
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then Tenant shall be required to make such renovation, improvement or
replacement at Tenant's sole cost and expense. Tenant shall also observe
and comply with the requirements of all policies of public liability, fire
and other policies of insurance at any time in force with respect to the
Demised Premises. If, from and after the Lease Commencement Date, any laws,
ordinances or regulations of any applicable governmental authority
(collectively, "Governmental Requirements") require any alteration,
renovation, improvement or replacement of all or any part of the Demised
Premises, and such work is not made necessary as a result of the specific
use being made by Tenant of the Demised Premises, the respective
obligations of Landlord and Tenant with respect to such occurrence shall be
governed by the provisions of Section 16.1 of this Lease.
(b) If, as a result of one or more Governmental Requirements, it
is necessary, from time to time during the Term, to perform an alteration
or modification of the Demised Premises (a "Code Modification") which is
not made necessary as a result of the specific use being made by Tenant of
the Demised Premises (as distinguished from an alteration or improvement
which would be required to be made by the owner of any warehouse-office
building comparable to the Building irrespective of the use thereof by any
particular occupant), Landlord shall have the obligation to pay the cost of
the work which is required to perform the Code Modification and Tenant
shall pay Additional Rent in the manner provided in this Section 16(b). If
Tenant receives a written notice from a governmental authority requiring a
Code Modification, Tenant shall promptly send a copy of such notice to
Landlord. Any Code Modification which is made necessary as a result of the
specific use being made by Tenant of the Demised Premises shall be the sole
and exclusive responsibility of Tenant in all respects; any such Code
Modification shall be promptly performed by Tenant at its expense in
accordance with the applicable Governmental Requirement. If a Code
Modification is not the responsibility of Tenant, Landlord shall, at the
expense of Landlord, promptly perform the Code Modification in accordance
with applicable Governmental Requirements. Upon completion of the Code
Modification, Landlord shall provide Tenant with a written certification of
the cost actually incurred by Landlord in performing the Code Modification,
together with documentation substantiating such cost as Tenant may
reasonably require. Tenant shall reimburse Landlord for a portion of the
cost of the Code Modification in the following manner:
(i) The useful life of the Code Modification shall
conclusively be fifteen (15) years.
(ii) Using such useful life, Tenant shall reimburse Landlord
for a portion of the cost of the Code Modification equal to the ratio
(stated as a percentage) which the remainder of the then current Term
(without regard for any unexercised renewals or extensions permitted by
this Lease), bears to the useful life of the Code Modification, as
determined in subsection (a), above (such portion of the cost of the Code
Modification being hereinafter called the "Reimbursable Cost"). Commencing
on the first day of the first full calendar month following the month in
which the Code
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Modification is completed, and continuing thereafter on the first day of
each remaining month of the then current Term, Tenant shall pay to
Landlord, as Additional Rent, an amount sufficient to amortize fully the
Reimbursable Cost at the Amortization Rate in equal monthly installments,
payable on the first day of the month, over the remainder of the then
current Term, without regard for unexercised extensions or renewals. If
installments are being paid by Tenant under this Section 16(b) and, at the
end of the then current Term, Tenant exercises its right to renew or extend
the Term of this Lease, the monthly installments by Tenant under this
Section 16(b) shall be recalculated (based on the new ratio which the
duration of the renewal or extension of the Term bears to the remaining
useful life of the Code Modification, as applied to the unamortized cost)
and, as so recalculated, shall continue without interruption or
modification during the extension or renewal of the Term, irrespective of
any adjustment which may be made in Base Rent under the provisions of this
Lease, until such time as the cost of the Code Modification has been fully
amortized.
17. Environmental Matters.
(a) For purposes of this Lease:
(i) "Contamination" as used herein means the uncontained or
uncontrolled presence of or release of Hazardous Substances (as
hereinafter defined) into any environmental media from, upon,
within, below, into or on any portion of the Demised Premises or
the Building so as to require remediation, cleanup or
investigation under any applicable Environmental Law (as
hereinafter defined).
(ii) "Environmental Laws" as used herein means all federal,
state, and local laws, regulations, orders, permits, ordinances
or other requirements, concerning protection of human health,
safety and the environment, in effect during the Term, all as may
be amended from time to time through the expiration or earlier
termination of the Term.
(iii) "Hazardous Substances" as used herein means any
hazardous or toxic substance, material, chemical, pollutant,
contaminant or waste as those terms are defined by any applicable
Environmental Laws (including, without limitation, the
Comprehensive Environmental Response, Compensation and Liability
Act, 42 U.S.C. 9601 et seq. ("CERCLA") and the Resource
Conservation and Recovery Act, 42 U.S.C. 6901 et seq. ("RCRA"))
and any solid wastes, polychlorinated
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biphenyls, urea formaldehyde, asbestos, radioactive materials,
radon, explosives, petroleum products and oil.
(b) Landlord represents and warrants that, except as set forth in
environmental reports delivered by Landlord to Tenant (i) Landlord has not
treated, stored or disposed of any Hazardous Substances upon or within the
Demised Premises and (ii) to Landlord's actual knowledge, no Hazardous
Substances are present on or under the Demised Premises as of the date of
this Lease. Landlord shall not cause any Hazardous Substances to be brought
upon, kept, stored or used in or about the Demised Premises.
(c) Tenant shall not cause or permit the release of any Hazardous
Substances by Tenant or its agents, contractors, employees or invitees into
any environmental media such as air, water or land, or into or on the
Demised Premises in any manner that violates any Environmental Laws. If
such release shall occur, Tenant shall (i) take all steps reasonably
necessary to contain and control such release and any associated
Contamination, (ii) clean up or otherwise remedy such release and any
associated Contamination to the extent required by, and take any and all
other actions required under, applicable Environmental Laws and (iii)
notify and keep Landlord reasonably informed of such release and response;
provided that Tenant shall have the right to contest in good faith the
validity or applicability of any actions taken by a governmental authority,
subject to the conditions that (A) the pursuit of such contest will stay
the enforcement of any sanction or penalty against Landlord or the Demised
Premises and (B) Tenant shall be obligated to pay and satisfy in full any
fines or penalties which may accrue and not be discharged by virtue of the
contest undertaken by Tenant.
(d) Tenant shall under no circumstances whatsoever (i) cause or
permit any activity on the Demised Premises which would cause the Demised
Premises to become subject to regulation as a hazardous waste treatment,
storage or disposal facility under RCRA or the regulations promulgated
thereunder; or (ii) install any underground storage tank or underground
piping on or under the Demised Premises.
(e) Tenant shall and hereby does indemnify Landlord and hold and
defend Landlord harmless from and against any and all reasonable and actual
expense, loss, and liability suffered by Landlord (with the exception of
those expenses, losses, and liabilities arising from Landlord's own
negligence or willful act), by reason of Tenant's storage, generation,
handling, treatment, transportation, disposal, or arrangement for
transportation or disposal, of any Hazardous Substances (whether
accidental, intentional, or negligent) or by reason of Tenant's breach of
any of the provisions of this Section 17. Such expenses, losses and
liabilities shall include, without limitation, (i) any and all reasonable
expenses that Landlord may incur to comply with any Environmental Laws as a
result of Tenant's failure to comply therewith; (ii) any and all reasonable
costs that Landlord may incur in
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studying or remedying any Contamination at or arising from the Demised
Premises as a result of a failure by Tenant to comply with this Section 17
or Environmental Laws; (iii) any and all reasonable costs that Landlord may
incur in studying, removing, disposing or otherwise addressing any
Hazardous Substances which are present at the Demised Premises as a result
of a failure by Tenant to comply with this Section 17 or Environmental
Laws; (iv) any and all fines, penalties or other sanctions assessed upon
Landlord by reason of Tenant's failure to comply with Environmental Laws;
and (v) any and all reasonable legal and professional fees and costs
incurred by Landlord in connection with the foregoing. Notwithstanding the
foregoing, Tenant shall have the right and obligation to undertake and
perform all such studying, remedying, removing, disposing or otherwise
addressing any Hazardous Substances which are the responsibility of Tenant
under this subsection (e), and Landlord shall not perform such acts unless
Tenant has failed or refused to perform such acts after having been
afforded reasonable written notice by Landlord and having had reasonable
opportunity to perform such acts. The indemnity contained herein shall
survive the termination or expiration of this Lease.
(f) Landlord shall have the right, but not the obligation, to
enter the Demised Premises at reasonable times during business hours
throughout the Term, after no less than twenty-four (24) hours prior
written notice to Tenant, to audit and inspect the Demised Premises for
Tenant's compliance with this Section 17.
(g) Landlord hereby agrees to indemnify Tenant and hold Tenant
harmless from and against any and all reasonable and actual expense, loss
and liability suffered by Tenant as a result of Landlord's breach of
Section 17(b), or by reason of storage, generation, handling, treatment,
transportation or disposal or arrangement for transportation or disposal of
any Hazardous Substances upon or within the Demised Premises by Landlord,
its agents or contractors. For purposes of such indemnity, Tenant's
permissible expenses shall include (i) any and all reasonable expenses
which Tenant may actually incur to comply with any Environmental Laws, (ii)
any and all reasonable expenses which Tenant may actually incur in studying
or remedying any Contamination, (iii) any and all reasonable costs which
Tenant may actually incur in studying, removing, disposing at the Demised
Premises or otherwise addressing any Hazardous Substances at the Demised
Premises, (iv) any and all fines, penalties or other sanctions assessed
upon Tenant, and (v) any and all reasonable legal and reasonable
professional expenses which Tenant may actually incur in connection with
the foregoing. Notwithstanding the foregoing, Landlord shall have the right
and obligation to undertake and perform all such studying, remedying,
removing, disposing or otherwise addressing any Hazardous Substances which
are the responsibility of Landlord under this subsection (g), and Tenant
shall not perform such acts unless (A) Tenant is specifically required by
Environmental Laws to perform such acts, and (B) Landlord has failed or
refused to perform such acts after having been afforded reasonable written
notice by Tenant and having had reasonable opportunity to perform such
acts. The indemnity contained herein shall survive the termination or
expiration of this Lease.
18. Landlord's Warranties. Landlord hereby warrants to Tenant that
the materials and equipment furnished by Landlord's contractors in the
construction of the Demised Premises were of first-class quality and new,
that during the one (1) year period
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following substantial completion of such construction such materials and
equipment and the work of such contractors shall be free from defects not
inherent in the quality required or permitted hereunder (the foregoing
referred to herein as "Landlord's Warranty"). This warranty shall exclude
damages or defects caused by abuse by Tenant, its employees, invitees,
licensees, contractors and agents, improper or insufficient maintenance,
improper operation, or normal wear and tear under normal usage. Upon
expiration of the Landlord's Warranty, Landlord will transfer and assign to
Tenant, without recourse, all assignable warranties covering any part or
component of the Demised Premises which is subject to maintenance and
repair by Tenant under the terms of this Lease.
19. Tenant Alterations and Additions. Tenant shall have the right to
make or permit to be made any alterations, improvements, or additions to
the Demised Premises (a "Tenant Change") that Tenant may deem reasonably
necessary for its operations following good faith discussions with the
Landlord. Tenant Changes shall not impair the structural strength of the
Building, and shall be in conformity with the initial construction
standards for the Building. Tenant shall pay the full cost of any Tenant
Change. Subject to the provisions of Section 13, Tenant shall remove all
Tenant Changes prior to the end of the Term, at the expense of Tenant, and
restore the Demised Premises to the condition in which it existed prior to
the Tenant Change which is so removed, normal wear and tear excepted,
unless the Landlord agrees otherwise.
20. Intentionally Omitted.
21. Fire and Other Casualty.
(a) If the Demised Premises or Tenant's means of ingress or
egress to and from the Demised Premises shall be damaged or destroyed by
fire or other casualty (a "Casualty"), Landlord shall, subject to the
limitations in subsection (c) of this Section 21, promptly and diligently
proceed to repair, rebuild or replace the Demised Premises and Tenant's
means of ingress or egress, so as to restore the Demised Premises and
Tenant's means of ingress and egress to the condition in which they existed
immediately prior to such damage or destruction as soon as practicable
under the circumstances. Upon the occurrence of a Casualty, Landlord and
Tenant shall cooperate to submit such notices and information to the
carriers (collectively the "Carrier") providing insurance coverage for the
Demised Premises as may be necessary to preserve fully all rights to obtain
insurance proceeds covering the loss. The net proceeds of any insurance
payable as a result of such fire or other casualty in excess of the
reasonable cost of adjusting the insurance claim and collecting the
insurance proceeds (such excess being referred to herein as the "Net
Insurance Proceeds") shall be held in an escrow ("Restoration Escrow"), in
an interest-bearing account, by Mortgagee (as defined in Section 25),
provided that such Mortgagee is a bank, savings association, insurance
company or other similar institutional lender ("Institutional Lender"), or,
if the Mortgagee is not an Institutional Lender, by any escrow agent
("Escrow Agent") which is reasonably acceptable to Landlord and Tenant.
The amount deposited with Escrow Agent in the Restoration Escrow pursuant
to this Section 21(a) is sometimes referred to herein as the "Restoration
Proceeds". The
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Restoration Proceeds shall be released to Landlord only for the purpose of
paying the fair and reasonable cost of restoring the Demised Premises in
accordance with the terms of this Lease. Such Restoration Proceeds shall be
released to Landlord in monthly disbursements from time to time as the work
progresses, pursuant to such requirements and limitations as may be
reasonably acceptable to Landlord and, if applicable, the Mortgagee,
including, without limitation, lien waivers from each of the contractors,
subcontractors, materialmen and suppliers performing the work. If
Restoration Proceeds are insufficient to restore the Demised Premises,
Landlord shall be obligated to pay such deficiency, including, without
limitation, the full amount of any deductible under any available
insurance; the amount of any such deficiency and, if applicable,
deductible, shall be paid by Landlord into the Restoration Escrow in
installments as needed during the construction process. If the amount so
deposited is not applied in full to restoration of the Demised Premises,
the unapplied portion, together with all interest actually earned thereon,
shall be promptly refunded to Landlord. If Restoration Proceeds exceed the
full cost of the repair, rebuilding or replacement of the damaged Building
or Tenant's means of ingress or egress, then the amount of such excess
Restoration Proceeds shall be paid to Landlord upon the completion of such
repair, rebuilding or replacement.
(b) Whenever Landlord shall be required to carry out any work or
repair and restoration pursuant to this Section 21, Landlord, prior to the
commencement of such work, shall deliver to Tenant for Tenant's prior
approval (which shall not be unreasonably withheld or delayed) a full set
of the plans and specifications therefor, a construction schedule, cost
estimates and copies of all approvals and permits which shall be required
from any governmental authority having jurisdiction. In the event the
construction schedule so provided to Tenant discloses that such
construction is not estimated to be completed within three (3) months from
the date the Casualty occurred, Tenant may, at its option and as its only
remedy terminate this Lease by giving written notice thereof to Landlord
within thirty (30) calendar days after Tenant's receipt of such
construction schedule. Upon such termination, Landlord and Tenant will
have no further duties or obligations under this Lease except obligations
which expressly survive termination. Tenant may not withhold approval of
any plans and specifications which are consistent with the original plans
and specifications for the Demised Premises. After Tenant renders such
approval, Landlord shall, after Restoration Proceeds are available,
promptly commence the necessary repair or restoration and, subject to
Permitted Delay (as defined in Section 21(f)), diligently pursue such
repair or restoration to completion in accordance with the approved
schedule (subject to extension for Permitted Delay). Without limiting the
foregoing, Landlord shall, as soon as reasonably possible, obtain and
deliver to Tenant a permanent certificate of occupancy (or amended
certificate of occupancy), and any other document, certificate or permit to
the extent required by applicable laws issued by the appropriate authority
with respect to the Demised Premises, as thus repaired and restored. Any
such work or repair and restoration, in all cases, shall be carried out by
Landlord in a good and workmanlike manner with materials and workmanship at
least equal in quality to the original materials used therefor prior to the
damage or destruction. In any event, any Casualty damage, irrespective of
its magnitude, must be fully restored within three (3) months from the date
the Casualty occurs, subject
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to extension of such three-month period for Permitted Delay. If restoration
has not been completed within such three-month period, as extended in
accordance with the foregoing provisions, Tenant may, at its option and its
only remedy, terminate this Lease by giving written notice thereof to
Landlord within sixty (60) calendar days after the expiration of such
three-month period, as extended; provided that if completion is achieved
prior to the giving of such notice, the right to give the notice will
automatically terminate. Upon such termination, Landlord and Tenant will
have no further duties or obligations under this Lease, except obligations
which expressly survive termination. If Landlord carries on any restoration
or repair at the Demised Premises pursuant to this Section 21 and Tenant
continues to occupy any other portion of the Demised Premises, Landlord
shall take all such steps as may be reasonable and practicable to prevent
interference with Tenant's use and enjoyment of the portion of the Demised
Premises which Tenant continues to occupy. Landlord shall perform its
obligations under this Section 21 in a manner which will achieve
restoration of any damage as soon as practicable, giving due regard to the
nature and scope of the damage, subject to the occurrence of Permitted
Delay.
(c) Any provision of this Section 21 to the contrary
notwithstanding, if the Demised Premises is damaged by Casualty within one
(1) year preceding the end of the Term (which includes any extension or
renewal of the Term then properly exercised by Tenant) to an extent
exceeding twenty-five percent (25%) of the then current value of the
Demised Premises, then Tenant or Landlord shall have the right, to be
exercised by giving written notice to Landlord within thirty (30) days
after the occurrence of the Casualty, to terminate this Lease; upon such
termination, Landlord shall have the sole and exclusive right to receive
the full amount of all insurance proceeds payable as a result of the
Casualty (and Tenant shall execute such assignment or other document as may
be necessary to acknowledge and confirm such right). Termination shall be
effective on a date specified in the written notice, which date shall be
not less than thirty (30) nor more than sixty (60) days after the date the
notice is given. Upon such termination, the term of this Lease shall end
as if the date of termination were the date originally specified for
expiration of the Term except that Tenant shall be relieved of its
obligations under Section 19 to restore the Demised Premises after any
Tenant Change. If Tenant timely gives a notice of termination pursuant to
this subsection (c), and Landlord disputes the basis on which the notice is
given, Landlord shall have the right for a period of ten ( 10) business
days after receipt of the termination notice, to give written notice of
such dispute to Tenant, which notice of dispute shall toll the running of
the time period for termination; provided, however, that if Landlord
disputes a notice of termination given by Tenant, and thereafter it is
determined, in the manner hereinafter provided, that the notice by Tenant
was properly given, the obligation of Tenant to pay any Base Rent or
Additional Rent shall terminate effective as of the date on which the
notice was given by Tenant. Such dispute shall be resolved by the Dispute
Resolution Procedure and, within ten ( 10) business days after the giving
of the notice of dispute, Landlord and Tenant shall initiate the Dispute
Resolution Procedure by appointing architects as duly licensed in the state
of Indiana as Officials.
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(d) Any Mortgage or other security interest or encumbrance must
expressly acknowledge that the provisions of this Section 21 shall govern
in the event of any inconsistency between the Mortgage and this Section 21
with respect to restoration of the Demised Premises after a Casualty and
application of insurance proceeds.
(e) The obligation of Tenant to pay Base Rent and Additional Rent
shall abate during the period that the Demised Premises remain untenantable
as a result of a fire or other casualty. There shall be an equitable
abatement of the Base Rent and Additional Rent based on the loss of use of
the Demised Premises caused by the Casualty. Determination of such loss of
use of the Demised Premises after a Casualty shall be mutually agreed to by
the parties within sixty (60) days from the date of the Casualty and if the
parties cannot so agree, then such loss of use shall be determined in
accordance with the Dispute Resolution Procedure, with real estate
appraisers having at least ten (10) years experience appraising commercial
real estate, including build-to-suit leases, serving as Officials. Pending
such determination, Tenant shall continue to pay the Base Rent and
Additional Rent as herein originally specified, and upon such
determination, if Tenant is entitled to a refund because of an overpayment
of Base Rent or Additional Rent, Landlord shall make the same promptly, or
in lieu thereof, credit the amount thereof to future installments of Base
Rent or Additional Rent as they become due.
(f) "Permitted Delay" means any delay due to strikes or other
labor troubles not specific to the Demised Premises, governmental
restrictions and limitations, war or other national emergency, non-
availability of materials and supplies, delay in transportation, accidents,
floods, fire, damage or other casualties, weather or acts or omissions of
Tenant, or delays by utility companies in bringing utility lines to the
Demised Premises, all beyond the reasonable control of Landlord.
22. Condemnation.
(a) If all of the Demised Premises is taken or condemned for a
public or quasi-public use, this Lease shall terminate as of the earlier of
the date title to the condemned real estate vests in the condemnor and the
date on which Tenant is deprived of possession of all of the Demised
Premises. In such event, the Base Rent herein reserved and all Additional
Rent and other sums payable hereunder shall be apportioned and paid in full
by Tenant to Landlord to that date, all Base Rent, Additional Rent and
other sums payable hereunder prepaid for periods beyond that date shall
forthwith be repaid by Landlord to Tenant, and neither party shall
thereafter have any liability hereunder, except that any obligation or
liability of either party, actual or contingent, under this Lease which has
accrued on or prior to such termination date shall survive.
(b) In the event of a taking of "Substantially All of the Demised
Premises" (as herein defined), Tenant may, at its option, upon thirty (30)
days' written notice to Landlord, which shall be given no later than sixty
(60) days following the taking, have the right to terminate this Lease. All
Base Rent and other sums payable by
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Tenant hereunder shall be apportioned and paid through and including the
date of termination, and neither Landlord nor Tenant shall have any rights
in any compensation or damages payable to the other in connection with such
condemnation. For purposes of this provision, "Substantially All of the
Demised Premises" shall mean (i) so much of the Demised Premises as, when
taken, leaves the untaken portion unsuitable, in the reasonable opinion of
Tenant, for the continued feasible and economic operation of the Demised
Premises by Tenant for the same purposes as immediately prior to such
taking or as contemplated herein, (ii) so many of the parking spaces in the
Common Areas as reduces the parking ratio below that which is required by
the zoning ordinance applicable to the land owned by Landlord of which the
Demised Premises are a part, and Landlord's failure to provide
substantially similar alternative parking reasonably acceptable to Tenant
within sixty (60) days after such taking, or (iii) so much of the Demised
Premises that access to the Demised Premises is materially impeded, as
reasonably determined by Tenant.
(c) In the event that the Base Rent is abated pursuant to Section
22(d) to less than 50% of the then prevailing Base Rent, Landlord may, at
its option, upon thirty (30) days written notice to Tenant, terminate this
Lease. All Base Rent and other sums payable by Tenant hereunder shall be
apportioned and paid through and including the date of taking, and neither
Landlord nor Tenant shall have any rights in any compensation or damages
payable to the other in connection with such condemnation
(d) If only part of the Demised Premises is taken or condemned
for a public or quasi-public use and this Lease does not terminate pursuant
to Section 22(b) above, Landlord shall, using all reasonable speed and
diligence, restore the Demised Premises to a condition and to a size as
nearly comparable as reasonably possible to the condition and size thereof
immediately prior to the taking. The entire award made by the condemning
authority as a result of the Taking (other than any Separate Award (as
hereinafter defined) which Tenant may seek and obtain), as reduced only by
the cost actually incurred by Landlord in collecting the award (herein, the
"Net Condemnation Proceeds") shall be paid to Landlord for the purpose of
enabling Landlord to carry out its restoration obligation under this
subsection (d). If any Net Condemnation Proceeds remain after Landlord
achieves restoration of the Demised Premises in accordance with this
subsection (d), such remaining Net Condemnation Proceeds shall be retained
by Landlord. The proposed plans for restoration of the Demised Premises and
a construction schedule shall be prepared by Landlord and submitted by
Landlord to Tenant for approval, such approval not to be unreasonably
withheld or delayed. In the event the construction schedule provided to
Tenant discloses that such construction is not estimated to be completed
within three (3) months from the date of the Taking, Tenant may, at its
option and as its only remedy, terminate this Lease by giving written
notice thereof to Landlord within thirty (30) days after Tenant's receipt
of such construction schedule. Upon such termination, Landlord and Tenant
will have no further duties or obligations under this Lease, except
obligations which expressly survive termination. The restoration shall be
pursued by Landlord in accordance with the approved schedule, subject to
extension thereof for Permitted Delay. In performing such restoration,
Landlord and its
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contractors shall take all such steps as may be reasonable and practicable
to prevent interference of such restoration with the use and enjoyment by
Tenant of the Demised Premises. Landlord shall perform its obligations
under this Section 22(d) in a manner which will achieve restoration as soon
as practicable, giving due regard to the nature and scope of the damage,
subject to the occurrence of Permitted Delay. In any event, damage
resulting from the Taking, irrespective of its magnitude, must be fully
restored within three months from the date of the Taking, subject to
extension of such three-month period for Permitted Delay. If restoration
has not been completed within such three-month period, as extended in
accordance with the foregoing provisions, Tenant may, at its option and as
its only remedy, terminate this Lease by giving written notice thereof to
Landlord within sixty (60) days after the expiration of such three-month
period, as extended; provided that if completion is achieved prior to the
giving of such notice, the right to give the notice will automatically
terminate. There shall be an equitable abatement of the Base Rent and
Additional Rent based on the loss of use of the Demised Premises caused by
the taking. Determination of such loss of use of the Demised Premises after
a partial taking shall be mutually agreed to by the parties within sixty
(60) days from the date of the taking and if the parties cannot so agree,
then such loss of use shall be determined in accordance with the Dispute
Resolution Procedure, with real estate appraisers having at least ten (10)
years experience appraising commercial real estate, including build-to-suit
leases, serving as Officials. Pending such determination, Tenant shall
continue to pay the Base Rent and Additional Rent as herein originally
specified, and upon such determination, if Tenant is entitled to a refund
because of an overpayment of Base Rent or Additional Rent, Landlord shall
make the same promptly, or in lieu thereof, credit the amount thereof to
future installments of Base Rent or Additional Rent as they become due.
(e) Landlord shall be entitled to receive the entire award in any
proceeding with respect to any taking provided for in this Section 22,
without deduction therefrom for any estate vested in Tenant by this Lease,
and Tenant shall receive no part of such award. Nothing herein contained
shall be deemed to prohibit Tenant from seeking a separate award ("Separate
Award") from the condemnor, to the extent permitted by law, for the value
of the unamortized tenant improvements (installed in accordance with
Section 19 at Tenant's expense), Tenant's moveable Trade Fixtures, personal
property moving expenses and loss of good will, provided that, in any case,
the making of such claim shall not and does not adversely affect or
diminish Landlord's award.
23. Tenant's Default
(a) The occurrence of any one or more of the following events
shall constitute an event of default (herein referred to as an "Event of
Default") of Tenant under this Lease:
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(i) if Tenant fails to pay Base Rent or any Additional Rent
hereunder as and when such rent becomes due and such failure shall continue
for more than ten (10) days after receipt of written notice from Landlord
of such failure;
(ii) if Tenant violates the provisions of Section 30 of this
Lease by attempting to make an unpermitted assignment or sublease;
(iii) if any petition is filed by or against Tenant or any
guarantor of this Lease under any present or future section or chapter of
the Bankruptcy Code, or under any similar law or statute of the United
States or any state thereof (which, in the case of an involuntary
proceeding, is not permanently discharged, dismissed, stayed, or vacated,
as the case may be, within ninety (90) days of commencement), or if any
order for relief shall be entered against Tenant or any guarantor of this
Lease in any such proceedings;
(iv) if Tenant becomes insolvent or makes a transfer in
fraud of creditors or makes an assignment for the benefit of creditors;
(v) if a receiver, custodian, or trustee is appointed for
the Demised Premises or for all or substantially all of the assets of
Tenant or of any guarantor of this Lease, which appointment is not vacated
within ninety (90) days following the date of such appointment; or
(vi) if Tenant fails to perform or observe any other term of
this Lease and such failure shall continue for more than thirty (30) days
after Landlord gives Tenant notice of such failure, or, if such failure
cannot be corrected exercising due diligence within such thirty (30) day
period, if Tenant does not commence to correct such default within said
thirty (30) day period and thereafter diligently prosecute the correction
of same to completion within a reasonable time and in any event prior to
the time a failure to complete such correction could cause Landlord to be
subject to criminal prosecution for violation of any law, rule, ordinance
or regulation or causes, or would result in a default under any mortgage or
other Permitted Encumbrance.
(b) Upon the occurrence of any one or more Events of Default,
Landlord, without any demand or notice whatsoever (except as expressly
required in this Section 23) shall have the immediate right to pursue the
following remedies (all of which shall be cumulative and in addition to any
other remedies available to Landlord at law or in equity):
(i) Landlord may terminate this Lease by giving Tenant
notice of termination, in which event this Lease shall expire and terminate
on the date specified in such notice of termination with the same force and
effect as though the date so specified were the date herein originally
fixed as the termination date of the Term, and all rights of Tenant under
this Lease and in and to the Demised Premises shall expire and terminate
and Tenant shall remain liable for all obligations under this Lease arising
up to the date of such termination, and Tenant shall surrender the Demised
Premises to
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Landlord on the date specified in such notice, and if Tenant fails to so
surrender Landlord shall have the right, upon prior notice and only to the
extent permitted by law, to enter upon and take possession of the Demised
Premises and to expel or remove Tenant and its effects without being liable
for prosecution or any claim for damages therefor. If Landlord elects to
terminate this Lease then, to the extent permitted under applicable law,
Landlord may recover from Tenant (A) the worth at the time of award of any
unpaid rent which had been earned at the time of such termination; plus (B)
the worth at the time of award of the amount by which the unpaid rent which
would have been earned after termination until the time of award exceeds
the amount of such rent loss that Tenant proves could have been reasonably
avoided; plus (C) the worth at the time of award of the amount by which the
unpaid rent for the balance of the Term after the time of award exceeds the
amount of such rent loss that Tenant proves could be reasonably avoided;
plus (D) any other amount necessary to compensate Landlord for all the
detriment proximately caused by Tenant's failure to perform its obligations
under this Lease or which, in the ordinary course of things, results
therefrom including, but not limited to, to the extent permitted under
applicable law, attorneys' fees and costs; brokers' commissions; the costs
of refurbishment, alterations, renovation and repair of the Demised
Premises, and removal (including the repair of any damage caused by such
removal) and storage (or disposal) of Tenant's personal property,
equipment, fixtures, alterations and any other items which Tenant is
required under this Lease to remove but does not remove. As used in
Subsection 23(b)(i)(C) above, the "worth at the time of award" is computed
by discounting such amount at the Prime Rate (as defined in Section 32) at
the time of award.
(ii) Landlord will also have the right, with or without
terminating this Lease, to re-enter the Demised Premises pursuant to legal
proceedings or pursuant to any notice provided by law, and remove all
persons and property from the Demised Premises; such property may be
removed and stored in a public warehouse or elsewhere at Tenant's expense.
No re-entry or taking possession of the Demised Premises by Landlord
pursuant to this Subsection 23(b)(ii) will be construed as an election to
terminate this Lease unless a written notice of such intention is given to
Tenant or unless the termination thereof is decreed by a court of competent
jurisdiction.
Upon the occurrence of an Event of Default and abandonment of the Demised
Premises by Tenant or in the event that Landlord elects to re-enter the
Demised Premises or takes possession of the Demised Premises pursuant to
legal proceedings or pursuant to any notice provided by law, then if
Landlord does not elect to terminate this Lease, Landlord may from time to
time, without terminating this Lease, either recover all rent as it becomes
due or relet the Demised Premises or any part thereof on terms and
conditions as Landlord in its sole and absolute discretion may deem
advisable with the right to make alterations and repairs to the Demised
Premises in connection with such reletting. If Landlord elects to relet the
Demised Premises, then rents received by Landlord from such reletting will
be applied; first, to the payment of any cost of such reletting; second, to
the payment of the reasonable cost of any alterations and repairs to the
Demised Premises incurred in connection with such reletting; third, to the
payment of any indebtedness
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other than rent due hereunder from Tenant to Landlord; fourth, to the
payment of rent due and unpaid hereunder and the residue, if any, will be
held by Landlord and applied to payment of future rent as the same may
become due and payable hereunder. Should that portion of such rents
received from such reletting during any month, which is applied to the
payment of rent hereunder, be less than the rent payable during that month
by Tenant hereunder, then Tenant agrees to pay such deficiency to Landlord
immediately upon demand therefor by Landlord. Such deficiency will be
calculated and paid monthly.
(iii) If an Event of Default occurs as a result of a failure
by Tenant to pay any sum of money owed to any party other than Landlord,
for which it is liable under this Lease, or as a result of a failure by
Tenant to perform any other act on its part to be performed hereunder,
Landlord may, without waiving or releasing Tenant from its obligations, but
shall not be obligated to, make any such payment or perform any such other
act to be made or performed by Tenant. Tenant agrees to reimburse Landlord
upon demand for all reasonable sums so paid by Landlord and all necessary
incidental costs, together with interest thereon at the Interest Rate, from
the date of such payment by Landlord until reimbursed by Tenant.
(iv) Pursue such other remedies as are available at law or
in equity.
(c) Neither the commencement of any action or proceeding, nor the
settlement thereof, nor entry of judgment thereon shall bar Landlord from
bringing subsequent actions or proceedings from time to time, nor shall the
failure to include in any action or proceeding any sum or sums then due be
a bar to the maintenance of any subsequent actions or proceedings for the
recovery of such sum or sums so omitted.
(d) If any statute or rule of law shall limit any of Landlord's
remedies as hereinabove set forth, Landlord shall nonetheless be entitled
to any and all other remedies hereinabove set forth.
(e) No provision of this Lease shall be deemed to have been
waived by either party unless such waiver is in writing and signed by the
party making such waiver. Landlord's acceptance of Base Rent or Additional
Rent following an Event of Default hereunder shall not be construed as a
waiver of such Event of Default (except as to acceptance by Landlord of
payment in full of all Base Rent and Additional Rent past due at the time
of such acceptance). No custom or practice which may arise between the
parties in connection with the terms of this Lease shall be construed to
waive or lessen either party's right to insist upon strict performance of
the terms of this Lease, without a written notice thereof to the other
party.
(f) The rights granted to Landlord in this Section 23 shall be
cumulative of every other right or remedy provided in this Lease or which
Landlord may otherwise have at law or in equity or by statute, and the
exercise of one or more rights or remedies shall not prejudice or impair
the concurrent or subsequent exercise of other rights or remedies or
constitute a forfeiture or waiver of Base Rent, Additional Rent or
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damages accruing to Landlord by reason of any Event of Default. If an Event
of Default shall occur, Tenant shall pay to Landlord, on demand, all
reasonable expenses incurred by Landlord as a result thereof, including
reasonable attorneys' fees, court costs and expenses. Other than in
connection with a claim arising from the negligence or intentional
misconduct of Landlord, its employees, agents or representatives, if
Landlord shall be made a party to any litigation commenced against Tenant
as a result of this Lease, Landlord's ownership of the Demised Premises or
the relationship of Landlord and Tenant arising by virtue of this Lease,
Tenant shall pay all reasonable costs and reasonable attorneys' fees
incurred by Landlord in connection with such litigation. Notwithstanding
anything to the contrary contained herein, in the event any third party
prevails in any action to which Landlord is made a party and it is
ultimately determined that there was no negligence or intentional
misconduct on the part of Landlord, Tenant shall pay all reasonable costs
and reasonable attorneys' fees incurred by Landlord in connection with such
litigation.
(g) Nothing contained in this Lease will relieve Landlord of any
obligation which Landlord may have under the laws of the state of Indiana
to mitigate its damages resulting from an Event of Default.
23.1 Landlord Default. If Landlord fails to perform or observe or
otherwise breaches any term of this Lease and such failure shall continue
for more than thirty (30) days after Tenant gives Landlord written notice
of such failure, or, if such failure cannot be corrected within such 30-day
period, if Landlord does not commence to correct such default within such
30-day period and thereafter diligently prosecute the correction of same to
completion within a reasonable time, a "Landlord Event of Default" shall
exist under this Lease. Upon the occurrence of a Landlord Event of Default,
Tenant may at Tenant's option, cure the Landlord Event of Default and the
actual cost of such cure shall be payable by Landlord to Tenant within
thirty (30) calendar days after written demand and shall bear interest at
the Interest Rate until repayment in full by Landlord occurs; provided,
however, that if a failure by Landlord to perform or observe any term of
this Lease gives rise to circumstances or conditions which constitute an
emergency threatening human health or safety or materially impeding the
conduct of the business of Tenant at the Demised Premises, Tenant shall be
entitled to take immediate curative action to the extent necessary to
eliminate the emergency . If Landlord does not pay to Tenant the amount of
such cost and accrued interest, upon written demand, Tenant may set off
such cost against installments of Base Rent or other amounts due Landlord
under this Lease. Such cost must be reasonably incurred and must not exceed
the scope of the Landlord Event of Default in question; and if such costs
are chargeable as a result of labor or materials provided directly by
Tenant, rather than by unrelated third parties, the costs shall not exceed
the amount which would have been charged by a qualified third party
unrelated to Tenant. The quality of all work performed by Tenant must equal
or exceed the quality as exists in the Demised Premises. Such costs must
be reasonably documented and copies of such documentation must be delivered
to Landlord with the written demand for reimbursement. Tenant shall be
permitted to continue to set-off against succeeding installments of Base
Rent or other amounts due Landlord under this
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Lease until the total amount of such cost actually incurred by Tenant has
been recovered by Tenant. Once Tenant has fully set off all of such cost,
Landlord shall no longer be deemed to be in default under this Lease with
respect to the Landlord Event of Default that was the subject of the set
off. Nothing contained in this Section 23.1 shall create or imply the
existence of any obligation by Tenant to cure any Landlord Event of
Default.
24. Landlord's Right of Entry. Tenant agrees to permit Landlord and
the authorized representatives of Landlord and of the Mortgagee to enter
upon the Demised Premises at all reasonable times for the purposes of
inspecting them and making any necessary repairs thereto and performing any
work therein that may be necessary by reason of Tenant's failure to make
such repairs or perform any such work required of Tenant under this Lease;
provided that, except in the case of an emergency, Landlord shall give the
Tenant reasonable prior written notice not less than two (2) days in
advance of Landlord's intended entry upon the Demised Premises. Nothing
herein shall imply any duty upon the part of Landlord to do any such work,
and the performance thereof by Landlord shall not constitute a waiver of
Tenant's default in failing to perform it. Landlord shall not be liable for
inconvenience, annoyance, disturbance or other damage to Tenant by reason
of making such repairs or the performance of such work in the Demised
Premises or on account of bringing materials, supplies and equipment into
or through the Demised Premises during the course thereof, and the
obligations of Tenant under this Lease shall not thereby be affected;
provided, however, that Landlord shall use reasonable efforts not to annoy,
disturb or otherwise interfere with Tenant's operations in the Demised
Premises in making such repairs or performing such work. Landlord also
shall have the right to enter the Demised Premises at all reasonable times
to exhibit the Demised Premises to any prospective purchaser, mortgagee or
tenant, subject to the foregoing provisions.
25. Mortgagee's Rights.
(a) Except as provided in Subsection (b), below, this Lease will
automatically be superior to any "Mortgage". The term "Mortgage", as used
in this Lease, shall mean any and all mortgages, deeds to secure debt,
deeds of trust, or other instruments creating a lien or conveying a
security title at any time and from time to time, granted by Landlord and
affecting or encumbering the title of Landlord to the Demised Premises or
this Lease. The term "Mortgagee" refers to the holder of the Mortgage.
Landlord shall have no right to grant to any Mortgagee in any Mortgage any
rights which, if exercised, would violate the obligations of Landlord or
the rights of Tenant under this Lease. With respect to any Mortgage which
is subordinate to this Lease, any person who becomes the holder of the
interest of the Landlord by virtue of foreclosure of the Mortgage shall be
subject to and bound by all the provisions of this Lease.
(b) If a Mortgagee desires for this Lease to be subordinate to
its Mortgage, Tenant agrees that it shall subordinate this Lease by
execution and delivery of the Subordination, Non-Disturbance and Attornment
Agreement attached to this Lease as Exhibit "D" and by this reference made
a part hereof; provided, however, that to be
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effective such Agreement must be fully executed by all parties thereto and
properly recorded in the real estate records of Hendricks County, Indiana;
until such full execution and recording occurs, no subordination of this
Lease to any Mortgage will be effective. Tenant hereby waives its rights,
if any, under applicable law which gives or purports to give Tenant any
right to terminate or otherwise adversely affect this Lease and the
obligations of Tenant hereunder in the event of any foreclosure proceeding
or sale under any Mortgage.
26. Estoppel Certificate. Each party agrees, at any time, and from
time to time, within ten (10) days after written request from the other, to
execute, acknowledge and deliver to the requesting party (and/or its
designee), a statement in writing in recordable form certifying that: (i)
this Lease is unmodified and in full force and effect (or, if there have
been modifications, that the same is in full force and effect, as modified)
and (ii) the dates to which Base Rent, Additional Rent and other charges
have been paid, (iii) whether or not, to the best knowledge of the signer
of such certificates, there exists any failure by the other party to
perform any term, covenant or condition contained in this Lease, and, if
so, specifying each such failure of which the signer may have knowledge,
(iv) (as to Tenant only, if such be the case) the Tenant has
unconditionally accepted the Demised Premises and is conducting its
business therein, (v) and as to such additional matters as may be
reasonably requested by the requesting party, it being intended that any
such statement delivered pursuant hereto may be relied upon by the
requesting party and by any purchaser of title to the Demised Premises or
by any Mortgagee or any assignee thereof or any party to any sale-leaseback
of the Demised Premises, or the landlord under a ground lease affecting the
Demised Premises.
27. Leasehold Mortgage.
27.1. Tenant's Financing. Landlord and Tenant acknowledge that the
Demised Premises may be encumbered by a mortgage on Tenant's leasehold
interest and other security device(s) to Einstein Bros. that may secure as
collateral, obligations of Tenant to Einstein Bros. under the Supply
Agreement. Such mortgage is hereinafter referred to as the "Leasehold
Mortgage," the mortgagee under the Leasehold Mortgage is hereinafter
referred to as the "Leasehold Mortgagee," and the obligations secured by
the Leasehold Mortgage are hereinafter referred to as the "Obligations."
27.2. Notice to Leasehold Mortgagee of Default by Tenant. Provided
Landlord has received from Tenant written notice of the existence of the
Leasehold Mortgage, Landlord shall give to the Leasehold Mortgagee a copy
of each notice of default for which provision is made under Section 23
hereof at the same time as and whenever such notice shall be given by
Landlord to Tenant, such copy to be addressed to such Leasehold Mortgagee
at the address last furnished to Landlord as provided hereinabove.
Landlord shall not be entitled to serve a notice of cancellation and
termination upon Tenant unless a copy of any prior notice of default shall
have been given to such Leasehold Mortgagee as hereinabove provided and the
time as hereinafter specified for the curing of such default shall have
expired without the same having been cured. The performance by the
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Leasehold Mortgagee of any condition or agreement on the part of Tenant to
be performed hereunder will be deemed to have been performed with the same
force and effect as though performed by Tenant. No notice of default shall
be effective unless a copy thereof has been delivered to the Leasehold
Mortgagee.
27.3. Cure by Leasehold Mortgagee. Landlord will accept performance
by the Leasehold Mortgagee, within the following periods (time being of the
essence) of any term, covenant or condition on Tenant's part to be
performed hereunder, with the same force and effect as though timely
performed by Tenant:
(a) As to any base rent and all other charges payable hereunder,
within ten (10) days after notice of such default; and
(b) As to all other defaults hereunder, within thirty (30) days
more than the applicable time period provided herein to the Tenant to
remedy such default or, if within such period such default cannot be cured,
or cannot be cured without entry into possession, to commence to so cure
within such period and diligently and continuously proceed therewith,
including, without limitation, diligent efforts to obtain possession, to
the completion of such cure.
If any default of the Tenant is not curable by the Leasehold Mortgagee,
including, without limitation, a default consisting of the bankruptcy of
the Tenant or other matter personal to the Tenant, such default shall be
deemed cured if the Leasehold Mortgagee (i) cures all curable defaults
within the aforesaid time periods, and (ii) agrees in writing to assume and
perform all of the terms and conditions of this Lease from and after the
date of such non-curable default. In the event Tenant rejects this Lease in
bankruptcy, the Leasehold Mortgagee shall be entitled to a new lease in
accordance with Section 27.5 hereof.
27.4. Standstill. The Landlord shall not exercise its right to
terminate this Lease (but this shall not be construed as precluding
Landlord from giving appropriate notices of default), as hereinabove
provided, during the time that the Leasehold Mortgagee shall require to
complete its remedies under such Leasehold Mortgage, provided, however:
(a) That the Leasehold Mortgagee proceeds, promptly and with due
diligence, with the remedies under the Leasehold Mortgage and thereafter
prosecutes and completes the same with all due diligence; and
(b) That the Leasehold Mortgagee shall pay to Landlord the base
rent and all other charges required to be paid by Tenant hereunder which
have accrued and which shall become due and payable during said period of
time, within the time period specified in Section 27.3 above.
Landlord shall also be obligated to give any notice of cancellation or
termination of this Lease by Tenant, including without limitation
cancellation or termination resulting from
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rejection of this Lease by Tenant in any bankruptcy proceeding, to the
Leasehold Mortgagee. The Leasehold Mortgagee shall then have the right to
notify Landlord in writing, within forth-five (45) days after receipt by
Leasehold Mortgagee of such notice of cancellation and termination, that
(i) Leasehold Mortgagee, or any designee or nominee which Leasehold
Mortgagee may designate or name in such notice, elects to lease the Demised
Premises from the date of cancellation or termination of this Lease (as
specified in the notice of cancellation and termination) for the remainder
of the term of this Lease, at the base rent and other payments and charges
herein reserved, and (except to the extent any of the same no longer runs
to the benefit of any successor Tenant) otherwise upon identical terms,
covenants and conditions as are herein set forth, with the same relative
priority in time and in right as this Lease and having the benefit of and
vesting in the Leasehold Mortgagee, its designee or nominee, of all of the
rights, title, interest, powers and privileges of the Tenant hereunder
(except to the extent any of the same do not run to the benefit of any
successor Tenant) and (ii) Leasehold Mortgagee further obligates itself,
within forty-five (45) after delivery to Landlord of such election: (x) to
cure the default upon which such cancellation or termination was based, or
in respect to any default not capable of curing within such forty-five (45)
days, or which cannot be cured without entry into possession, to proceed
and effect cure with due diligence, including, without limitation, diligent
efforts to obtain possession; (y) to pay to Landlord all base rent and
other payments and charges due under this Lease up to and including the
date of commencement of the term of such new lease; and (z) to pay to
Landlord all expenses and reasonable attorneys' fees incurred by Landlord
in connection with any such default and with the preparation, execution and
delivery of such new lease.
27.5. New Lease. Upon compliance by Leasehold Mortgagee, its
designee or nominee, within the time provided in Section 27.4, Landlord
shall thereupon execute and deliver such new lease to Leasehold Mortgagee,
its designee or nominee, having the same relative priority in time and in
right as this Lease and having the benefit of all of the right, title,
interest, powers and privileges of the Tenant hereunder (except to the
extent any of the same do not run to the benefit of any successor Tenant)
in and to the Demised Premises, including specifically assignment of
Landlord's interest in and to any then existing sublease where the
subtenant may have attorned to Landlord and may have been recognized by
Landlord and which, at the time of cancellation or termination of this
Lease, was prior in right to the Leasehold Mortgage or which by separate
agreement or by its terms had been granted non-disturber privileges.
Landlord hereby agrees with respect to any such sublease so assigned, that
it will not modify or amend any of the terms or provisions thereof, during
the period between the expiration or termination of this Lease and the
execution and delivery of the new lease.
Upon the execution and delivery of the new lease, the leasehold estate
shall automatically vest in the Leasehold Mortgagee until the expiration of
the term of the new lease, unless the new lease shall thereafter sooner be
terminated and Landlord shall execute and deliver and permit to be recorded
such documents as may be reasonably required by the Leasehold Mortgagee to
confirm the foregoing. Subject to such new lease having been effectuated
with the Leasehold Mortgagee, Landlord further agrees that, during the
period
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following the termination of this Lease until the date of the execution and
delivery of the new lease, it will do nothing which will give rise to any
liens thereon, but Landlord shall have all of the right, power and
privilege to operate, maintain and control the Demised Premises and shall
pay over to the Leasehold Mortgagee on the date of such execution and
delivery the net income, if any, after payment of all amounts accrued as if
this Lease had remained in full force and effect until the execution and
delivery of the new lease, derived from the Demised Premises from the date
of termination of this Lease, or the Leasehold Mortgagee shall pay over to
the Landlord the net deficit, including payment of all amounts accrued
under this Lease, from such operation, both determined in accordance with
generally recognized principles of accounting applied to the operation and
maintenance of a property of similar size and type.
Landlord shall not be obligated to deliver physical possession of the
Demised Premises to either the Leasehold Mortgagee or its designee or
nominee. In the event, however, that at the time the new lease is executed
the Tenant hereunder shall be in possession of the Demised Premises and of
the improvements, Landlord, at the request and expense of the Leasehold
Mortgagee, its designee or nominee, as the new Tenant, will take all
commercially reasonable and appropriate steps to remove the Tenant from the
Demised Premises and from the improvements, but shall not be liable to such
new Tenant for any damages resulting from any delay of the Tenant in
vacating the Demised Premises, or from any failure to vacate them, and
there shall be no abatement of rent by reason thereof.
In no event shall the Leasehold Mortgagee, its designee or nominee, be
under any obligation or liability whatsoever beyond the period for which it
is the Tenant under any such new lease.
27.6. Additional Covenants Regarding Leasehold Mortgage.
(a) No modification of this Lease shall be effective as to the
Leasehold Mortgagee unless consented to in writing by the Leasehold
Mortgagee, which consent shall not be unreasonably withheld, delayed or
conditioned.
(b) Subject to the provisions of Section 31, the Leasehold
Mortgagee or other acquirer of the interest of Tenant under this Lease (the
"Leasehold Estate") pursuant to foreclosure, assignment in lieu of
foreclosure or other proceedings may, upon acquiring the Leasehold Estate,
without further consent of Landlord, sell and assign the Leasehold Estate
on such terms and to such persons and organizations as are acceptable to
the Leasehold Mortgagee or acquirer and thereafter be relieved of all
obligations under this Lease, provided that such assignee has delivered to
Landlord its written agreement to be bound by all of the provisions of this
Lease.
(c) Notwithstanding any other provisions of this Lease to the
contrary, any sale of this Lease and of the Leasehold Estate in any
proceedings for the foreclosure of the Leasehold Mortgage, or the
assignment or transfer of this Lease and of the Leasehold Estate herein in
lieu of the foreclosure of the Leasehold Mortgage, shall be
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deemed to be a permitted sale, transfer or assignment of this Lease or the
Leasehold Estate.
(d) Nothing herein contained shall require any Leasehold
Mortgagee or its designee as a condition to its exercise of rights
hereunder to cure any default of Tenant (other than payment of amounts
owed) not reasonably susceptible of being cured by the Leasehold Mortgagee
or its designee, including but not limited to the defaults relating to
bankruptcy and insolvency and any other sections of this Lease which may
impose conditions of default not susceptible to being cured by the
Leasehold Mortgagee, or a subsequent owner of the Leasehold Estate through
foreclosure.
(e) So long as the Leasehold Mortgage is in existence, unless
otherwise consented to in writing by the Leasehold Mortgagee, the fee title
to the Demised Premises and the Leasehold Estate shall not merge but shall
remain separate and distinct, notwithstanding the acquisition of said fee
title and the Leasehold Estate by Landlord, by Tenant or by a third party,
by purchase or otherwise.
(f) If the Leasehold Mortgagee, its designee or other purchaser
which has acquired the Leasehold Estate pursuant to foreclosure, conveyance
in lieu of foreclosure or other proceedings, has entered into a new lease
with Landlord in accordance with Section 27.5 above, the Leasehold
Mortgagee, its designee or other purchaser (i) shall have no liability
under this Lease beyond the Leasehold Mortgagee's, designee's or other
purchaser's interest in the Demised Premises pursuant to this Lease, and
Landlord shall look exclusively to such interest for payment or discharge
of any obligations of Tenant under this Lease, (ii) shall have no liability
under this Lease except as an assignee pursuant to the provisions of this
Section, (iii) shall be obligated to perform the obligations of Tenant
under this Lease, but only for so long as it is the Tenant hereunder and
(iv) shall succeed to the rights of Tenant, if any, in and to any security
deposited or paid by Tenant to Landlord in connection with this Lease. In
such event, Tenant shall no longer have any rights to such security, and
Landlord shall hold such security for and on behalf of the Leasehold
Mortgagee, its designee or other purchaser.
(g) If the Leasehold Mortgagee, its designee or any other
purchaser of the Leasehold Estate shall become holder of the Leasehold
Estate and if the improvements on the Demised Premises shall have been or
become materially damaged on, before or after the date of such purchase and
assignment, the Leasehold Mortgagee, its designee or such purchaser shall
be obligated to repair, replace or reconstruct such improvements only to
the extent of the net insurance proceeds received by the Leasehold
Mortgagee, its designee or such purchaser. However, if such net proceeds
are insufficient to repair, replace or reconstruct such improvements to the
extent required by this Lease, and should the Leasehold Mortgagee, its
designee or such purchaser choose not to fully reconstruct such
improvements in accordance with such Section, such failure shall constitute
an Event of Default under this Lease.
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28. Option Agreement. Pursuant to the Option Agreement, Einstein
Bros. may, at its option, purchase the assets of Tenant, including, but not
limited to, Tenant's interest under this Lease. In the event that Einstein
Bros. exercises its option to purchase the assets of Tenant and assumes
Tenant's obligations under this Lease:
(a) The Term of the Lease shall be automatically extended for a
period of five (5) years commencing on the date of closing of the purchase
of Tenant's assets, and Tenant shall have the right and option to extend
the Term for one (1) successive additional period of five (5) years (the
"Renewal Term"), upon written notice to Landlord given no less than six (6)
months prior to the expiration date of the Term.
(b) The Base Rent for both the Term, as extended, and the Renewal
Term, shall not be as set forth in Section 1(c), but shall be based on the
fair market rental value of the Demised Premises as agreed to by Landlord
and Einstein Bros. In the event that Landlord and Einstein Bros. are
unable to agree upon the Base Rent to be paid by Einstein Bros. (i) as to
the remainder of the then current Term, within thirty (30) days of the date
of closing of Einstein Bros.'s purchase of Tenant's assets, or (ii) as to
the Renewal Term, within thirty (30) days prior to the commencement
thereof, the dispute shall be resolved by the Dispute Resolution Procedure,
as hereinafter defined. Within forty five (45) days of the date of closing
of Einstein Bros.'s purchase of Tenant, Landlord and Tenant shall initiate
the Dispute Resolution Procedure by appointing commercial real estate
brokers knowledgeable in the Indianapolis area industrial leasing market as
Officials, as hereinafter defined. If Einstein Bros. assumes Tenant's
rights and obligation under this Lease, Einstein Bros. shall, within ten
(10) days of the determination of Base Rent above, deposit with Landlord a
security deposit equal to a one month installment of Base Rent, and shall
pay the Base Rent determined in accordance with these provisions for the
time period commencing on the date of closing of the purchase of Tenant's
assets and ending on the day preceding the due date of the first monthly
installment of the Base Rent as so determined.
(c) Landlord shall have the option, with six (6) months prior
written notice to Einstein Bros., to relocate Einstein Bros.'s bagel
production facility to another site suitable to Einstein Bros.'s
requirements as set forth in this Lease. Einstein Bros. shall have the
right, at its sole discretion, to delay the proposed relocation up to four
(4) months after the relocation date proposed by Landlord. Landlord shall
bear all cost and expense associated with any such relocation of Einstein
Bros.
(d) Any Leasehold Mortgage held by Einstein Bros. shall be
extinguished.
29. Notices and Payments. Any notice or payment required or permitted
to be given or served by either party to this Lease shall be in writing and
deemed given when (a) personally delivered, (b) deposited with the United
States Postal Service, postage prepaid, to be mailed by certified or
registered mail, return receipt requested, or
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<PAGE>
(c) delivered by overnight delivery service providing proof of delivery,
properly addressed to the address set forth in Section l(i) (as the same
may be changed to another address in the Continental United States by
giving written notice of the change not less than ten (10) days prior to
effective date of the change); provided, however, that the time period
allowed for a response to any notice so given shall not commence until the
date of actual receipt of the notice. Refusal to accept delivery or
inability to deliver as a result of a change of address as to which no
notice was properly given shall be deemed receipt.
30. Brokers. Neither Landlord nor Tenant has engaged any brokers who
would be entitled to any commission or fee based on the execution of this
Lease. Further, neither Landlord nor Tenant have had any conversations or
negotiations with any broker concerning the leasing of the Demised Premises
to Tenant. Landlord and Tenant hereby indemnify each other against and
from any claims for any brokerage commissions asserted against the
indemnified party and arising from the acts of the indemnifying party and
all costs, expenses and liabilities in connection therewith, including,
without limitation, reasonable attorneys' fees and expenses, for any breach
of the foregoing. The foregoing indemnification shall survive the
expiration or termination of this Lease for any reason.
31. Assignment and Subleasing.
(a) Tenant may not assign, mortgage, pledge, encumber or
otherwise transfer this Lease, or any interest hereunder, or sublet the
Demised Premises, in whole or in part, without on each occasion first
obtaining the prior express written consent of Landlord, which consent
shall not be unreasonably withheld. Permitted subtenants or assignees
shall become liable directly to Landlord for all obligations of Tenant
hereunder, without, however, relieving Tenant of any of its liability
hereunder arising from and after the effective date of the Sublease or
assignment; provided, however, that so long as no Event of Default has
occurred and is continuing, Landlord shall not collect any rent directly
from any subtenant of less than the entire Demised Premises or otherwise
unreasonably interfere with the exercise by Tenant of its rights as
sublandlord under the sublease. No assignment, mortgaging, subletting or
use or occupancy by others shall in any way be construed to relieve Tenant
from any of its liability hereunder to pay Base Rent, Additional Rent and
all other sums payable by Tenant hereunder or to perform its obligations
hereunder (which shall in every instance continue as the liability and
obligation of a principal and not a surety) or from thereafter obtaining
the express consent of Landlord to any other or further assignment,
mortgaging or subletting of this Lease.
(b) If Tenant should desire to assign this Lease or sublet the
Demised Premises (or any part thereof), Tenant shall give Landlord written
notice no later than thirty (30) days in advance of the proposed effective
date of any proposed assignment or sublease, specifying (i) the name and
business of the proposed assignee or sublessee, (ii) a detailed description
of the intended use of the Demised Premises by the proposed assignee or
sublessee, with particular detail regarding any Hazardous Substances which
will be used in any manner at the Demised Premises; (iii) the amount and
location of the
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<PAGE>
space within the Demised Premises proposed to be so subleased, (iv) the
proposed effective date and duration of the assignment or subletting, and
(v) the proposed rent or consideration to be paid to Tenant by such
assignee or sublessee. Tenant shall promptly supply Landlord with financial
statements and other information as Landlord may reasonably request to
evaluate the proposed assignment or sublease.
(c) Landlord shall have a period of fifteen (15) days following
receipt of such notice and other information requested by Landlord within
which to notify Tenant in writing that Landlord elects: (i) to permit
Tenant to assign or sublet such space; or (ii) to refuse to consent to
Tenant's assignment or subleasing of such space and to continue this Lease
in full force and effect as to the entire Demised Premises; any such
refusal shall state with reasonable specificity the reasons for the
refusal. Landlord's refusal to consent to an assignment of this Lease or a
sublease of all or any part of the Demised Premises to a competitor of
Landlord or to an entity owned or controlled by or under contract with a
competitor of Landlord shall be deemed a reasonable refusal of such
consent. If Landlord should fail to notify Tenant in writing of such
election within the aforesaid fifteen (15) day period, Landlord shall be
deemed to have consented to such assignment or sublease. Tenant agrees to
reimburse Landlord for reasonable legal fees and any other reasonable costs
actually incurred by Landlord in connection with any requested assignment
or subletting, not to exceed $1000 in each instance. Tenant shall deliver
to Landlord copies of all documents executed in connection with any
permitted assignment or subletting, which documents shall be in form and
substance reasonably satisfactory to Landlord and which shall require such
assignee to assume performance of all terms of this Lease on Tenant's part
to be performed. No acceptance by Landlord of any rent or any other sum of
money from any assignee, sublessee or other category of transferee shall be
deemed to constitute Landlord's consent to any assignment, sublease, or
transfer.
(d) Any attempted assignment or sublease by Tenant in violation
of the terms and provisions of this Section 31 shall be void and such act
shall constitute a material breach of this Lease. In no event shall any
assignment, subletting or transfer, whether or not with Landlord's consent,
relieve Tenant of its primary liability under this Lease for the entire
Term, and Tenant shall in no way be released from the full and complete
performance of all the terms hereof. If Landlord takes possession of the
Demised Premises before the expiration of the Term of this Lease, Landlord
shall have the right, at its option to take over any sublease of the
Demised Premises or any portion thereof and such subtenant shall attorn to
Landlord, as its landlord, under all the terms and obligations of such
sublease occurring from and after such date, but excluding previous acts,
omissions, negligence or defaults of Tenant and any repair or obligation in
excess of available net insurance proceeds or condemnation award.
(e) Notwithstanding anything in this Lease to the contrary,
Tenant may at any time and from time to time sublet all or any part of the
Demised Premises, or assign this Lease, to Einstein Bros. or any Permitted
Entity without Landlord's consent. Einstein Bros., as either subtenant of
Tenant or assignee of Tenant's interest in this Lease,
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may at any time and from time to time sublet all or any part of the Demised
Premises, or assign this Lease, to any affiliate of Einstein Bros. without
Landlord's consent, provided that following such subletting or assignment
Einstein Bros. remains liable under the provisions of its sublease (in the
case of a subletting) or this Lease (in the case of an assignment).
Einstein Bros. may not assign, mortgage, pledge, encumber or otherwise
transfer this Lease, or any interest hereunder, or sublet the Demised
Premises, in whole or in part, to any party that is not an affiliate of
Einstein Bros. without the prior written consent of Landlord, which consent
shall not be unreasonably withheld, subject to Section 31(c) above and
provided that following such subletting or assignment Einstein Bros.
remains liable under the provisions of its sublease (in the case of a
subletting) or this Lease (in the case of an assignment). For purposes of
this Section 31(e), a Permitted Entity is an entity that is not a
competitor of Landlord and that uses the Demised Premises primarily to
produce products for Einstein Bros., its subsidiaries, affiliates,
licensees, franchisees or distributors or leases the Demised Premises for
such use.
32. Termination or Expiration.
(a) No termination of this Lease prior to the normal ending
thereof, by lapse of time or otherwise, shall affect Landlord's right to
collect rent and other amounts owed or owing for the period prior to
termination thereof.
(b) At the expiration or earlier termination of the Term, Tenant
shall surrender the Demised Premises and all improvements, alterations and
additions thereto, and keys therefor to Landlord, clean and neat, and in
the same condition as at the commencement of the Term, ordinary wear and
tear, loss by fire or other casualty (which shall be governed by Section
21) and repairs or maintenance which are the duty of Landlord under Section
11(c) of this Lease excepted.
(c) If Tenant remains in possession of the Demised Premises after
expiration of the Term, without Landlord's acquiescence and without any
express agreement of the parties, Tenant shall be a tenant-at-sufferance at
one hundred twenty-five percent (125%) of the Base Rent in effect at the
end of the Term. Tenant shall also continue to pay all other Additional
Rent due hereunder, and there shall be no renewal of this Lease by
operation of law.
33. Late Payments. Any installment of Base Rent which is not paid
within fifteen (15) calendar days after the date when such rent is due
shall, after such 15-day period, bear interest at the Interest Rate. The
term "Interest Rate", as used in this Lease, shall mean a rate of interest
equal to the lower of (i) three percent (3%) in excess of the Prime Rate
(as herein defined) in effect from time to time and (ii) the highest legal
rate of interest permitted by applicable law to be charged by Landlord to
Tenant. The term "Prime Rate" as used herein shall mean the rate of
interest charged at the applicable time by Bank of America Illinois as its
"reference rate." If Bank of America Illinois ceases to publish or
announce a reference rate, Landlord shall designate a comparable reference
rate.
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34. Dispute Resolution Procedure.
(a) In the event that a dispute arises between Landlord and
Tenant under the Lease, and (i) the Lease specifically provides that the
dispute resolution procedure outlined in this Section 34 (herein referred
to as the "Dispute Resolution Procedure") shall be utilized or (ii) the
dispute does not involve a failure by Tenant to pay Base Rent or Additional
Rent, and the party desiring to utilize the Dispute Resolution Procedure
provides the other party with written notice of said intent within twenty
(20) days after the dispute arises, the parties shall proceed as follows:
(i) The party electing to proceed under the procedures
outlined herein (the "Electing Party") shall give written notice of such
election to the other party (the "Other Party"), and shall designate in
writing the Electing Party's selection of an individual with the
qualifications outlined in the section of the Lease giving rise to this
remedy (the "Official") who shall act on the Electing Party's behalf in
determining the disputed fact.
(ii) Within twenty (20) days after the Other Party's receipt
of the Electing Party's selection of an Official, the Other Party, by
written notice to the Electing Party, shall designate an Official who shall
act on the Other Party's behalf in determining the disputed fact.
(iii) Within twenty (20) days of the selection of the Other
Party's Official, the two (2) Officials shall render a joint written
determination of the disputed fact. If the two (2) Officials are unable to
agree upon a joint written determination within such twenty (20) day
period, each Official shall render his or her own written determination and
the two Officials shall select a third Official within such twenty (20) day
period. In the event the two Officials are unable to select a third
Official within such twenty (20) day period, then either party may apply to
a court of original jurisdiction in the State of Indiana for appointment by
such court of such third Official.
(iv) Within twenty (20) days after the appointment of the
third Official, the third Official shall render his or her own written
determination.
(v) If either Landlord or Tenant fails or refuses to select
an Official, the Official selected shall alone determine the disputed fact.
Landlord and Tenant agree that they shall be bound by the determination
rendered pursuant to the Dispute Resolution Procedure, and that such
determination shall be enforceable by a court of competent jurisdiction.
Landlord shall bear the fee and expenses of its Official, Tenant shall bear
the fee and expenses of its Official, and Landlord and Tenant shall share
equally the fee and expense of the third Official, if any.
35. Miscellaneous.
(a) The parties hereto hereby covenant and agree that any
present or
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future law to the contrary notwithstanding, this Lease shall not terminate,
except as herein specifically provided, and Landlord shall receive the Base
Rent and Additional Rent and all other sums payable by Tenant hereinabove
provided as net income from the Demised Premises, without any abatement,
reduction, set-off (except as expressly provided in this Lease),
counterclaim, defense or deduction and not diminished by (i) any imposition
of any public authority of any nature whatsoever during the Term,
notwithstanding any changes in the method of taxation or raising, levying
or assessing any imposition, or any changes in the name of any imposition,
or (ii) any expenses or charges required to be paid by Tenant to maintain,
restore or replace the Demised Premises or to protect Landlord's ownership
of the Demised Premises, other than payments under any Mortgage now
existing or hereafter created by Landlord. The obligations of Tenant
hereunder shall not be affected by reason of any damage to or destruction
of the Demised Premises except as expressly otherwise provided to the
contrary in this Lease. Tenant shall remain obligated under this Lease in
accordance with its terms and shall not take any action to terminate,
rescind or void this Lease, solely as a result of any bankruptcy,
insolvency, reorganization, liquidation, dissolution or other proceeding
affecting Landlord or any assignee of Landlord.
(b) If any clause or provision of this Lease is determined to be
illegal, invalid or unenforceable under present or future laws effective
during the Term, then and in that event, it is the intention of the parties
hereto that the remainder of this Lease shall not be affected thereby, and
that in lieu of such illegal, invalid or unenforceable clause or provision
there shall be substituted a clause or provision as similar in terms to
such illegal, invalid or unenforceable clause or provision as may be
possible and be legal, valid and enforceable. If such invalidity is
essential to the rights of either or both parties, then the affected party
shall have the right to terminate this Lease on written notice to the
other.
(c) All rights, powers, and privileges conferred hereunder upon
the parties hereto shall be cumulative, but not restrictive to those given
by law.
(d) Time is of the essence of this agreement.
(e) No failure of Landlord or Tenant to exercise any power given
Landlord or Tenant hereunder or to insist upon strict compliance by
Landlord or Tenant with its obligations hereunder, and no custom or
practice of the parties at variance with the terms hereof shall constitute
a waiver of Landlord's or Tenant's rights to demand exact compliance with
the terms hereof. This Lease may be amended only by a written instrument
duly executed by Landlord and Tenant.
(f) This Lease contains the entire agreement of the parties
hereto and no representations, inducements, promises or agreements, oral or
otherwise, between the parties not embodied herein shall be of any force
and effect. The masculine (or neuter) pronoun, singular number shall
include the masculine, feminine and neuter gender and the singular and
plural number.
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(g) In the event of litigation between Landlord and Tenant with
respect to this Lease or the performance of their respective obligations
under this Lease, the losing party shall pay all reasonable costs and
expenses incurred by the prevailing party in connection with such
litigation, including reasonable attorneys' fees actually incurred.
(h) Landlord and Tenant agree to execute, upon request of the
other, a short form memorandum of this Lease in recordable form and the
requesting party shall pay the costs and charges for the recording of such
short form memorandum of lease. Under no circumstances shall Tenant have
the right to record this Lease (other than a short form memorandum of
Lease, as approved by Landlord), and should Tenant do so, Tenant shall be
in default hereunder.
(i) The captions of this Lease are for convenience only and are
not a part of this Lease, and do not in any way define, limit, describe or
amplify the terms or provisions of this Lease or the scope or intent
thereof.
(j) This Lease may be executed in multiple counterparts, each of
which shall constitute an original, but all of which taken together shall
constitute one and the same agreement.
(k) This Lease shall be interpreted under the laws of the state
of Indiana.
(l) The parties acknowledge that this Lease is the result of
negotiations between the parties, and in construing any ambiguity hereunder
no presumption shall be made in favor of either party. No inference shall
be made as to the striking of any item from this Lease.
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<PAGE>
The parties have executed this Lease as of the date first above
written.
LANDLORD
HARLAN BAKERIES, INC., an Indiana
corporation
By:__________________________
Name:_________________
Title:________________
TENANT
HARLAN BAGEL SUPPLY COMPANY, LLC,
an Indiana limited liability company
By:__________________________
Name:_________________
Title:________________
36
<PAGE>
Exhibit B
ASSIGNMENT AND ASSUMPTION AGREEMENT
This assignment and assumption agreement (the "Agreement") is made
and entered into as of this ____ day of__________, 1996, by and between
__________ (the "Assignor"), and Harlan Bagel Supply Company, LLC, an Indiana
limited liability company ("Harlan").
RECITALS
--------
Assignor is a party to certain purchase orders and other agreements
pursuant to which it has agreed to purchase certain bagel equipment. Assignor
and Harlan desire that all of Assignor's rights under such purchase orders and
agreements and the equipment covered thereby be transferred and assigned to
Harlan, subject to the assumption by Harlan of the executory obligations of
Assignor under such purchase orders and agreements, all on the terms and subject
to the conditions provided for herein.
COVENANTS
---------
In consideration of the premises and the mutual covenants and agreements
herein contained, the parties hereto agree as follow:
1. ASSIGNMENT. The Assignor hereby grants, bargains, sells, conveys and
assigns to Harlan all of Assignor's right, title and interest in and to the
purchase orders and agreements specified in Exhibit A hereto (the "Equipment
Agreements") and the equipment covered thereby. The Assignor represents to
Harlan that none of the Equipment Agreements have been amended or modified and
each of them is in full force and effect. Further, neither the Assignor nor, to
the best of the Assignor's knowledge, any of the other parties to the Equipment
Agreements is in breach of, or default under, any of the Equipment Agreements,
and to the best of the Assignor's knowledge, no event has occurred which, with
the passage of time or the giving of notice or both would constitute a breach
of, or default under, any of the Equipment Agreements.
2. PAYMENT; ASSUMPTION. In consideration for the assignment made by
Section 1 hereof, Harlan (a) is paying to Assignor, concurrently with the
execution and delivery of this Agreement, $__________ in cash, and (b) does
hereby assume, and agrees to pay, perform and discharge when lawfully due, all
of the obligations of Assignor under the Equipment Agreements.
3. EFFECT OF ASSIGNMENT. Notwithstanding anything in this Agreement to
the contrary, this Agreement shall not constitute an assignment of any of the
Equipment Agreements if an attempted assignment thereof, without the consent of
a third party thereto, would constitute a breach thereof or in any way adversely
affect the rights of Harlan thereunder. If such consent is not obtained, or if
an attempt at an assignment thereof would be ineffective or would affect the
rights of the Assignor thereunder so that
1
<PAGE>
Exhibit B
Harlan would not in fact receive all such rights, then Assignor will cooperate
with Harlan in any reasonable arrangement designed to provide for Harlan the
benefits under such Equipment Agreement including enforcement for the benefit of
Harlan of any and all rights of the Assignor against a third party thereto
arising out of the breach or cancellation by such third party or otherwise.
4. EFFECT OF ASSUMPTION. The assumption by Harlan of the obligations of
the Assignor provided for herein shall in way expand the rights or remedies of
any third party against Harlan as compared to the rights and remedies which such
third party would have had against Assignor had Harlan not assumed such
obligations. Without limiting the generality of the preceding sentence, the
assumption by Harlan of such obligations shall not create any third party
beneficiary rights.
5. FURTHER ASSURANCES. Each of the parties hereto further agrees to
execute such additional documents from time to time at request of the other
party as may be reasonably necessary to accomplish the assignment or assumption
made herein.
6. BINDING AGREEMENT. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and assigns.
7. COUNTERPARTS. This agreement may be executed in any number of
counterparts, each of which shall be deemed an original.
8. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Indiana applicable to contracts made
and to be performed wholly therein.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
[ASSIGNOR]
By________________________
HARLAN BAGEL SUPPLY COMPANY, LLC
By________________________
2
<PAGE>
Exhibit C
ASSIGNMENT AND BILL OF SALE
---------------------------
This assignment and bill of sale, (the "Assignment") is delivered by
___________ (the "Seller") to Harlan Bagel Supply Company, LLC, an Indiana
limited liability company.
KNOW ALL BY THESE PRESENTS, that for good and valuable consideration the
Seller does hereby sell, convey, transfer, assign, and deliver to Harlan the
Equipment specified in Exhibit A hereto (the "Purchased Equipment").
The Seller represents, warrants, and covenants to Harlan, its successors,
and assigns, that the Seller is the lawful owner of the Purchased Equipment and
has the right and authority to make the herein described transfer free and clear
of all liens, mortgages, pledges, encumbrances, claims, and charges of every
kind.
The Seller further agrees to execute such additional documents from time to
time at the request of Harlan as may be reasonably necessary to accomplish the
transfer made herein.
IN WITNESS WHEREOF, the Seller has executed this assignment and bill of
sale as of the day and year first written above.
[SELLER]
By _______________________________
<PAGE>
Exhibit D
OPTION AGREEMENT
dated ________________, 1996
among
EINSTEIN BROS. BAGELS, INC.,
HARLAN BAGEL SUPPLY COMPANY, LLC
HAL P. HARLAN,
HUGH P. HARLAN
and
DOUG H. HARLAN
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Article 1.0 The Option.................................................................. 1
1.1 The Option.................................................................. 1
1.2 Exercise of the Option...................................................... 2
1.3 Regulatory Compliance....................................................... 3
1.4 Purchase Price upon Exercise of the Option.................................. 3
1.5 Allocation of Purchase Price Among Option Assets............................ 3
1.6 Valuation of Einstein Bros. Stock or BCI Stock.............................. 3
1.7 Closing of Option Exercise.................................................. 3
1.8 Procedure at each Closing................................................... 4
Article 2.0 Representations and Warranties of Supplier and the Members.................. 5
2.1 Organization, Power and Authority of Supplier............................... 5
2.2 Due Authorization; Binding Agreement of Supplier............................ 5
2.3 Binding Agreement of the Members............................................ 5
2.4 Membership Interests in Supplier............................................ 6
2.5 Ownership of Shares by the Members.......................................... 6
2.11 Good Title to and Condition of Supplier's Assets........................... 6
2.26 Accuracy of Information Furnished by Supplier and the Members.............. 6
2.27 Investment Bankers' and Brokers' Fees...................................... 6
Article 3.0 Representations and Warranties of Einstein Bros............................. 6
3.1 Organization, Power and Authority of Einstein Bros.......................... 6
3.2 Due Authorization; Binding Agreement of Einstein Bros....................... 6
3.3 Investment Bankers' and Brokers' Fees....................................... 7
Article 4.0 Additional Covenants of Supplier and the Prior to the Termination........... 7
4.1 Reasonable Best Efforts..................................................... 7
4.2 Conduct of Business......................................................... 7
4.3 Access to Supplier's Properties and Records................................. 8
4.4 Notice of Material Developments............................................. 8
4.5 No Disclosure............................................................... 8
4.6 No Other Discussions; Retention of Shares................................... 9
Article 5.0 Conditions to the Closing of the Option Exercise by Einstein Bros........... 9
5.1 Accuracy of Representations and Warranties and Compliance with Obligations.. 9
5.2 HSR Act Waiting Period...................................................... 9
5.3 Receipt of Necessary Consents............................................... 9
5.4 No Adverse Litigation....................................................... 9
5.5 No Material Adverse Change.................................................. 9
Article 6.0 Certain Additional Covenants................................................ 10
6.1 Execution of Further Documents.............................................. 10
6.2 Cooperation of Supplier and the Members
</TABLE>
<PAGE>
<TABLE>
<S> <C>
6.3 Subsequent Audited Financial Statements..................................... 11
6.4 Confidential Information.................................................... 11
6.5 Remedies Waiver............................................................. 12
6.6 Employment by Einstein Bros. of Supplier's Employees
6.7 No Obligation of Einstein Bros. to Employ.
Article 7.0 Indemnification............................................................. 13
7.1 Agreement by the Members to Indemnify....................................... 13
Article 8.0 Miscellaneous............................................................... 15
8.1 Amendment and Modification.................................................. 15
8.2 Payment of Expenses......................................................... 15
8.3 Binding Effect.............................................................. 15
8.4 Entire Agreement............................................................ 15
8.5 Headings.................................................................... 15
8.6 Execution in Counterpart.................................................... 15
8.7 Notices..................................................................... 15
8.8 Governing Law............................................................... 16
8.9 Publicity................................................................... 16
</TABLE>
ii
<PAGE>
OPTION AGREEMENT
This option agreement (the "Agreement") is made and entered into this ___ day
of _______, 1996 by and among Einstein Bros. Bagels, Inc., a Delaware
corporation ("Einstein Bros."), Harlan Bagel Supply Company, LLC, an Indiana
limited liability company ("Supplier"), and Hal P. Harlan, Hugh P. Harlan and
Doug H. Harlan (collectively, the "Members").
RECITALS
--------
Einstein Bros., the Supplier, and Harlan Bakeries, Inc. and the Members have
entered into a project and approved supplier agreement (the "Approved Supplier
Agreement"). Einstein Bros. desires to obtain an option to acquire all of the
assets of Supplier, and Supplier desires to grant such an option, all on the
terms and subject to the conditions set forth herein.
COVENANTS
---------
In consideration of the mutual representations, warranties and covenants and
subject to the conditions herein contained herein and in the Approved Supplier
Agreement, the parties hereto agree as follows:
ARTICLE 1.0 THE OPTION
1.1 THE OPTION. Upon the terms and subject to the conditions hereof,
Supplier hereby grants to Einstein Bros. an irrevocable option (the "Option") to
purchase, at the purchase price provided for in Section 1.4 hereof, all of the
assets of Supplier (the assets subject to the option being herein sometimes
referred to as the "Option Assets"). Without limiting the generality of the
foregoing, the Option Assets shall include:
1.1.1 all of Supplier's machinery, equipment, tools, supplies,
leasehold improvements, construction in progress, furniture and fixtures, and
other fixed assets ("Fixed Assets");
1.1.2 all inventories and raw materials of Supplier;
1.1.3 all receivables of Supplier including without limitation any
receivables under Sections 7.5 and 7.8 of the Approved Supplier Agreement;
1.1.4 all real estate owned by Supplier, if any, and all of the
interest of, and the rights and benefits accruing to, Supplier as lessee
under all leases of real property and all improvements thereto and buildings
thereon, and all leases or rental agreements covering machinery, equipment,
tools, supplies, vehicles, furniture and fixtures and other fixed assets or
personal property;
1.1.5 all of the rights and benefits accruing to Supplier under the
Approved Supplier Agreement and under all sales orders, sales contracts,
supply contracts, purchase orders and
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purchase commitments made by Supplier in the ordinary course of business, all
other agreements to which Supplier is a party or by which it is bound and all
other choices in action, causes of action and other rights of every kind, but
excluding contracts relating solely to the production or the sale of products
other than the Products (as defined in the Approved Supplier Agreement)
("Excluded Contracts");
1.1.6 all operating data and records of Supplier, including, without
limitation, customer lists, financial, accounting and credit records,
correspondence, budgets and other similar documents and records (although
Supplier may retain copies thereof at its own expense for its tax or other
legitimate business purposes);
1.1.7 all of the proprietary rights of Supplier, including, without
limitation, all trademarks, trade names (but expressly excluding the name
"Harlan" or any name including the name "Harlan"), patents, patent
applications, licenses, trade secrets, technology, know-how, formula, designs
and drawings, computer software, slogans, copyrights, processes, operating
rights, other licenses and permits, and other similar intangible property and
rights, if any; and
1.1.8 all cash and investments, and all prepaid and deferred items of
the Supplier, including, without limitation, prepaid rentals, insurance,
taxes and unbilled charges and deposits.
The Option shall be exercisable at any time on or after December 15, 1999 and
on or before June 1, 2002 ("Termination Date").
1.2 EXERCISE OF THE OPTION. In the event that Einstein Bros. elects to
exercise the Option it shall give written notice of such exercise to Supplier in
the manner provided herein for the giving of notice, which notice shall specify
the consideration which Einstein Bros. elects to deliver upon the Closing (as
hereinafter defined), which may consist of shares of common stock of Einstein
Bros. ("Einstein Bros. Stock") in the event Einstein Bros. has completed an
initial public offering of Einstein Bros. Stock, shares of common stock ("BCI
Stock") of Boston Chicken, Inc. ("BCI"), cash, or any combination of the
foregoing, having an aggregate value equal to the Supplier Value (as defined in
Section 1.4), provided, however, that such consideration may consist of Einstein
Bros. Stock or BCI Stock (the issuer of such stock being referred to herein as
the "Issuer") only if (a) the average closing sales price per share of such
stock of the Issuer as quoted on the NASDAQ National Market, as quoted on such
other market or exchange on which such shares are traded, for the ten
consecutive trading days ending on the second business day prior to the Closing
Date (as hereinafter defined) (the "Share Price") is at least $10, and (b) the
value of the Issuer (defined as the product of the Share Price and the total
number of outstanding shares of such stock of the Issuer) is at least $300
million. In the event Einstein Bros. elects to deliver upon the Closing shares
of Einstein Bros. Stock or shares of BCI Stock, such shares shall be registered
under the Securities Act of 1933, as amended, and shall be accompanied by a
written undertaking of Einstein Bros. to pay to the Supplier in cash the excess,
if any, of the value of the shares so delivered , determined in the manner
provided in Section 1.6 hereof, over the proceeds (net of commissions) from the
sale of the shares, assuming all shares are sold in accordance with such
reasonable conditions on the timing, daily volume and
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manner of sale as may be set forth in such undertaking. Such undertaking shall
be assignable by the Supplier to its members to the extent any such shares are
assigned to such members.
1.3 REGULATORY COMPLIANCE. Upon the exercise of the Option each of the
parties shall promptly prepare and file with the Federal Trade Commission
("FTC") and the United States Department of Justice ("Justice Department") any
notification required to be filed with respect to the transactions contemplated
hereby under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 as
amended, or any rules or regulations thereunder (the "HSR Act"). Each party
represents and warrants to the other parties hereto that any such filing made by
it shall be true and accurate in all material respects and shall conform to the
requirements of the HSR Act. Each party shall promptly complete and file any
required responses to requests by the FTC or the Justice Department for
additional data and information. Each party shall also make available to the
other parties hereto such information relative to its business, assets and
property as may be required for the preparation of such notifications and
reports.
1.4 PURCHASE PRICE UPON EXERCISE OF THE OPTION. The purchase price payable
by Einstein Bros. upon the exercise of the Option shall consist of: (i)
Einstein Bros. Stock, BCI Stock, cash or any combination of the foregoing
(determined in accordance with Section 1.2) having an aggregate value equal to
the Supplier Value as of the Closing Date (as hereinafter defined) and (ii) the
assumption by Einstein Bros. of Supplier's accounts payable, accrued expenses,
outstanding indebtedness for money borrowed and contractual obligations, except
that Einstein Bros. shall not be obligated to assume any liability or obligation
under the Excluded Contracts or any liability or obligation the existence of
which constitutes a breach of any representation and warranty made by Supplier
or the Members in this Agreement or incurred in violation of any covenants or
agreements of Supplier made in this Agreement (such liabilities to be assumed by
Einstein Bros. being herein referred to as the "Assumed Liabilities"). For this
purpose, the "Supplier Value" as of the Closing Date shall be determined in the
manner set forth in Exhibit A.
1.5 ALLOCATION OF PURCHASE PRICE AMONG OPTION ASSETS. The purchase price
for the Option Assets shall be allocated among each item or class of the Option
Assets as determined by the parties. Supplier and Einstein Bros. agree that
they will prepare and file their federal and any state or local income tax
returns based on such allocation of the purchase price. Supplier and Einstein
Bros. agree that they will prepare and file any notices or other filings
required pursuant to Section 1060 of the Internal Revenue Code of 1986, as
amended, and that any such notices of filings will be prepared based on such
agreed allocation of the purchase price.
1.6 VALUATION OF EINSTEIN BROS. STOCK OR BCI STOCK. Einstein Bros. Stock or
BCI Stock delivered upon the Closing (as hereinafter defined) shall be deemed to
have a value equal to the average closing sales price per share of such stock as
quoted on the NASDAQ National Market, as reported in the Wall Street Journal
(Western Edition), or as quoted on such other market or exchange on which such
shares are traded, for the ten consecutive trading days ending on the second
business day prior to the Closing Date (as hereinafter defined).
1.7 CLOSING OF OPTION EXERCISE. The closing of the exercise of the Option
shall take place at the offices of Einstein Bros. at 9:00 A.M., local time, on
the fifth business day after the date of the notice of such exercise referred to
in Section 1.2, or, if later, the second business day after the
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satisfaction or waiver of all other conditions to the exercise of the Option
provided for in Articles 5.0 and 6.0 hereof. Throughout this Agreement, such
event is referred to as "Closing" and such date and time are referred to as
"Closing Date".
1.8 PROCEDURE AT THE CLOSING. At the Closing: (i) Supplier shall execute
and deliver to Einstein Bros. instruments of assignment in form and substance
satisfactory to Einstein Bros. sufficient to convey to Einstein Bros. all right,
title and interest of Supplier in and to the Option Assets, all necessary
consents or approvals of third parties (including any governmental entities) to
the transactions contemplated hereby, subscription agreements of Supplier and
the Members satisfactory in form and substance to Einstein Bros., in the event
Einstein Bros. has elected to deliver Einstein Bros. Stock or BCI Stock at the
Closing, and an opinion of Henderson, Daily, Withrow & DeVoe, or other counsel
reasonably acceptable to Einstein Bros., dated as of the Closing Date and in a
form reasonably acceptable to Einstein Bros., to the effect that: (A) Supplier
is a limited liability company duly organized and validly existing under the
laws of the State of Indiana with full power and authority to own or lease its
properties, to carry on its business as it is being conducted and to convey the
Option Assets to Einstein Bros. pursuant to this Agreement, (B) the sale of the
Option Assets has been duly authorized by all necessary action of Supplier under
Indiana law, its articles of incorporation and bylaws, (C) the sale of the
Option Assets will not conflict with or violate any provision of the articles of
organization or operating agreement of Supplier, conflict with or violate any
order, judgment or decree known to such counsel applicable to Supplier or the
Members or by which any of Supplier's properties are affected, or result in a
breach of, or constitute a default (or any event which with notice or lapse of
time would become a default) under, or give to others any rights of first
refusal, termination, amendment, acceleration or cancellation of, or result in
the creation of any lien or encumbrance on any of the Option Assets pursuant to,
any notice, bond, mortgage, indenture contract, agreement, lease or other
instrument or obligation known to such counsel by which Supplier or any of the
Members is bound or by which any of the Supplier's properties are affected, (D)
the sale of the Option Assets will not, require any consent, approval,
exemption, authorization or permit of, filing with or notification, or other
action by, any court, administrative agency or governmental or regulatory
authority, under any provision of Indiana or Federal law, except for such
consents and approvals as shall have been obtained and filings which shall have
been made, and (E) to such counsel's knowledge, there are no actions, suits,
proceedings or governmental inquiries pending or threatened against Supplier or
any of the Members seeking to prevent the consummation of the transactions
contemplated by this Agreement or which could reasonably be expected to have a
material adverse effect on the Option Assets or the ability of Supplier and the
Members to perform their obligations under this Agreement, and (ii) Einstein
Bros. shall deliver to Supplier the purchase price, an instrument of assumption
in form and substance satisfactory to Supplier, assuming the Assumed
Liabilities, and releases of any guarantees made by the Members in connection
with the Assumed Liabilities, to the extent such releases may be obtained
through Einstein Bros.' reasonable efforts (which the parties agree shall not
require Einstein Bros. to expend money or provide security to the holder of any
of the Assumed Liabilities). Einstein Bros. acknowledges that the legal opinion
referred to above will be subject to review by Henderson, Daily's opinion
committee prior to the time of issuance of such opinion so that such opinion is
consistent with prevailing opinion letter practice at such time.
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ARTICLE 2.0 REPRESENTATIONS AND WARRANTIES OF SUPPLIER AND THE MEMBERS
In order to induce Einstein Bros. to enter into this Agreement and to
consummate the transactions contemplated hereunder, Supplier and the Members
jointly and severally make the following representations and warranties:
2.1 ORGANIZATION, POWER AND AUTHORITY OF SUPPLIER. The Company is a
limited liability company duly organized and validly existing under the laws of
Indiana, and has full corporate power and authority to own or lease its
properties and to carry on its business as it is now being conducted and to
enter into this Agreement and to carry out the transactions and agreements
contemplated hereby. Supplier is legally qualified to transact business, and is
in good standing, in any jurisdictions in which its business or property is such
as to require that it be thus qualified, except where the failure to be so
qualified would not have a material adverse effect on its business, properties
or financial condition.
2.2 DUE AUTHORIZATION; BINDING AGREEMENT OF SUPPLIER AND MEMBERS. The
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated hereby have been duly authorized by all necessary
action of Supplier, including the approval of the Members of Supplier. This
Agreement has been duly executed and delivered by Supplier and the Members and
is a valid and binding obligation of Supplier and the Members, enforceable in
accordance with its terms. Neither the execution and delivery of this Agreement
by Supplier or the Members nor the consummation of the transactions contemplated
hereby will: (i) conflict with or violate any provision of the articles of
organization or operating agreement of Supplier or of any decree or order of any
court or administrative or other governmental body which is either applicable
to, binding upon or enforceable against Supplier or the Members or the assets
and properties of Supplier or the Members; or (ii) result in a breach of,
constitute a default under, result in the acceleration of, create in any party
the right to accelerate, terminate, modify or cancel, or require any notice
under, any mortgage, contract, agreement, indenture or other instrument which is
either binding upon or enforceable against Supplier or the Members or the assets
and properties of Supplier or the Members. No permit, consent, approval or
authorization of, or declaration to or filing with, any regulatory or other
government authority is required in connection with the execution and delivery
of this Agreement by Supplier or the Members and the consummation by it of the
transactions contemplated hereby, except pursuant to the HSR Act.
2.3 OWNERSHIP INTERESTS IN SUPPLIER. All voting rights in Supplier are
vested exclusively in its membership interests (the "Interests"), and there are
no voting trusts, proxies or other agreements or understandings with respect to
the voting of the Interests of Supplier, except for the operating agreement
among the Supplier and the Members (the "Operating Agreement"). Supplier has
previously furnished to Einstein Bros. copies of Supplier's articles of
organization and the Operating Agreement, and such copies are correct and
complete in all respects. There are no outstanding warrants, options or rights
of any kind to acquire from Supplier any interests or securities of any kind,
and there are no pre-emptive rights with respect to the issuance or sale of
interests of Supplier. Supplier has no obligation to acquire any of its issued
and outstanding interests or any other security issued by it from any holder
thereof, except pursuant to the Operating Agreement.
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2.4 OWNERSHIP OF INTERESTS BY THE MEMBERS. The Members are the lawful
owners of all of the outstanding Interests of Supplier and have valid marketable
title thereto, free and clear of all liens, pledges, encumbrances, security
interests, restrictions on transfer, claims and equities of every kind, other
than restrictions under federal and state securities laws. There are no
outstanding warrants, options or rights of any kind to acquire from the Members
any of the Interests.
2.5 TITLE TO SUPPLIER'S ASSETS. Supplier has good and marketable title to
all of its assets and properties, free and clear of all liens, mortgages,
pledges, encumbrances or charges of every kind, nature, and description
whatsoever, and upon the Closing Einstein Bros. will acquire good and marketable
title to the Option Assets, free and clear of all liens, mortgages, pledges,
encumbrances or charges of every kind, nature and description whatsoever, except
for (i) security interests securing any indebtedness for money borrowed or other
contractual obligations but only if such indebtedness or obligations are assumed
by Einstein Bros. or (ii) such liens, mortgages, pledges, encumbrances or
charges as shall have been approved by Einstein Bros. in writing.
2.6 ACCURACY OF INFORMATION FURNISHED BY SUPPLIER AND THE MEMBERS. No
representation, statement or information made or furnished by Supplier or the
Members to Einstein Bros., including without limitation those contained in this
Agreement and the various schedules attached hereto, when taken as a whole,
contains or shall contain any untrue statement of a material fact or omits or
shall omit any material fact necessary to make the information contained therein
not misleading.
2.7 INVESTMENT BANKERS' AND BROKERS' FEES. Neither the Members nor
Supplier have any obligation to pay any fees or commissions to any investment
banker, broker, finder or agent with respect to the transactions contemplated by
this Agreement.
ARTICLE 3.0 REPRESENTATIONS AND WARRANTIES OF EINSTEIN BROS.
In order to induce Supplier and the Members to enter into this Agreement and
to consummate the transactions contemplated hereunder, Einstein Bros. makes the
following representations and warranties:
3.1 ORGANIZATION, POWER AND AUTHORITY OF EINSTEIN BROS. Einstein Bros. is
a corporation duly organized and validly existing under the laws of the State of
Delaware, and has full corporate power and authority to own or lease its
properties and to carry on its business as it is now being conducted and to
enter into this Agreement and to carry out the transactions and agreements
contemplated hereby.
3.2 DUE AUTHORIZATION; BINDING AGREEMENT OF EINSTEIN BROS. The execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action of Einstein Bros. This Agreement has been duly executed and
delivered by Einstein Bros. and is a valid and binding obligation of Einstein
Bros., enforceable in accordance with its terms. Neither the execution and
delivery of this Agreement by Einstein Bros. nor the consummation of the
transactions contemplated hereby will: (i) conflict with or violate any
provision of the certificate of incorporation or bylaws of Einstein Bros. or of
any decree or order of any court or administrative or other governmental body
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which is either applicable to, binding upon or enforceable against Einstein
Bros., or its assets and properties; or (ii) result in a breach of, constitute a
default under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify or cancel, or require any notice under, any
mortgage, contract, agreement, indenture or other instrument which is either
binding upon or enforceable against Einstein Bros., or its assets and
properties. No permit, consent, approval of authorization of, or declaration to
or filing with, any regulatory or other government authority is required in
connection with the execution and delivery of this Agreement by Einstein Bros.
and the consummation by it of the transactions contemplated hereby.
3.3 INVESTMENT BANKERS' AND BROKERS' FEES. Einstein Bros. has no
obligation to pay any fees or commissions to any investment banker, broker,
finder or agent with respect to the transactions contemplated by this Agreement.
ARTICLE 4.0 ADDITIONAL COVENANTS OF SUPPLIER AND THE MEMBERS PRIOR TO THE
TERMINATION DATE
4.1 REASONABLE BEST EFFORTS. Supplier and the Members will use reasonable
best efforts to cause to be satisfied as soon as practicable and prior to the
Closing Date all of the conditions set forth in Articles 5.0 and 6.0. Without
limiting the generality of the foregoing Supplier and the Members will not,
without Einstein Bros.' written consent, take any action that would result in a
requirement that any third party consent or approval be obtained in connection
with exercise of the Option.
4.2 CONDUCT OF BUSINESS. From and after the execution and delivery of this
Agreement and until the earlier of the Closing Date or the Termination Date,
except as otherwise provided by the prior written consent of Einstein Bros.:
4.2.1 Supplier will use reasonable best efforts to (i) preserve its
business organization intact, (ii) keep available the services of its
officers, employees, and agents, and (iii) preserve its relationships with
suppliers and others having dealings with Supplier;
4.2.2 Supplier will maintain all of its properties in customary repair,
order and condition, reasonable wear and use and damage by unavoidable
casualty excepted; and
4.2.3 Supplier will not (a) sell, lease, transfer or otherwise dispose
of assets other than in the ordinary course of business, (b) redeem, purchase
or otherwise acquire from any of its Members all or any part of their equity
interest in the Supplier or pay any dividends or make any other distributions
or payments to such Members, or persons or entities related to them, except
for (i) distributions to the Members to permit payment by them of income
taxes on income of Supplier allocated to them, which shall be based on a tax
rate equal to the highest effective combined statutory rate of federal and
state income tax (giving effect to the deductibility of state income taxes
for federal income tax purposes) imposed on taxable income of an individual
residing in the State of Indiana, and (ii) other cash distributions and
compensation payments that are permitted to be made by the Financing
Documents (as defined in
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the Approved Supplier Agreement), (c) incur indebtedness other than the
indebtedness provided for in the Financing Documents (as defined in the
Approved Supplier Agreement), (d) incur any material obligations or
liabilities (other than its obligations under this Agreement and the Approved
Supplier Agreement), or enter into any material transaction (other than
transactions contemplated by this Agreement or the Approved Supplier
Agreement) other than in the ordinary course of business, (e) merge or
consolidate with any other entity, effect any change in its capital
structure, make any investment in any other entity, liquidate or dissolve,
(f) amend its articles of organization or the Operating Agreement, (g) enter
into any transaction with any affiliate except on terms at least as favorable
as those that could be obtained from an unrelated third party or (h) agree to
do any of the foregoing.
4.3 ACCESS TO SUPPLIER'S PROPERTIES AND RECORDS. From and after the
execution and delivery of this Agreement and until the earlier of the Closing
Date or the Termination Date, Supplier will afford to the representatives of
Einstein Bros. access, during normal business hours and upon reasonable notice,
to Supplier's premises and books and records sufficient to enable Einstein Bros.
to inspect the assets and properties of Supplier and to determine the Supplier
Value (as defined in Exhibit A hereof), and Supplier will furnish to such
representatives during such period all such information relating to the
foregoing investigation as Einstein Bros. may reasonably request; provided,
however, that any furnishing of such information to Einstein Bros. and any
investigation by Einstein Bros. shall not affect the right of Einstein Bros. to
rely on the representations and warranties made by Supplier and the Members in
or pursuant to this Agreement, and provided further, that Einstein Bros. shall
maintain the confidentiality of any information so furnished to it in accordance
with the provisions of Article 12.0 of the Approved Supplier Agreement. Without
limiting the generality of the foregoing, Supplier shall furnish to Einstein
Bros. on or before the date on which the Option is first exercisable, within
fifteen business days after the end of each calendar quarter thereafter and
within fifteen business days after any notice of exercise of the Option, a
statement setting forth the Supplier Value (as defined in Exhibit A hereof)
determined as of the end of such calendar quarter (or as of the applicable date
under Exhibit A, in the event of the exercise of the Option), which statement
shall be prepared in accordance with Exhibit A and shall set forth with
specificity the calculation of Supplier Value.
4.4 NOTICE OF MATERIAL DEVELOPMENTS. From and after the execution and
delivery of this Agreement and until the earlier of the Closing Date or the
Termination Date, Supplier will give prompt written notice to Einstein Bros. of
any material development affecting the assets, properties, business, business
prospects, financial condition or results of operations of Supplier, including
without limitation any development which results in the inaccuracy of any of the
representations and warranties of Supplier and the Members made herein.
4.5 NO DISCLOSURE. Without the prior written consent of Einstein Bros.,
neither Supplier nor any of the Members will, prior to the earlier of the
Closing Date or the Termination Date, disclose the existence of or any term or
condition of this Agreement to any person or entity except that such disclosure
may be made (i) to any lender or financing source of Supplier or any person in a
business relationship with Supplier to whom such disclosure is necessary in
order to satisfy any of the conditions or obligations which are set forth in
this Agreement, and (ii) to the extent Supplier
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believes in good faith that such disclosure is required by law (in which case
Supplier will consult with Einstein Bros. prior to making such disclosure).
4.6 NO OTHER DISCUSSIONS; RETENTION OF INTERESTS. Neither the Members nor
Supplier will, prior to the earlier of the Closing Date or the Termination Date,
enter into discussions or negotiate with or entertain or accept the unsolicited
offer of any other party concerning the potential sale or exchange of all or any
part of the assets of or interests in Supplier to, or the merger or
consolidation of Supplier with, any person other than Einstein Bros. The
Members will not, prior to the earlier of the Closing Date or the Termination
Date, sell, assign, transfer, pledge, encumber or otherwise dispose of any of
the Interests owned by them, except for Exempt Transactions permitted by the
Operating Agreement.
ARTICLE 5.0 CONDITIONS TO EINSTEIN BROS.' OBLIGATION TO CLOSE THE OPTION
EXERCISE.
The obligation of Einstein Bros. to purchase the assets of Supplier upon the
exercise of the Option shall be subject to the fulfillment or waiver by Einstein
Bros. at or prior to the Closing Date of each of the following conditions:
5.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES AND COMPLIANCE WITH
OBLIGATIONS. The representations and warranties of Supplier and the Members
contained in this Agreement shall have been true and correct in all material
respects at and as of the date hereof, and they shall be true and correct in all
material respects at and as of the Closing Date with the same force and effect
as though made at and as of that time. Supplier and the Members shall have
performed and complied with all of their obligations required by this Agreement
to be performed or complied with at or prior to the Closing Date. The Members
shall have delivered to Einstein Bros. a certificate, dated as of the Closing
Date and signed by each of the Members, certifying that such representations and
warranties are thus true and correct in all material respects and that all such
obligations have been thus performed and complied with.
5.2 HSR ACT WAITING PERIOD. Any waiting period imposed by the HSR Act with
respect to the exercise of the Option shall have expired or been terminated.
5.3 RECEIPT OF NECESSARY CONSENTS. All necessary consents or approvals of
third parties to any of the transactions contemplated hereby, shall have been
obtained and shown by written evidence satisfactory to Einstein Bros.
5.4 NO ADVERSE LITIGATION. There shall not be any pending or threatened
action or proceeding by or before any court or other governmental body which
shall seek to restrain, prohibit or invalidate the purchase of the assets of
Supplier or any other transaction contemplated hereby, and no injunction or
other order prohibiting the purchase of the Option Assets or any other
transaction contemplated hereby shall have been entered by any court or other
governmental body.
5.5 NO MATERIAL ADVERSE CHANGE. Since the date of the exercise of the
Option, there shall have been no changes in the business or properties of
Supplier, or in its financial condition, other than changes which in the
aggregate shall not have had a material adverse effect.
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5.6 DELIVERY OF INFORMATION. Supplier shall have delivered to Einstein
Bros. any information required to have been delivered to Einstein Bros. pursuant
to Section 4.3 hereof.
ARTICLE 6.0 CONDITIONS TO THE SUPPLIER'S OBLIGATION TO CLOSE THE OPTION
EXERCISE
The obligation of Supplier to sell the assets of Supplier upon the exercise
of the Option shall be subject to the fulfillment or waiver by Supplier at or
prior to the Closing Date of each of the following conditions:
6.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES AND COMPLIANCE WITH
OBLIGATIONS. The representations and warranties of Einstein Bros. contained in
this Agreement shall have been true and correct in all material respects at and
as of the date hereof, and they shall be true and correct in all material
respects at and as of the Closing Date with the same force and effect as though
made at and as of that time. Einstein Bros. shall have performed and complied
with all of its obligations required by this Agreement to be performed or
complied with at or prior to the Closing Date. Einstein Bros. shall have
delivered to Supplier a certificate, dated as of the Closing Date and signed by
Einstein Bros., certifying that such representations and warranties are thus
true and correct in all material respects and that all such obligations have
been thus performed and complied with.
6.2 HSR ACT WAITING PERIOD. Any waiting period imposed by the HSR Act with
respect to the exercise of the Option shall have expired or been terminated.
6.3 RECEIPT OF NECESSARY CONSENTS. All necessary consents or approvals of
third parties to any of the transactions contemplated hereby, shall have been
obtained and shown by written evidence satisfactory to Supplier.
6.4 NO ADVERSE LITIGATION. There shall not be any pending or threatened
action or proceeding by or before any court or other governmental body which
shall seek to restrain, prohibit or invalidate the sale of the assets of
Supplier or any other transaction contemplated hereby, and no injunction or
other order prohibiting the purchase of the Option Assets or any other
transaction contemplated hereby shall have been entered by any court or other
governmental body.
ARTICLE 7.0 CERTAIN ADDITIONAL COVENANTS
7.1 EXECUTION OF FURTHER DOCUMENTS. From and after the Closing, upon the
reasonable request of Einstein Bros., Supplier and the Members shall execute,
acknowledge and deliver all such further acts, deeds, assignments, transfers,
conveyances, powers of attorney and assurances as may be required to convey and
transfer to and vest in Einstein Bros. the Option Assets and as may be
appropriate otherwise to carry out the transactions contemplated by this
Agreement.
7.2 COOPERATION OF SUPPLIER AND THE MEMBERS. Each of the Members
acknowledges and agrees that Einstein Bros. may have need of information
concerning Supplier and the Members in order to comply with applicable
securities laws and regulations in connection with future public and private
debt and equity offerings by Einstein Bros. ("Offerings"). The Members jointly
and severally agree that they will cooperate with Einstein Bros. in connection
with any Offerings and that they will, at Einstein Bros.'s expense: (i) furnish
Einstein Bros. with such information
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concerning Supplier and the Members as Einstein Bros. may reasonably require to
comply with applicable securities laws and regulations (the "Company
Information"); (ii) use diligent efforts to review, comment on, and otherwise
assist Einstein Bros. as reasonably necessary for the preparation of,
descriptions concerning Supplier and the Members to be used in connection with
Offerings; and (iii) represent and warrant to Einstein Bros. in connection with
any Offerings that Company Information will not contain any untrue statement of
a material fact or omit any material fact necessary to make the information
contained therein not misleading.
7.3 SUBSEQUENT AUDITED FINANCIAL STATEMENTS. Each of the Members covenants
and agrees with Einstein Bros. that if Einstein Bros. shall determine that
audited financial statements of Einstein Bros. or Supplier for the periods prior
to the Closing are necessary or advisable in connection with an initial public
offering, another transaction or offering, or otherwise, each shall cooperate
fully with Einstein Bros.'s accountants in the preparation of such audited
financial statements, at Einstein Bros.'s expense, and each shall make such
reasonable representations and warranties to the applicable certified public
accountants as are customary in connection with the preparation of audited
financial statements.
7.4 CONFIDENTIAL INFORMATION.
7.4.1 The Members may possess certain confidential and proprietary
information and trade secrets including, but not limited to, information,
methods, techniques, procedures and knowledge developed by or for Supplier
respecting the business of Supplier (the "Confidential Information"). Each
of the Members acknowledges and agrees that neither such Shareholder nor any
other person or entity has acquired by or through such Members any interest
in or right to use the Confidential Information other than the right to
utilize it in the operation of the businesses of Supplier and Einstein Bros.,
and that the use or duplication of the Confidential Information in any other
business would constitute an unfair method of competition with Supplier and
Einstein Bros. Notwithstanding the foregoing, however, Einstein Bros.
acknowledges that the Members are actively involved as Members, officers and
directors of Harlan Bakeries, Inc. and that certain Confidential Information
may be shared with Harlan Bakeries, Inc. The foregoing is not intended to
prevent Harlan Bakeries from using such Confidential Information in its
business generally, but Confidential Information relating specifically to
Einstein Bros. or its Formulations, Specifications and Procedures (as defined
in the Approved Supplier Agreement) may not be used by Harlan Bakeries except
to the extent such use is solely for the benefit of Einstein Bros.
7.4.2 Subject to Section 7.4.1 hereof, each of the Members acknowledges
and agrees that the Confidential Information is confidential to and a
valuable asset of Supplier, is proprietary, and includes trade secrets of
Supplier and that such Member: (i) will not use the Confidential Information
in any other business or capacity; (ii) will maintain the absolute secrecy
and confidentiality of the Confidential Information; and (iii) will not make
unauthorized copies of any portion of the Confidential Information disclosed
in written or other tangible form.
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7.4.3 Notwithstanding the foregoing, the obligations of the Members
specified above shall not apply to any Confidential Information which (i) is
disclosed in a printed publication available to the public, or is otherwise
in the public domain through no act of any of the Members, their agents or
any person or entity which has received such Confidential Information from or
through any of the Members, (ii) is approved for release by written
authorization of an officer of Einstein Bros., (iii) is required to be
disclosed by proper order of a court of applicable jurisdiction after
adequate notice to Einstein Bros. to seek a protective order therefor, the
imposition of which protective order the Members agree to approve and
support, or (iv) in the written opinion of the disclosing Member's counsel,
is necessary to be made by such Member in order that the Member not violate
any law, rule or regulation applicable to him.
7.5 REMEDIES; WAIVER.
7.5.1 Each of the Members agrees that the provisions and restrictions
set forth above in Section 7.4 are necessary to protect Einstein Bros. and
its successors and assigns in the protection of the Option Assets Einstein
Bros. is entitled to acquire pursuant to this Agreement. Each of the Members
agrees that damages cannot compensate Einstein Bros. in the event of a
violation of the covenants contained in Section 7.4 hereof, and that
injunctive relief shall be essential for the protection of Einstein Bros. and
its successors and assigns. Accordingly, each of the Members agrees and
consents that, in the event he shall violate or breach any of said covenants
Einstein Bros. shall be entitled to obtain (and he hereby consents to) such
injunctive relief against such Shareholder, without bond, in addition to such
further or other relief as may appertain at equity or law. The exercise or
enforcement by Einstein Bros. of any right or remedy hereunder shall not
preclude the exercise or enforcement by Einstein Bros. of any other right or
remedy hereunder or which Einstein Bros. has the right to enforce under
applicable law.
7.5.2 Failure by any party to insist upon strict compliance with any of
the terms, covenants or conditions hereof shall not be deemed a waiver of
such term, covenant or condition, nor shall any waiver or relinquishment of
any right or remedy hereunder at any one or more times be deemed a waiver or
relinquishment of such right or remedy at any other time or times.
7.6 EMPLOYMENT BY EINSTEIN BROS. OF SUPPLIER'S EMPLOYEES. Supplier shall
use its reasonable best efforts to aid Einstein Bros. in engaging such of its
employees as are employed on the Closing Date, if any, whom Einstein Bros.
desires to engage after the Closing Date, and except with the written consent of
Einstein Bros., neither Supplier nor any Affiliate (as hereinafter defined) of
Supplier shall employ, for a period of one year after the Closing Date, any
person employed by Supplier at or at any time within six months prior to the
Closing Date unless such person was either not offered employment by Einstein
Bros. or was terminated by Einstein Bros. As used in this Agreement, the term
"Affiliate" means, with respect to a specified person, any other person which
directly, or indirectly through one or more intermediaries, controls or is
controlled by, or is under
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common control with, the person specified, and the term "control" (including the
terms "controlling," "controlled by" and "under common control with") shall mean
the possession, direct or indirect, of the power to direct or cause the
direction of the management and policies of a person, whether through the
ownership of voting shares, by contract, or otherwise.
7.7 NO OBLIGATION OF EINSTEIN BROS. TO EMPLOY. Einstein Bros. shall have no
obligation to employ any of the persons employed by Supplier at the time of the
Closing, if any, or to continue, or institute any replacement or substitution
for, any vacation, severance, incentive, bonus, profit sharing, pension or other
employee benefit plan or program of Supplier.
ARTICLE 8.0 INDEMNIFICATION
8.1 AGREEMENT BY SUPPLIER AND THE MEMBERS TO INDEMNIFY. Subject to the
qualifications and limitations set forth in this Section 8.1, Supplier and the
Members jointly and severally agree that from and after the Closing, if any,
they will indemnify and hold Einstein Bros. harmless in respect of the aggregate
of all Einstein Bros. Indemnifiable Damages (as hereinafter defined). For this
purpose, Einstein Bros. Indemnifiable Damages shall mean the aggregate of all
expenses, losses, costs, deficiencies, liabilities and damages (including
related counsel fees and expenses) incurred or suffered by Einstein Bros. (or
any successor to all or any part of the assets or business of Supplier) (i)
resulting from any inaccurate representation or warranty made by Supplier and
the Members in or pursuant to this Agreement, (ii) resulting from any default in
the performance of any of the covenants or agreements made by Supplier or the
Members in this Agreement, or (iii) resulting from the failure of Supplier to
pay, discharge or perform any liability or obligation that is not required to be
assumed by Einstein Bros. hereunder ("Excluded Liabilities"). Without limiting
the generality of the foregoing, with respect to the measurement of Einstein
Bros. Indemnifiable Damages, Einstein Bros. shall have the right to be put in
the same financial position as it would have been in had each of the
representations and warranties of Supplier and the Members been true and
correct, had each of the covenants and agreements of Supplier and the Members
been performed in full and had each of the Excluded Liabilities been paid or
performed in full. The foregoing obligation to indemnify Einstein Bros. shall be
subject to each of the following principles or qualifications:
8.1.1 Each of the representations and warranties made by the Supplier
and the Members in this Agreement or pursuant hereto, shall survive for a
period of eighteen (18) months after the exercise of the Option and
thereafter all such representations and warranties shall be extinguished,
provided, however, that the representations and warranties made in Sections
2.1, 2.2, 2.3, 2.4 and 2.7 hereof shall in each case survive forever. No
claim for the recovery of Einstein Bros. Indemnifiable Damages based upon the
inaccuracy of such representations and warranties may be asserted by Einstein
Bros. after such representations and warranties shall be thus extinguished;
provided, however, that claims first asserted in writing within the
applicable period (whether or not the amount of any such claim has become
ascertainable within such period) shall not thereafter be barred.
8.1.2 The Supplier and the Members shall be liable for any claim for
Einstein Bros. Indemnifiable Damages arising out of any inaccuracy of any
representation or warranty only to the extent the aggregate amount of all
such Einstein Bros. Indemnifiable Damages exceeds $25,000.
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8.1.3 The liability of the Supplier and the Members for claims for all
Einstein Bros. Indemnifiable Damages arising out of inaccuracies of
representations and warranties of the Supplier and the Members shall in no
event exceed the amount of the purchase price payable under Section 1.4.
8.2 AGREEMENT BY EINSTEIN BROS. TO INDEMNIFY. Einstein Bros. agrees that
from and after the Closing, if any, it will indemnify and hold Supplier and the
Members harmless in respect of the aggregate of all Supplier Indemnifiable
Damages (as hereinafter defined). For this purpose, Supplier Indemnifiable
Damages shall mean the aggregate of all expenses, losses, costs, deficiencies,
liabilities and damages (including related counsel fees and expenses) incurred
or suffered by Supplier or the Members (i) resulting from any inaccurate
representation or warranty made by Einstein Bros. in or pursuant to this
Agreement, (ii) resulting from any default in the performance of any of the
covenants or agreements made by Einstein Bros. in this Agreement, (iii)
resulting from the failure of Einstein Bros. to discharge any Assumed
Liabilities (including any Assumed Liabilities that may have been guaranteed by
one or more of the Members) after Closing or (iv) resulting from the operation
of the business utilizing the Option Assets by Einstein Bros. after Closing
(except to the extent arising from any inaccurate representation or warranty
made by the Supplier and the Members herein). Without limiting the generality
of the foregoing, with respect to the measurement of Supplier Indemnifiable
Damages, Supplier and the Members shall each have the right to be put in the
same financial position as they would have been in had each of the
representations and warranties of Einstein Bros. been true and correct, had each
of the covenants and agreements of Einstein Bros. been performed in full and had
each of the Assumed Liabilities been paid or performed in full.
8.3 TAX EFFECT OF DAMAGES AND INDEMNITY PAYMENTS. In determining the amount
of Einstein Bros. Indemnifiable Damages payable under Section 8.1 and Supplier
Indemnifiable Damages payable under Section 8.2, there shall be taken into
account both tax benefits, if any, arising from the incurrence of damages and
tax detriments, if any, arising from the receipt of payments hereunder.
8.4 LEGAL PROCEEDINGS. In the event Supplier, the Members or Einstein Bros.
become involved in any legal, governmental or administrative proceeding which
may result in indemnification claims hereunder, such party shall promptly notify
the other parties in writing of such proceeding. The other parties may, at
their option and expense, defend any such proceeding if the proceeding could
give rise to an indemnification obligation hereunder. If any party elects to
defend any proceeding, such party shall have full control over the conduct of
such proceeding, although the party being indemnified shall have the right to
retain legal counsel at its own expense and shall have the right to approve any
settlement of any dispute giving rise to such proceeding, such approval not to
be withheld unreasonably by the party being indemnified; provided, that, in the
event the indemnifying party shall fail to initiate a defense of a claim within
twenty days of the notice to the indemnified party of a claim, the indemnified
party shall have the option to conduct the defense of such claim as it may in
its discretion deem proper. The party being indemnified shall reasonably
cooperate with the indemnifying party in such proceeding.
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ARTICLE 9.0 MISCELLANEOUS
9.1 AMENDMENT AND MODIFICATION. The parties hereto may amend, modify and
supplement this Agreement in such manner as may be agreed upon by them in
writing.
9.2 PAYMENT OF EXPENSES. Each party to this Agreement shall pay all of the
expenses incurred by it in connection with this Agreement, including without
limitation its legal and accounting fees and expenses.
9.3 BINDING EFFECT. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors, assigns, heirs
and legal representatives.
9.4 ENTIRE AGREEMENT. This instrument and the exhibits attached hereto
contain the entire agreement of the parties hereto with respect to the option to
purchase the Option Assets and the other transactions contemplated herein, and
supersede all prior understandings and agreements of the parties with respect to
the subject matter hereof. Any reference herein to this Agreement shall be
deemed to include the exhibits attached hereto.
9.5 HEADINGS. The descriptive headings in this Agreement are inserted for
convenience only and do not constitute a part of this Agreement.
9.6 EXECUTION IN COUNTERPART. This Agreement may be executed in any number
of counterparts, each of which shall be deemed an original.
9.7 NOTICES. Any notice, request, information or other document to be given
hereunder shall be in writing. Any notice, request, information or other
document shall be deemed duly given three business days after it is sent by
registered or certified mail, postage prepaid, to the intended recipient,
addressed as follows:
If to Supplier addressed as follows:
Harlan Bakeries, Inc.
7597 East U.S. Highway 36
Avon, Indiana 46168-7971
Attention: Hugh P. Harlan
with a copy to such party at the following address:
Harlan Sprague Dawley, Inc.
P.O. Box 29176
Indianapolis, Indiana 46229
Attention: Hal P. Harlan
with a copy to:
Henderson, Daily, Withrow & DeVoe
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2600 One Indiana Square
Indianapolis, Indiana 46204
Attention: Roberts E. Inveiss, Esq.
If to Einstein Bros., addressed as follows:
Einstein Bros. Bagels, Inc.
1526 Cole Blvd., Suite 200
Golden, Colorado 80401
Attention: Vice President of Production, Logistics and Procurement
with a copy to:
Einstein Bros. Bagels, Inc.
1526 Cole Blvd., Suite 200
Golden, Colorado 80401
Attention: General Counsel
Any party may send any notice, request, information or other document to be
given hereunder using any other means (including personal delivery, courier,
messenger service, facsimile transmission, telex or ordinary mail), but no such
notice, request, information or other document shall be deemed duly given unless
and until it is actually received by the party for whom it is intended. Any
party may change the address to which notices hereunder are to be sent to it by
giving written notice of such change of address in the manner herein provided
for giving notice.
9.8 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Colorado applicable to contracts made
and to be performed wholly therein.
9.9 PUBLICITY. No press release or other public announcement related to
this Agreement or the transactions contemplated hereby (or the existence of any
discussions or negotiations among the parties regarding any other possible
transactions) will be issued, and no disclosure of this Agreement or the terms
hereof will be made, by Supplier or any of the Members without the prior
approval of Einstein Bros. Einstein Bros. agrees to use reasonable best efforts
to consult with Supplier prior to issuing any press release or public or trade
announcement or statement relating to this Agreement or the transactions
contemplated hereby.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first above written.
EINSTEIN BROS. BAGELS, INC.
By____________________________________
Vice President
HARLAN BAGEL SUPPLY COMPANY, LLC
By____________________________________
______________________________________
Hal P. Harlan
______________________________________
Hugh P. Harlan
______________________________________
Doug H. Harlan
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EXHIBITS
--------
Exhibit A Determination of Supplier Value
<PAGE>
"Supplier Value" as the Closing Date shall be equal to (A) the Applicable
Multiple (as hereinafter defined) multiplied by the Supplier Profit (as
hereafter defined), but, in the event the parties to the Approved Supplier
Agreement have not entered into an amendment pursuant to Section 8.1 thereof
providing for the installation of a second bagel line, not less than $2,350,000
minus (B) the outstanding long-term indebtedness of Supplier as of the Closing
Date, minus (C) $750,000, plus (D) any excess of Supplier's current assets over
its current liabilities as of the Closing Date or minus (E) any excess of
Supplier's current liabilities over its current assets as of the Closing Date
(with current assets including any receivables under Sections 7.5 and 7.8 of the
Approved Supplier Agreement and current liabilities including appropriate
accruals for real and personal property taxes, utilities and similar items for
purposes of such clauses (D) and (E)). The "Applicable Multiple" shall be 6, if
the Option is exercised on or after December 15, 1999 and before July 1, 2000
and 5.25 if the Option is exercised on or after July 1, 2000 until the
Termination Date. The "Supplier Profit" shall be equal to Supplier's Formula
Profit (as hereinafter defined) for the six-month period ending on the last day
of the last calendar month ending prior to the month in which the Option is
exercised multiplied by two. "Supplier's Formula Profit" for any period shall
be equal to Supplier's revenues from the sale of the Products during such period
(determined based on the price of the Products F.O.B. Supplier's Production
Facility, net of returns or allowances) less Supplier's Materials Cost (as
hereinafter defined) for such period, less Supplier's Production Cost (as
hereinafter defined) for such period, less Supplier's Equipment Financing Cost
(as hereinafter defined) for such period. For this purpose, (a) "Materials
Cost" shall have the meaning ascribed to it in the Approved Supplier Agreement,
(b) "Production Cost" shall mean the sum of direct labor, overhead, fixed
general and administrative expense and interest expense from indebtedness other
than its equipment financing, (c) "Occupancy Cost" shall mean building rental
expense, real estate taxes, utilities, maintenance and repair and
property/casualty insurance, and (d) "Equipment Financing Cost" shall mean
operating lease rentals and interest and principal amortization from all
equipment financing and depreciation expense on any equipment which has been
purchased, which shall be equal to the operating lease rentals that would have
been payable on such equipment under the Equipment Financing (as defined in the
Approved Supplier Agreement) if such equipment had been covered by the Equipment
Financing.
<PAGE>
Exhibit E
RIGHT OF FIRST REFUSAL AGREEMENT
This right of first refusal agreement (the "Agreement") is entered
into as of ______ ___, 1996 by and among Einstein Bros. Bagels, Inc., a Delaware
corporation ("Einstein Bros."), Harlan Bakeries, Inc., an Indiana corporation
("Harlan"), Hal P. Harlan, Hugh P. Harlan and Doug H. Harlan (collectively, the
"Harlans").
RECITALS
--------
The Harlans own all of the outstanding capital stock of Harlan.
Harlan is constructing a new production facility (the "Production Facility")
adjacent to its existing production facility in Avon, Indiana and, Harlan Bagel
Supply Company, LLC, an Indiana limited liability company (the "Supplier"),
Einstein Bros., Harlan and the Harlans have entered into a project and approved
supplier agreement dated as of May 24, 1996 (the "Approved Supplier Agreement"),
pursuant to which the Supplier has agreed to supply raw frozen bagel dough
products to Einstein Bros. and other approved purchasers.
Einstein Bros. desires to obtain a right of first refusal to obtain
the shares of capital stock or assets of Harlan, and Harlan and the Harlans have
agreed to grant such a right of first refusal, on the terms and subject to the
conditions set forth herein.
COVENANTS
---------
In consideration of the premises and the mutual covenants and
agreements herein contained, the parties hereto agree as follows:
1. RESTRICTIONS ON TRANSFER. Subject to the provisions of Section 7
hereof, each of the Harlans agrees that he shall not, at any time prior to the
Termination Date (as hereinafter defined), sell, assign, transfer, pledge or
otherwise dispose of any shares of capital stock of Harlan ("Shares") owned by
him, except in accordance with the provisions of Section 2 hereof or in a
Permitted Transfer (as hereinafter defined). All certificates representing
Shares owned or hereafter acquired by the Harlans, or any transferee of the
Harlans bound by this Agreement shall have affixed thereto a legend
substantially in the following form:
"The sale or other disposition of any of the
shares represented by this certificate is
restricted by a Right of First Refusal
Agreement among the registered owner of this
certificate, Einstein Bros. Bagels, Inc. and
the other shareholders of the Company, a copy
of which is available for inspection at the
offices of the Company."
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2. RIGHT OF FIRST REFUSAL TO PURCHASE SHARES OF CAPITAL STOCK.
Subject to the provisions of Section 7 hereof, in the event Harlan or any of the
Harlans (the "Seller") desires to sell any Shares, at any time prior to the
Termination Date, except in a Permitted Transfer, the Seller shall first give
written notice (a "Share Sale Notice") to Einstein Bros. of any such proposed
sale, which Notice shall state the name and address of the proposed purchaser,
the number of Shares to be sold and the price, terms of payment and conditions
of such proposed sale. Einstein Bros. shall thereupon have the right, for a
period of 45 days from the date of the Share Sale Notice, to purchase such
Shares at the price and, except as provided herein as to the medium of payment,
on the terms and conditions stated in the Share Sale Notice. Einstein Bros. may
exercise such right by giving a notice of exercise to the Seller, which notice
shall specify a place of closing, a closing date, which shall not be later than
30 days following the date of such notice of exercise, (or, if later, two
business days after the expiration or termination of any waiting period under
the HSR Act (as hereinafter defined)) and the consideration which Einstein Bros.
elects to deliver upon the closing, which may consist of the medium of payment
provided for in the Share Sale Notice, shares of common stock of Einstein Bros.
("Einstein Bros. Stock") in the event Einstein Bros. has completed an initial
public offering of Einstein Bros. Stock, shares of common stock ("BCI Stock") of
Boston Chicken, Inc. ("BCI"), cash, or any combination of the foregoing,
provided, however, that such consideration may consist of Einstein Bros. Stock
or BCI Stock (the issuer of such stock being referred to herein as the "Issuer")
only if (a) the average closing sales price per share of such stock of the
Issuer as quoted on the NASDAQ National Market, as reported in the Wall Street
Journal (Western Edition), or as quoted on such other market or exchange on
which such shares are traded, for the ten consecutive trading days ending on the
second business day prior to the Closing Date (as hereinafter defined) (the
"Share Price") is at least $10, and (b) the value of the Issuer (defined as the
product of the Share Price and the total number of outstanding shares of such
stock of the Issuer) is at least $300 million. In the event Einstein Bros.
elects to deliver upon closing shares of Einstein Bros. Stock or shares of BCI
Stock, such shares shall be registered under the Securities Act of 1933, as
amended (the "1933 Act"), and shall be accompanied by a written undertaking of
Einstein Bros. to pay to the Seller in cash the excess, if any, of the value of
the shares so delivered, determined in the manner provided in Section 6 hereof,
over the proceeds (net of commissions) from the sale of the shares, assuming all
shares are sold in accordance with such reasonable conditions on the timing,
daily volume and manner of sale as may be set forth in such undertaking. At the
closing, Einstein Bros. shall pay the purchase price for the Shares and the
Seller shall deliver to Einstein Bros. certificates evidencing the Shares
accompanied, in the case of a sale of Shares by any of the Harlans, by duly
executed stock powers together with a certificate signed by the Seller stating
that the Shares are being sold free and clear of all liens, claims,
encumbrances, charges and restrictions or transfer, except for restrictions on
transfer imposed by federal and state securities laws ("Encumbrances"). In the
event Einstein Bros. does not elect to purchase the Shares as provided in this
Section 2 the Seller may sell such Shares to the proposed third party purchaser
on the terms and conditions stated in the Share Sale Notice, but only if such
sale is consummated within 60 days after the expiration of the 45-day period
referred to above.
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3. PERMITTED TRANSFERS. The provisions of Section 2 hereof shall not
apply to (i) sales of shares by Harlan or the Harlans in an initial public
offering, (ii) sales of shares by Harlan in a private placement (other than to
Permitted Transferees), provided that the Harlans own at least 51% by vote and
by value of the outstanding capital stock of Harlan after any such offering and
provided further that Harlan has first offered to Einstein Bros. the opportunity
to purchase the shares so offered on terms no less favorable to Einstein Bros.
than the terms offered in such private placement, and (iii) transfers of Shares
by any of the Harlans among themselves or to any of their spouses or
descendants, any trust solely for the benefit of one or more of the Harlans,
their spouses or descendants, or any corporation, partnership or limited
liability company all of the stockholders, partners or members of which consist
solely of one or more such persons or trusts ("Permitted Transferees"), provided
that the transferee in any such transfer agrees in writing to be bound by the
provisions of this Agreement ("Permitted Transfers").
4. RIGHT OF FIRST REFUSAL TO PURCHASE ASSETS. Subject to the
provisions of Section 7 hereof, n the event Harlan desires to sell all or
substantially all of its assets, then Harlan shall first given written notice
(the "Asset Sale Notice") to Einstein Bros. of any such proposed sale, which
Asset Sale Notice shall state the name and address of the proposed purchaser,
the assets to be sold and the price, terms of payment and conditions of such
proposed sale. Einstein Bros. shall thereupon have the right, for a period of
45 days from the date of the Asset Sale Notice, to purchase such assets at the
price and, except as provided herein as to the medium of payment, on the terms
and conditions stated in the Asset Sale Notice. Einstein Bros. may exercise
such right by giving a notice of exercise to Harlan, which notice shall specify
a place of closing and a closing date which shall not be later than 30 days
following the date of such notice of exercise (or, if later, two business days
after the expiration or termination of any waiting period under the HSR Act (as
hereinafter defined)), and the consideration which Einstein Bros. elects to
deliver upon the closing, which may consist of the medium of payment provided
for in the Asset Sale Notice, shares of Einstein Bros. Stock in the event
Einstein Bros. has completed an initial public offering of Einstein Bros. Stock,
shares of BCI Stock, cash, or any combination of the foregoing, provided,
however, that such consideration may consist of Einstein Bros. Stock or BCI
Stock (the issuer of such stock being referred to herein as the "Issuer") only
if (a) the average closing sales price per share of such stock of the Issuer as
quoted on the NASDAQ National Market, as reported in the Wall Street Journal
(Western Edition), or as quoted on such other market or exchange on which such
shares are traded, for the ten consecutive trading days ending on the second
business day prior to the Closing Date (as hereinafter defined) (the "Share
Price") is at least $10, and (b) the value of the Issuer (defined as the product
of the Share Price and the total number of outstanding shares of such stock of
the Issuer) is at least $300 million. In the event Einstein Bros. elects to
deliver upon closing shares of Einstein Bros. Stock or shares of BCI Stock, such
shares shall be registered under the 1933 Act, and shall be accompanied by a
written undertaking of Einstein Bros. to pay to Harlan in cash the excess, if
any, of the value of the shares so delivered, determined in the manner provided
in Section 6 hereof, over the proceeds (net of commissions) from the sale of the
shares, assuming all shares are sold in accordance with such reasonable
conditions on the timing, daily volume and manner of sale as may be set forth in
such undertaking. Such undertaking shall be
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assignable by Harlan to its shareholders to the extent any such shares are
assigned to such shareholders. At the closing, Einstein Bros. shall pay the
purchase price for the assets and Harlan shall execute and deliver to Einstein
Bros. instruments of transfer sufficient to convey to Einstein Bros. all right,
title and interest in and to the assets, free and clear of all Encumbrances,
except as may be specified in the Asset Sale Notice. In the event Einstein Bros.
does not elect to purchase the assets as provided in this Section 4 Harlan may
sell such assets to the proposed third party purchaser on the terms and
conditions stated in the Notice, but only if such sale is consummated within 60
days after the expiration of the 45-day period referred to above.
5. REGULATORY COMPLIANCE. Upon the exercise by Einstein Bros. of its
right to purchase Shares or its right to purchase assets of Harlan the parties
shall promptly prepare and file with the Federal Trade Commission ("FTC") and
the United States Department of Justice ("Justice Department") any notification
required to be filed with respect to the transactions contemplated hereby under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, or any
rules or regulations thereunder (the "HSR Act"). Each party represents and
warrants to the other parties hereto that any such filing made by it shall be
true and accurate in all material respects and shall conform to the requirements
of the HSR Act. Each party shall promptly complete and file any required
responses to requests by the FTC or the Justice Department for additional data
and information. Each party shall also make available to the other parties
hereto such information relative to its business, assets and property as may be
required for the preparation of such notifications and reports.
6. VALUATION OF EINSTEIN BROS. STOCK OR BCI STOCK. Einstein Bros.
Stock or BCI Stock delivered upon the closing of any transaction contemplated
hereby shall be deemed to have a value equal to the average closing sales price
per share of such stock as quoted on the NASDAQ National Market, as reported in
the Wall Street Journal (Western Edition), or as quoted on such other market or
exchange on which such shares are traded, for the ten consecutive trading days
ending on the second business day prior to the date of closing.
7. TERMINATION. This Agreement shall terminate upon the later of the
expiration of the Approved Supplier Agreement or the expiration of the Lease (as
defined in the Approved Supplier Agreement) (the "Termination Date"), provided,
however, that if the Approved Supplier Agreement expires prior to the expiration
of the Lease, then after the expiration of the Approved Supplier Agreement,
Einstein Bros. shall thereafter, until expiration of the Lease, have only a
right of first refusal to purchase the land and buildings owned by Harlan that
consist of the Production Facility, the adjacent building and the land on which
they are situated.
8. AMENDMENTS. The parties hereto may amend, modify and supplement
this Agreement in such manner as may be agreed upon by them in writing.
9. EXPENSES. Each party to this Agreement shall pay all of the
expenses incurred by such party in connection with this Agreement and the
transactions
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contemplated hereby, including without limitation legal and accounting fees and
expenses, and the commissions, fees and expenses of any person employed or
retained by such party to bring about, or to represent it in, the transactions
contemplated hereby.
10. BINDING AGREEMENT. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns.
11. ENTIRE AGREEMENT. This instrument contains the entire agreement
of the parties hereto with respect to the subject matter hereof and supersedes
all prior understandings and agreements of the parties with respect to the
subject matter hereof.
12. HEADINGS. The descriptive headings in this Agreement are
inserted for convenience only and do not constitute a part of this Agreement.
13. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original.
14. NOTICES. Any notice, request, information or other document to
be given hereunder shall be in writing. Any notice, request, information or the
document shall be deemed duly given three business days after it is sent by
registered or certified mail, postage prepaid, to the intended recipient,
addressed as follows:
If to Harlan, or any of the Harlans, addressed to such party at the
following address:
7597 East U.S. Highway 36
Avon, Indiana 46168-7971
with a copy to such party at the following address:
Harlan Sprague Dawley, Inc.
P.O. Box 29176
Indianapolis, Indiana 46229
Attention: Hal P. Harlan
and a copy to:
Henderson, Daily, Withrow & DeVoe
2600 One Indiana Square
Indianapolis, Indiana 46204
Attention: Roberts E. Inveiss, Esq.
5
<PAGE>
If to Einstein Bros., addressed as follows:
Einstein Bros. Bagels, Inc.
1526 Cole Blvd., Suite 200
Golden, Colorado 80401
Attention: Vice President of Production, Logistics and
Procurement
with a copy to:
Einstein Bros. Bagels, Inc.
1526 Cole Blvd., Suite 200
Golden, Colorado 80401
Attention: General Counsel
Any party may send any notice, request, information or other document to be
given hereunder using any other means (including personal delivery, courier,
messenger service, fax or ordinary mail), but no such notice, request,
information or other document shall be deemed duly given unless and until it is
actually received by the party for whom it is intended. Any party may change
the address to which notices hereunder are to be sent to it by giving written
notice of such change of address in the manner herein provided for giving
notice.
15. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Colorado applicable to contracts
made and to be performed wholly therein.
16. INJUNCTIVE RELIEF. In the event of a breach or threatened breach
of any of the provisions of this Agreement, the parties acknowledge and agree
that the non-breaching party will not have an adequate remedy at law and
therefore will be entitled to enforce any such provision by temporary or
permanent injunctive or mandatory relief as a remedy for any such breach, and
that such remedy shall not be deemed to be the exclusive remedy for any such
breach but shall be in addition to all other remedies.
17. PUBLICITY. No press release or other public or trade
announcement or statement related to this Agreement or the transactions
contemplated hereby (or the existence of any discussions or negotiations between
the parties regarding any other possible transactions) will be issued, and no
disclosure of this Agreement or the terms hereof will be made, by Harlan or any
of the Harlans without the prior approval of Einstein Bros. Einstein Bros.
agrees to use reasonable best efforts to consult with Harlan and the Harlans
prior to issuing any press release or public or trade announcement or statement
relating to this Agreement or the transactions contemplated hereby.
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
EINSTEIN BROS. BAGELS, INC.
By ____________________________
HARLAN BAKERIES, INC.
By_____________________________
_______________________________
Hal P. Harlan
_______________________________
Hugh P. Harlan
_______________________________
Doug H. Harlan
7
<PAGE>
Exhibit F
---------
Opinion of Henderson, Daily, Withrow & DeVoe
1. Harlan is a corporation duly organized and validly existing under the laws of
the State of Indiana with full power and authority to own or lease its
properties, to carry on its business as it is being conducted and to enter
into the Approved Supplier Agreement (and each of the other agreements,
instruments and documents contemplated thereby to which it is a party).
2. Supplier is a limited liability company duly organized and validly existing
under the laws of the State of Indiana with full power and authority to own
or lease its properties, to carry on its business as it is being conducted
and to enter into the Approved Supplier Agreement (and each of the other
agreements, instruments and documents contemplated thereby to which it is a
party).
3. The execution, delivery and performance by Harlan and the Supplier of the
Approved Supplier Agreement (and each of the other agreements, instruments
and documents contemplated thereby to which either of them is a party) have
been duly authorized by all necessary action of Harlan and the Supplier under
Indiana law, the articles of incorporation and bylaws of Harlan and the
articles of organization and operating agreement of Supplier.
4. The Approved Supplier Agreement (and each of the other agreements,
instruments and documents contemplated thereby) have been duly executed and
delivered by each of Harlan, the Supplier and the Harlans which or who is a
party thereto, and each such agreement, instrument or document is a valid and
binding obligation of each of Harlan, the Supplier and the Harlans which or
who is a party thereto, enforceable in accordance with its terms.
5. The execution, delivery and performance by Harlan, the Supplier and the
Harlans of the Approved Supplier Agreement (and each of the other agreements,
instruments and documents contemplated thereby to which any such person is a
party) will not conflict with or violate the articles of incorporation or
bylaws of Harlan, the articles of organization or operating agreement of
Supplier or any order, judgment, or decree known to such counsel applicable
to any of such persons or by which any of their properties are affected, or
result in a breach of, or constitute a default (or any event which with
notice or lapse of time would become a default) under, or give to others any
rights of first refusal, termination, amendment, acceleration or cancellation
of, or result in the creation of any lien or encumbrance on any of their
properties pursuant to, any notice, bond, mortgage, indenture contract,
agreement, lease or other instrument or obligation known to such counsel by
which any of such persons is bound or by which any of their properties are
affected.
1
<PAGE>
6. The execution, delivery and performance by Harlan, the Supplier and the
Harlans of the Approved Supplier Agreement (and each of the other agreements,
instruments and documents contemplated thereby to which any such person is a
party) will not require any consent, approval, exemption, authorization or
permit of, filing with or notification, or other action by, any court,
administrative agency or governmental or regulatory authority, under any
provision in Indiana or Federal law, except for such consents and approvals
as shall have been obtained and filings which shall have been made.
7. To such counsel's knowledge, there are no actions, suits, proceedings or
governmental inquiries pending or threatened against Harlan, the Supplier or
any of the Harlans seeking to prevent the consummation of the transactions
contemplated by the Approved Supplier Agreement or which could reasonably be
expected to have a material adverse effect on the ability of any of such
persons to perform their obligations under the Approved Supplier Agreement.
Einstein Bros. acknowledges that the legal opinion referred to above will be
subject to review by Henderson, Daily's opinion committee prior to the time of
issuance of such opinion so that such opinion is consistent with prevailing
opinion letter practice at such time.
2
<PAGE>
Exhibit G
---------
Determination of
Materials Cost
--------------
<PAGE>
Exhibit G-1
Harlan Bagel Supply Company, LLC
Einstein Bros. Bagels, Inc.
Summary of Material Costs
(Ingredient and Packaging)
By Bagel Flavor (4.0 oz)
<TABLE>
<CAPTION>
-------------------------------------
Total costs
- --------------------------------------------------------------------------------
Ingredient Packaging
Costs per Costs per Per Case
Bagel Flavor Bagel Bagel Per Bagel Per Dozen (90 Bagels)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- - -
- - -
- - -
- - -
- - -
- - -
- - -
- - -
- - -
- - -
- - -
- - -
- - -
- - -
- - -
- - -
- - -
================================================================================
Average Cost
- --------------------------------------------------------------------------------
</TABLE>
<PAGE>
Exhibit G-2
Harlan Bagel Supply Company, LLC
Summary of Ingredient costs
By Bagel Flavor
Einstein Bros. Bagels, Inc. -4.0 Ounce
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Current Costs Total Costs of
Ingredient % of Ingredient Ingredient
Flavor Ingredient Quantity of Total Flour per Unit (lbs) Used
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
-----------------------------------------------------------------------
Total Mix Weight Total Cost -
Ingredient Cost per Dozen ( Dozen Yield) -
Ingredient Loss Factor/Dozen* -
Total cost per Dozen
Total Cost per Bagel (4.0 Ounce)
Total Cost per Case (90 - 4.0 Ounce)
- --------------------------------------------------------------------------------
</TABLE>
*As determined pursuant to Section 7.1 of the Agreement
<PAGE>
Exhibit G-3
Harlan Bagel Supply Company, LLC
Einstein Bros. Bagels, Inc.
Summary of Packaging Costs
(Based on 90 bagels per case)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
# Req. Per Cost Per Cost Per Cost Per Cost Per
Item Case Item Case Dozen Bagel
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Box 1 - - -
Tape 50" - -
Bag Liner 3 - - -
Label 1 - - -
Shrink Wrap 1 - - -
Tie 3 - - -
- --------------------------------------------------------------------------------
Total Cost - - - -
================================================================================
</TABLE>
<PAGE>
Exhibit G-4
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Harland Bagel Supply Company, LLC
Einstein Bros. Bagels, Inc.
Current Ingredient Costs
- ---------------------------------------------------------------------------------------------------------------
Total Date of Last Invoice Amount
lbs. on Last ------------------------------ Cost per
Ingredient Current Vendor Order Invoice Ingredient Freight Total Pound
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
High Gluten Flour -
Bagel Eze - 5 -
Sugar -
Yeast -
Calcium Propionate -
Water -
Cinnamon -
Midget Raisin -
White Pepper -
Poppy Seeds -
Dry Onions - Toasted -
Onion Powder -
Liquid Whole Eggs -
Double Spice -
Blueberry Gumbits -
Frozen Blueberries -
Blueberry Flavoring -
Caraway Seeds -
Heart of Rye -
Caramel Color -
Sesame White Hulled Seeds -
Dehydrated Apple Bits -
Ground Nutmeg -
Spice Apple (Liquid) -
Apple Gumbits -
Sweet n' Neat -
Cornmeal -
- - -
- - -
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Exhibit H
---------
Form of Statement
of
Independent Accountants
-----------------------
Board of Directors
Einstein Bros. Bagels, Inc.
Ladies and Gentlemen:
At your request, we have performed certain agreed upon procedures, as
enumerated below, with respect to the Statements of Materials Cost of Harlan
Bagel Supply Company, LLC, for each of the Calendar Quarters in the year ended
December 31, 19__. These procedures, which were specified by the Board of
Directors of Einstein Bros. Bagels, and the Board of Managers of Harlan Bagel
Supply Company, LLC were performed solely to meet the requirements of the
Project and Approved Supplier Agreement among Einstein Bros. Bagels, Harlan
Bagel Supply Company, LLC, and Harlan Bakeries, Inc., Hal P. Harlan, Hugh P.
Harlan and Doug H. Harlan (the "Approved Supplier Agreement"). It is
understood that this report is solely for your information and should not be
used by those who did not participate in determining the procedures.
a. We have compared the costs as reported in the Statements of Materials
Cost to the costs and expenses as reflected in the general ledger of
Harlan Bagel Supply Company, LLC, and reconciled any material
differences.
b. We have compared the Statements of Materials Cost to the listing of
costs as per Exhibit G of the referenced Approved Supplier Agreement
and noted any material addition of cost categories.
c. We have compared the total reported number of bagels produced with the
Production Log and reconciled any material differences.
d. We have tested the Statements of Materials Cost for mathematical
accuracy.
Because the procedures described above do not constitute an examination of
financial statements in accordance with the Statements on Standards for
Accounting and Review Services issued by the American Institute of Certified
Public Accountants, we do not express an opinion on whether the financial
statement is presented in conformity with AICPA guidelines.
In connection with the procedures referred to above, no matters came to our
attention that caused us to believe that the Statements of Materials Cost were
not reflective of the general ledger, that cost categories were included that
were not reflected in Exhibit G of the Approved Supplier Agreement, that the
number of bagels reported was materially different than those
<PAGE>
shown on the Production Log or that any of the Statements of Materials Cost is
mathematically inaccurate. Had we performed additional procedures or had we made
an examination in accordance with Statements on Standards for Accounting and
Review Services issued by the American Institute of Certified Public
Accountants, matters might have come to our attention that would have been
reported to you. We have no responsibility to update this report for events and
circumstances occurring after the date of this report.
2
<PAGE>
EINSTEIN/NOAH BAGEL CORP.
EFFECTIVE DATE: SEPTEMBER 15, 1995, AS AMENDED MAY 31, 1996
INFORMATION FOR PROSPECTIVE FRANCHISE OWNERS
REQUIRED BY FEDERAL TRADE COMMISSION
* * * * * *
TO PROTECT YOU, WE'VE REQUIRED YOUR FRANCHISOR TO GIVE YOU THIS
INFORMATION. WE HAVEN'T CHECKED IT, AND DON'T KNOW IF IT'S CORRECT. IT SHOULD
HELP YOU MAKE UP YOUR MIND. STUDY IT CAREFULLY. WHILE IT INCLUDES SOME
INFORMATION ABOUT YOUR CONTRACT, DON'T RELY ON IT ALONE TO UNDERSTAND YOUR
CONTRACT. READ ALL OF YOUR CONTRACT CAREFULLY. BUYING A FRANCHISE IS A
COMPLICATED INVESTMENT. TAKE YOUR TIME TO DECIDE. IF POSSIBLE, SHOW YOUR
CONTRACT AND THIS INFORMATION TO AN ADVISOR, LIKE A LAWYER OR AN ACCOUNTANT. IF
YOU FIND ANYTHING YOU THINK MAY BE WRONG OR ANYTHING IMPORTANT THAT'S BEEN LEFT
OUT, YOU SHOULD LET US KNOW ABOUT IT. IT MAY BE AGAINST THE LAW.
THERE MAY ALSO BE LAWS ON FRANCHISING IN YOUR STATE. ASK YOUR STATE
AGENCIES ABOUT THEM.
FEDERAL TRADE COMMISSION
------------------------
WASHINGTON, D.C. 20580
----------------------
<PAGE>
FRANCHISE OFFERING CIRCULAR
EINSTEIN/NOAH BAGEL CORP.
A DELAWARE CORPORATION
14103 DENVER WEST PARKWAY
P.O. BOX 4086 GOLDEN, CO 80401
(303) 278-9500
The franchise offered is to operate food service businesses which sell
bagels, bagel-related products, beverages, and other items and food products
ENBC approves or requires for sale ("Units") and to develop and operate a
specified number of Units at approved locations within defined geographic areas
according to a specified development schedule.
Initial payments you must make under the Franchise Agreement and
Development Agreement are described in this paragraph. The initial franchise
fee is $35,000 under the Franchise Agreement for a Unit, and the development fee
under the Development Agreement is $5,000 for each Unit to be developed under
the Development Agreement. Under the Development Agreement, a real estate
services fee equal to $5,000 for each Unit to be developed will be due to ENBC.
Under both the Development and the Franchise Agreement, you will purchase the
computer system ENBC designates that will cost $15,000 to $30,000, and you will
pay to ENBC a software license fee of $15,000. A demographic detail report fee
of $50 per site for each proposed or potential site for a Unit is payable under
the Development Agreement only and is due before each Unit opens. In addition,
before each Unit opens, you will make the first payment of the monthly $400
software support fee. The estimated initial investment for a Unit ranges from
$268,700 to $591,700. The estimated initial investment to operate as a
developer ranges from $69,950 to $124,200.
RISK FACTORS:
1. THE FRANCHISE AGREEMENT AND DEVELOPMENT AGREEMENT PERMIT THE
FRANCHISEE AND DEVELOPER, RESPECTIVELY, TO SUE ONLY IN COLORADO. OUT
OF STATE LITIGATION MAY FORCE YOU TO ACCEPT A LESS FAVORABLE
SETTLEMENT FOR DISPUTES. IT MAY ALSO COST MORE TO SUE THE FRANCHISOR
IN COLORADO THAN IN YOUR HOME STATE.
2. EACH OF THE FRANCHISE AGREEMENT AND DEVELOPMENT AGREEMENT STATES THAT
COLORADO LAW GOVERNS THE AGREEMENT, AND THIS LAW MAY NOT PROVIDE THE
SAME PROTECTIONS AND BENEFITS AS LOCAL LAW. YOU MAY WANT TO COMPARE
THESE LAWS. SOME STATE FRANCHISE LAWS PROVIDE THAT CHOICE OF LAW
PROVISIONS ARE VOID OR SUPERSEDED. YOU
<PAGE>
MAY WANT TO INVESTIGATE WHETHER YOU ARE PROTECTED BY A STATE FRANCHISE
LAW. YOU SHOULD REVIEW ANY ADDENDA OR RIDERS ATTACHED TO THIS
OFFERING CIRCULAR FOR DISCLOSURES REGARDING STATE FRANCHISE LAWS.
3. THERE MAY BE OTHER RISKS CONCERNING THIS FRANCHISE.
Information comparing franchisors is available. Call the state administrators
listed in Exhibit A or your public library for sources of information.
REGISTRATION OF THIS FRANCHISE BY A STATE DOES NOT MEAN THAT THE STATE
RECOMMENDS IT OR HAS VERIFIED THE INFORMATION IN THIS OFFERING CIRCULAR. If you
learn that anything in the offering circular is untrue, contact the Federal
Trade Commission and the state authority listed in Exhibit A.
Effective Date: September 15, 1995, as amended May 31, 1996
(For state-specific effective dates, see Exhibit A of this Offering
Circular)
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM PAGE
<S> <C>
1 THE FRANCHISOR, ITS PREDECESSORS AND AFFILIATES............. 1
2 BUSINESS EXPERIENCE......................................... 8
3 LITIGATION.................................................. 13
4 BANKRUPTCY.................................................. 17
5 INITIAL FRANCHISE FEE....................................... 18
6 OTHER FEES.................................................. 20
7 INITIAL INVESTMENT.......................................... 27
8 RESTRICTIONS ON SOURCES OF PRODUCTS AND SERVICES............ 35
9 FRANCHISEE'S OBLIGATIONS.................................... 46
10 FINANCING................................................... 49
11 FRANCHISOR'S OBLIGATIONS.................................... 53
12 TERRITORY................................................... 71
13 TRADEMARKS.................................................. 79
14 PATENTS, COPYRIGHTS AND PROPRIETARY INFORMATION............. 83
15 OBLIGATION TO PARTICIPATE IN THE
ACTUAL OPERATION OF THE FRANCHISE BUSINESS.................. 86
16 RESTRICTIONS ON WHAT THE FRANCHISEE MAY SELL................ 90
17 RENEWAL, TERMINATION, TRANSFER AND DISPUTE RESOLUTION....... 91
18 PUBLIC FIGURES.............................................. 96
19 EARNINGS CLAIMS............................................. 96
</TABLE>
i
<PAGE>
TABLE OF CONTENTS continued
-----------------
<TABLE>
<CAPTION>
ITEM PAGE
- ---- ----
<S> <C>
20 LIST OF OUTLETS............................................ 96
21 FINANCIAL STATEMENTS....................................... 101
22 CONTRACTS.................................................. 101
23 RECEIPTS........................................ (Last 2 pages)
</TABLE>
EXHIBITS
--------
EXHIBIT A STATE AGENCIES/AGENTS FOR SERVICE OF PROCESS/EFFECTIVE DATES
EXHIBIT B EINSTEIN/NOAH BAGEL CORP. DEVELOPMENT AGREEMENT
EXHIBIT C EINSTEIN/NOAH BAGEL CORP. FRANCHISE AGREEMENT
EXHIBIT D ADDENDUM TO LEASE
EXHIBIT E EINSTEIN/NOAH BAGEL CORP. FINANCIAL STATEMENTS
EXHIBIT F FINANCED AREA DEVELOPER PROGRAM LOAN AGREEMENT
APPLICABLE STATE LAW MAY REQUIRE ADDITIONAL DISCLOSURES RELATED TO THE
INFORMATION CONTAINED IN THIS OFFERING CIRCULAR. THESE ADDITIONAL DISCLOSURES,
IF ANY, APPEAR IN AN ADDENDUM.
ii
<PAGE>
ITEM 1
------
THE FRANCHISOR, ITS PREDECESSORS AND AFFILIATES
ENBC PREDECESSORS, AFFILIATES AND THE ENBC SYSTEM
- -------------------------------------------------
The franchisor is Einstein/Noah Bagel Corp. The franchisor will be
referred to in this offering circular as "ENBC." A person who buys a franchise
from ENBC will be referred in this offering circular as "you." If you are a
privately held corporation, limited liability company, partnership or other
legal entity, certain provisions of ENBC's franchise agreement, development
agreement, and related agreements also will apply to your owners.
ENBC is a Delaware corporation incorporated on February 2, 1995 and
currently maintains its principal office at 1526 Cole Boulevard, Suite 200,
Golden, Colorado 80401-4086. ENBC's agents for service of process are disclosed
in Exhibit A to this offering circular. ENBC has no predecessors. ENBC was
formerly known as Progressive Bagel Concepts, Inc. until it changed its
corporate name in December 1995 to Einstein Bros. Bagels, Inc. and again in May
1996 to Einstein/Noah Bagel Corp.
ENBC's business began when it acquired and consolidated three regional
bagel chains in March 1995. On March 24, 1995, ENBC acquired the stock of
Brackman Brothers, Inc., a corporation which owns and operates stores under the
name "Brackman Brothers." Brackman Brothers, Inc. maintained its office at 3541
S. 300 West, Salt Lake City, Utah 84115. Brackman Brothers, Inc. began operating
bagel shops in April 1989 and has operated them continuously since then.
Brackman Brothers has not offered franchises for bagel shops or for any other
lines of business. Brackman Brothers, Inc. remains a wholly owned subsidiary of
ENBC, and its principal office address is the same as ENBC's.
Also on March 24, 1995, ENBC acquired the assets of Bagel & Bagel, Inc., a
corporation which owned and operated stores under the name "Bagel & Bagel" in
and around Kansas City, Kansas and maintained its offices at 8595 College
Boulevard #150, Overland Park, Kansas 66210. Bagel & Bagel, Inc. began operating
bagel shops in 1988 and operated them continuously until ENBC acquired the
company's assets. Bagel & Bagel did not offer franchises for bagel shops or for
any other lines of business. It did grant certain development rights in Dallas,
Texas to a joint venture, Bagel & Bagel Development Corp. that built two stores
in Dallas. The joint venture has since dissolved, and its rights have been
cancelled.
On March 31, 1995, ENBC acquired the assets of Offerdahl's Bagel Gourmet,
Inc., a corporation which owned and operated stores under the "Offerdahl's" name
in and around Miami and Fort Lauderdale, Florida and maintained its offices at
929 Shotgun Road, Sunrise, Florida 33326. Offerdahl's Bagel Gourmet, Inc. began
operating bagel shops in October 1990 and operated them continuously until March
31, 1995, when ENBC acquired the company's assets. Offerdahl's did not offer
franchises for bagel shops or for any other lines of business.
<PAGE>
On August 4, 1995, ENBC acquired the assets of nine franchised "Bagel Stop"
bagel stores in the Denver, Colorado area from the franchisees who owned and
operated them. The franchisor consented to those sales. The franchisor and
franchisee by mutual consent terminated the franchise agreement applicable to
each of those stores concurrently with the sale of the store assets to ENBC.
On August 10, 1995, San Diego-based Baltimore Bagel Co., formerly located
at 7007 Carroll Road, San Diego, California 92121 was merged into Baltimore
Bagel Co., a Delaware corporation and a wholly-owned subsidiary of ENBC. At the
time of the merger, Baltimore Bagel Co. owned and operated its 15 bagel stores
in San Diego and Orange County, California, under the name "Baltimore Bagels."
Baltimore Bagels began operating bagel shops in April 1980 and operated them
continuously until the date of the merger. Baltimore Bagel Co. did not offer
franchises for bagel shops or any other lines of business.
On January 31, 1996, Noah's New York Bagels, Inc., formerly located at
14054 Catalina St., San Leandro, California 94577 was merged with NNYB
Acquisition Corp., ENBC's wholly owned subsidiary. At the time of the merger,
Noah's New York Bagels, Inc. owned and operated 38 bagel stores in California
and Washington under the name "Noah's New York Bagels." In this offering
circular, ENBC refers to Noah's New York Bagels Units as "Noah's Units." Noah's
New York Bagels, Inc. began operating bagel shops in June 1989 and operated them
continuously until the date of the merger. It did not grant franchises before
the merger for bagel shops or any other lines of business. ENBC intends to grant
area development rights to a development group that includes former management
personnel of Noah's New York Bagels, Inc. to operate the existing Noah's Units
and to open additional Noah's Units in California, Washington, Oregon and parts
of Nevada. It is ENBC's intent that it will not open or operate any Noah's
Units, and it will not offer any franchise rights for Noah's Units, outside
those states. Also, ENBC intends that it will not open or operate any, and it
will not offer any franchise rights for, Units, in California, Washington,
Oregon and the portions of Nevada designated for Noah's Units. Those areas will
be reserved exclusively for Noah's Units.
ENBC operates, and offers and sells development rights for multiple
franchises to operate, food service businesses, referred to in this offering
circular as "Units," which sell, among other things, bagels, bagel-related
products, cream cheese and/or other spreads, sandwiches, soups, salads, baked
goods, breakfast items, and an assortment of hot and cold beverages, teas
(leaves, bags or dry mixes), coffee (whole beans, ground and prepared) and other
food and beverage products and mixes that ENBC approves or requires to be sold
at Units ("Products").
Units operate at locations which feature distinctive food service formats
and "trade dress" and use one or more of ENBC's trademarks, service marks and
associated logos, including "Einstein Bros.," "Brackman Brothers," "Bagel &
Bagel," "Offerdahl's," "Baltimore Bagels," "Noah's New York Bagels," and/or
other trademarks, service marks and associated logos which ENBC is continuing to
develop and refine and may adopt (collectively, the "Marks"). "Trade dress"
means the total image or overall impression which ENBC's stores, products and
packaging
2
<PAGE>
create, including the individual elements which make up that image or
impression. Units use ENBC's distinctive formats, specifications, employee
selection and training programs, signs, equipment, layouts, systems, menu,
recipes, methods, procedures, designs and marketing and advertising standards
and formats, all of which ENBC may modify periodically in its sole discretion,
and all of which may have one or more variations which ENBC may approve or
specify (the "System"). Units operate using the System and one or more of the
Marks and must meet ENBC's standards and specifications. Units offer Products
for on-premises and carry-out dining. ENBC may, in its discretion, offer you the
opportunity to offer delivery service (defined below), catering service (defined
below) and/or operate special distribution arrangements (defined below).
ENBC, directly and through its subsidiaries as of December 31, 1995, now
operates 59 bagel stores under the names "Einstein Bros.," "Brackman Brothers,"
"Bagel & Bagel," "Offerdahl's," "The Bagel Shop," "Bagel Stop," and "Baltimore
Bagels." As of April 1, 1996, ENBC operates through a subsidiary 45 Noah's New
York Bagel shops. (See Item 20) ENBC engages in no other business activities.
ENBC began operating Units in March, 1995 and began offering franchises for
Units as of the date of this offering circular. ENBC has not offered franchises
in other lines of business.
Throughout the United States, the food service industry is highly
competitive, with constantly changing market conditions, and is characterized by
a profusion of operators, including well-financed and highly sophisticated
national and regional chains. Units will compete with restaurants, fast food
outlets and other bagel shops operated by national and regional chains and
independent operators and, to some extent, with grocery and convenient stores
that sell various prepared food products. Units will compete with these
competitors for market share and access to desirable locations and to recruit
food service personnel. Units will offer Products primarily to individual
consumers for on-site or off-site consumption. The market for the Products is
developed in some areas and developing in other areas, depending on the number
of restaurants and stores operating in the particular area.
Boston Chicken, Inc. ("BCI") has made a secured loan to ENBC for
$40,000,000. The amount of the loan can be increased under certain circumstances
to $120,000,000. The loan is convertible into shares of common stock of ENBC,
and BCI has, as part of the loan transaction, the option to acquire ENBC stock.
If BCI converts the loan and exercises its option, BCI would hold shares of
common stock of ENBC representing a controlling interest in ENBC. BCI's
principal business address is 14103 Denver West Parkway, P.O. Box 4086, Golden,
Colorado 80401. Since March 1989, BCI has operated, and offered and sold
development rights for multiple franchises and single-unit franchises for the
operation of food service businesses that sell rotisserie chicken, ham, turkey
and other food products under the mark "Boston Market" for on-premises and
carry-out dining. BCI does not offer or sell franchises in any other lines of
business than as described in this Item.
3
<PAGE>
DEVELOPMENT AND FRANCHISE RIGHTS OFFERED.
- ----------------------------------------
(a) DEVELOPMENT RIGHTS. For each Unit you develop under the Development
Agreement, you must execute ENBC's then-current standard franchise agreement and
any riders, exhibits, guarantees and other agreements ENBC uses. The following
paragraphs describe the rights and obligations you will have under the
Development Agreement and/or the Franchise Agreement.
ENBC will offer and sell to certain qualified persons or entities
("Developers") the right to acquire franchises to develop, own and operate a
specified number of Units at approved location(s) ("Approved Sites") within a
defined geographic area (the "Development Area") under the terms of ENBC's
development agreement (the "Development Agreement"), a copy of which is attached
to this offering circular as Exhibit B. The Development Area may be composed of
a number of smaller areas referred to as "Sub-Areas." The total number of Units
which a Developer will be obligated to develop under the Development Agreement
(the "Development Obligations") and the development schedule (the "Development
Schedule") specifying the number of Units the Developer open and operate in each
Sub-Area and the required opening dates for each of them will be inserted in the
Development Agreement before it is executed. The material terms and conditions
of the then-current standard franchise agreement may vary substantially from the
terms and conditions of the Franchise Agreement (defined below) described in
this offering circular. However, under the Development Agreement, the initial
franchise fee under each standard franchise agreement you sign will not exceed
$35,000, and the royalty fee under each standard franchise agreement you sign
will not exceed 5% of the Unit's Royalty Base Revenue (as defined in Item 6).
(See Items 5 and 6) ENBC may in some instances require or permit developers of
Units that previously entered into development agreements with ENBC to enter
into the form of franchise agreement attached to their development agreement
rather than the Franchise Agreement described in this offering circular.
Under the Development Agreement, ENBC may require you to establish and
operate one or more food preparation facilities to prepare and distribute the
Products to Units in your Development Area ("Commissaries"). Commissaries will
not serve Products or any service to the general public, and they will operate
according to ENBC's standards and specifications.
In order to meet ENBC's standards and specifications for products sold
through the Units and to maintain quality controls, it will at some point be
necessary to establish one or more Commissaries in the Development Area. You
agree in the Development Agreement to establish in the Development Area the
number of Commissaries ENBC reasonably determines to be necessary for the stores
in the Development Area and to operate the commissaries according to ENBC's
standards and specifications.
(b) FRANCHISE RIGHTS. ENBC will offer and sell to certain qualified persons
("Franchisees") a franchise to establish and operate a Unit using the System
under the Marks
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and offering Products (the "Franchise") under the terms of ENBC's franchise
agreement (the "Franchise Agreement") attached to this offering circular as
Exhibit C. ENBC anticipates that Developers will own and operate most or all
Units. Each Unit will operate at a site ENBC has approved (a "Site") within a
certain designated geographic area (a "Territory"). Under the Franchise
Agreement, ENBC may offer you the opportunity to sign an agreement to sell
Products at a facility or location such as a convenience store or airport (a
"Special Distribution Agreement"). ENBC may also offer you the opportunity to or
require you to sign a rider to the Franchise Agreement that allows you to
deliver Products to consumers inside or outside of your Territory (a "Delivery
Rider") and/or may offer you the opportunity to or require you to sign a rider
to the Franchise Agreement that allows you to cater Products to consumers within
a designated area (a "Catering Rider"). Copies of the Delivery Rider and the
Catering Rider are attached to the Franchise Agreement (see Exhibit C to this
offering circular).
VARIATIONS IN THE OPERATING SYSTEM
- ----------------------------------
Some aspects of ENBC's franchise program and its retail store concept are
still in the development stage. ENBC believes that it is desirable, and part of
its mission is, to take full advantage of the customer base, customer loyalty,
market strength and operating efficiencies of each of the concepts it has
acquired. As a result, it expects that there will be some significant variations
in the System. These variations may be for an initial or transitional period, or
they may be permanent, depending on whether ENBC in its sole discretion
ultimately determines that it can best capture those advantages by developing
and operating only Einstein Bros. Bagel Stores or stores using all or some of
the components of the original acquired concepts in those markets where those
brands already have a strong presence, or some combination of both. ENBC may,
for instance, allow certain Developers to use one recipe for bagels, cream
cheeses or other items while allowing other Developers to use different recipes.
ENBC may also allow variations between Developers in the areas of trademarks,
trade dress, operational items or other aspects of Units. However, you must
acknowledge and agree that only ENBC may determine what variations are allowable
and that you will in any event conform strictly to the standards and
specifications which ENBC establishes for your Units.
ENBC intends to allow these variations for at least two reasons: (a) as
part of ongoing research and development for Units generally; and (b) to test
whether regional variations in Units may be advantageous. It is ENBC's
expectation that over time during the term of your Development Agreement and
Franchise Agreements ENBC will continue to develop and refine various aspects of
the ENBC program based, in part, on the experiences of Developers and
Franchisees with any different recipes and other variations in Units it may
allow. ENBC expects, and you should expect, that as new products, new operating
procedures, new trade dress and other refinements occur, ENBC may, in its sole
discretion, cease to allow some or all of the variations and may require local
or regional variations or national uniformity among Units in aspects for which
it had previously allowed variations. This may mean that you may be required,
for example, to change one or more of: (a) the recipes you use for bagels, cream
cheese or other items; (b) the trademarks and/or service marks you use; (c) the
trade dress or
5
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operational procedures you use; or (d) other aspects of your Units. Some or all
of these changes may require you to make substantial additional capital
expenditures or other expenses to conform your operations to ENBC's revised
local, regional and/or national requirements for particular aspects of your
business. By signing a Development Agreement and Franchise Agreements, you
acknowledge and agree that if ENBC decides to do so, it may discontinue any of
the variations which ENBC had allowed previously and that you will conform to
all required local, regional and/or national standards and specifications and
other requirements which ENBC may establish periodically as part of the
development and refinement of ENBC's retail store concept, even if it means
substantial additional expense for you. Furthermore, you acknowledge and agree
that you will provide to ENBC the data it requires concerning your operations to
allow ENBC to assess the success of various variations in its retail store
concept.
In addition to those considerations, you should also be aware that ENBC may
continue to operate and/or to allow you and other Developers and Franchisees in
certain regions to operate Units under trademarks and service marks other than
"Einstein Bros." including "Bagel & Bagel," "Offerdahl's," "Baltimore Bagels"
and "Noah's New York Bagels." ENBC may allow the use of such other marks
temporarily, indefinitely or permanently and on a local, regional, national or
international basis. In fact, ENBC expects that, at least for some period of
time, all Units will not uniformly use the mark "Einstein Bros." and that the
end result of ENBC's research and development may be that, rather than operating
and franchising a national chain of stores operating under the "Einstein Bros."
mark, ENBC may determine in its sole discretion to operate and franchise a
system of bagel shops operating under different names in different geographic
areas. By signing a Development Agreement and Franchise Agreements, you
acknowledge and agree that such trademark variations may exist and that, if they
do, ENBC's franchise program may not be for a nationwide chain of stores all
operating under a single mark, but rather more in the nature of a series of
related regional chains operating under different brand identities. Thus, you
should be aware that ENBC uses the term "Units" throughout this offering
circular for convenience to refer to the various bagel stores for which ENBC may
offer franchises, even though the stores you and other Developers and
Franchisees operate may do business under a variety of different brands.
UNIT MANAGER INCENTIVE PROGRAM
- ------------------------------
ENBC is considering a program under which Developers would be required to
offer an incentive program designed to attract individuals experienced in
restaurant management ("operators") to operate one or more of their Units. The
Developer would enter into an employment agreement with the operator making the
operator the manager of a Unit and giving the operator the right to receive a
percentage (ranging up to 50%) of the Unit's pre-tax income. This is the only
compensation the operator would receive under the employment agreement. Pre-tax
income would be determined by subtracting all expenses of the Unit the operator
manages (including all fees and other charges the Developer pays to ENBC under
the Franchise Agreement for the Unit and all imputed payments to the Developer
for equipment, real estate and services the Developer provides to the Unit) from
the net revenue of the Unit. The
6
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Developer and the operator would also enter into a purchase agreement under
which the operator would purchase a minority quasi-equity interest in the Unit.
The purchase agreement would contain various provisions regarding the
Developer's right to repurchase the interest of the operator if the operator's
employment with the Developer is terminated for any reason or for no reason. As
of the date of this offering circular, ENBC is still working out the details of
this incentive program. The final program may differ somewhat from this
description, but ENBC expects that it will be substantially similar.
GENERAL COMMENTS
- ----------------
This offering circular describes information about (a) the development
rights ENBC offers for Units; (b) the Franchise; (c) Delivery Service, Catering
Service, Commissaries and Special Distribution Arrangements (as described in
Item 12); (d) the terms and conditions of the current Development Agreement,
Franchise Agreement, Delivery Rider, Catering Rider and Special Distribution
Arrangements Rider; and (e) certain financing arrangements which may be
available to you.
There may be instances when ENBC will vary the terms and conditions of the
agreements and riders, depending on the circumstances of a particular
transaction. ENBC intends only to enter into multi-unit development transactions
with sophisticated investors who are experienced food service operators, or who
employ management personnel with food service expertise, and who have access to
substantial capital necessary to finance multi-unit development of Units over
development terms which will typically be of 2 to 5 years, depending on the
number of Units to be developed.
You must comply with all local, state and federal laws and regulations that
apply to food service operations, including health and sanitation laws and
regulations, when you develop and operate Units and, if applicable, when you
offer Delivery Service or Catering Service or operate Commissaries or Special
Distribution Arrangements.
DEFINITIONS
- -----------
As used in the Franchise Agreement, Development Agreement and this offering
circular, the following terms will have the following meanings:
(a) "Owner" means all persons or entities that hold direct or indirect,
record or beneficial Ownership Interests (defined below) in you as specified in
the applicable agreement. The term Owner also refers to any person who has any
other direct or indirect property rights in you, the Franchise Agreement, the
Development Agreement, the Franchise or a Unit;
(b) "Ownership Interest" means in relation to a: (i) corporation, the
record or beneficial ownership of shares in the corporation; (ii) limited
liability company, the record or beneficial ownership of membership interests in
the company; (iii) partnership, the record or
7
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beneficial ownership of a general or limited partnership interest; or (iv)
trust, the ownership of beneficial interest of that trust;
(c) "Principal Owner" means each Owner which (1) is a general partner in
the Developer; or (2) has a direct or indirect equity interest of 10% or more
(regardless of whether such Owner is entitled to vote thereon) in (a) you or (b)
any Unit or (c) any developer and/or franchise owner of Units other than you;
provided, however, that a reduction in a Principal Owner's equity interest below
10% will not affect his/her/its status as a Principal Owner unless such
reduction is the result of the transfer of all his/her/its equity interests in
DEVELOPER, an a Unit or a developer and/or franchise owner of a Unit; and
(d) "Immediate Family" means: (1) a person's spouse; and (2) a person's
natural and adoptive parents and natural and adopted children and siblings and
their spouses; and (3) the natural and adoptive parents and natural and adopted
children and siblings of a person's spouse; and (4) any other member of the
person's household; so long as, in the case of children, siblings and their
spouses and the parents, children and siblings of the spouses, that these people
received or had access to Confidential Information including as your employee,
supplier, officer, director, stockholder or agent.
ITEM 2
------
BUSINESS EXPERIENCE
CHAIRMAN OF THE BOARD: KYLE T. CRAIG
- -------------------------------------
Mr. Craig has been ENBC's Chairman of the Board since June 1995. Before
that, he served as a Director and the Vice President of ENBC from the date the
company was formed in February 1995 until his appointment as Chairman. Mr. Craig
also served as the Chief Concept Officer of BCI from April 1994 through June
1995. From November 1993 until April 1994, he was President of KFC-Brand
Development, a unit of KFC Corp. in Louisville, Kentucky, and from April 1990
until November 1993, he was President of KFC-USA, also a unit of KFC Corp. in
Louisville, Kentucky. KFC Corp. is a wholly owned subsidiary of PepsiCo, Inc.
PRESIDENT, CHIEF EXECUTIVE OFFICER: MARK GOLDSTON
- -----------------------------------------------------
Mr. Goldston became ENBC's President and CEO in April 1996. From July 1994
to April 1996, was Chairman and CEO of The Goldston Group, an advisory firm in
Los Angeles, California, through which he provided consulting services to BCI.
From October 1991 through June 1994, Mr. Goldston was employed by L.A. Gear,
Inc. in Santa Monica, California, most recently as President and Chief Operating
Officer. From September 1989 to October 1991, he was a principal in Odyssey
Partners, L.P. in New York, New York. Since December 1995 Mr. Goldston has been
a Director of Bohbot Entertainment and Media, Inc. in New York, New York.
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DIRECTOR: SCOTT A. BECK
- ------------------------
Scott A. Beck served as Chairman, Chief Executive Officer and a Director of
ENBC from April 1995 to June 1995. He has been a Director since April 1995. He
has been Chairman, Chief Executive Officer and a Director of BCI since June
1992. He was Vice Chairman of the Board of Blockbuster Entertainment Corporation
in Fort Lauderdale, Florida from September 1989 until January 1992, and Chief
Operating Officer from September 1989 to January 1991. From 1980 to present, Mr.
Beck also has been President of Pace Affiliated, Inc., an investment banking
firm he founded.
VICE CHAIRMAN: NOAH C. ALPER
- -----------------------------
Mr. Alper joined ENBC's Board of Directors as Vice Chairman when ENBC's
subsidiary, NNYB Acquisition Corp., merged with Noah's New York Bagels, Inc. on
January 31, 1996. Mr. Alper founded the Noah's New York Bagels chain and served
as its chairman from August 1988 to January 31, 1996.
DIRECTOR: LLOYD D. RUTH
- ------------------------
Mr. Ruth became a member of ENBC's Board of Directors when it formed in
February 1995. Since January 1987 he has been a General Partner at Marquette
Management Partners in Deerfield, Illinois.
DIRECTOR: JOHN H. MUEHLSTEIN, JR.
- ----------------------------------
Mr. Muehlstein has been a member of ENBC's Board of Directors since it
formed in February 1995. He has also been an attorney at the Chicago law firm of
Pedersen & Houpt since June 1980.
DIRECTOR: M. LAIRD KOLDYKE
- ---------------------------
Mr. Koldyke has been a member of ENBC's Board of Directors since February
1995. Mr. Koldyke has served as the General Partner of the Frontenac Company in
Chicago, Illinois since 1989.
DIRECTOR, VICE PRESIDENT AND CHIEF DEVELOPMENT OFFICER: DAVID G. STANCHAK
- --------------------------------------------------------------------------
Mr. Stanchak has been a member of ENBC's Board of Directors, ENBC's Chief
Development Officer and a Vice President since ENBC formed in February 1995.
From June 1992 until February 1995, he served as the Senior Vice President of
BCI, and from August 1989 until June 1992, Mr. Stanchak was the National
Director of Real Estate and Real Estate Legal Counsel for Blockbuster
Entertainment Corporation.
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DIRECTOR: JOHN A. OFFERDAHL
- -----------------------------
Mr. Offerdahl was a founder of Offerdahl's Bagel Gourmet, Inc., which ENBC
acquired in March 1995. When ENBC acquired that company, Mr. Offerdahl was
appointed as a Director and the Vice President-Operations, Southeast Zone. He
ceased acting as a Vice President in January 1996, but remains a Director of
ENBC. Mr. Offerdahl served as the Chairman and President of Offerdahl's Bagel
Gourmet in Fort Lauderdale, Florida from December 1989 until March 1995. From
May 1986 until September 1994, Mr. Offerdahl played professional football for
the Miami Dolphins in the National Football League.
VICE PRESIDENT OF PRODUCT: MICHAEL BRAU
- ---------------------------------------
In April 1980, Mr. Brau founded Baltimore Bagel Co. in San Diego,
California, where he served as President until that company's acquisition by
ENBC in August 1995. He served as ENBC's acting Zone President for the Western
Zone from August 1995 until May 1996, when he became ENBC's Vice President of
Product. He is based in San Diego, California.
DIRECTOR, VICE PRESIDENT -- DESIGN AND MERCHANDISING: GAIL LOZOFF
- ------------------------------------------------------------------
Ms. Lozoff began serving as a Director of ENBC and the Vice President-
Design and Merchandising in April 1995, after working with Bagel & Bagel, Inc.
in Prairie Village, Kansas from June 1988. She also served as President and
Chief Executive Officer of Bagel & Bagel from May 1992 to April 1995. Ms. Lozoff
has also served as a Director of Three Dog Bakery in Kansas City, Missouri since
September 1994.
PRESIDENT, EINSTEIN BROS. CONCEPT: JEFFREY L. BUTLER
- -----------------------------------------------------
Mr. Butler was appointed ENBC's Chief Operating Officer in February 1996,
after having been a partner in BC Great Lakes, the franchisee of Boston Chicken,
Inc. headquartered in Chicago, Illinois, from June 1995 until February 1996.
Prior to that, Mr. Butler served in Madison Heights, Michigan, as President and
CEO of BC Detroit, the Detroit area franchise of Boston Chicken, Inc., from June
1993 to June 1995 (BC Detroit was later merged into BC Great Lakes). From
January 1992 to June 1993, he served as Vice President-Human Resources for
Boston Chicken, Inc. in Naperville, Illinois. July 1991 to January 1992, he was
an independent consultant and from April 1990 to June 1991, he was Regional
Director of Operations for Blockbuster Entertainment in San Diego, California.
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER: MICHAEL BEAUDOIN
- -------------------------------------------------------------
Mr. Beaudoin became ENBC's Vice President and Chief Financial Officer in
July 1995, after serving as Assistant to the Chairman of Boston Chicken, Inc.
from February 1995. From December 1992 to February 1995, he was employed by
Soundsational, Inc. and NewLeaf Entertainment (both subsidiaries of Blockbuster
Entertainment Corporation in Ft. Lauderdale, Florida), first as Director of
Strategic Planning for Soundsational, Inc. (December 1992 to May 1993), then as
Sr. Director of Operations for Soundsational, Inc. (May 1993 to July 1993) and
Vice President of NewLeaf (July 1993 to February 1995). From June 1990 through
November 1992, Mr. Beaudoin was an associate with Pfingsten Partners, L.P. in
Deerfield, Illinois.
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VICE PRESIDENT AND SECRETARY: JOEL M. ALAM
- -------------------------------------------
Mr. Alam became a Vice President and the Secretary of ENBC in May 1995.
From January 1994 until May 1995, he was Vice President, Associate General
Counsel and Assistant Secretary of BCI. From May 1993 until January 1994, Mr.
Alam was Assistant General Counsel of BCI. Before that, he was an associate in
the corporate department of the Chicago law firm Bell, Boyd & Lloyd for more
than five years.
VICE PRESIDENT -- BUSINESS DEVELOPMENT: ALBERT S. BALDOCCHI
- ------------------------------------------------------------
Mr. Baldocchi became ENBC's Vice President-Business Development in February
1995. From April 1994 until February 1995, he was President of Albert S.
Baldocchi, Inc. an investment firm in San Francisco, California. Before that,
Mr. Baldocchi was a Principal of Montgomery Securities in San Francisco from
January 1991 to March 1994, and he served as a Director of Morgan Stanley & Co.
from January 1986 until December 1991 in San Francisco and New York.
VICE PRESIDENT -- DEVELOPMENT: PAUL D. BOOHER
- ----------------------------------------------
Mr. Booher became the Vice President-Development of ENBC in May 1995. From
March 1985 until April 1995, he served as Vice President of Development for
Wal-Mart Stores, Inc. in Bentonville, Arkansas.
VICE PRESIDENT -- PARTNER DEVELOPMENT: MICHAEL R. DAIGLE
- ---------------------------------------------------------
Mr. Daigle has served as ENBC's Vice President-Partner Development since
May 1995 after having held various legal and franchise positions with
Blockbuster Entertainment Corporation and its successor, Viacom, Inc., in Fort
Lauderdale, Florida, including as Vice President-Domestic Franchising from
September 1994 to April 1995, Vice President-Franchise Development from February
1994 to September 1995, Director-Franchise Development from January 1992 to
February 1994, Senior Franchise Counsel from September 1990 to January 1992. He
has been the Vice President - Partner Development for BCI since October 1995.
From April 1989 until September 1990, Mr. Daigle was the Senior Franchise
Counsel for Al Copeland Enterprises, Inc. (owner of Popeye's Fried Chicken and
Church's Chicken) in New Orleans, Louisiana.
VICE PRESIDENT - PARTNER DEVELOPMENT: THOMAS BECK
- --------------------------------------------------
Thomas Beck became ENBC's Vice President -- Partner Development in October
1995. He has been Vice President -- Franchise Development for BCI since June
1993. Mr. Beck was BCI's Director of Franchise Development from April 1992 to
May 1993. From August 1989 to March 1992, he was a director of and consultant to
the KCEB Foundation in Chicago, Illinois.
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VICE PRESIDENT AND GENERAL COUNSEL: PAUL A. STRASEN
- ----------------------------------------------------
Mr. Strasen became a Vice President and General Counsel of ENBC in April
1995. Before that, he was a partner at the Chicago law firm of Bell, Boyd and
Lloyd from 1988 to April 1995.
VICE PRESIDENT -- MARKETING: GARY T. NAIFEH
- --------------------------------------------
Mr. Naifeh became ENBC's Vice President -- Marketing in August 1995. He was
employed from September 1994 to August 1995 as BCI's Vice President, National
Marketing. From June 1994 to September 1994 he was the Senior Vice President of
Operations for Baskin Robbins, Inc. in Glendale, CA. From June 1994 to March
1993, Mr. Naifeh was the Vice President of Marketing for Pizza Hut, Inc. in
Wichita, Kansas, and he was Zone Vice President of Operations for Taco Bell Corp
in Irving, California from June 1990 to March 1993. He was Vice President,
Branch Management for Coors Brewing Co. in Golden, Colorado from February 1982
until June 1990.
VICE PRESIDENT -- PRODUCT AND PRODUCTION: RONALD SAVELLI
- ---------------------------------------------------------
Mr. Savelli joined ENBC in September 1995. From September 1989 to September
1995, he was Product Manager of Caravan Products, Inc. in Totowa, NJ.
VICE PRESIDENT -- OPERATIONS SERVICES: W. BENJAMIN NOVAK
- ---------------------------------------------------------
Mr. Novak joined ENBC in July 1995 as Director of Financial Systems and
Process Planning, after serving in the same capacity with BCI from March 1994 to
July 1995. He became ENBC's Vice President of Operations Services in January
1996. From September 1989 to March 1994, Mr. Novak served as Director of Finance
for Blockbuster Entertainment Corporation in Ft. Lauderdale, Florida.
VICE PRESIDENT -- PERFORMANCE EVALUATION: TED P. HEININGER
- -----------------------------------------------------------
Mr. Heininger joined ENBC in April 1995 and served as its Controller until
January 1996, when he was appointed ENBC's Vice President of Performance
Evaluation. From June 1993 to March 1995, Mr. Heininger was employed as Vice
President and Chief Financial Officer with Meyercord Co., a subsidiary of the
Berwind Group in Carol Stream, Illinois. He served as Vice President and Chief
Financial Officer of GPS Healthcare, also a subsidiary of the Berwind Group, in
Pottsville, Pennsylvania, from October 1990 to May 1993.
VICE PRESIDENT-PEOPLE AND CULTURE DEVELOPMENT: JANICE ELLIS
- ------------------------------------------------------------
Ms. Ellis joined ENBC in September 1995. Before that, she had been an
Executive Vice President of Nathan's Famous, Inc. in Westbury, New York since
March 1994. From February
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1993 to March 1994, Ms. Ellis was Senior Vice President -- Restaurant Services
with Long John Silver's, Inc. in Lexington, Kentucky. She worked with KFC Corp.
in Louisville, Kentucky, from August 1990 to February 1991 as the Director of
Operations Services and Training, from February 1991 to March 1992 as Vice
President New Work Processes and from March 1992 to February 1993 as Vice
President Restaurant Support Services.
ITEM 3
------
LITIGATION
Dr. Frederick Sklar, Ray Schondak, Irving Smith, Ron Woodall, Atteberry
Children's Trust, Stan Fernald, Michael Boyd, and David Hickman v. Scott A.
Beck, Video Superstore Management, Inc., Pace Financial Management, Inc., Pace
Affiliated, Inc., Blockbuster Entertainment Corporation, Chuck Rice, Kevin
Shepherd, and Jerry Reeves, (District Court, Dallas County, Texas, Cause No.
91-10192). On October 10, 1991, Plaintiffs (who are not related to ENBC) began
an action against Defendants by filing a complaint in the District Court for
Dallas County, Texas. In the Complaint, plaintiffs have asserted various causes
of action including breach of fiduciary duty, fraud, civil conspiracy, violation
of the Texas Securities Act, breach of contract and negligence from
Blockbuster's purchase of the general partnership interest of Video Superstore
Management, Inc. ("VSMI") in VSMI/Blockbuster Ltd. II. On December 20, 1991,
Blockbuster filed an Answer denying liability. On October 18, 1993, Plaintiffs
agreed to drop all of their claims and settle this lawsuit, and Defendants
agreed to pay $50,000 to Plaintiffs.
7547 Partners v. Scott A. Beck, Saad J. Nadhir, Jeffry J. Shearer, J. Bruce
Harreld, Arnold C. Greenberg, M. Howard Jacobson, Peer Pedersen and Boston
Chicken, Inc., (Court of Chancery of the State of Delaware, Docket No. 13252).
Plaintiff, 7547 Partners, is a Florida general partnership owning shares of
common stock of BCI which brought this action derivatively for BCI on November
16, 1993. This suit arises out of BCI's initial public offering in which BCI
sold 1,900,000 shares of its common stock at $20 per share ($18.60 net to BCI
after underwriting commissions) and concurrently sold 900,000 shares of its
common stock to its executive officers in a private placement at a price of
$18.60 per share. A majority of the private placement shares were sold to
Messrs. Beck, Nadhir, Shearer and Harreld, all of whom
13
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are directors of BCI; Mr. Beck is one of ENBC's Directors. The public trading of
BCI stock opened at a per share price of $45.50 on November 9, 1993 and closed
that day at $48.50. Plaintiff alleges that the defendants were grossly negligent
in pricing BCI's shares for the initial public offering at $20 per share when
market conditions were such that BCI stock could be fairly sold for, and would
initially trade at, substantially in excess of $20 per share. The share amounts
and per share prices mentioned above refer to share prices and numbers of shares
before any share splits or other adjustments which occurred later. The complaint
goes on to allege that, as a result of the pricing BCI set for the initial
public offering and the private placement, executive officers of BCI, including
the majority of its Board of Directors, reaped profits in excess of $25 million
which rightfully belong to BCI. Plaintiff contends that the director defendants
wasted BCI's assets and did not act independently, did not remove or properly
resolve conflicts of interest, and did not exercise rational business judgment
in allowing certain of BCI's executives to purchase shares at the aforementioned
prices. Plaintiff alleges that Defendants committed a gross abuse of trust and
breached their fiduciary duties to BCI and its public stockholders. For BCI,
plaintiff asks the court to impose a constructive trust in favor of BCI on all
shares of its stock any of Defendants wrongfully acquired and to direct the
individual defendants to account to BCI for its damages and for all profits they
obtained as a result of the wrongs alleged in the complaint. BCI, the Board of
Directors and the individuals named in this action note that no executive
officer purchasing in the concurrent private placement was a member of the
special Pricing Committee which established the price of the stock issued and
dispute each and every claim asserted in this action and will vigorously defend
it. In February 1995, the court granted BCI's motion to dismiss the litigation.
In March 1995, Plaintiff filed a motion for re-argument and a motion seeking
permission to file an amended complaint. The court denied Plaintiff's motion in
August 1995. Plaintiff has filed a second motion for re-argument in August 1995,
which the court also denied in October 1995. In October 1995, the plaintiff
filed a Notice of Appeal with the Supreme Court of the State of Delaware seeking
reversal of the Chancery Court's rulings (Case No. 432, 1995). The appeal is in
the pre-hearing briefing stage.
Kathleen Pessin v. H. Wayne Huizenga, A. Clinton Allen, John J. Melk, Scott
A. Beck, Donald J. Flynn, Steven R. Berrard, John W. Croghan, Blockbuster
Entertainment Corporation and Viacom Inc., (Court of Chancery, New Castle
County, Delaware (Civil Action No. 13456)). This is a suit, filed on April 8,
1994, was brought by a shareholder of Blockbuster Entertainment Corporation
("Blockbuster") (who is not related to ENBC), against, among others, certain
directors of Blockbuster, including Mr. Scott Beck, one of ENBC's Directors. The
first count, a shareholder's derivative action, alleged a breach of fiduciary
duty, waste of corporate assets and usurpation of corporate opportunity on the
part of the directors. Plaintiff's claims arise out of various franchise
transactions with certain directors of Blockbuster or members of their immediate
families or entities they control, including allegations that franchised stores
these persons owned were sold to Blockbuster at inflated prices and also that
the grants of these franchises were made on favorable terms. None of the
specific transactions recited was with Mr. Beck or any member of his immediate
family or any entity he controls. The second count of the complaint was filed
individually and as a class action for all stockholders of Blockbuster
14
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against Viacom, Inc. and the directors of Blockbuster and alleged that as a
result of the alleged self-dealing described above, the proposed merger of
Blockbuster and Viacom, Inc. resulted in an artificially low purchase price and
was unfair and a breach of fiduciary duty. Plaintiff sought an order for an
accounting with respect to the transactions described in the first count and,
with respect to the second count, sought to be certified as a class, a
declaration that Defendants breached their fiduciary and other duties, an order
enjoining them from proceeding with the Blockbuster/Viacom merger or rescinding
the merger if it was completed and an unspecified amount of damages, costs and
attorneys' and accountants' fees. Mr. Beck is no longer on the Blockbuster Board
of Directors and was not on the Board at the time of the approval of the
proposed merger. In January 1995, Plaintiff and Defendants signed a proposed
settlement agreement which provided that all claims would be dismissed with
prejudice and that Defendants would pay Plaintiff's attorneys' fees and costs.
On April 5, 1995, the court determined that the proposed settlement was fair,
reasonable, adequate and in the best interest of Plaintiff and the lawsuit was
dismissed.
Charles D. Howell, in his Capacity as the Trustee of the Doug Howell Family
Trust, and Charles D. Howell, Individually, Plaintiffs, v. Blockbuster
Entertainment Corporation, Scott A. Beck, Video Superstores Master Limited
Partnership, Video Superstores Management, Inc., VSMI Limited Partnership,
Blockbuster Midwest Limited Partnership, and SAB Acquisition Company, Inc.,
Defendants, (District Court, Dallas County, Texas, Cause No. 91-10193-M, removed
to U.S. District Court, Northern District of Texas, Case No. 91 CV 1901-G and
then remanded to the Texas State District Court). Charles D. Howell individually
and in his capacity as trustee of the Doug Howell Family Trust (the "Trust")
began this action on August 23, 1991 by filing a Complaint in the District Court
for Dallas County, Texas against Defendants. Plaintiffs (who are not related to
BCI) asserted causes of action for breach of fiduciary duty, fraud, conspiracy,
breach of contract and intentional interference with contract arising out of
Blockbuster's acquisition in August 1989 of the business operations of Video
Superstores Master Limited Partnership ("VSMLP") and VSMI Limited Partnership
("VSMILP") and the failure at that time to have included in that acquisition the
limited partners' interest in VSMI/Blockbuster Ltd. I, in which plaintiffs were
an 18.75% limited partner. Plaintiffs sought actual damages, exemplary damages,
attorneys' fees and interest. Following the trial of the case, on August 18,
1994, the court entered a judgment in favor of plaintiffs on all causes of
action. Defendants filed an appeal with the Dallas Court of Appeal. While the
appeal was pending, the parties entered into a settlement agreement. Under the
settlement agreement, the parties exchanged mutual releases and Scott Beck and
Viacom, Inc., as successor to the other defendants, agreed to pay to the
plaintiffs $30,750,000. The trial court vacated its findings and judgment and
dismissed all of the plaintiffs' claims with prejudice.
Karen Murphy, as Temporary Administrator of the Estate of Doris Berglund
Brock, and B. Coleman Renick, Jr. v. Blockbuster Entertainment Corporation,
Scott A. Beck, Video Superstores Master Limited Partnership f/k/a Blockbuster
Midwest Limited Partnership, VSMI Limited Partnership, SAB Acquisition Company,
Inc. and Zenith Capital, Inc. f/k/a Pace Financial Management, Inc., (District
Court of Dallas County, Texas, Case No. 94-10051M).
15
<PAGE>
Karen Murphy, in her capacity as trustee of the Estate of Doris Berglund Brock
and B. Coleman Renick, Jr. began this action on September 27, 1994 by filing a
Complaint in the District Court for Dallas County, Texas against Defendants.
Plaintiffs (who are not related to ENBC) asserted causes of action identical to
those Plaintiff Howell asserted in the case described above, which causes of
action allegedly arise out of the facts described above in the Howell case.
Plaintiffs claim to be similarly situated to Plaintiff Howell. Plaintiffs seek
actual damages in the amount of at least $6.0 million, all profits which
defendants Beck, Video Superstores Master Limited Partnership, VSMI Limited
Partnership and SAB Acquisition Company, Inc. derived in an amount of at least
$118 million and all profits defendant Blockbuster made in an additional amount
of at least $117 million, $350,000 in returned or forfeited compensation paid to
one of Defendants, exemplary damages in the amount of at least $1 billion,
attorneys' fees, costs, expenses, interest and other and further relief as the
court may determine. Certain of Defendants filed a Plea in Abatement and a
Motion to Stay discovery in this case. In December 1994, the court granted the
Motion to Stay discovery pending its ruling on the Plea in Abatement. In January
1995, the court determined that no discovery would occur in this case until
disposition of the Howell case in the Dallas Court of Appeal. As of the date of
this offering circular, the parties have not commenced discovery and trial has
been scheduled for late 1996. Defendants deny the material allegations asserted
in the Complaint and intend to vigorously defend against the Complaint.
Robert L. Lambert, Robert F. Lambert and American Maritime Officers, f/k/a
District 2 Marine Engineers Beneficial Association -- Associated Maritime
Officers, AFL-CIO v. Viacom, Inc., H. Wayne Huizenga, Scott A. Beck, Steven R.
Berrard, Joseph J. Burke, B&L Holding Corp., Blockbuster Holding Corp., and FLC
Holding Corp., Inc., (Circuit Court, Broward County, Florida Case No. 95-08900).
On June 27, 1995, Robert F. and Robert L. Lambert (the "Lamberts"), founders of
Florida Princess Cruise Lines, Inc., Standard Cruise Lines, Inc. and Fort
Lauderdale Charter Corp. (the "Lambert Companies"), and the American Maritime
Officers, f/k/a District 2 Marine Engineers Beneficial Association -- Associated
Maritime Officers AFL-CIO (the "Union"), a New York corporation and an American
maritime union, brought this action against the defendants. Scott A. Beck is
included as a defendant, although the complaint in the lawsuit does not make any
specific allegations concerning Mr. Beck. The plaintiffs' claims arise from a
business enterprise in which Blockbuster Entertainment Corporation ("Blockbuster
Entertainment") (which was subsequently merged into Viacom, Inc.) and certain of
its affiliates entered into transactions with the Lamberts and companies they
controlled to purchase 60% of the stock in B&L Holding Corp. ("B&L Holding"),
which controlled the Lamberts' luxury cruise line operations, and to develop a
cruise business. On July 16, 1990, Blockbuster Holding Corp. ("Blockbuster
Holding"), a wholly-owned subsidiary of Blockbuster Entertainment, paid the
Lamberts $31,000 in cash and issued a promissory note for $569,000 (the
"Blockbuster Note") as consideration for the 60% interest in B&L Holding. The
Lamberts retained a 40% interest in B&L Holding. The Lamberts allege that,
through a stock redemption agreement dated December 14, 1990, Blockbuster
Entertainment caused B&L Holding to redeem the Blockbuster Note and coerced
Florida Princess Cruise Lines to issue a promissory note (the "Princess Note")
to Blockbuster Entertainment in the amount of $600,000.
16
<PAGE>
The Lamberts allege that the inability of Florida Princess Cruise Lines to pay
the Princess Note and the defendants' failure to provide financing to B&L
Holding caused the Lambert Companies to fail. They further allege that this
allowed defendant FLC Holding Corp. to acquire a cruise ship from the Lambert
Companies on favorable terms.
Specifically, the Lamberts allege that the defendants: (1) fraudulently
misrepresented that they would adequately promote the cruise line business of
B&L Holding and adequately finance B&L Holding so that it could pay the Princess
Note and its other debts; (2) interfered with the Lamberts' business
opportunities and relationships by causing the Lambert Companies to fail; (3)
individually and as directors and officers of Blockbuster Entertainment and
Blockbuster Holding breached their fiduciary duty to the Lamberts as minority
shareholders of B&L Holding by causing B&L Holding to incur debt which B&L
Holding could not repay; and (4) conspired to defraud the Lamberts out of their
businesses. The Lamberts claim compensatory damages of more than $25,000,000 and
exemplary damages of more than $250,000,000 in each count of the complaint.
The American Maritime Officers union (the "Union") claims that the
defendants: (1) interfered with the Union's business relationships and
opportunity to generate union dues and economic benefits for its members who
would have served as crew members on the vessels the cruise lines operated if
the cruise lines had not failed; and (2) caused Blockbuster Holding and B&L
Holding to breach the Memorandum of Understanding with the Union under which the
Union was to provide crew members for the cruise ships. The Union claims more
than $500,000 in compensatory damages and more than $250,000,000 in exemplary
damages.
The defendants have filed a motion for summary judgment and a motion to
dismiss stating that the claims the Lamberts asserted were all previously
decided against the plaintiffs and in favor of the defendants in earlier
litigation among the parties which occurred in 1991. The court denied the motion
for summary judgment and granted the motion to dismiss the Union's breach of
contract claim. The case remains in the pre-trial stage and the defendants
intend to vigorously defend against the plaintiffs' claims.
Other than these six actions, no litigation is required to be disclosed in
this offering circular.
ITEM 4
------
BANKRUPTCY
On August 14, 1989, Gail Lozoff filed for bankruptcy under Chapter 7 of the
U.S. Bankruptcy Code under her maiden name (Pasternak) (U.S. Bankruptcy Court
for the Western District of Missouri Case 89-41819-FWK). The case was discharged
on February 9, 1990.
17
<PAGE>
Other than this one action, no person previously identified in Item 1, and
no officer identified in Item 2 of this offering circular has been involved as a
debtor in proceedings under the U.S. Bankruptcy Code required to be disclosed in
this Item.
ITEM 5
------
INITIAL FRANCHISE FEE
DEVELOPMENT AGREEMENT
- ---------------------
DEVELOPMENT FEE.
---------------
You must pay ENBC a non-refundable development fee (the "Development Fee")
in a lump sum when you sign the Development Agreement. The Development Fee will
be an amount equal to $5,000 multiplied by the number of Units you will develop
under the Development Agreement. The Development Fee is uniform for all
Developers and is deemed fully earned upon payment.
REAL ESTATE SERVICES FEE.
------------------------
When you sign the Development Agreement you will pay ENBC a non-refundable,
lump sum real estate services fee (the "Real Estate Services Fee") in an amount
equal to $5,000 multiplied by the number of Units you will develop under the
Development Agreement. The Real Estate Services Fee compensates ENBC for the
real estate services it will provide you, including advisory services, analyses
and studies of trade areas, and maintenance of lease files. The Real Estate
Services Fee is uniform for all Developers.
DEMOGRAPHIC DETAIL REPORT FEE.
-----------------------------
When you sign the Development Agreement and annually during the Development
Term, you must purchase from ENBC demographic detail reports on the demographics
of each Sub-Area (the "Demographic Detail Report") in which you retain the right
to develop Units. ENBC's current charge for the Demographic Detail Report is $50
per Site which is payable in a lump sum and is non-refundable.
COMMUNICATION AND INFORMATION SYSTEMS.
-------------------------------------
You must install and use the computer system ENBC designates (the "Computer
System") in your office before you begin operating as a Developer as described
in Item 11. The Computer System currently costs $15,000 to $30,000 which is
payable in a non-refundable lump sum and is uniform for all Developers. You must
also use the computer programs ENBC designates as described in Item 8. You must
pay ENBC a $15,000 software license fee (the
18
<PAGE>
"Software License Fee") at the time of installation of the Computer System at
your office. You must pay ENBC a periodic payment of $400 as a software support
service fee (the "Software Support Fee"). The first payment of the Software
Support Fee will be due before each Unit opens. The Software License Fee and the
Software Support Fee are uniform for all Franchisees, and are not refundable.
If you do not purchase the Computer System from ENBC, you must pay ENBC a
reasonable fee for installation and testing when ENBC installs and tests the
operation of the programs with your computer system. ENBC's current fee for this
service is $3,500. The installation and testing fee is uniform for all
Developers who do not purchase the Computer System from ENBC, and it is not
refundable.
FRANCHISE AGREEMENT
- -------------------
INITIAL FRANCHISE FEE.
---------------------
You must pay ENBC's current initial franchise fee (the "Initial Franchise
Fee") of $35,000 in a lump sum when you sign the Franchise Agreement. The
Initial Franchise Fee is non-refundable and deemed earned upon payment. The
Initial Franchise Fee is uniform for all Franchisees that execute a Franchise
Agreement with ENBC.
COMMUNICATION AND INFORMATION SYSTEMS.
-------------------------------------
You must install and use the Computer System at each Unit as described in
Item 11. The Computer System currently costs $15,000 to $30,000 which is payable
in a non-refundable lump sum and is uniform for all Franchisees. In addition,
you must use the computer programs ENBC designates as described in Item 8. You
will pay ENBC a $15,000 software license fee (the "Software License Fee") at the
time of installation of the Computer System at your office. You must also pay to
ENBC a periodic payment of $400 as a software support service fee (the "Software
Support Fee"). The first payment of the Software Support Fee will be due before
your Unit opens. The Software License Fee and the Software Support Fee are
uniform for all Franchisees, and are not refundable.
If you do not purchase the Computer System from ENBC, you must pay ENBC a
lump sum fee for installation and testing when ENBC installs and tests the
operation of the programs with your computer system. ENBC's current fee for this
service is $3,500. The installation and testing fee is uniform for all
Franchisees who do not purchase the Computer System from ENBC, and it is not
refundable.
19
<PAGE>
ITEM 6
------
OTHER FEES
<TABLE>
<CAPTION>
=============================================================================================================================
DEVELOPMENT AGREEMENT/(1)/
- -----------------------------------------------------------------------------------------------------------------------------
NAME OF FEE/(2)/ AMOUNT DUE DATE REMARKS
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Software Support $400 per 8th day before each ENBC may increase fee with written
Fee Accounting Accounting Period notice to you.
Period/(3)/
- -----------------------------------------------------------------------------------------------------------------------------
Demographic ENBC's then current Each year, upon As further described in Items 8 and
Detail Report charge your request 11.
(current charge --
$50 per site)
- -----------------------------------------------------------------------------------------------------------------------------
Initial Management Will vary under As incurred We will train your training director
Training circumstances with no charge to you. At your
request, additional personnel and
replacement personnel will be
trained at the then current charges
which you will pay to ENBC or the
Developer who provides the
training. (See Item 11)
- -----------------------------------------------------------------------------------------------------------------------------
Training Materials Will vary under As incurred If ENBC or its designee provides you
circumstances with training materials and
refresher/updated materials, you will
pay ENBC the then-current standard
charges. (See Item 11)
- -----------------------------------------------------------------------------------------------------------------------------
Accounting See footnote (4) By the 20th day If you participate in the Financed
Services Fee/(4)/ following each Area Developer Program (see
Accounting Period Item 10), you must use ENBC's
accounting services under the
Accounting Services Agreement
attached to the Secured Loan
Agreement and pay a fee to ENBC
(see footnote (4)).
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
=============================================================================================================================
DEVELOPMENT AGREEMENT/(1)/
- -----------------------------------------------------------------------------------------------------------------------------
NAME OF FEE/(2)/ AMOUNT DUE DATE REMARKS
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Indemnification Will vary under As incurred You must reimburse ENBC for, and
circumstances defend ENBC against, claims against
ENBC and taxes imposed on ENBC
due to your activities related to the
Development Agreement.
- -----------------------------------------------------------------------------------------------------------------------------
Legal Fees and Will vary under As incurred Payable if you fail to comply with
Costs circumstances Development Agreement.
- -----------------------------------------------------------------------------------------------------------------------------
Transfer Fee $10,000 plus out- Before beginning You may only transfer subject to
of-pocket expenses transfer transaction certain conditions and with ENBC's
consent. (See Item 17)
- -----------------------------------------------------------------------------------------------------------------------------
Offering Expenses Will vary under As incurred You must reimburse ENBC for its
circumstances reasonable expenses (including
attorneys' fees) it incurs if you, a
Franchise Owner, or an entity
having an interest in you, a
Franchise Owner or the
Development Agreement offers
securities.
- -----------------------------------------------------------------------------------------------------------------------------
Local Ad Fund Will vary under As specified in See footnote (5).
Contribution/(5)/ circumstances Franchise
Agreement
- -----------------------------------------------------------------------------------------------------------------------------
Sublease of Will vary under As specified in If ENBC chooses, you will have to
Approved Sites circumstances sublease lease Sites you own to ENBC and
then ENBC will sublease the Sites
back to you. (See Items 8 and 10)
- -----------------------------------------------------------------------------------------------------------------------------
Target Site Fee $10,000 as a Site Within 10 days See Item 12 for information about
Location Fee or after ENBC delivers your acquisition of Target Sites.
$20,000 as a Site a lease or purchase
Location and agreement for a
Negotiation Fee Target Site to you.
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
=============================================================================================================================
DEVELOPMENT AGREEMENT/(1)/
- -----------------------------------------------------------------------------------------------------------------------------
NAME OF FEE/(2)/ AMOUNT DUE DATE REMARKS
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Conversion Site ENBC's purchase Upon your See Item 12 for information about
Costs price, plus costs purchase of the your acquisition of Conversion
and liabilities Conversion Site. Sites.
associated with
ENBC's acquisition
and other expenses,
plus interest
=============================================================================================================================
</TABLE>
- ---------
(1) You will also be responsible for other fees and payments as required
under the Franchise Agreements you sign under the Development
Agreement, which are described below.
(2) Except as noted, ENBC imposes all fees, which are non-refundable and
payable to ENBC.
(3) An "Accounting Period" is one of 13 periods of four consecutive weeks
in each fiscal year, as ENBC designates.
(4) You will pay a fee for the Accounting Services ENBC provides you. Each
Accounting Period, you will pay ENBC a base fee of $4,500. You will
also pay ENBC a unit fee for each Unit you have open and operating
during all or any portion of an Accounting Period. The unit fee will
depend on the number of Units you own and operate under the
Development Agreement. ENBC has the right to increase the base fee and
the unit fees described below if it provides written notice to you,
but ENBC will not increase the base fee and the unit fee by more than
10% cumulatively per fiscal year. Unit fees you will owe will be equal
to:
(a) $850 per Accounting Period for each Unit open and operating
during any portion of an Accounting Period, until you open and
operate up to 11 Units;
(b) $750 per Accounting Period after you open your 12th Unit and
before you open your 30th Unit;
(c) $650 per Accounting Period after you open your 30th Unit and
before you open your 50th Unit;
(d) $550 per Accounting Period after you open your 50th Unit and
before you open your 100th Unit;
22
<PAGE>
(e) $450 per Accounting Period after you open your 100th Unit and
before you open your 200th Unit; and
(f) $350 per Accounting Period after you open your 200th Unit and
for all Units you open after that time.
If you and your Units meet certain reporting requirements,
administrative procedure compliance requirements, and timeliness
deadlines that ENBC establishes and announces periodically, the unit
fees described above may be reduced at ENBC's discretion.
You must also pay ENBC for all non-ordinary, out-of-pocket
expenses ENBC (or its affiliates) or its designee incurs to provide
the services they render under the Accounting Services Agreement
including travel expenses, legal fees, fees of experts, audit fees,
tax fees, and payroll service fees. However, you must approve all non-
ordinary, out-of-pocket expenses before those expenses are incurred.
(5) You must contribute to the Local Ad Fund the standard amount required
periodically under the Franchise Agreement or, if it is greater, an
amount which, when aggregated with the Local Ad Fund contributions of
your Units, will be sufficient to enable you, through the Local Ad
Fund, to begin, within one year of opening your first Unit, television
advertising in the Designated Market Area ("DMA") where the applicable
Sub-Areas or Development Areas are located.
<TABLE>
<CAPTION>
=============================================================================================================================
FRANCHISE AGREEMENT
- -----------------------------------------------------------------------------------------------------------------------------
NAME OF FEE/(1)/ AMOUNT DUE DATE REMARKS
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Royalty 8% of Royalty Base 20th day following ENBC has the right to change the
Revenue/(2)(3)/ each Accounting timing of your payment, but will
Period/(4)/ not require payment more than
twice in each Accounting Period.
Your Royalty payments must be
accompanied by report forms that
ENBC designates.
- -----------------------------------------------------------------------------------------------------------------------------
Marketing Fund 2% of Royalty Base 20th day following ENBC has the right to increase your
Contribution Revenue each Accounting contribution up to 0.25% per year.
Period ENBC has the right to change the
timing of your payment, but will
not require payment more than
twice in each Accounting Period.
(See Item 11)
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
=============================================================================================================================
FRANCHISE AGREEMENT
- -----------------------------------------------------------------------------------------------------------------------------
NAME OF FEE/(1)/ AMOUNT DUE DATE REMARKS
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Local Advertising 4% of Royalty Base 20th day following ENBC may periodically require you
Fund Contribution Revenue each Accounting to increase your Local Ad Fund
Period contributions up to 0.25% per
year. If you are not a member of
a Local Advertising Fund, you
must spend these amounts on
local advertising on your own,
rather than contribute them to a
Local Advertising Fund. (See
Item 11)
- -----------------------------------------------------------------------------------------------------------------------------
Software Support $400 per 8th day before Subject to increase upon written
Fee Accounting Period Accounting Period notice. (See Items 7 and 11)
- -----------------------------------------------------------------------------------------------------------------------------
Training Materials Will vary under As incurred You and/or your management
circumstances personnel may have to attend
additional or refresher training
programs and may charge you the
costs of training materials that
ENBC provides at those sessions.
- -----------------------------------------------------------------------------------------------------------------------------
Special Assistance Will vary under As incurred If you request special training
circumstances and ENBC agrees that the training
is necessary, you will pay ENBC's
then current charge (currently
$1,500 per employee trained) plus
expenses of training personnel
for training that takes place at
your Unit. (See Item 11)
- -----------------------------------------------------------------------------------------------------------------------------
Interest on Late Lesser of 18% per Upon payment of After the date they are due, all
Payments year or highest past due amounts payments that you owe to ENBC or
legal rate owed to ENBC or its its affiliates will bear interest.
affiliates
- -----------------------------------------------------------------------------------------------------------------------------
Cleaning, Repair, Will vary under 5th day after Payable if you do not maintain the
Remodeling, circumstances receipt of bill condition and appearance of the
Upgrading Unit and ENBC arranges to do so.
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
===========================================================================================================
FRANCHISE AGREEMENT
- -----------------------------------------------------------------------------------------------------------
NAME OF FEE/(1)/ AMOUNT DUE DATE REMARKS
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Required Purchases Will vary under As incurred You must buy goods and obtain
circumstances services according to ENBC's
standards and specifications and
from suppliers ENBC designates or
approves, which may include ENBC
and its affiliates. (See Item 8)
- -----------------------------------------------------------------------------------------------------------
Product Evaluation Cost of evaluation, As incurred You must pay ENBC's costs to test
Costs inspection, and new products, goods and supplies or
supervision of inspect new suppliers you propose.
distributor/supplier (See Item 8)
- -----------------------------------------------------------------------------------------------------------
Reimbursement of Will vary under As incurred Payable if you fail to obtain required
Insurance Costs circumstances insurance and ENBC obtains coverage
on your behalf.
- -----------------------------------------------------------------------------------------------------------
Reimbursement of Will vary under As incurred ENBC may conduct quality, service,
Inspection Costs circumstances cleanliness and other inspections of
the Unit including designating an
independent evaluation service to
conduct a customer satisfaction
quality control and evaluation
program. You must participate in
these programs and pay for the costs
of these evaluation services.
- -----------------------------------------------------------------------------------------------------------
Reimbursement of Will vary under As incurred If ENBC inspects or audits your
Audit Costs circumstances financial records and other
information because you have failed
to submit reports, records or other
information on a timely basis, or if
an audit reveals that you have
understated revenue by more than
2%, you must reimburse ENBC for
the cost of the audit or inspection.
- -----------------------------------------------------------------------------------------------------------
Transfer Fee $5,000 plus out-of- Before beginning You may only transfer subject to
pocket expenses transfer transaction certain conditions and with ENBC's
consent. (See Item 17)
- -----------------------------------------------------------------------------------------------------------
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
===========================================================================================================
FRANCHISE AGREEMENT
- -----------------------------------------------------------------------------------------------------------
NAME OF FEE/(1)/ AMOUNT DUE DATE REMARKS
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Offering Expenses Will vary under As incurred You must reimburse ENBC for
circumstances reasonable expenses (including
attorneys' fees) incurred if you or an
entity having an interest in you or
the Franchise Agreement offers
securities.
- -----------------------------------------------------------------------------------------------------------
Successor 33 1/3% of then- When you sign If ENBC is not then offering
Franchise Fee current Initial successor Franchise franchises, the Successor Franchise
Franchise Fee Agreement Fee will be 33 1/3% of the higher of
(a) the most recent standard Initial
Franchise Fee BCA charged under
its franchise program or (b) the
Initial Franchise Fee under the
franchise agreement which is
expiring.
- -----------------------------------------------------------------------------------------------------------
Indemnification Will vary under As incurred You must reimburse ENBC for, and
circumstances defend ENBC against, claims against
BCA and taxes imposed on ENBC
arising out of your activities related
to the Franchise Agreement
- -----------------------------------------------------------------------------------------------------------
Legal Fees and Will vary under As incurred Payable upon your failure to comply
Costs circumstances with the Franchise Agreement
============================================================================================================
</TABLE>
(1) Except for the product evaluation charges (which are payable to an
independent evaluation service), ENBC imposes all fees, which you must pay
to ENBC or its designee if ENBC delegates the service for which the fee is
payable. All fees are non-refundable unless otherwise stated or arranged.
(2) The term "Royalty Base Revenue" means and includes the gross revenue from
all sales of Products and all other products and services you or your Unit
sells, performs or arranges to be sold or performed in, upon, from, or away
from the Unit, or through or by means of the business conducted under the
Franchise Agreement, whether for cash or credit, including any assumed
gross revenue calculated for the purpose of an insurance claim for lost
profits to the extent an insurer pays a claim, but excluding: (1) all
sales or service taxes collected from customers and paid or payable to the
appropriate taxing authority; (2) all customer refunds, valid discounts and
coupons, and credits the Unit makes (exclusions will not include any
reductions for credit card user fees, returned
26
<PAGE>
checks or reserves for bad credit or doubtful accounts); (3) any portion of
employee meals for which you do not charge the employee; and (4) revenue,
if any, you derive from the sale of Products or other materials and
supplies from a Commissary you operate to Units for resale to the public.
(3) Depending on certain factors, ENBC may negotiate with you for the amount of
Royalty payable under your Franchise Agreement. Those factors will include
whether you purchase ENBC-owned Units that are operating in your Territory
when you sign a Development Agreement, the size of your Territory and the
size of your Total Development Quota (as defined in Item 12). However, the
Royalty will not be greater than 8% or less than 5% of Royalty Base
Revenue. If your Territory is within markets where ENBC purchased existing
bagel chains (including metropolitan Kansas City, Salt Lake City, the
Miami/Fort Lauderdale/Boca Raton metropolitan area, the Los Angeles and San
Francisco metropolitan areas and the states of Oregon and Washington) (the
"Founder Company Markets"), your Royalty will not be less than 6% of
Royalty Base Revenue for all Units you develop, regardless of whether they
are in a Founder Company Market, in recognition of the established customer
base and goodwill in the Founder Company Markets.
(4) An "Accounting Period" is one of 13 periods of four consecutive weeks in
each fiscal year, as ENBC designates.
ITEM 7
------
INITIAL INVESTMENT
The charts and explanatory notes below describe the initial investment you
must make under a Development Agreement and a Franchise Agreement.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]
27
<PAGE>
YOUR ESTIMATED INITIAL INVESTMENT
UNDER THE DEVELOPMENT AGREEMENT
<TABLE>
<CAPTION>
=================================================================================================================================
ESTIMATED AMOUNT/ METHOD OF WHETHER TO WHOM
ITEM LOW-HIGH RANGE PAYMENT WHEN DUE REFUNDABLE PAID
=================================================================================================================================
<S> <C> <C> <C> <C> <C>
Development Fee(1) $5,000 per Unit to be Lump sum When you sign the No ENBC
developed Development Agreement
- ---------------------------------------------------------------------------------------------------------------------------------
Real Estate Service Fee(2) $5,000 per Unit to be Lump sum When you sign the No ENBC
developed Development Agreement
- ---------------------------------------------------------------------------------------------------------------------------------
Software License Fee(3) $15,000 Lump sum When your Licensed No ENBC
Program is installed
- ---------------------------------------------------------------------------------------------------------------------------------
Computer System (including the $16,200 to $36,200 Lump sum As incurred No ENBC, approved
Specified Software and related fees) suppliers
(4)
- ---------------------------------------------------------------------------------------------------------------------------------
Accounting Services Fee(5) $12,750 to $16,500 As agreed By the 20th day following No ENBC
each Accounting Period
- ---------------------------------------------------------------------------------------------------------------------------------
Demographic Detail Reports(6) $1,000 to $1,500 Lump sum As incurred No ENBC
- ---------------------------------------------------------------------------------------------------------------------------------
Miscellaneous Costs(7) $5,000 to $15,000 As agreed As incurred See note 7 Third parties
- ---------------------------------------------------------------------------------------------------------------------------------
Additional Funds - 3 Months(8) $10,000 to $30,000 As agreed As incurred See note 8 Third parties,
suppliers,
utilities
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL ESTIMATED INITIAL $69,950 to $124,200
INVESTMENT(9)
(FOOTNOTES FOLLOW CHART)
=================================================================================================================================
</TABLE>
28
<PAGE>
EXPLANATORY NOTES TO ESTIMATED INITIAL INVESTMENT -- DEVELOPMENT AGREEMENT
- --------------------------------------------------------------------------
The amounts shown are ENBC's reasonable estimates of the amounts that you
will typically spend for the purposes stated
(1) DEVELOPMENT FEE. As described in Item 5.
(2) REAL ESTATE SERVICE FEE. This amount compensates ENBC for the real
estate advice and analysis it will provide you as you develop each Unit. (See
Item 5)
(3) SOFTWARE LICENSE FEE. You will pay this amount to use the proprietary
software programs that ENBC specifies, including ENBC's licensed program (the
"Licensed Program") as described in Items 8 and 11.
(4) COMPUTER SYSTEM (INCLUDING SPECIFIED SOFTWARE AND RELATED FEES). You
must purchase and install the Computer System and Specified Software that ENBC
designates, as described in Item 11. This amount reflects the estimated
combined cost of the Computer System Specified Software and the monthly Software
Support Fee is $15,000 to $35,000. The Software Support Fee is $400 per month.
If you do not purchase the Computer System from ENBC, you will pay ENBC a
$3,500 fee for installing and testing the Licensed Program on your Computer
System. (See Item 5) This amount includes the estimated cost of purchasing,
leasing or obtaining all aspects of the Computer System as currently configured.
However, if ENBC chooses, you will have to incur certain costs and expenses to
purchase, lease or obtain revised or upgraded components of the Computer System
when ENBC specifies.
(5) ACCOUNTING SERVICES FEE. This item reflects the amount you will pay
for ENBC's accounting services for the first 3 months after you sign the
Development Agreement, assuming that you open between one and six Units during
this time. The payment schedule is described fully in Item 6.
(6) DEMOGRAPHIC DETAIL REPORTS. Demographic Detail Reports will provide
you information about the demographics of each Sub-Area where you develop Units.
Each report currently costs $50. Your costs for the Demographic Detail Reports
may vary depending on the number of reports you purchase and if you request
additional demographic services.
(7) MISCELLANEOUS COSTS. This is an estimate of the funds you may need to
cover expenses in your start-up phase, including lodging, meals and travel
expenses for your training director to attend the initial training program,
wages, and insurance premiums. These amounts may be refundable, depending on
arrangements you make with third parties.
29
<PAGE>
(8) ADDITIONAL FUNDS. This amount represents ENBC's estimate all of your
payments, costs and expenses necessary to operate as a Developer for the first 3
months after you execute the Development Agreement. It includes amounts for
utilities, bank charges, telephone and mail charges, office supplies, and
financing payments. The amount will vary, depending on your development
activities in the first 3 months. You should set aside an additional amount for
living expenses during the start-up period as this amount has not been included
in these figures since they vary widely with each individual. These amounts may
be refundable, depending on arrangements you make with third parties.
(9) TOTAL ESTIMATED INITIAL INVESTMENT. The amounts shown are ENBC's
reasonable estimates of the amounts that you will typically spend for the
purposes indicated. However, the actual costs you incur may be higher or lower
based upon your particular circumstances, including factors like the number of
Units you will develop, the size and location of your Development Area and the
extent to which you can use existing resources which might be available in your
existing organization. ENBC relied on the experience in the food service
business of certain of its officers to compile these estimates. (See Item 2)
You should review these figures carefully with a business advisor before you
make any decision to sign a Development Agreement. You will have additional
initial investment expenses for each Unit you develop, and those costs are
described in the chart below.
ENBC does not offer, either directly or indirectly, financing to you for
any of the above items other than under its Financed Area Developer Program.
(See Item 10) The availability and terms of financing from independent third
parties will depend on factors including the availability of financing
generally, your creditworthiness and the collateral you make available to secure
any financing. Pledges of assets are subject to the transfer provisions of the
Development Agreement and Franchise Agreement. (See Item 17) The terms of the
financing arrangement that may be available to you, including amounts available,
applicable interest rate and down payment requirements, if any, are described in
Item 10.
[THE REMAINDER OF THIS PAGE WAS INTENTIONALLY LEFT BLANK.]
30
<PAGE>
YOUR ESTIMATED INITIAL INVESTMENT
UNDER THE FRANCHISE AGREEMENT
<TABLE>
<CAPTION>
=================================================================================================================================
ESTIMATED AMOUNT/ METHOD OF WHETHER TO WHOM
ITEM LOW-HIGH RANGE PAYMENT WHEN DUE REFUNDABLE PAID
=================================================================================================================================
<S> <C> <C> <C> <C> <C>
Initial Franchise Fee(1) $35,000 Lump sum Upon execution of No ENBC
Franchise Agreement
- ---------------------------------------------------------------------------------------------------------------------------------
Real Estate Brokerage Fees(2) $0 to $18,000 As incurred Upon satisfaction of lease No Real estate
contingencies brokers
- ---------------------------------------------------------------------------------------------------------------------------------
Professional Fees and Due $5,000 to $10,000 As incurred Before execution No Attorneys and
Diligence(3) consultants
- ---------------------------------------------------------------------------------------------------------------------------------
Lease Deposits(4) $0 to $10,000 Lump sum Upon execution of lease See note 4 Lessor
- ---------------------------------------------------------------------------------------------------------------------------------
Leasehold Improvements(5) $0 to $150,000 As incurred Before construction or No Architects,
renovation engineers and
contractors
- ---------------------------------------------------------------------------------------------------------------------------------
Furniture, Fixtures, Smallwares and $125,000 to $150,000 Lump sum Before opening No Suppliers
Equipment (including Signage)(6)
- ---------------------------------------------------------------------------------------------------------------------------------
Opening Inventory and Supplies(7) $2,500 to $7,500 Lump sum Before opening No ENBC and
suppliers
- ---------------------------------------------------------------------------------------------------------------------------------
Architectural or Engineering Fees $15,000 to $20,000 As incurred Before construction or No Architects or
and Permit and Impact Fees(8) renovation engineers;
governmental
agencies
- ---------------------------------------------------------------------------------------------------------------------------------
Grand Opening Advertising and $10,000 As incurred As incurred No Suppliers
Promotion(9)
- ---------------------------------------------------------------------------------------------------------------------------------
Miscellaneous Opening Costs(10) $10,000 to $20,000 As incurred Before opening and See note 10 Suppliers,
shortly after opening Employees,
and other
Creditors
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
==================================================================================================================================
ESTIMATED AMOUNT/ METHOD OF WHETHER TO WHOM
ITEM LOW-HIGH RANGE PAYMENT WHEN DUE REFUNDABLE PAID
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Software License Fee(11) $15,000 Lump sum When Licensed Program No ENBC
is installed
- ----------------------------------------------------------------------------------------------------------------------------------
Computer System (including $16,200 to $36,200 As incurred Before opening No ENBC and/or
Specified Software and related Suppliers
fees)(12)
- ----------------------------------------------------------------------------------------------------------------------------------
Additional Funds -- 3 Months(13) $35,000 to $110,000 As incurred As incurred See note 13 ENBC,
Suppliers,
Employees and
other Creditors
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL ESTIMATED INITIAL $268,700 to $591,700
INVESTMENT(14)
(FOOTNOTES FOLLOW CHART)
==================================================================================================================================
</TABLE>
32
<PAGE>
EXPLANATORY NOTES TO ESTIMATED INITIAL INVESTMENT - FRANCHISE AGREEMENT
- -----------------------------------------------------------------------
(1) INITIAL FRANCHISE FEE. The Initial Franchise Fee is $35,000. As
described in Item 6, if you elect to accept ENBC's offer to operate a Unit at a
Target Site, you must pay a Site Location Fee or a Site Location and Negotiation
Fee to ENBC.
(2) REAL ESTATE BROKERAGE FEES. These fees represent commissions you may
pay to real estate brokers to secure a Site for your Unit by lease.
(3) PROFESSIONAL FEES. This amount represents fees you may pay to
professional advisors (attorneys and accountants) to evaluate the franchise and
real estate contracts, as well as the cost of any negotiations.
(4) LEASE DEPOSITS. This amount represents an estimate of up 6 months'
security deposit under the lease for the premises of a Unit where rent is
$20,000 to $80,000 annually. Lease deposits vary widely from location to
location, and generally are refundable.
ENBC estimates that the typical Unit location will have approximately 2,000
square feet with rentals that vary greatly depending on geographic location, but
broadly range from $10-$40 per square foot or more per year. ENBC estimates an
average rental rate of $15 to $20 per square foot. As described in Item 8, if
you own an Approved Site, you may have to lease the Approved Site to ENBC and
ENBC will sublease the Approved Site back to you.
ENBC expects that nearly all Unit locations will be leased rather than
purchased. However, if you purchase the Site for the Unit, the initial
investment will be significantly higher, approximately $200,000 to $750,000 or
more in incremental cost depending on the location and costs of development of
the Site and construction of improvements. Purchase contracts generally require
earnest money deposits of 5% to 25% or more of the purchase price; earnest money
deposits may or may not be refundable.
(5) LEASEHOLD IMPROVEMENTS. ENBC assumes a Unit will require approximately
2,000 square feet with frontage of typically 20 feet. Leasehold improvement
costs are expected to range from $0 - $7.50 or more per square foot. The costs
of leasehold improvements may increase if a particular Site has unusual
dimensions or seating requirements. Variations in leasehold improvements also
are attributable to size and condition of the premises, construction, labor and
installation costs, geographic location and compliance with state and municipal
building and zoning laws and regulations. The interior and exterior of the Unit
must be renovated to conform to ENBC's store design specifications. The total
cost of leasehold improvements may vary significantly depending on factors
including the amount of heating, ventilation and air conditioning, an adequate
electrical system and adequate access to water, among other items.
33
<PAGE>
(6) FURNITURE, FIXTURES, SMALLWARES AND EQUIPMENT. Furniture, fixtures,
smallwares and equipment includes interior and exterior signs, serving-line
equipment, refrigeration, cooking and heating equipment, cash registers
(including capacity for computerized financial information collection) decor,
furniture, and smallwares.
(7) OPENING INVENTORY AND SUPPLIES. This item includes all initial food
products, inventory and paper supplies inventory. (See Item 8)
(8) ARCHITECTURAL OR ENGINEERING FEES AND PERMIT AND IMPACT FEES. Charges
for architects or engineers vary widely depending on the quality, reputation and
experience of the professionals engaged, the geographic area and the nature and
extent of the work to be performed. At a minimum, you will have to incur costs
to prepare initial schematic drawings (approximately $750) as well as the final
site construction plan (estimated to range from $7,000 to $9,000 or more).
Permit and impact fees vary widely depending on the geographic area but range
from $1,000 to $10,000 or more.
(9) GRAND OPENING ADVERTISING. You must spend no less than $10,000 for the
Unit's grand opening advertising and promotion program during the period 30 days
before, and 90 days after, the opening of the Unit. You can anticipate engaging
in a variety of promotions including the use of print media, direct mail, and/or
radio or television. The costs can vary widely depending on the quality,
reputation and experience of the advertising agencies engaged, the geographic
area and the nature and extent of advertising and promotions which will take
place.
(10) MISCELLANEOUS OPENING COSTS. This is an estimate of the funds you
will need to cover pre-opening expenses including: initial employee wages;
utility deposits; insurance premiums; architectural fee for preparation of the
Unit's initial schematic drawing; the fee for ENBC's Demographic Detail Report
used for site selection; license and permit costs; uniforms; recruitment and
in-store training expenses as well as additional operating capital for other
variable costs (e.g., electricity, telephone or heating costs). These amounts
may be refundable, depending on the arrangements you make with third parties.
(11) SOFTWARE LICENSE FEE. You will pay this amount to use the proprietary
software programs that ENBC specifies, including the Licensed Program. (See
Items 8 and 11)
(12) COMPUTER SYSTEM (INCLUDING SPECIFIED SOFTWARE AND RELATED FEES).
Please see the footnote under "Computer System" in the chart for the Development
Agreement above in this Item 7.
(13) ADDITIONAL FUNDS. This amount represents an estimate of all payments,
costs, and expenses necessary to operate the Unit during the first 3 months of
operation. It includes amounts required for inventory, employee compensation
and benefits, recruitment and training
34
<PAGE>
expenses, utilities, supplies, telephone and mail charges, security system,
music, repair and maintenance, uniforms and laundry, bank charges, financing
payments, royalties, advertising contributions, and rental and all other related
charges. This amount includes the fee for initial training (which is payable to
the existing Franchisee who conducts the training, as described in Item 11) for
5 to 10 of your employees. The amount will vary, depending in part upon the
Unit's revenues during the first 3 months of operation. You should set aside an
additional amount for living expenses during the Unit's start-up period as this
amount has not been included in these figures since they vary widely with each
individual. The amounts you spend as additional funds may be refundable,
depending on the arrangements you make with third parties.
(14) TOTAL ESTIMATED INITIAL INVESTMENT. The amounts shown are ENBC's
reasonable estimates of the amounts that you will typically spend for the
purpose indicated. However, the actual costs incurred may be higher or lower
for any given Unit based upon the particular circumstances applicable to that
Unit, including factors like its location, size, number and experience of
personnel, and whether you own and operate Commissary Unit during the initial
period. ENBC relied on the experience in the food service business of certain of
its officers to compile these estimates. (See Item 2) You should review these
figures carefully with a business advisor before making any decision to purchase
the Franchise.
ENBC does not offer, either directly or indirectly, financing to you for
any of the above items other than under its Financed Area Developer Program.
(See Item 10) The availability and terms of financing from independent third
parties will depend on factors including the availability of financing
generally, your creditworthiness and the collateral you make available to secure
any financing. Pledges of assets are subject to the transfer provisions of the
Development Agreement and Franchise Agreement. (See Item 17) The terms of the
financing arrangement that may be available to you, including amounts available,
applicable interest rate and down payment requirements, if any, are described in
Item 10.
ITEM 8
------
RESTRICTIONS ON SOURCES OF PRODUCTS AND SERVICES
If you sign a Development Agreement and/or a Franchise Agreement, you must
purchase, lease and conduct your operations according to ENBC's specifications.
You must obtain goods and services from designated or approved suppliers (which
may include ENBC or its affiliates). Collectively, the purchases, leases and
services you obtain according to ENBC's specifications or from approved or
designated suppliers represent virtually 100% of your total purchases and leases
to establish, and virtually 100% of your total purchases and leases to operate
as a Developer. The purchases and leases that you must make according to BCA's
specifications or from ENBC or its affiliates are described below. ENBC may
negotiate purchase arrangements (including price terms) for the benefit of
Developers and Franchisees, and those arrangements are described below in this
Item.
35
<PAGE>
DEVELOPMENT AGREEMENT
- ---------------------
FINANCED AREA DEVELOPER PROGRAM.
-------------------------------
BCA generally requires all Developers to participate in the Financed Area
Developer program described in Item 10.
COMPUTER SYSTEM.
---------------
Under the Development Agreement, you must purchase, install and use the
Computer System, including all programs and software that ENBC requires during
the term of the Development Agreement, as further described in Item 11. The
"Computer System" includes those brands, types, makes, and/or models of
communications and computer systems and hardware which ENBC specifies or
requires you to use in the operation of your Unit and to communicate with other
Units and with ENBC. The "Specified Software" means the software, programming,
and services other than the Licensed Program, which ENBC specifies during the
term of the Franchise Agreement for use with the Computer System.You must use
the Licensed Program under the Development Agreement. The Licensed Program
consists of the retail store-level computer software programs BCI develops (or
has developed) and licenses to ENBC. The Licensed Program may include ENBC's
point-of-sale, bookkeeping, inventory, training, marketing, employee selection,
operations and financial information, collection and retrieval systems
(including ENBC's general ledger system using the standard chart of accounts
ENBC requires) for use in the operation of Units, including any updates,
supplements, modifications or enhancements ENBC may make or prescribe, all
related documentation, the tangible media upon which programs are recorded, and
the database file structure. The Licensed Program does not include any data or
databases ENBC or its affiliates own or compile for use with the Licensed
Program or otherwise or any data ENBC or its affiliates generate by using the
Licensed Program. You must purchase the hardware from MCR/AT&T GIS and the
software for the point of sale devices that ENBC licenses to you is the property
of Compris Technologies, Inc. (See Item 11) The cost of your computer equipment
will range from $15,000 to $35,000. (See Item 7)
ENBC attempts to negotiate its contracts with computer hardware and
software vendors to make discounted pricing available to you. In some instances
this may involve remarketing arrangements, and if it does, ENBC would derive
revenue from sales to you. ENBC estimates that the costs of the Computer System,
Licensed Program and Support/Control Programs will represent approximately 30%-
35% of the purchases and leases of goods and services you will make or enter
into in the establishment your business and will represent approximately 30%-35%
of the purchases and leases that you will make or enter into in the ongoing
operation of your business if you do not operate a Commissary and 1%-10% if you
do operate a Commissary.
36
<PAGE>
DEMOGRAPHIC DETAIL REPORTS.
--------------------------
At the beginning of the Development Term, and on an annual basis during the
Development Term, you must purchase Demographic Detail Reports from ENBC for
those Sub-Areas where you retain development rights, as noted in Items 5, 6 and
7. ENBC will derive revenue from providing Demographic Detail Reports to you.
ENBC cannot estimate what percentage the cost of Demographic Detail Reports will
represent of your initial and ongoing purchases and leases of goods and services
because the cost will vary with the number of Sites included in each report.
The Demographic Detail Reports currently cost $50 per Site. (See Item 6)
SITE REVIEW AND APPROVAL.
------------------------
You must comply with ENBC's standards and specifications when you select
the site for a Unit or a Commissary. ENBC will evaluate your site according to a
required site approval procedure that is described in Item 11. You must use
forms that ENBC directs to request a site, and ENBC will evaluate the site you
propose according to its criteria. When you refurbish your Site or construct the
Unit, you may have to engage contractors and real estate developers and brokers
which ENBC has approved. (See Item 11)
LEASE AGREEMENT TERMS.
---------------------
You must present the lessor of your Site with a lease in the form that ENBC
prescribes. If the lessor does not use the approved form, you may only sign a
lease that ENBC has approved and which has certain terms that ENBC may specify.
These terms and the procedure to seek ENBC's approval of the lease are described
in Item 11.
INSURANCE.
---------
In addition to the insurance required for the development and operation of
a Unit under a Franchise Agreement, during the Agreement Term you must maintain
insurance policies with insurers rated "A-" or better by Alfred M. Best &
Company, Inc. that ENBC approves. The policies must include: (1) insurance
necessary to comply with all legal requirements concerning insurance coverage
(including workers' compensation requirements) for persons attending ENBC
training programs; and (2) general and motor vehicle (whether or not you own the
vehicles) liability insurance against claims for bodily and personal injury,
death and property damage caused by or occurring in the conduct of your business
under the Development Agreement, under one or more insurance policies containing
minimum liability coverage ENBC periodically requires. You will have additional
requirements that are similar to those under the Franchise Agreement, as
discussed below in this Item. You must purchase insurance for each Unit you
open as described below under the heading "Franchise Agreement" in this Item 8.
37
<PAGE>
If you operate one or more a Commissaries, you must maintain insurance
policies for each Commissary that meet ENBC's requirements for insurance
coverage for Units under the Franchise Agreement, as discussed below in this
Item.
COMMISSARY DEVELOPMENT.
----------------------
If ENBC chooses, you will have to develop and operate one or more
Commissaries under the Development Agreement on terms substantially similar to
the terms for developing and operating Units described below in this Item 8.
SPECIFICATIONS, STANDARDS AND PROCEDURES.
----------------------------------------
The operation of your development business in strict compliance with ENBC's
high standards is important to ENBC and Units, and you must maintain those high
standards under the Development Agreement. You must comply strictly with all of
ENBC's mandatory specifications, standards and operating and inspection
procedures regarding your business, and operation of Units under Franchise
Agreements designated in your Development Agreement. ENBC formulates its
specifications and standards for Developers based on factors including its
business judgment and local, regional and national experience and market trends.
ENBC may modify its specifications, standards and procedures at any time with
notice to you.
ENBC will periodically provide you with its mandatory specifications,
standards and operating and inspection procedures in the Development Manual or
otherwise communicate them to you in writing. These specifications, standards
and procedures will constitute binding obligations on your part as if fully set
forth in the Development Agreement, and if you fail to adhere to the mandatory
specifications, standards and operating and inspection procedures, ENBC may
terminate the Development Agreement. (See Item 17)
OTHER OBLIGATIONS.
-----------------
You must maintain the number and level of management personnel for adequate
management and supervision of all Units developed under the Development
Agreement. (See Item 15)
FRANCHISOR REVENUE.
------------------
ENBC did not receive revenue in the past fiscal year from Developers'
required purchases because ENBC was formed and began franchising in the current
fiscal year. ENBC expects to derive revenue from Developers' purchases of items
and services for which ENBC is an approved or designated supplier.
38
<PAGE>
FRANCHISE AGREEMENT
- -------------------
COMPUTER SYSTEM.
---------------
You must purchase and install the Computer System, including all programs
and software that ENBC requires during the term of the Franchise Agreement. This
obligation is the same as under the Development Agreement, as described above in
this Item 8.
ENBC attempts to negotiate its contracts with computer hardware and
software vendors to make discounted pricing available to you. In some instances
this may involve remarketing arrangements, in which event ENBC would derive
revenue from sales to you. ENBC estimates that the costs of the Computer System
and Specified Software will represent approximately 8% of the purchases and
leases of goods and services you will make or enter into in the establishment of
the Unit and will represent approximately 1% to 2% of the purchases and leases
that you will make or enter into in the ongoing operation of the Unit.
PRODUCT PURCHASES.
-----------------
ENBC may develop certain proprietary food products which ENBC prepares, or
which third party contractors prepare for ENBC, according to ENBC's proprietary
recipes and formulae and certain private label food products, materials and
supplies ("Proprietary Items"). As described below, ENBC has designated cream
cheese and other spreads and bagel dough as Proprietary Items as of the date of
this offering circular. ENBC intends to develop Proprietary Items in the future,
which you must purchase. ENBC will require you to purchase the Proprietary Items
only from ENBC or its designees whom ENBC licenses to manufacture, prepare,
distribute and/or sell particular products. ENBC will designate in the Manuals
(defined in Item 11 below) which Products constitute Proprietary Items, and
which of the Proprietary Items must be purchased from ENBC or its designated
suppliers and/or which are to be prepared at the Unit. ENBC may derive revenue
in the future from designated suppliers' sales of Proprietary Items and other
products or supplies to you.
You must purchase proprietary cream cheese and other spreads only from the
supplier or suppliers ENBC designates. Currently, Doc's Cheese Company, LLC (the
"Cheese Company") is the only supplier ENBC has approved to provide cream cheese
and other spreads. ENBC will derive no revenue from the Cheese Company's sales
to Franchisees. ENBC has the option until the year 2000 to purchase the assets
of the Cheese Company, and if it exercises its option and ENBC becomes the only
approved supplier of cream cheese and spreads as a result, ENBC will derive
revenue from sales of cream cheese and spreads to Franchisees. You must also
purchase ENBC's proprietary bagel dough only from the supplier or suppliers ENBC
designates. ENBC is currently negotiating with a dough supplier who is not an
affiliate of ENBC for an exclusive supply agreement. ENBC would not derive
revenue from that supplier's sales of proprietary bagel dough to Franchisees.
39
<PAGE>
APPROVED EQUIPMENT, FIXTURES, FURNISHINGS AND SIGNS.
---------------------------------------------------
You must use to develop and operate your Unit only the brands, types and/or
models of equipment, vehicles, signs displaying the Marks, fixtures and
furnishings which meet ENBC's specifications. You may purchase approved brands,
types and/or models of equipment, fixtures, furnishings and signs which meet
ENBC's specifications only from suppliers ENBC designates or approves, which may
include ENBC. ENBC will periodically supply you with a list of suppliers who
sell items which meet ENBC's specifications, at your request.
SITE SELECTION AND LEASE.
------------------------
Before signing the Franchise Agreement, you must have obtained ENBC's
approval of, and the legal right of possession of, the Site according to the
terms of the Development Agreement. If the Franchise Agreement is not signed
under a Development Agreement, then you must comply with the site and lease
review and approval provisions specified in the form of Development Agreement
included in ENBC's most recent offering circular delivered to you for the state
in which the Site will be located. Other than as described in this Item, ENBC
will not derive revenue as a result of your selection of the Site and execution
of a lease for the Site according to ENBC's standards and specifications.
UNIT DESIGN SPECIFICATIONS AND CONSTRUCTION PLANS.
-------------------------------------------------
ENBC will furnish to you specifications of ENBC's requirements for design,
decoration, layout, equipment, furnishings, seating for on-premises dining,
fixtures and signs for your Units (the "Design Specifications"). The Design
Specifications are an integral part of the System and include ENBC's trade dress
which ENBC has specified for your Units and, therefore, the Unit must be
designed and constructed according to the Design Specifications. You must cause
to be prepared the preliminary layout for the Unit (if not already submitted to
ENBC) and detailed construction plans and specifications and space plans for the
Unit (the "Construction Plans") that comply with the Design Specifications and
all applicable ordinances, building codes, permit requirements, and lease
requirements and restrictions. Other than as described elsewhere in this
offering circular, ENBC will not derive revenue as a result of your development
of the Unit according to ENBC's standards and specifications.
DEVELOPMENT OF THE UNIT.
-----------------------
Within 120 days after signing the Franchise Agreement, you must, at your
expense, do or cause to be done the following: (1) secure all financing
required to fully develop the Unit; (2) if you have not done so previously,
submit the Construction Plans to ENBC for approval; (3) obtain all required
zoning changes, planning consents, building, utility, sign, health, sanitation
and business permits, licenses and approvals and any other required permits and
licenses; (4) construct all required improvements in compliance with
Construction Plans ENBC
40
<PAGE>
approves; (5) decorate and lay out the Unit in compliance with Design
Specifications and plans and specifications ENBC approves; (6) purchase, lease
or license the Computer System, the Licensed Program Support/Control Program and
the Specified Software; (7) purchase or lease and install all required
equipment, vehicles, furnishings, fixtures and signs and the Computer System;
(8) purchase an adequate opening inventory of Products, materials and supplies;
(9) obtain all customary contractors' sworn statements and partial and final
waivers of lien for construction, remodeling, decorating and installation
services and (10) open the Unit for business and operate the Unit on a regular
and continuing basis.
UNIT MENU AND SERVICES.
----------------------
The Unit will (1) offer for sale all Products (and no other products) and
(2) provide only the following services (and no other services): (a) the carry-
out service that ENBC authorizes and requires, (b) the Delivery Service that
ENBC, in its discretion, may authorize for the Unit under a Delivery Rider and
(c) the Catering Service that ENBC in its discretion may authorize you to
provide from the Unit (or a Catering Facility) under a Catering Rider. The Unit
may not offer for sale or sell any products or services at or from the Unit
which ENBC has not approved in writing. You may not use the Site or Unit for any
purpose other than the operation of a Unit. You must meet ENBC's specifications,
standards and procedures for carry-out service, on-premises dining services, if
applicable, Delivery Service and Catering Service, which ENBC periodically
requires in the Manuals or otherwise in writing. The Unit may not provide any
services at, from or away from the Site until ENBC, in its discretion, has
approved the Unit (or a Catering Facility) in writing for the conduct of these
services and ENBC and you have executed the applicable Rider to the Franchise
Agreement.
You may not sell any Products that have not been packaged according to
ENBC's specifications, standards and procedures required in the Manuals or
otherwise in writing. If ENBC requires your Unit and other Units in the
Marketing Area (or, in ENBC's discretion, the trade area of your Unit) to offer
new or substitute products or services not currently offered at Units in the
Marketing Area (or trade area), you must offer required services and/or products
in compliance with ENBC's specifications, standards and procedures required in
the Manuals or otherwise in writing and diligently pursue obtaining any permits
and take actions (including constructing improvements and acquiring fixtures,
furnishings, equipment, supplies and materials) required to offer the products
and/or services. Modifications to the services and/or products the Unit offers
may require you to incur additional costs and expenses to operate the Unit,
including the purchase and/or lease of additional or substitute furnishings,
furniture, fixtures, vehicles or equipment for Catering Service and/or Delivery
Service. You must incur those costs and expenses. The "Marketing Area" is the
geographic area in which the Unit is located, the size and shape of which ENBC
determines periodically in its discretion, and which is typically a metropolitan
area. The "trade area" is typically the geographic area from which a Unit draws
its customers. In determining the Marketing Area, ENBC may take into
consideration a number of factors, as described in the Franchise Agreement.
41
<PAGE>
QUALITY CONTROL PROGRAM.
-----------------------
ENBC may conduct quality, service, cleanliness, and other inspections of
Units periodically to determine compliance with applicable contract provisions
and the standards and specifications ENBC applies periodically. ENBC requires
that your performance in the inspections is satisfactory. ENBC may designate an
independent evaluation service to conduct a "customer satisfaction" quality
control and evaluation program, as may be more fully described in the Manuals or
in writing, with respect to ENBC-owned and franchised Units. You must
participate in the mystery shopper program. ENBC-owned and other franchised
Units also will participate in the program to the extent ENBC has the right to
require participation. (See Item 6)
ACCOUNTING, REPORTS AND FINANCIAL STATEMENTS.
--------------------------------------------
You must install and use at the Unit the Computer System in the form ENBC
specifies during the term of the Franchise Agreement, and transmit to, or permit
the electronic collection of information by, ENBC through use of the Computer
System. You, at your own expense, must establish and maintain at the Unit, (i)
a telephone modem and dedicated line (or other mechanisms for data transmission
ENBC may periodically require) that ENBC may use to access the Computer System,
(ii) full, complete and accurate records and reports and, (iii) if ENBC
requires, computer diskettes and databases in the form ENBC specifies pertaining
to the operation of the Unit, including site reports on the Unit which you must
prepare and submit to ENBC, the Site Agreement (defined in the Development
Agreement), supervisory reports on operations, bookkeeping, accounting,
recordkeeping and records retention system conforming to ENBC's requirements
(including requirements for a general ledger system which uses a standard chart
of accounts ENBC requires periodically, and for timely entry of information into
data bases of the Computer System and periodic printouts of reports generated
from the Computer System), information on employee turnover and any other
records, reports and information ENBC periodically requires.
APPROVED PRODUCTS, DISTRIBUTORS AND SUPPLIERS.
---------------------------------------------
ENBC has developed and may continue to develop standards and specifications
for bagels, Products, other food products, ingredients, seasonings, spices,
mixes, beverages, materials and supplies you will incorporate in or use to
prepare, cook, serve, package, cater and deliver the prepared food products ENBC
authorizes for sale at or from Units and for advertising those items. ENBC has
approved and will review and continue to approve suppliers and distributors of
the products, supplies and materials that meet its standards and requirements.
ENBC's criteria for evaluating, approving or disapproving suppliers and
distributors are based on its standards and requirements for quality, quantity
and portions, prices, volume capability, frequency of delivery, distribution
methods and locations, standards of service, including prompt attention to
complaints, consistency, reliability, financial capability, labor and customer
relations and other criteria. The evaluation criteria will be available to you
at your request. You must purchase
42
<PAGE>
only from distributors and suppliers ENBC approves or requires all goods, food
products, ingredients, spices, seasonings, mixes and beverages. ENBC will also
approve certain suppliers for materials and supplies used to prepare, freeze,
bake, cook, serve, package and deliver the Products, for providing Catering
Service and for your equipment, menus, forms, paper and plastic products,
packaging or other materials (collectively, "Supplies and Materials"), and all
advertising media placement services you purchase for local store marketing.
ENBC does not provide material benefits to you based on your use of designated
or approved sources.
ENBC may modify the list of approved or required suppliers and distributors
during the term of the Franchise Agreement, and may designate itself or an
affiliate as a required manufacturer, supplier and/or distributor of certain
equipment, products, materials, supplies or other items. You may not, after you
receive written notice from ENBC of a modification, reorder any product from any
supplier or distributor that is no longer approved. ENBC may approve or require
a single distributor or supplier for any products, materials or supplies and may
approve or require a distributor or supplier only as to certain products,
materials and supplies, and approval may be temporary pending ENBC's more
comprehensive evaluation of a distributor or supplier. ENBC may concentrate
purchases with one or more distributors or suppliers to obtain lower prices
and/or advertising support and/or services for the benefit of the System and/or
Units. ENBC may establish company or affiliate-owned and operated food
commissaries and distribution facilities which ENBC may designate as an approved
or required distributor or supplier. You must at all times maintain an adequate
inventory of approved food and paper products, beverages, ingredients and other
products of sufficient quality and variety to realize the full potential of the
Unit.
ENBC will derive revenue as a result of your purchase of approved products
and supplies from ENBC and may, in its discretion, collect and retain all
allowances, benefits, credits, monies, payments or rebates (collectively
"Promotional Allowances"), whether for promotional, advertising or other
purposes, which manufacturers, suppliers and distributors offer to you or ENBC
or its affiliates based upon your purchases of Non-Proprietary Products,
Proprietary Items and Supplies and Materials. You must assign to ENBC or its
designee all of your right, title and interest in and to any and all Promotional
Allowances and authorize ENBC or its designee to collect any Promotional
Allowances to remit to the Marketing Fund to the extent based on your purchase
of Products which are not Proprietary Items (the "Non-Proprietary Products") and
Supplies and Materials. However, ENBC may also retain in its general operating
funds the Promotional Allowances it receives from your purchases of Proprietary
Items from any source and the Promotional Allowances it receives from your
purchases from ENBC or its affiliates of Non-Proprietary Products and Supplies
and Materials. ENBC is not obligated to contribute to the Marketing Fund any
revenue it or its affiliates make or collect from sales to you or from your
purchases of any goods or services. Designated suppliers will not make payments
to ENBC because of transactions with Franchisees.
You must notify ENBC and submit to ENBC any information, specifications and
samples as ENBC requests if you propose to purchase any goods, food products,
ingredients, seasonings,
43
<PAGE>
spices, mixes, beverages, menus, equipment, forms, paper or plastic products,
packaging or other materials or utensils from a distributor or supplier whom
ENBC has disapproved or not previously approved. ENBC will use its reasonable
best efforts to notify you within 120 days after receipt of all requested
information and materials whether you are authorized to purchase products from a
certain distributor or supplier. If you fail to receive a notice of disapproval
within the 120 day period, you may purchase the products from the distributor or
supplier until ENBC otherwise notifies you. ENBC's failure to give its approval
or disapproval will not be deemed to constitute ENBC's approval of that
distributor or supplier. If ENBC chooses, you will have to reimburse ENBC for
its reasonable costs incurred in evaluating, inspecting and supervising a
distributor or supplier. (See Item 6)
All approved suppliers will be evaluated continuously for things like
ability to deliver products or services, quality of products and services,
timeliness of delivery and cost. ENBC may revoke its approval of any supplier
who ENBC, in its reasonable judgment, believes is falling short in any category.
ENBC may remove a supplier from the list of approved suppliers at any time but
with notice.
SPECIFICATIONS, STANDARDS AND PROCEDURES.
----------------------------------------
Your obligations under the Franchise Agreement to operate according to
ENBC's specifications, standards and procedures are the same as those under the
Development Agreement, as described above in this Item 8.
INSURANCE.
---------
During the term of the Franchise Agreement, you must maintain in force,
insurance policies with insurers rated "A-" or better by Alfred M. Best &
Company, Inc. that ENBC approves: (1) commercial general liability insurance
(including coverage for motor vehicles used in the operation of the Unit,
whether or not you own the vehicles), against claims for bodily and personal
injury, death and property damage caused by or occurring in the operation of the
Unit or otherwise in your conduct of business under the Franchise Agreement,
under one or more insurance policies containing minimum liability coverage ENBC
requires periodically; and (2) all risk property and casualty insurance for the
replacement value of the Unit and its contents (including leasehold
improvements, furnishings, fixtures, equipment, signs, inventory, supplies, and
materials). You must also maintain the insurance necessary to comply with all
legal requirements concerning insurance coverage (including worker's
compensation requirements), including coverage for persons attending ENBC
training programs on your behalf. ENBC may periodically increase the amounts of
coverage required under insurance policies and require different or additional
kinds of insurance at any time, including excess liability insurance, to reflect
inflation, identification of new risks, changes in law or standards of
liability, higher damage awards, or other relevant changes in circumstances.
You will be responsible for maintaining sufficient insurance coverage.
44
<PAGE>
Each insurance policy you obtain under the Franchise Agreement or the
Development Agreement must name ENBC as an additional insured, must contain a
waiver of all subrogation rights against ENBC, its affiliates, and their
successors and assigns, and must provide for 30 days' prior written notice to
ENBC if the insurer materially modifies or cancels the policy or if the policy
expires. When you sign the Development Agreement or the Franchise Agreement,
you must provide ENBC with evidence of the required insurance, and you must
furnish to ENBC a copy of the certificate of insurance, or other evidence ENBC
requests that the required insurance coverage is in force, each year and/or when
you replace any policy.
As of the date of this offering circular, ENBC's requirements for insurance
coverage are the following: (1) employers' liability insurance of at least
$1,000,000 per accident and $1,000,000 per disease with a $1,000,000 policy
limit on disease; (2) business automobile liability insurance of at least
$20,000,000 with combined single limit per occurrence for bodily injury and
property damage; (3) commercial general liability insurance on an occurrence
basis of $20,000,000 combined single limit for claims against bodily injury,
property damage liability and personal injury; (4) "all risk" property and
boiler and machinery insurance in an amount at least equal to the full
replacement cost of your Unit and its contents.
CREDIT CARDS AND OTHER METHODS OF PAYMENT.
-----------------------------------------
You must at all times have arrangements with a full range of credit and
debit card issuers or sponsors, check verification services and electronic fund
transfer systems as ENBC periodically designates in its discretion during the
term of the Franchise Agreement in order that the Unit may accept customers'
credit and debit cards, checks and other methods of payment. You may use only
the payment methods that ENBC authorizes or approves.
ADVERTISING.
-----------
You must advertise and conduct promotions only according to ENBC's
standards and specifications, as described in Item 11.
DELIVERY SERVICE.
----------------
If you sign a Delivery Rider, you must take actions (including constructing
improvements and acquiring fixtures, equipment, delivery vehicles, and other
materials and supplies) at your own expense and obtain the required permits to
begin Delivery Service within the time period specified in the Delivery Rider.
You must maintain the condition and appearance of, and perform maintenance with
respect to, the delivery vehicles, facilities, fixtures and equipment used to
provide Delivery Service according to ENBC's standards, specifications and
procedures, and consistent with the image of Units as first class, clean,
sanitary, attractive and efficiently operated food service businesses.
45
<PAGE>
CATERING SERVICE.
----------------
If you sign a Catering Rider, you must take actions (including constructing
improvements and acquiring fixtures, equipment, vehicles, and other materials
and supplies) at your own expenses and obtain the required permits to begin
Catering Service from the Catering Facility (defined below) within the time
period specified in the Catering Rider. You must maintain the condition and
appearance of, and perform maintenance with respect to, the Catering Facility,
catering vehicles, furniture, fixtures and equipment used in the provision of
Catering Service according to ENBC's standards, specifications and procedures,
and consistent with the image of Units and related facilities as first class,
clean, sanitary, attractive and efficiently operated food service businesses.
FRANCHISOR REVENUE.
------------------
ENBC did not receive revenue in the past fiscal year from Franchisees'
required purchases because ENBC was formed and began franchising in the current
fiscal year. ENBC expects to derive revenue from Franchisees' purchases of items
and services for which ENBC is an approved or designated supplier.
ITEM 9
------
FRANCHISEE'S OBLIGATIONS
THIS TABLE LISTS YOUR PRINCIPAL OBLIGATIONS UNDER THE FRANCHISE AND OTHER
AGREEMENTS. IT WILL HELP YOU FIND MORE DETAILED INFORMATION ABOUT YOUR
OBLIGATIONS IN THESE AGREEMENTS AND IN OTHER ITEMS OF THIS OFFERING CIRCULAR.
<TABLE>
<CAPTION>
===============================================================================================================
ITEM IN
OFFERING
OBLIGATION SECTION IN AGREEMENT CIRCULAR
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
(a) Site selection and Section 4.A of Franchise Agreement/ 6, 8, 10 and 11
acquisition/lease Sections 6.A and 6.B of
Development Agreement
- ---------------------------------------------------------------------------------------------------------------
(b) Pre-opening purchases/leases Sections 4.B, 4.C, 4.D., 4.E and 8
4.G of Franchise Agreement/
Sections 6.B., 10 and 12.J of
Development Agreement
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
46
<PAGE>
<TABLE>
<CAPTION>
===============================================================================================================
ITEM IN
OFFERING
OBLIGATION SECTION IN AGREEMENT CIRCULAR
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
(c) Site development and Sections 4.C, 4.G and 4.I of 5, 6, 7 and 11
other pre-opening Franchise Agreement/Sections 5.B,
requirements 6.C and 6.D of Development
Agreement
- ---------------------------------------------------------------------------------------------------------------
(d) Initial and ongoing Sections 5.A and 5.B of Franchise 6 and 11
training Agreement/Sections 5.C, 13.D and
13.F of Development Agreement
- ---------------------------------------------------------------------------------------------------------------
(e) Opening Section 4.F of Franchise 11
Agreement/Section 5.B. of
Development Agreement
- ---------------------------------------------------------------------------------------------------------------
(f) Fees Sections 4.E, 8.B and 8.D, 11.A- 5 and 6
11.F, 13.A-13.C of Franchise
Agreement/Sections 3.E, 6.D., 6.E,
7.A to 7.C, 10.B to 10.D and 12.J
of Development Agreement
- ---------------------------------------------------------------------------------------------------------------
(g) Compliance with Sections 4.B, 4.C, 4.D, 5.B, 5.C, 11, 13 and 14
standards and policies/ 6.A, 6.B, 7.B, 12.A-12.H, 13 and
Operations Manual 15 of Franchise Agreement/
Sections 5.D., 6.A, 6.B, 8, 10.A,
10.B, 11.B, 13.J and 13.K of
Development Agreement
- ---------------------------------------------------------------------------------------------------------------
(h) Trademarks and Sections 4.E., 6.A-6.D, 7.A-7.D, 13 and 14
proprietary information 9.A, 9.B, 19.B, and 19.C of
Franchise Agreement/Sections 8,
10.A-10.E, 11.A-11.D and 13.J of
Development Agreement
- ---------------------------------------------------------------------------------------------------------------
(i) Restrictions on products/ Sections 12.B-12.D, 12.H of 16
services offered Franchise Agreement/ 5.A. of
Development Agreement
- ---------------------------------------------------------------------------------------------------------------
(j) Warranty and customer None
service requirements
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
47
<PAGE>
<TABLE>
<CAPTION>
===============================================================================================================
ITEM IN
OFFERING
OBLIGATION SECTION IN AGREEMENT CIRCULAR
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
(k) Territorial development Sections 2.B-2.D and 3.A-3.C of 12
and sales quotas Franchise Agreement/Sections 3.B-
3.F and 4.A-4.C of Development
Agreement; Exhibit E to
Development Agreement
- ---------------------------------------------------------------------------------------------------------------
(l) Ongoing product/service Sections 12.B-12.D of Franchise 8
purchases Agreement/Section 5.E.(7) of
Development Agreement
- ---------------------------------------------------------------------------------------------------------------
(m) Maintenance, appearance Section 12.A of Franchise 9
and remodeling Agreement/ Section 5.E (3) and (8)
requirements of Development Agreement
- ---------------------------------------------------------------------------------------------------------------
(n) Insurance Section 12.G of Franchise 6 and 8
Agreement/Sections 5.F and 12.H of
Development Agreement
- ---------------------------------------------------------------------------------------------------------------
(o) Advertising Sections 13.A-13.C of Franchise 6 and 11
Agreement/Section 6.E of
Development Agreement
- ---------------------------------------------------------------------------------------------------------------
(p) Indemnification Section 8.D of Franchise 6
Agreement/Sections 8.E and 16 of
Development Agreement
- ---------------------------------------------------------------------------------------------------------------
(q) Owner's participation/ Section 12.F of Franchise 11 and 15
management/staffing Agreement/Sections 5.C., 13.A-13.F
of Development Agreement
- ---------------------------------------------------------------------------------------------------------------
(r) Records/reports Section 14 of Franchise Agreement/ 8
Section 13.I of Development
Agreement
- ---------------------------------------------------------------------------------------------------------------
(s) Inspections/audits Sections 15.A and 15.B of Franchise 6 and 11
Agreement
- ---------------------------------------------------------------------------------------------------------------
(t) Transfer Sections 16.A-16.J of Franchise 6 and 17
Agreement/Sections 5.G., 14.A-14.I
of Development Agreement
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
48
<PAGE>
<TABLE>
<CAPTION>
==============================================================================================================
ITEM IN
OFFERING
OBLIGATION SECTION IN AGREEMENT CIRCULAR
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
(u) Renewal Sections 17.A-17.C of Franchise 6 and 17
Agreement
- ---------------------------------------------------------------------------------------------------------------
(v) Post-termination Sections 19.A-19.F of Franchise 17
obligations Agreement/Sections 5.I., 16.A-16.E
of Development Agreement
- ---------------------------------------------------------------------------------------------------------------
(w) Non-competition Sections 9.B, 15.C (6) and 19.D of 17
covenants Franchise Agreement/Sections 9,
14.D (6) and 15.D of Development
Agreement
- ---------------------------------------------------------------------------------------------------------------
(x) Dispute resolution Sections 20.C, 20.E, and 20.F-20.J 17
of Franchise Agreement/18.C, 18.E-
18.J. of Development Agreement
==============================================================================================================
</TABLE>
ITEM 10
-------
FINANCING
Neither ENBC nor any agent or affiliate of ENBC offers, directly or
indirectly, any financing arrangements to you, except as described below.
Copies of the financing documents are attached to this offering circular as
Exhibit F.
FINANCED AREA DEVELOPER PROGRAM.
-------------------------------
ENBC offers financing under its "Financed Area Developer Program," as
described below, and expects to require all developers to participate in this
program. The Financed Area Developer Program, a copy of which is attached to
this offering circular as Exhibit F, provides developers with a substantial
portion of the funds necessary to develop Units. Because of restrictions on
when drawdowns of financing may occur, it is generally not available to be used
for the payment of the Development Fee or the Real Estate Services Fee. The
amount of financing available to you, if you are a qualified Developer, will
depend upon various factors such as the location of your Development Area, the
number of Units you intend to develop, and the amount of equity capital you
raised for initial and ongoing operations. The maximum amount of financing
offered is typically four times the amount of your equity capital.
Under the Financed Area Developer Program, you and ENBC will execute a
secured loan agreement (the "Loan Agreement"), which provides, among other
things, that you must spend
49
<PAGE>
at least 75% of your equity capital toward developing Units before drawing on
the agreed loan amount. Draws will be permitted during a pre-determined draw
period, which will typically be two to three years. Upon expiration of the draw
period, the loan converts to an amortizing term loan payable in 65 substantially
equal periodic installments of principal (the amount of which periodic
installments of principal is determined at the end of the draw period based on a
schedule amortizing the outstanding principal balance as of that date in 130
substantially equal periodic installments of principal) plus accrued interest,
with a final payment of the remaining principal balance of the loan and all
accrued but unpaid interest on the principal balance due approximately five
years after the expiration of the draw period. The maximum loan amount available
must be an amount at least equal to the amount which, if converted into equity
in you, would give ENBC control of you under applicable state law, and will
typically be in an amount that if converted, would give ENBC approximately 75%
ownership of you. For example, if you are a corporation and the total capital
paid in for your shares is $6 million, the maximum amount of your loan would be
$24 million. With equity capital of $6 million, you could begin drawing on the
loan amount once you had spent $4.5 million of your equity capital to develop
Units, and you could continue drawing on the loan for at least 2 years. If you
have borrowed the entire $24 million at the end of the two-year draw period, you
will begin repayment in installments of 65 payments of approximately $184,615
each ($24 million divided by 130) plus accrued interest. Five years after your
draw period expires, you must make a final payment of the remaining principal
and all accrued interest on the outstanding principal.
Any amounts loaned to you will accrue interest daily on the aggregate
outstanding principal balance of the loan at a yearly rate equal to the rate the
Bank of America, Illinois (the "Bank") periodically designates and announces as
its "reference rate" in effect at its principal office in Chicago, Illinois,
plus 1%. The interest rate will be adjusted, periodically, on the same day on
which the Bank adjusts its reference rate. The annual percentage rate as of
September 11, 1995 was 9.75%. Interest on the outstanding principal balance of
the loan will be payable on the first day of each of ENBC's four-week accounting
periods during the draw period. The interest that you will pay will be the
amount that accrued during the four-week accounting period immediately before
the date the interest payment is due. Upon expiration of the draw period and
conversion of the loan to a term loan, the principal amount of the loan and
interest on the principal balance will be payable to ENBC in substantially equal
periodic installments of principal over the balance of the term, plus accrued
interest as described above. (Sections 3.1 - 3.6 of Loan Agreement). At the
time you sign the Loan Agreement, you must also sign a promissory note (the
"Note") for the maximum loan amount.
Although there is no prepayment penalty, the Note may not be prepaid at any
time without ENBC's consent. You expressly waive demand, delivery of the note
for payment, protest, diligence, notice of dishonor, and any other formality
under the Loan Agreement. (Page 2 of the Note).
ENBC may, at any time after the earlier of (1) any acceleration of the loan
or (2) both the second anniversary of the execution of the Loan Agreement and
your completion of at least 80% of the Development Schedule, and up to the later
of the date on which
50
<PAGE>
you have properly repaid the outstanding principal balance of the loan in full
or a specified date which ENBC and you will negotiate, convert the outstanding
principal balance of the Note or any portion of the outstanding principal
balance (but not interest) into shares of your common stock (or corresponding
equity interests if you are not a corporation) under the terms of the Loan
Agreement at a premium to the original issue price of equity interests in you
ENBC will negotiate the amount of this premium with you at the time you enter
into the Development Agreement and the Loan Agreement. Conversion of any
portion of the principal balance of the loan will not relieve you of your
obligation to pay any accrued but unpaid interest on the portion of the
principal balance of the loan so converted. (Section 3.8(a) of Loan Agreement,
Article 1 of the Note).
ENBC also may, at any time after the earlier of (1) the acceleration of the
loan or (2) both the second anniversary of the execution of the Loan Agreement
and your completion of at least 80% of the Development Schedule, and up to the
later of the date on which you have properly repaid the outstanding principal
balance of the loan and all accrued interest thereon in full or a specified date
which you and ENBC will negotiate, purchase up to that number of shares of
common stock at the price determined by applying the formula set out in the Loan
Agreement so that the shares obtained by option and by conversion equal the
maximum number of shares which could have been obtained by conversion if the
loan were fully drawn and no portion repaid. (Section 3.9 of Loan Agreement).
To secure payment and performance of your obligations under the Loan
Agreement and all of your other obligations to ENBC, you must grant ENBC a
continuing security interest in and to substantially all of your property and
interest in property, whenever you acquire the property and wherever it is
located, consisting of the following: (a) all of your real estate, accounts,
equipment (including furniture, fixtures, tools, vehicles, and other tangible
property), inventory, leasehold improvements, contract rights (including your
rights as lessee under all leases of real property), general intangibles,
deposit accounts, tax refunds, chattel paper, instruments, notes, letters of
credit, documents, and documents of title (collectively, the "Collateral"); (b)
all insurance proceeds of or relating to any of the Collateral; (c) all of your
books, records, and computer programs and data relating to any of the
Collateral; and (d) all accessories and additions to, substitutions for, and
replacements, products and proceeds of, any of the Collateral. Section 4.1 of
Loan Agreement).
In addition to the security interest in the Collateral, your obligations
under the Loan Agreement and all of your other obligations to ENBC must be
secured by a pledge of all outstanding shares or other equity interests in you.
The stockholders generally do not need to personally guarantee payment of the
loan. (Section 4.2 of Loan Agreement).
Under the Loan Agreement, ENBC also has a right of first negotiation, a
right of first refusal and preemptive equity rights regarding any future
financing you may prepare to arrange. ENBC will subordinate its loan to your
other debts incurred later if you meet certain conditions contained in the Loan
Agreement. In addition, the Loan Agreement provides that you may have an
employee stock option plan which provides for grants of options aggregating up
to an agreed
51
<PAGE>
upon portion of your fully-diluted equity, with a four-year (10%, 20%, 30%, 40%)
vesting schedule for option grants. (Sections 7.9 and 8.3 of Loan Agreement).
Applicable federal and state law may require you to register or qualify your
stock option plan as a security.
Upon a default under the Loan Agreement, ENBC may: (1) terminate its
obligations under the Loan Agreement, cease to make advances and declare the
Note due and payable in full, without demand, presentment or notice of any kind;
(2) exercise its rights as a secured party under applicable law; (3) exercise
its rights under the various security documents; (4) convert any portion of the
outstanding principal balance of the loan into shares of common stock or other
equity interests in you; and (5) exercise all or a portion of its option right
(described above). Among other things, your default under the Development
Agreement or termination of the lesser of (1) 50% or (2) three of the Franchise
Agreements to which you or your affiliates and ENBC are parties constitutes a
default under the Loan Agreement. (Sections 10.1 and 10.2 of Loan Agreement).
You must also pay all reasonable attorneys' fees and any costs and charges
relating to or arising out of ENBC's enforcement of its rights to collect any
portion of the Loan (Section 11.3 of the Loan Agreement).
The Loan Agreement requires you to acknowledge that ENBC may not have cash,
cash equivalents or credit resources sufficient to permit ENBC to make all
requested advances and to agree that if ENBC fails to fund the loan as required
under the Loan Agreement (and if the failure constitutes a breach of the Loan
Agreement), the failure will not (a) constitute fraud, or (b) give rise to any
liability of any person or entity (other than ENBC, its successors and assigns)
for any other tort and, that you will be limited to your remedies in contract
and in a non-fraud tort action against ENBC. (Section 3.11 of Loan Agreement).
Under the Loan Agreement, the parties agree that they will not be liable
for consequential, indirect, incidental, special, speculative or punitive
damages. The parties also agree to waive their right, if any, to a jury trial,
subject to any limitations under applicable state law. (Section 11.14 of Loan
Agreement).
Under the Financed Area Developer Program, you must use ENBC's accounting
services under an Accounting Services Agreement, a copy of which is attached to
the Financed Area Developer Loan Program Agreement, which is attached to this
offering circular as Exhibit F. The fees you will pay ENBC under the Accounting
Services Agreement are described in Item 6.
GENERAL.
-------
The terms of the financing described above in this Item 10 may vary
depending on the particular circumstances. ENBC does not place financing with
anyone, and, therefore, it does not receive any payment for the placement of
financing.
Except for a qualified Developer's participation in the Financed Area
Developer Program, ENBC is unable to estimate whether you can to obtain
financing for any part or all of
52
<PAGE>
your investment or the terms of any of the financing, which will depend on
general credit conditions and your creditworthiness. The terms on which
financing is offered under the Financed Area Developer Program are limited by
ENBC's credit arrangement with its lenders.
Under the terms of the Franchise Agreement, a pledge of the Franchise
Agreement or the lease for a Unit made to secure financing constitutes a
transfer requiring ENBC's approval, and ENBC's policy is not to approve pledges
of leasehold improvements or franchise rights or other liens, royalty deferrals
or subordination provisions which the SBA or bank lenders request. Pledges of
equipment for equipment financing in the ordinary course of business are
generally outside the scope of this restriction.
ENBC does not have any past or present practice or intention to sell,
assign or discount to any third party any note, contract or other instrument you
execute, except that ENBC's rights to security interests in you and in shares of
common stock or other equity interests in you may be pledged to any secured
lender of ENBC.
ITEM 11
-------
FRANCHISOR'S OBLIGATIONS
DEVELOPMENT AGREEMENT
- ---------------------
Except as listed below, ENBC need not provide any assistance to you under
the Development Agreement.
Before you begin operations under the Development Agreement, ENBC will:
(1) LOAN YOU A DEVELOPMENT MANUAL. ENBC will loan to you for your sole use
during the Agreement Term one copy of a confidential manual relating to the
development and operation of Units, which may be one or more volumes, handbooks,
manuals, written materials, video or audio cassette tapes, or computer
diskettes, and other materials and intangibles, as ENBC may periodically modify,
add to, replace or supplement in its discretion, whether by supplements,
replacement pages, bulletins or other official pronouncements or means
(collectively the "Development Manual").
ENBC also will loan to you for your use during the term of each Franchise
Agreement one (1) copy of the Manuals (defined below) for each Unit you develop
and open under the Development Agreement (the Manuals for the first Unit to be
developed under the Development Agreement will be made available to you promptly
after you execute the Development Agreement) and one copy of the commissary
manual (the "Commissary Manual") for each Commissary you operate under the
Development Agreement. The Commissary Manual will be comparable to the Manuals
(as defined below in this Item), as applicable, and will relate to the
comparable aspects of the development and operation of a Commissary. The
Development
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Manual will contain specifications, standards, policies and procedures ENBC
periodically requires for developers of Units and information relative to other
of your obligations and the operation of Units. The Development Manual and
Commissary Manual may be periodically modified in ENBC's discretion to reflect
changes in the System or specifications, standards, policies and procedures for
Units or other changes or additions as ENBC deems necessary. You must keep your
copy of the Development Manual current by immediately inserting all modified
pages or materials ENBC furnishes. If a dispute about the contents of the
Development Manual arises, the master copies ENBC maintains at its principal
office will be controlling. The Development Manual is proprietary and
confidential. Accordingly, you may not, at any time, disclose, copy or
distribute any part of the Development Manual. Copies of the ENBC manuals that
are in effect as of the date of this offering circular, including the
Development Manual, the Commissary Manual and the Manuals, will be available for
you to review before you sign the Development Agreement. (Sections 5.D and 12.J
of Development Agreement)
(2) REVIEW YOUR DEVELOPMENT PLAN. ENBC will review and may amend and
approve a real estate development plan for developing Units in the Development
Area that you prepare and submit to ENBC for consideration. In addition, if you
are in full compliance with all of the terms and conditions of the Development
Agreement and you are in full compliance with all obligations under all
Franchise Agreements executed under the Development Agreement, ENBC will grant
to you during the Development Term and according to the Development Agreement,
the right to develop and operate Units in the Development Area. (Sections 3.A
and 6.A of Development Agreement).
(3) REVIEW YOUR PERSONNEL. ENBC will review and determine whether your
proposed Chief Operating Officer, Development Director, Training Director and
Marketing Director, as defined in this Item and Item 15, are acceptable to ENBC.
(See Item 15) (Sections 13.B-13.E of Development Agreement).
(4) PROVIDE TRAINING. ENBC will train your training director (the "Training
Director") in the relevant aspects of the operations of Units and, if
applicable, Commissaries. See below in this Item. (Sections 5.C and 13.D of
Development Agreement).
During your operation under the Development Agreement, ENBC will:
(1) IDENTIFY TARGET SITES. If during the Sub-Area Term of a particular
Sub-Area ENBC locates a site suitable for a Unit within the Sub-Area (a "Target
Site"), ENBC will notify you in writing of a Target Site if ENBC intends that a
certain Target Site be developed and operated as a Unit. If ENBC has fully
negotiated a lease or purchase agreement for the Target Site, ENBC will fully
cooperate with you in obtaining the landlord's consent to execute the lease or
the seller's consent to execute the purchase agreement or assignment of purchase
agreement. If ENBC has not fully negotiated a lease or purchase agreement for
the Target Site, then you will have 30 days in which to negotiate and deliver to
ENBC for review a lease or purchase agreement
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<PAGE>
for the Target Site in form for execution. Your right to develop a Unit at the
Target Site, conditions to your exercise of the right and the consequences of
not exercising this right are further described in Item 12 of this offering
circular and the Development Agreement. (Section 3.E of Development Agreement).
(2) OFFER YOU CONVERSION SITES. If, during the applicable Sub-Area Term
for a particular Sub-Area, ENBC acquires the shares or assets (which may include
furniture, fixtures, equipment, leasehold improvements and/or leasehold
interests) of any business operating at one or more sites located within the
Sub-Area which meet ENBC's specifications and standards as in effect
periodically for conversion to Units (the "Conversion Sites"), and ENBC
determines in its discretion to convert a Conversion Site to a Unit, ENBC agrees
to offer to sell the Conversion Sites to you for the price ENBC paid plus any
other direct or indirect costs and liabilities that ENBC incurs due to the
acquisition. Additional information concerning your right to purchase Conversion
Sites and the consequences of not exercising this right are described elsewhere
in this offering circular and in the Development Agreement (Section 3.F of
Development Agreement).
(3) PROVIDE YOU DEMOGRAPHIC SERVICES. Annually throughout the Development
Term, ENBC will sell to you demographic detail reports on the demographics of
each Sub-Area ("Demographic Detail Report") in which you retain the right to
develop Units. At your request, ENBC may provide other demographic services at
ENBC's then-current charges, which charges will vary with the type of service
requested. At your request, ENBC will provide to you, at ENBC's then-current
charges, a report and grid map containing certain demographic information
concerning a proposed site and surrounding area. ENBC or an independent
demographic statistics service may prepare the report and grid map at ENBC's
discretion. (Section 6.A of Development Agreement).
(4) PROVIDE SITE EVALUATION. ENBC will provide you with the site selection
criteria it periodically establishes in its discretion. ENBC will approve or
disapprove a site by delivering written notice to you. ENBC will exert its
reasonable best efforts to deliver the notification to you within 30 days after
ENBC receives a complete site approval request package and location feasibility
analysis on ENBC's specified forms (containing the demographic, commercial, and
other information and photographs as ENBC may periodically require) for each
site at which you propose and intend in good faith to establish and operate a
Unit and which you believe to conform to ENBC's minimum site selection criteria.
(Section 6.A of the Development Agreement).
(5) FURNISH FORM LEASE. ENBC will furnish you with a copy of its current
standard requirements for your lease, including form or addenda that you must
use. ENBC's current form of Addenda to Lease is attached as Exhibit D. ENBC may
periodically modify its standards for leases in its discretion. After receiving
a copy of a proposed Site Agreement for an Approved Site, ENBC will have the
right, in its discretion, to approve, approve with modification or
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disapprove the Site Agreement. ENBC will exert its best efforts to deliver
notification to you within 20 days after ENBC receives the proposed Site
Agreement. See below in this Item. (Section 6.B of Development Agreement).
(6) OFFER YOU FRANCHISES. If (1) you are in full compliance with all of
the terms and conditions of the Development Agreement, (2) you are in full
compliance with all Franchise Agreements you have entered into, and (3) you have
obtained legal possession of an Approved Site, ENBC will offer to you a
Franchise to operate a Unit at the Approved Site by delivering a Franchise
Agreement to you in a form for you and your Principal Owners to sign. (Section
6.C of Development Agreement).
(7) PROVIDE COMMISSARY ASSISTANCE. If you operate a Commissary, ENBC will
furnish you with its standards, specifications and procedures for Commissaries.
(Development Agreement -- Section 5).
(8) DISCLOSE CONFIDENTIAL INFORMATION. ENBC will disclose parts of the
Confidential Information (defined in Item 14 below) as ENBC periodically deems
necessary or advisable in its discretion for the development of Units to you in
providing training, and in guidance and assistance furnished to you under the
Development Agreement and you may learn or otherwise obtain additional
Confidential Information from ENBC during the Agreement Term. (See Item 14)
(Section 11 of Development Agreement).
(9) REVIEW YOUR FUNDING PLAN. ENBC will review the written plans for your
funding which you must periodically submit to ENBC, which plans must be
reasonably acceptable to ENBC and which must include details of the sources and
terms of funding and any other information or documents ENBC requires. (Section
13.G of Development Agreement).
(10) CONDUCT INSPECTIONS AND AUDITS. To determine whether you are
complying with the Development Agreement, ENBC or its agents will have the
right, at any reasonable time, to inspect, audit and copy any books, records,
reports, computer data bases and documents pertaining to your obligations under
the Development Agreement. (Section 13.I. of Development Agreement).
(11) IDENTIFY COMPUTER SYSTEM AND REQUIRED SOFTWARE. ENBC will
periodically identify those brands, types, makes, and/or models of
communications and computer systems or hardware which ENBC specifies or requires
for the Computer System, Specified Software and the Licensed Program. (Section
10 of Development Agreement).
(12) REVIEW PROPOSED TRANSFERS. ENBC will review and consider for approval
proposed transfers as described in Item 17. You must deliver to ENBC written
notice of your intent to transfer ownership interests in you 30 days before the
transfer is to occur, and ENBC
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<PAGE>
will have 30 days to evaluate the proposed transfer. (Development Agreement --
Sections 15.B. and 15.D).
ENBC has the right to periodically delegate the performance of any portion
or all of its obligations and duties under the Development Agreement to
designees, whether they are agents or affiliates of ENBC or independent
contractors with which ENBC has contracted to provide services. (Section 14.I of
Development Agreement).
FRANCHISE AGREEMENT
- -------------------
Before you open your Unit, ENBC will:
(1) REVIEW YOUR FUNDING PLAN. Before beginning development of the Unit,
you must obtain ENBC's consent to your plan for funding the development and
initial operation of the Unit. You must submit a written plan for financing the
Unit's development, which must include the sources and terms of financing and
other information ENBC may require. ENBC will review the funding plan and may
approve or disapprove it in its discretion. (Section 4.I of the Franchise
Agreement).
(2) EVALUATE YOUR SITE SELECTION AND LEASE. ENBC will evaluate your
proposed site and lease terms, if necessary, according to the procedures under
the Development Agreement and as described below in this Item. (Section 4.A of
the Franchise Agreement).
(3) PROVIDE YOU WITH STORE SPECIFICATIONS. ENBC will furnish you with
mandatory and suggested plans and specifications for a Unit as described in Item
8 (Section 4.B of the Franchise Agreement).
(4) PROVIDE YOU WITH THE MANUALS. ENBC will loan to you, for your sole
use, one copy of a set of ENBC's confidential manuals on the development and
operation of Units, which may be one or more volumes, handbooks, manuals,
written materials, video or audio cassette tapes, computer diskettes or any
other materials or intangibles, as ENBC may periodically modify, add, replace or
supplement in its discretion, whether by supplements, replacement pages,
bulletins, or other official pronouncements or means (collectively the
"Manuals"). The Manuals will contain specifications, standards, policies and
procedures ENBC periodically requires for Units and information relative to your
other obligations and the operation of a Unit. The Manuals may be periodically
modified at ENBC's discretion to reflect changes in the System or
specifications, standards, policies and procedures for Units, to specify brands,
types and/or models of equipment which you must you to operate the Unit, and to
specify changes in the decor, format, image, products, services and operations
of a Unit ENBC requires or other changes or additions as ENBC deems necessary or
advisable. Copies of the Manuals in effect as of the date of this offering
circular will be available for you to review before you sign the Franchise
Agreement. (Section 5.C of the Franchise Agreement).
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(5) IDENTIFY THE COMPUTER SYSTEM AND REQUIRED SOFTWARE. Both before you
open and during operation of your Unit, ENBC will identify the Computer System
and required software that you must use as described below in this Item and in
Item 8. (Section 4.E of the Franchise Agreement).
During the operation of the Unit, ENBC will:
(1) PROVIDE SYSTEM STANDARDS. As described in Item 8, ENBC will prescribe
mandatory specifications, standards and procedures for the operation of Units.
(Section 12.D of the Franchise Agreement)
(2) FURNISH GUIDANCE AND ASSISTANCE. ENBC may, in its discretion, furnish
guidance to you with respect to: (1) recipes, methods, specifications, standards
and operating procedures used in Units along with any modifications; and (2)
purchasing approved equipment, fixtures, furnishings, signs, products, and
materials and supplies; and (3) development and implementation of local
advertising and promotional programs; and (4) general operating and management
procedures of Units; and (5) establishing and conducting employee training
programs at the Unit; and (6) opening the Unit. Any guidance will, in the
discretion of ENBC, be furnished in the form of ENBC's Manuals, bulletins, video
or audio cassette tapes, computer diskettes, written materials, reports and
recommendations, other materials and intangibles, refresher training programs
and/or telephonic consultations or consultations at the offices of ENBC or at
the Unit. (Section 5.B of the Franchise Agreement)
OPENING OF THE UNIT.
-------------------
ENBC estimates there will be an interval of approximately 120 days between
the execution of the Franchise Agreement and the opening of a Unit, but the
interval may vary based upon factors including weather, the location and
condition of the Site and the construction schedule for the Unit. You may not
open the Unit for business until: (1) ENBC notifies you in writing that all of
your development obligations have been fulfilled; (2) pre-opening training of
personnel has been completed to ENBC's satisfaction; (3) all amounts then due to
ENBC have been paid; (4) ENBC has been furnished with copies of all insurance
policies required under the Franchise Agreement, or other evidence of insurance
coverage and payment of premiums that ENBC requests. You must comply with these
conditions and be prepared to open the Unit for business within 120 days after
the date of the Franchise Agreement. You must open the Unit for business and
begin conduct of business at the Unit under the Franchise Agreement within 5
days after ENBC gives notice to you stating that the Unit is ready for opening.
(Section 4.F of the Franchise Agreement)
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ADVERTISING PROGRAMS.
--------------------
ENBC's advertising program consists of print, radio and television
advertising and merchandising activities. The advertising is local, regional and
national in scope. ENBC's national advertising agency produces or will produce
most of ENBC's advertising, although ENBC's in-house marketing personnel may
produce a portion of the advertising. ENBC may designate an outside advertising
agency for media placement.
Before you use advertising and promotions which ENBC has not prepared or
previously approved, you must submit samples of the advertising and promotional
materials you propose to use to ENBC for approval, in the form and manner ENBC
periodically requires. If ENBC does not grant you written approval within 15
days from the date after it receives the submitted materials, ENBC will be
deemed to have disapproved the submitted materials. You may not use any
advertising or promotional materials that ENBC has not approved, has disapproved
or that do not include the copyright registration notices and trademark
registration notices ENBC designates. In its discretion, ENBC may disapprove on
a prospective basis materials which ENBC had previously approved. ENBC does not
use an advertising council composed of Franchisees.
LOCAL AD FUNDS. All Franchisees in a particular Marketing Area must
participate in a local advertising fund (a "Local Ad Fund") for that Marketing
Area. Local Ad Funds will operate in substantially the same manner as the
Marketing Fund (described below). You must contribute to the appropriate Local
Ad Fund up to 4% (as ENBC determines periodically) of your Unit's Royalty Base
Revenue for each Accounting Period in which you participate in the Local Ad
Fund. ENBC has the right to periodically require you to increase your
contributions to the Local Ad Fund above 4% by up to 0.25% each year. All
Franchisees in a Marketing Area must contribute to the Local Ad Fund at the same
rate. Units that ENBC or its affiliates own (to the extent ENBC has the right to
require its affiliates to do so) will contribute to the Local Ad Fund on the
same basis as Franchisees. If you are a Developer, under the Development
Agreement you must cause each Unit you own to contribute to the Local Ad Fund an
amount equal to the greater of: (1) the standard Local Ad Fund contribution
required under the applicable Franchise Agreement or (2) an amount which, when
aggregated with the Local Ad Fund contributions of the other Units in the
Marketing Area will be sufficient for you, through the Local Ad Fund, to begin
Required Television Advertising within one year of the opening of the first Unit
and to continue Required Television Advertising throughout the full term of the
Development Agreement. "Required Television Advertising" means television
advertising in the DMA, as the A.C. Nielsen Co. periodically determines, in
which the Development Area is located at a minimum level of 200 gross ratings
points for a minimum of 36 weeks per calendar year. A gross ratings point is a
unit of measure used in the advertising industry to measure the number of
households watching a particular television program at a particular time. ENBC
may, in its discretion, periodically use a market designation comparable to, but
different from, the DMA for purposes of this definition.
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ENBC administers the Local Ad Funds, which are not governed by written
documents, other than the terms of the Development Agreement and Franchise
Agreements. Under the Franchise Agreement, ENBC is obliged to prepare annual,
unaudited summary financial statements for each Local Ad Fund and to make them
available to participants in that fund upon their written request. ENBC may
require Local Ad Funds to be formed, changed, dissolved or merged. Noah's Units
will not contribute to Local Ad Funds in which Units participate, but Noah's
Units may form and contribute to their own local advertising funds. Local Ad
Funds to which Units contribute will not be used to promote Noah's Units.
MARKETING FUND. Under the Franchise Agreement, you must contribute to
ENBC's national marketing fund (the "Marketing Fund"). There is no provision
under the Development Agreement that requires you in the capacity of a Developer
to contribute to the Marketing Fund. The Units that ENBC or its affiliates own
(to the extent ENBC has the right to require its affiliates to do so) will
contribute to the Marketing Fund on the same basis as Franchisees do.
You must contribute to the Marketing Fund 2% of the Royalty Base Revenue of
your Unit at the same time and in the same manner as the Royalty Fees payable
under the Franchise Agreement. (See Item 6) All Franchisees must contribute to
the Marketing Fund at the same rate. ENBC may periodically increase your
Marketing Fund contributions up to 0.25% per year.
ENBC will direct all advertising, media placement, marketing and public
relations programs and activities the Marketing Fund finances, with discretion
over the strategic direction, creative concepts, materials and endorsements
used, and the geographic, market, and media placement and allocation. The
Marketing Fund may be used to pay various costs and expenses, including
preparing and producing video, audio and written advertising materials; interest
on borrowed funds; sponsorship of sporting, charitable or similar events;
reasonable salaries and expenses of employees of ENBC or its affiliates working
for or on behalf of the Marketing Fund or on advertising, marketing, public
relations materials, programs or activities or promotions for the benefit of the
Marketing Fund and administrative costs and overhead of ENBC or its affiliates
incurred in activities reasonably related to the administration and activities
of the Marketing Fund; administering advertising programs, including, purchasing
direct mail and other media advertising and employing advertising agencies to
assist with administration; and supporting public relations, market research and
other advertising, promotional and marketing activities, including testing and
test marketing programs, fulfillment charges, and development, implementation,
and testing of trade dress and design prototypes. You must participate in all
advertising, marketing, promotions, research and public relations programs the
Marketing Fund institutes. The Marketing Fund will furnish you with reasonable
quantities of marketing, advertising and promotional formats and sample
materials at cost.
The Marketing Fund will be accounted for separately, but will not be
required to be segregated, from the other funds of ENBC and will not be used to
defray any of ENBC's general operating expenses, except for the reasonable
salaries, administrative costs and overhead as ENBC may incur in activities
reasonably related to the administration and activities of the Marketing
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Fund and creation or conduct of its marketing programs including conducting
market research, preparing advertising and marketing materials and collecting
and accounting for contributions to the Marketing Fund. ENBC may spend in a
fiscal year an amount greater or less than the aggregate contribution of all
Units to the Marketing Fund in that year. The Marketing Fund may borrow from
ENBC or other lenders at standard commercial interest rates to cover deficits of
the Marketing Fund or invest any surplus for its future use. All interest earned
on monies contributed to the Marketing Fund will be used to pay costs of the
Marketing Fund before other assets of the Marketing Fund are expended. Although
the Marketing Fund contributions ENBC collects are covered by ENBC's annual
audit, separate audited financial statements are not prepared for the Marketing
Fund. ENBC will prepare a summary statement of monies collected and costs the
Marketing Fund incurs each year for ENBC's immediately preceding fiscal year and
will make it available to you upon your written request. The Marketing Fund may
be incorporated or operated through an entity separate from ENBC at any time as
ENBC deems appropriate, and that successor entity will have all rights and
duties of ENBC as described in this offering circular.
Any Promotional Allowances ENBC collects to remit to the Marketing Fund
based on your purchases of Products and Supplies and Materials from vendors
other than ENBC or its affiliates will not be credited toward your required
contribution to the Marketing Fund. (See Item 8) Under no circumstances will
ENBC or its affiliates be required to contribute to the Marketing Fund any
profits ENBC or its affiliates make or collect from your sales to or purchases
of any goods or services.
ENBC may, in its discretion, suspend contributions to and operations of the
Marketing Fund for periods that it determines to be appropriate and terminate
the Marketing Fund upon written notice to you. All unspent monies on the date of
termination will be distributed to ENBC and Franchisees in proportion to their
respective contributions to the Marketing Fund during the preceding 12 month
period. ENBC may reinstate the Marketing Fund upon the same terms and conditions
described above upon 30 days' prior written notice to Franchise.
MARKETING FUND AND LOCAL AD FUND PURPOSES. The Marketing Fund and the
Local Ad Fund are intended to maximize recognition of the Marks and patronage of
Units generally, with respect to the Marketing Fund, and in the Marketing Area,
with respect to the Local Ad Fund. Although ENBC will endeavor to use the
Marketing Fund and the Local Ad Fund to develop advertising and marketing
materials and programs and to place advertising in order to benefit all Units
whose franchise owners contribute to those funds, ENBC undertakes no obligation
to ensure that any Unit will benefit directly or indirectly or in proportion to
its contribution to the Marketing Fund or the Local Ad Fund from the development
of advertising and marketing materials or the placement of advertising by the
funds. Your failure to derive any benefit in this manner will not serve as a
basis for a reduction or elimination of your obligation to contribute to the
funds.
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Furthermore, the moneys you contribute to the Marketing Fund will be
combined with contributions which other franchisees of ENBC make to the
Marketing Fund, even though those other franchisees may operate their Units
under different brand names and/or with other variations of the type described
in Item 1 of this offering circular. Thus, it is likely that some of the moneys
you contribute to the Marketing Fund will sometimes be used to promote brands
other than the brands used at your Units. Similarly, some of the moneys
contributed by franchisees of ENBC operating under different brands will
sometimes be used to promote the brand which you use in the operation of your
Units. Except as expressly described above, ENBC assumes no direct or indirect
liability or obligation to you with respect to the maintenance, direction, or
administration of the Marketing Fund or the Local Ad Fund.
As noted above, ENBC receives payment for providing services to the
Marketing Fund in that the salaries of certain ENBC employees who work in the
marketing area are paid out of the Marketing Fund. No monies from the Marketing
Fund are used for advertising that is principally a solicitation for the sale of
franchises. If all monies in the Marketing Fund are not spent in the fiscal year
in which they accrue, ENBC will retain those monies in the Marketing Fund and
carry them over to be used for expenditures in the following fiscal year.
COMPUTER SYSTEM AND REQUIRED SOFTWARE.
-------------------------------------
As described in Item 8, you must purchase, install and use the Computer
System including specified software that ENBC requires. Developers and
Franchisees currently must obtain and use the same hardware and software
described in this Item, except that Developers are required to use
"Support/Control Programs" as described below. Current specifications for the
Computer System and Specified Software are available from ENBC on request.
You must purchase computer equipment that falls into two general
categories--"front of the house" and "back office".
For the front of the house, you must purchase point of sale devices, the
number of which may vary depending on factors including sales volume of the
Unit, the presence of a drive-through window. Each of these point of sale
devices is itself a computer, which incorporates a touch-screen entry panel, a
central processing unit and software designed to provide cash register-like
functionality. Peripheral equipment is also associated with the point of sale
devices, including cash drawers and receipt printers. ENBC requires you to
purchase Specified Software for "front of the house" functions. (See Item 7)
In the back office, a computer is required to facilitate the performance of
Unit management functions, including activities like production scheduling,
inventory management and cash reconciliation. Included with the back office
computer system is a printer for the generation of paper reports, a tape drive
that is used to make backup copies of computer data and a modem that is used to
transfer data and programs between the Unit and other locations
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(for example, ENBC's office). ENBC requires you to purchase the Licensed Program
for "back of the house" functions. (See Items 6 and 7)
In addition, if you are a Developer, you will use Support/Control Programs
that perform real estate tracking functions and operate to assist you to track,
support, supervise and communicate with Units.
Miscellaneous computer-related equipment that you must purchase includes
cables and equipment to connect all of the point of sale devices to the back
office computer system, various power cables, an uninterruptible power supply,
etc.
The following identifies each hardware component and software program by
brand, type and principal functions.
<TABLE>
<CAPTION>
====================================================================================
COMPONENT BRAND TYPE PRINCIPAL FUNCTIONS
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Point of sale device NCR 7450 Point of sale/cash register
- ------------------------------------------------------------------------------------
Back office computer NCR 33333 Computer-assisted store
management
- ------------------------------------------------------------------------------------
Printer Hewlett-Packard LaserJet Printing of reports
- ------------------------------------------------------------------------------------
Modem USRobotics 14400 Data communications
Sportster
- ------------------------------------------------------------------------------------
Point of sale software Compris V2.0 Cash register-like
functionality for point of
sale devices
- ------------------------------------------------------------------------------------
Back office software IntelliStore(TM) V1.0 Software to facilitate store
management activities
====================================================================================
</TABLE>
No organization has the contractual right or obligation to provide
maintenance for any of the hardware components. The approximate annual cost for
an optional maintenance contract on all of the hardware components with the
vendor is $2,315.00
ENBC is responsible for providing ongoing maintenance, upgrades and updates
for the Licensed Program. In addition to an initial one-time software license
fee of $15,000 per Unit, the ongoing annual cost for this support service is
$4,800. ENBC will test and install the Licensed Program for a $3,500 if your
purchase your Computer System from a supplier other than ENBC and, you must pay
to ENBC a fee of $3,500 for this service. (See Item 6) ENBC is not
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responsible for providing maintenance, upgrades or updates for software that is
not part of the Licensed Program.
NCR is the only supplier of the approved hardware components. NCR sells the
entire collection of hardware as a complete package. ENBC has been using the
hardware components since approximately February, 1995. NCR's address is:
NCR / AT&T GIS
2000 S. Colorado Blvd.,
Denver, CO 80222
(303) 758-3334
The Compris software is the only approved software for the point of sale
devices. This software is licensed through BCA, from:
Compris Technologies Inc.,
1800 Parkway Place, Suite 400,
Marietta, GA 30067
(404) 423-8330
The other software components are the proprietary property of ENBC or its
licensors.
Compatible equivalent hardware components exist only for the back office
computer system (virtually any IBM-compatible 80486-based computer system may be
compatible). Except for these hardware components, no components, other than
those components described in the chart above in this Item 11 have been approved
for use as part of the back office computer system.
You may be required to upgrade or update any of the hardware components or
software programs described above. There are no contractual limitations on the
frequency or costs associated with this obligation. ENBC may modify its
specifications and the components of the Computer System, Support/Control
Programs or Specified Software at any time. ENBC's development and/or
modification of specifications for the components of the Computer System,
Support/Control Programs or Specified Software may require you to incur costs to
purchase, lease and/or license new or modified computer and communications
hardware and/or software and to obtain service and support for the Computer
System during the term of the Franchise Agreement. ENBC cannot estimate the
costs of future additions, enhancements and modifications to the Computer System
and Specified Software beyond those estimated for its current configuration and
may add additional elements, components, and software to the Licensed Program
and the cost to you of obtaining the additions, enhancements and modifications
to the Computer System, Specified Software, and Licensed Program may not be
fully amortizable over the remaining term of the Franchise Agreement.
Nonetheless, you must incur those costs in obtaining the Computer System,
Specified Software, and Licensed Program (or additions or
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modifications), if the Computer System which ENBC directs you to use is the same
Computer System which ENBC is then currently specifying for use in ENBC-owned
Units. As described in Item 6 above, you must to pay to ENBC or its designee a
periodic Software Support Fee of $500 for modifications and enhancements made to
the Licensed Program and other maintenance and support services related to
operating the Licensed Program and the Specified Software on the Computer
System.
The point of sale hardware and software will be used to track individual
sales transactions that take place at the Unit. This equipment is also used for
the tracking of employees' hours of work (i.e., employees punch in and punch out
using the point of sale equipment). Detailed records regarding every in-Unit
sales transaction and every employee punch-in and punch-out are maintained.
The back office computer system is used to generate and/or maintain
production schedules, vendor orders, inventory lists, food cost analyses,
employee records and other collections of data related to the day-to-day
operation of the store. All of this data is stored on the back office computer
system. ENBC has independent access to all of this information and data. There
are no contractual limitations on ENBC's right to access this information and
data.
SITE SELECTION.
--------------
You must comply with ENBC's specifications and requirements regarding site
selection, development and construction, including those concerning relations
with and use of approved general contractors, subcontractors, real estate
developers and lessors and, if ENBC requests, real estate broker(s). ENBC will
provide you with a complete site approval request package (the "Site Package"),
which includes, among other items, a location feasibility analysis form. ENBC
will also furnish to you ENBC's current standard form lease for Units (the "Form
Unit Lease"). ENBC may periodically modify this form in its discretion. You must
submit to ENBC on ENBC's specified forms or other media ENBC periodically
designates a complete Site Package (containing demographic, commercial, and
other information and photographs as ENBC may periodically require) for each
site at which you propose and intend in good faith to establish and operate a
Unit and which you reasonably believe to conform to certain minimum site
selection criteria ENBC establishes periodically in its discretion.
When ENBC evaluates proposed sites, it will consider factors it considers
relevant, including factors like demographic characteristics, traffic patterns,
parking, visibility, allowed signage, the predominant character of the
neighborhood, competition from other businesses providing similar services
within the area (including other Units), the proximity to other businesses, the
exclusivity granted to other franchise owners or developers of Units, the nature
of other businesses in proximity to the site, and other commercial
characteristics (including the purchase price or rental obligations and other
lease terms for the proposed site) and the size, appearance, and other physical
characteristics of the proposed site. ENBC may periodically alter the criteria
or impose additional criteria for acceptable sites for Units at any time in its
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discretion. You must abide by ENBC's site criteria and comply with your
development obligations imposed under the Development Agreement. You will not
receive extensions or changes in the required opening date of any Unit based on
changes in ENBC's site criteria
ENBC will approve or disapprove sites by delivering written notice to you.
ENBC will use its reasonable best efforts to deliver the notification to you
within 30 days after ENBC receives a complete Site Package and other materials
it periodically requests that contain all information ENBC requires. ENBC may
approve or disapprove a site and will have no liability as a result of its
approval or disapproval. Regardless of any other provision of the Development
Agreement, ENBC's failure to provide you with notice of its approval or
disapproval of one or more proposed sites will not constitute a waiver of ENBC's
right to approve or disapprove the sites or alter the required opening date of
Units scheduled for development under the applicable Development Agreement. A
proposed site which ENBC approves as meeting its minimum criteria for the
development and operation of a Unit is referred to in the Development Agreement
and this offering circular as an "Approved Site."
ENBC's approval of a Site for a Unit does not constitute ENBC's assurance,
representation or warranty of any kind, express or implied, as to the
suitability of any Site for a Unit or the successful operation of a Unit at the
Site. ENBC's approval of a Site only indicates that the Site falls within
acceptable minimum criteria ENBC establishes solely for ENBC's purposes at the
time of the approval of a particular Site. ENBC will not be responsible for the
failure of any Site ENBC approves to meet your expectations as to revenue or
operational criteria.
Under the Development Agreement, ENBC will evaluate the site that you
propose for your Commissary using the same criteria and procedures as it uses to
evaluate sites for Units. (Development Agreement -- Section 5.B).
LEASE OF APPROVED SITES. You must present the Form Unit Lease to the
lessor or seller of an Approved Site, as applicable, and use your best efforts
to cause the lessor to sign the Form Unit Lease as the lease, sublease, or
assignment of lease (referred to in the Development Agreement as the "Site
Agreement"), as applicable, for the Approved Site. If you fail to obtain the
lessor's or seller's agreement to use the Form Unit Lease as the Site Agreement,
you must cause the lessor to include in the Site Agreement the standard terms
which ENBC requires at that time in its discretion, and any other terms as ENBC
may require or as it may specifically approve in writing. Certain of ENBC's
current standard lease terms are included in the form of Addendum to Lease
attached to this offering circular as Exhibit D. ENBC may modify this addendum
in its discretion.
After receiving a copy of a proposed Site Agreement in form for signature,
ENBC may approve, approve with modification or disapprove the proposed Site
Agreement. ENBC will use its best efforts to notify you of its response within
20 days after ENBC's receipt of the proposed Site Agreement. You may not sign a
Site Agreement without ENBC's prior written approval, and any Site Agreement
must contain the express requirement of ENBC's prior written approval of
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the Site Agreement. You must deliver to ENBC a copy of the fully signed Site
Agreement as previously approved within 15 days after all the parties sign it.
You may not agree to any modification of the Site Agreement which would affect
ENBC's rights without the prior written approval of ENBC.
If you fail to obtain lawful possession of an Approved Site (through
acquisition, lease, sublease or assignment) within 60 days after delivery of
ENBC's approval of the Approved Site, ENBC may, in its discretion, withdraw
approval of the Site. ENBC may withdraw its offer to grant a Franchise for a
Unit at an Approved Site and withdraw its approval of a Site at any time before
ENBC's receipt of all applicable payments and ENBC's execution of the Franchise
Agreement for the Unit.
At ENBC's request, if you own an Approved Site, you must enter into a lease
with ENBC or an affiliate of ENBC under ENBC's then-current form of lease for a
term equal to the term of the Franchise and for a rental equal to the Approved
Site's fair market rental value, and will sublease the Approved Site from ENBC
on the same terms as the prime lease. If you and ENBC cannot agree on the fair
market rental value, then an independent appraiser you and ENBC select will
determine the rental value you and ENBC select. If you and ENBC are unable to
agree on an independent appraiser, you and ENBC will each select an independent
appraiser, who will select a third independent appraiser, and the fair market
rental value will be deemed to be the average of the 3 independent appraisals
those appraisers make. Except as described above and in Item 6, ENBC will not
derive revenue as a result of your lease of Sites according to with ENBC's
standards and specifications.
TRAINING PROGRAMS.
-----------------
DEVELOPMENT AGREEMENT. Under the Development Agreement, ENBC will train
your Training Director under the store-level management training program that it
conducts for Franchisees and is described below. ENBC does not charge for this
training, but you will be responsible for all expenses, including travel, room
and board that the trainee incurs. The Training Director must complete the
training program to ENBC's satisfaction and become certified to train and
supervise personnel at Units and Commissaries. The Training Director must be
re-certified if and when ENBC requires re-certification. So long as your
Training Director is currently certified, he or she will be responsible for
training the employees of each Unit and each Commissary you have developed at
your training facility that we have approved. If you replace the Training
Director, or if he or she does not complete training to ENBC's satisfaction, you
will designate a replacement Training Director who ENBC approves, and you will
pay ENBC its then-current daily rate to train the replacement Training Director.
Training for Training Directors will be held on an as-needed basis.
ENBC may periodically require your Training Director to attend refresher or
additional training programs during the term of the Development Agreement. You
will be responsible for expenses, including travel, room and board that the
Training Director incurs during additional
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or refresher training. There is no schedule for additional or refresher
training; ENBC may provide programs as it thinks is appropriate.
If you operate a Commissary, your Commissary must employ and maintain one
full time manager (a "Commissary Manager") and a full-time additional employee
who will perform functions at the Commissary that ENBC requires (an "Additional
Commissary Manager"), and both must successfully complete ENBC's store level
training program which your Training Director will provide as described below.
FRANCHISE AGREEMENT. Under the Franchise Agreement, before you begin
operating your Unit, you must appoint the manager of your Unit (the "Unit
Manager") and one other management level employee (the "Additional Manager").
The Unit Manager and the Unit Manager must attend and complete to ENBC's
satisfaction a ENBC accredited and certified initial management training program
in the operation of a Unit. Additional employees may attend training at your
option. This training program may include classroom training, instruction at
designated facilities and hands-on training in an operating Unit. If you are a
Developer, your Training Director will provide the training program at your
training facilities according to ENBC's requirements. If ENBC or its designee
provides the training program, it will be provided at the time (subject to space
availability in ENBC's or its designee's regularly scheduled classes) as ENBC
may designate at a training facility and/or at a ENBC-owned or franchised Unit
in the Denver, Colorado, area or other location which ENBC designates and will
last for approximately one to ten weeks. You will pay a $1,000 training fee for
each person who attends the initial management training program; we currently
designate an existing Franchisee as the trainer for new Franchisees' employees,
and the training fee is payable directly to the Franchisee who trains you. (See
Item 7) At your request, ENBC or its designee may provide the training program
to additional personnel at ENBC's then-current standard charges, including
applicable travel and lodging expenses, subject to space availability in ENBC's
or its designee's regularly scheduled training classes and/or availability of
ENBC's or its designee's training personnel. In addition, whether you, or ENBC's
designee is providing this training, ENBC may, in its discretion as it deems
necessary, require the Unit Manager and/or the Additional Manager to work full-
time without pay from ENBC or its designee but at your expense for up to ten
weeks at a Unit ENBC selects.
If a certified Unit Manager and/or Additional Manager ceases to hold his or
her position at the Unit, you will have 30 days in which to appoint a substitute
or replacement Unit Manager and/or Additional Manager, who must attend and
complete to ENBC's satisfaction the initial management training program as
specified above promptly after appointment. If ENBC in its discretion determines
that the Unit Manager or Additional Manager or any Unit Manager or Additional
Manager appointed at a later date has failed to satisfactorily complete the
initial management training program or any additional or refresher training
program, you must immediately hire a substitute Unit Manager or Additional
Manager and promptly arrange for that person to complete the initial management
training program to ENBC's satisfaction.
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As of the date of this offering circular, the structure and content of the
training programs are still being developed and formalized. ENBC is reviewing
and evaluating several formats in an effort to provide a program which will
provide efficient training of your personnel while recognizing and taking
advantage of the resources already available in your current organization.
ENBC's National Training Director, Melanie McGraw, who joined ENBC from Brackman
Brothers, Inc. in July 1995, will direct the training personnel who will conduct
the training program and other on-going training. Ms. McGraw held various store-
level operational and corporate training positions with Brackman Brothers from
May 1993 to July 1995. Her last position with Brackman Brothers was as that
company's regional training director. In that position, she was responsible for
writing the manager training program, manuals and materials and carrying out the
training program.
While ENBC's training program is still being formulated, ENBC anticipates
that the training program will, at a minimum, provide a combination of classroom
and on-the-job training for each position within a Unit, with training materials
created specifically for that position. The store-level training program will
include at least the following:
UNIT LEVEL TRAINING
<TABLE>
<CAPTION>
==============================================================================================================
HOURS OF HOURS OF
CLASSROOM ON-THE-JOB
SUBJECT INSTRUCTION MATERIALS TRAINING TRAINING INSTRUCTOR
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Pre-employment Pre-employment 2 0 Unit Manager,
Training Module and certified trainer and/or
other training materials National Training
Director
- --------------------------------------------------------------------------------------------------------------
Orientation Orientation Training 2.5 0 Unit Manager,
Module and other certified trainer and/or
training materials National Training
Director
- --------------------------------------------------------------------------------------------------------------
Safety and Sanitation Safety and Sanitation 2.5 0 Unit Manager,
Training Module and certified trainer and/or
other training materials National Training
Director
- --------------------------------------------------------------------------------------------------------------
Counter Counter Training 0 4 Unit Manager,
Module and other certified trainer and/or
training materials National Training
Director
- --------------------------------------------------------------------------------------------------------------
Fronter Fronter Training 0 3 Unit Manager,
Module and other certified trainer and/or
training materials National Training
Director
- --------------------------------------------------------------------------------------------------------------
</TABLE>
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<TABLE>
<CAPTION>
======================================================================================================================
HOURS OF HOURS OF
CLASSROOM ON-THE-JOB
SUBJECT INSTRUCTION MATERIALS TRAINING TRAINING INSTRUCTOR
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Register Register Training 0 3 Unit Manager,
Module and other certified trainer and/or
training materials National Training
Director
- ----------------------------------------------------------------------------------------------------------------------
Souper Souper Training 0 3.5 Unit Manager,
Module and other certified trainer and/or
training materials National Training
Director
- ----------------------------------------------------------------------------------------------------------------------
Baker Baker Training Module 0 40 Unit Manager,
and other training certified trainer and/or
National Training
Director
- ----------------------------------------------------------------------------------------------------------------------
Shift Leader Shift Leader Training 0 4 Unit Manager,
Module and other certified trainer and/or
training materials National Training
Director
- ----------------------------------------------------------------------------------------------------------------------
Assistant Manager Assistant Manager 0 15 Unit Manager,
Training Module and certified trainer and/or
other training materials National Training
Director
======================================================================================================================
</TABLE>
ENBC or its designee may periodically offer additional or refresher
training programs to any Unit Manager or Additional Manager appointed at a later
date and the Unit's assistant managers at daily charges ENBC periodically
establishes and at the times as ENBC may designate to you. ENBC may, in its
discretion as it deems necessary, require the Unit Manager, Additional Manager
or assistant managers of the Unit or you to attend or to participate in, at
ENBC's daily charges and at your expense, including travel and lodging expenses
of training personnel for training other than at the trainers' principal
offices, additional or refresher training programs at locations ENBC designates
during the term of the Franchise Agreement. There is no schedule for additional
or refresher training; ENBC may provide programs as it thinks is appropriate.
ENBC is developing a manager-in-training program which will encompass all
of the above items in addition to training in managing store personnel and
overall operation at the store level. While the manager-in-training program is
still being developed as of the date of this offering circular, ENBC expects
that it will require Developers' Training Directors to conduct the training
course for Unit Managers and Additional Managers every 2-to-3 weeks, and that
the program will encompass 4-6 weeks of classroom and on-the-job training.
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ITEM 12
-------
TERRITORY
DEVELOPMENT AGREEMENT
- ---------------------
TERRITORIAL RIGHTS.
------------------
The Development Agreement grants you during the Development Term, the right
to develop and operate Units in the Development Area, which consists of one or
more Sub-Areas. Except as otherwise expressly provided in the Development
Agreement, and if you are in full compliance with the Development Agreement and
you are in full compliance with all Franchise Agreements, BCA and its affiliates
will not during the Sub-Area Term for each of the Sub-Areas operate or grant
franchises for the operation of Units within the Sub-Area. Your rights under the
Development Agreement are limited to the applicable number of Units and the
schedule and timing of the opening of Units in the respective Sub-Areas during
the respective Sub-Area Terms and you are not granted any rights to develop or
operate, and you may not develop or operate, Units outside the respective
Sub-Areas, except under rights granted to you under other agreements entered
into with ENBC, and you will also not offer Catering Service or Delivery Service
or operate Special Distribution Arrangements within the Development Area, except
as provided in the Development Agreement.
The continuation of your right to develop Units within each of the
Sub-Areas is dependent upon your satisfaction of the development obligations set
forth in the Development Agreement for the Sub-Area and of all of your other
obligations and the obligations of your Owners under the Development Agreement.
Upon termination or expiration of the Agreement Term, the Development Term or
the Sub-Area Term for a particular Sub-Area, and as expressly provided in the
Development Agreement during the Agreement Term, ENBC and its affiliates will
have the right to develop and operate, and to grant to others development rights
and franchises to develop and operate, Units within the Sub-Area, subject only
to the territorial rights, if any, under the Franchise Agreements you enter into
for Units in the Sub-Area. The Development Area and the Sub-Areas may not be
altered except by the mutual written agreement of you and ENBC or by termination
of some or all of your rights as a result of your breach of the Development
Agreement. The number of Units that you are required to have open and operating
in each Sub-Area (the "Sub-Area Quota") and in the Development Area overall (the
"Total Development Quota) is determined when you sign the Development Agreement
and is found in the Development Schedule, which is attached to the Development
Agreement (Exhibit B to this offering circular).
You must prepare a Market Real Estate Development Plan for development of
Units in the Development Area and must open and have in operation in each
Sub-Area the number of Units set forth in the Development Schedule attached as
an exhibit to the Development Agreement by the opening dates specified in the
Development Schedule. You may develop in
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the Sub-Area only the number of Units set forth on the Development Schedule. A
Unit that is closed for more than 5 days (not counting ENBC-approved holidays)
during any period of 12 months will not be counted as open and in operation for
purposes of the Development Quota (as defined in Item 12) as of the next Unit
opening date after the closing for purposes of determining your compliance with
the Development Schedule for the Sub-Area in which the Unit is located.
ENBC'S RESERVATION OF RIGHTS.
---------------------------
Except as expressly limited in the Development Agreement, ENBC (for itself,
its affiliates and its designees) retains all rights with respect to Units, the
Marks, the Copyrighted Works (defined in Item 14 below), and the sale of
Products and any other products and services, anywhere in the world, including:
(1) the right to operate or grant others the right to operate food service
businesses, including Units and/or Bagel Stores (defined below), at locations
within and/or outside the Development Area and each Sub-Area and on the terms
and conditions as ENBC, in its discretion, deems appropriate both during and
upon expiration or termination of the Development Term; and (2) the right, and
the right to grant others the right, to develop, manufacture, market, distribute
and/or sell Products and/or any other product or service within and/or outside
the Development Area and each Sub-Area through any channel of distribution,
whether wholesale, retail or otherwise, including through Special Distribution
Arrangements, Delivery Service, Catering Service and/or through Boston Market
outlets, under or in association with the Marks or any other trademarks and/or
to own or operate any other business under the Marks or any other trademarks;
and (3) subject to your options to develop Target Sites and purchase Conversion
Sites under the Development Agreement, the right to acquire and operate any
business, including a business operating one or more food service businesses
located or operating within and/or outside of the Development Area and any Sub-
Area. A "Bagel Store" is a food service business, including a Unit, which
derives a significant portion of its revenue from the sale of bagels and bagel-
related products or from any other product or service which is or also becomes a
source of a significant portion of the revenue of any Unit.
YOUR OPTION TO DEVELOP TARGET SITES.
-----------------------------------
If during the Sub-Area Term of a particular Sub-Area ENBC locates a site
suitable for a Unit within the Sub-Area (a "Target Site"), ENBC will notify you
in writing of a Target Site if ENBC intends that the Target Site be developed
and operated as a Unit. Within 10 days after your receipt of ENBC's notice
regarding the Target Site (including any relevant site-related materials in
ENBC's possession), you must notify ENBC if you desire to develop and operate a
Unit at the Target Site.
If you timely notify ENBC in writing that you wish to develop and operate a
Unit at the Target Site and ENBC has fully negotiated a lease or purchase
agreement for the Target Site, then you must (1) obtain the consent of the
landlord to execute a lease, if applicable, or (2) execute a purchase agreement
or an assignment of purchase agreement, if applicable, and (3) execute ENBC's
then current form of standard franchise agreement (containing ENBC's then
current fee
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and expenditure requirements) and any ancillary documents (including guarantees)
ENBC then customarily uses in the grant of franchises for Units (collectively,
"Franchise Documents") as modified for use along with a Target Site, as
necessary, and (4) pay ENBC the Site Location and Negotiation Fee, plus ENBC's
reasonable out-of-pocket expenses incurred in securing the Target Site, within
10 business days after ENBC delivers to you the lease or purchase agreement, as
the case may be, and the Franchise Documents. ENBC will fully cooperate with you
to obtain the landlord's consent to execute the lease or the seller's consent to
execute a purchase agreement or assignment of purchase agreement.
If you timely notify ENBC in writing that you desire to develop and operate
a Unit at the Target Site and ENBC has not fully negotiated a lease or purchase
agreement for the Target Site, then you will have 30 days in which to negotiate
and deliver to ENBC a lease or purchase agreement for the Target Site in form
for execution. If ENBC disapproves the lease or purchase agreement for failure
to meet ENBC's requirements, you will have 10 days within which to negotiate and
deliver to ENBC a revised lease or purchase agreement for the Target Site in
form for execution. If the revised lease or purchase agreement fails to meet
ENBC's requirements, or if you fail to negotiate and deliver to ENBC a lease or
purchase agreement within the aforementioned 30 day period, then ENBC or its
designee may develop and operate a Unit at the Target Site. If ENBC approves the
lease or the purchase agreement for the Target Site, then you will (1) execute a
lease or purchase agreement, as applicable, (2) execute the Franchise Documents,
and (3) pay the Site Location Fee, plus ENBC's reasonable out-of-pocket expenses
incurred in securing the Target Site, all within 10 business days after ENBC's
delivery of the Franchise Documents to you.
If you decline the option to develop a Target Site, fail to timely notify
ENBC of your election to develop a Target Site or fail to timely execute the
lease or purchase agreement and Franchise Documents for a Target Site and pay
the Target Site Fee, then ENBC or its designee may develop and operate a Unit at
the Target Site.
Any Target Site for which you execute Franchise Documents and develop and
open a Unit will count toward the Sub-Area Quota (as defined in Item 12) for the
Sub-Area in which the Target Site is located. ENBC is not required to give
notice to you or offer to you a franchise to develop a Unit with regard to any
suitable Target Site or Conversion Site (defined below) in a Sub-Area that ENBC
desires to develop and operate as a Unit after the total number of Sites for
which you have executed a Franchise Agreement and accepted as Target Sites or
Conversion Sites equals the cumulative number of Units required to be open and
operating on or before the last opening date for the last Unit required to be
opened in the Sub-Area. As an alternative to terminating the Development
Agreement, ENBC has the right to terminate your option to develop Target Sites.
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YOUR OPTION TO PURCHASE CONVERSION SITES.
----------------------------------------
If during the applicable Sub-Area Term for a particular Sub-Area ENBC
acquires the shares or assets (including furniture, fixtures, equipment,
leasehold improvements and/or leasehold interests) of any business operating at
one or more sites located within the Sub-Area which meet ENBC's specifications
and standards as in effect periodically for conversion to Units (the "Conversion
Sites"), and ENBC determines in its discretion to convert the Conversion Sites
to Units, ENBC will offer to sell the Conversion Sites to you for the price ENBC
paid, if: (1) the sale will not conflict with any existing legal obligation of
ENBC or the business being acquired; and (2) the sale will not preclude the
completion of the acquisition on the terms ENBC agreed to; and (3) the sale will
not interfere with any other legal agreement, arrangement or combination or
result in adverse federal or state income tax consequences for any party; and
(4) you agree to execute concurrently with your purchase, the Franchise
Documents, as modified for use along with a Conversion Site, as necessary, for
each and every Conversion Site and convert each Conversion Site to a Unit as
soon as practicable according to ENBC's standards and specifications. The sale
may also be contingent upon your agreement to acquire and close certain stores
ENBC acquired with the Conversion Sites but which are not suitable for
conversion. You will have 30 days after receipt of ENBC's offer in which to
accept or reject the offer by written notice to ENBC.
Any Conversion Site for which Developer executes the Franchise Documents
and develops and opens a Unit will count toward the Sub-Area Quota (as defined
in Item 12) for the Sub-Area in which the Conversion Site is located. If you
reject or fail to timely accept ENBC's offer to sell the Conversion Sites or
ENBC is unable to extend the offer for any of the reasons noted above, and if
you are in full compliance with the Development Agreement and all Franchise
Agreements to which you are a party, ENBC will not use the Marks at the
Conversion Sites (whether ENBC owns or franchises the Conversion Sites) for one
year following ENBC's acquisition of the Conversion Sites. ENBC may, however,
operate, alter, modify, refurbish, remodel, promote and market any of the
Conversion Sites during the one year period. As an alternative to terminating
the Development Agreement, ENBC has the right to terminate your option to
develop Conversion Sites.
DEFINITIONS. As described below, ENBC may, in its discretion, (a) require
you or offer you the opportunity to offer Delivery Service and/or Catering
Service and/or (b) approve you to offer Special Distribution Arrangements.
(1) DELIVERY SERVICE. "Delivery Service" is the delivery of Products
prepared at a Unit or a separate delivery facility ENBC approves (referred
to in this document as a "Delivery Facility") to customers in a Delivery
Area (defined below) according to ENBC's standards and specifications for
the provision of delivery service and ENBC's prototype plans and layout for
a delivery staging area within a Unit or in a separate facility, if any,
ENBC approves, where (1) the Products are intended to serve fewer than
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15 persons, and (2) the service involves the provision of no services other
than the delivery to a customer at a particular location within the
Delivery Area. A "Delivery Area" is the geographic area in which ENBC, in
its discretion may authorize you to provide Delivery Service under a
Delivery Rider. Your Delivery Area, if any, may be the same as, smaller
than, larger than or different from the prescribed territory of your Unit
(the "Territory"). The Territory is more fully described in Item 12. ENBC
uses the Delivery Rider to authorize or require you, in its discretion, to
offer Delivery Service within a Delivery Area. A copy of ENBC's current
form of Delivery Rider is attached to the Franchise Agreement, which is
attached to this offering circular as Exhibit C. ENBC may, at any time and
in its discretion, require that you provide Delivery Service from one or
more Units. If you fail to provide Delivery Service, you will forfeit to
ENBC or its designees the right to provide Delivery Service. The terms and
conditions for Delivery Service are more fully described below.
(2) CATERING SERVICE. "Catering Service" is the delivery of Products
prepared at a Unit or a separate facility ENBC approves (an approved
facility is referred to as a "Catering Facility") to customers in the
Catering Area (defined below) under the ENBC's standards and specifications
for the provision of that service and ENBC's prototype plans and layout for
a catering staging facility, where (1) the Products are intended to serve
15 or more persons, or (2) in addition to the delivery of Products,
ancillary services are provided to a customer at a location within the
Catering Area, including, for example, the setting up for serving or
distribution of Products. The "Catering Area" is the geographic area in
which ENBC, in its discretion, may authorize you to provide Catering
Service under a Catering Rider . Your Catering Area, if any, may be the
same as, smaller than, larger than or different from the Territory of a
Unit. ENBC uses the Catering Rider to authorize or require you, in its
discretion, to offer Catering Service within a Catering Area. A copy of
ENBC's current form of Catering Rider is attached to the Franchise
Agreement attached to this offering circular as Exhibit C. If you fail to
provide Catering Service, you will forfeit to ENBC or its designees the
right to provide Catering Service. The terms and conditions for Catering
Service are more fully described below.
(3) SPECIAL DISTRIBUTION ARRANGEMENTS. A "Special Distribution
Arrangement" is the sale of Products at or from a Special Distribution
Location (defined below), whether or not by or through on-premises food
service facilities or concessions, according to ENBC's standards and
specifications for these sales. A "Special Distribution Location" is a
facility or location, including a school, hospital, office, work site,
military facility, grocery store, convenience store, supermarket,
entertainment or sporting facility or event, bus or train station, park,
toll road or limited access highway facility, shopping mall or other
similar facility, at or from which ENBC, in its discretion, authorizes a
Special Distribution Arrangement under a Special Distribution Agreement
(defined below). A Special Distribution Location may be located within or
outside the Territory. A "Special Distribution Agreement" is a separate
agreement in which ENBC authorizes
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you to operate a Special Distribution Arrangement at a Special Distribution
Location ENBC designates. ENBC will propose the terms of a Special
Distribution Agreement at the time, if any, as it proposes a Special
Distribution Arrangement to you. Special Distribution Arrangements are more
fully described below. ENBC is not generally obligated to offer Special
Distribution Arrangements to you and may operate or grant others the right
to operate Special Distribution Arrangements in the Territory of a Unit or
the Development Area or a Sub-Area.
SPECIAL DISTRIBUTION ARRANGEMENTS.
---------------------------------
You are not granted any rights to operate Special Distribution Arrangements
within or outside the Development Area under the Development Agreement. The
right to operate or grant to others the right to operate Special Distribution
Arrangements is expressly reserved to ENBC. ENBC has no obligation to offer to
you the right to operate Special Distribution Arrangements, and ENBC or its
designees may instead operate or grant to others the right to operate Special
Distribution Arrangements within and/or outside the Development Area. However,
if ENBC, at any time and in its discretion, determines to offer Developer the
right to operate a Special Distribution Arrangement at a Special Distribution
Location ENBC designates, ENBC will notify you by delivering to you a Special
Distribution Agreement authorizing you to conduct a Special Distribution
Arrangement at a Special Distribution Location. You will have 15 days to execute
and return to ENBC the Special Distribution Agreement after your receipt of the
Special Distribution Agreement. The Special Distribution Agreement will provide
that you commence the Special Distribution Arrangement from the designated
Special Distribution Location(s) within the time period ENBC specifies in the
Special Distribution Agreement. If you fail to execute and return to ENBC the
Special Distribution Agreement within a 15 day period or commence the Special
Distribution Arrangement within the specified period, then you will have no
right to operate the Special Distribution Arrangement after that period ends. If
you have executed a Special Distribution Agreement, ENBC may, at any time and in
its discretion with or without cause and regardless of the investment you make
to establish or operate the Special Distribution Arrangement or the length of
time the Special Distribution Arrangement has been in effect, suspend or
terminate your right to operate the Special Distribution Arrangement.
DELIVERY SERVICE.
----------------
You are not granted any rights within or outside the Development Area or
the Sub-Areas to offer Delivery Service from any of the Units under the
Development Agreement and ENBC has no obligation to offer to you the right to
provide Delivery Service. However, if ENBC, at any time and in its discretion,
determines to offer Delivery Service in a designated Delivery Area in which a
Unit developed under the Development Agreement is located, ENBC will offer you
the right to offer Delivery Service by delivering to you a Delivery Rider to the
applicable Franchise Agreement for the Unit authorizing the offer of Delivery
Service within the designated Delivery Area. You will have 15 days to execute
and return to ENBC the Delivery Rider after your receipt of the Delivery Rider.
The Delivery Rider will provide that you will commence
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Delivery Service from the Unit or, in ENBC's discretion, from a Delivery
Facility within the time period ENBC specifies in the Delivery Rider. If you
fail to execute and return to ENBC the Delivery Rider within a 15 day period or
commence Delivery Service within the specified period, then you will have no
right to provide Delivery Service at any Unit after that period, and ENBC or its
designee will have the right to offer Delivery Service within the designated
Delivery Area. However, if ENBC determines in its discretion that all franchise
owners of Units in the trade area where the Unit is located will offer Delivery
Service, you must offer Delivery Service, and ENBC will notify you and will
deliver to you a Delivery Rider to the applicable Franchise Agreement which you
must execute and return to BCA within 15 days of its receipt. ENBC will
determine, in its discretion, the trade area, which will not exceed the
Marketing Area.
CATERING SERVICE.
----------------
You are not granted any rights within or outside the Development Area or
the Sub-Areas to offer Catering Service from the Units or from other locations
under the Development Agreement and ENBC has no obligation to offer to you the
right to provide Catering Service. However, if ENBC, at any time and in its
discretion, determines to offer Catering Service in a designated Catering Area
in which a Unit developed under the Development Agreement is located, ENBC will
offer you the right to offer Catering Service by delivering to you a Catering
Rider to the applicable Franchise Agreement for the Unit authorizing the offer
of Catering Service within the designated Catering Area. You will have 15 days
to execute and return to ENBC the Catering Rider after your receipt of the
Catering Rider. The Catering Rider will provide that you will commence Catering
Service from one or more Units or one or more Catering Facilities, as ENBC may
determine in its discretion, within the time period ENBC specifies in the
Catering Rider. If you fail to execute and return to ENBC the Catering Rider
within a 15 day period or commence Catering Service within the specified period,
then you will have no right to provide Catering Service within the designated
Catering Area after that time period, and ENBC or its designee will have the
right to offer Catering Service within the designated Catering Area. However, if
ENBC determines in its discretion that all franchise owners of Units in the
trade area where the Unit is located will offer Catering Service, you must offer
Catering Service, and ENBC will notify you and will deliver to you a Catering
Rider to the applicable Franchise Agreement which you must execute and return to
ENBC within 15 days of its receipt. ENBC will determine, in its discretion, the
trade area, which will not exceed the Marketing Area.
FRANCHISE AGREEMENT.
- -------------------
TERRITORIAL RIGHTS.
------------------
The Franchise is granted for a specified location, the Site within the
Territory, identified in an exhibit to the Franchise Agreement. Typically, your
Territory will be the area within a circle having a radius of at least
one-quarter mile and the Site at the center. Except as otherwise
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provided in the Franchise Agreement and conditioned upon you being in full
compliance with the Franchise Agreement, ENBC and its affiliates will not during
the term of the Franchise Agreement operate or grant franchises for the
operation of Units within the Territory. You may not conduct the business of the
Unit from any location other than the Site, except as otherwise provided under
the Franchise Agreement, and may not conduct Catering Service, Delivery Service
or Special Distribution Arrangements within or outside the Territory, except as
expressly provided in the Franchise Agreement.
Your rights in the Territory do not depend on certain sales volume or
market penetration. The Territory may not be altered except by the mutual
written agreement of you and ENBC or termination of the Franchise Agreement.
BCA'S RESERVATION OF RIGHTS.
---------------------------
Except as expressly limited in the Franchise Agreement, ENBC (for itself,
its affiliates and its designees) retains all rights with respect to Units, the
Marks, the Copyrighted Works and the sale of Products and any other products and
services, anywhere in the world, including: (1) the right to operate or grant
others the right to operate food service businesses, including Units and/or
Bagel Units, at locations within and/or outside the Territory and on the terms
and conditions as ENBC, in its discretion, deems appropriate both during and
upon expiration and termination of the Agreement Term; (2) the right, and the
right to grant others the right, to develop, manufacture, market, distribute
and/or sell Products and/or any other product or service within and/or outside
the Territory through any channel of distribution, whether wholesale, retail or
otherwise, including, through Special Distribution Arrangements, Delivery
Service, Catering Service and/or through Boston Market outlets, under or in
association with the Marks or any other trademark and/or to own or operate any
other business under the Marks or any other trademarks; and (3) subject to your
option to purchase conversion sites as described below, the right to acquire and
operate any business, including a business operating one or more food service
businesses located or operating within and/or outside the Territory.
YOUR OPTION TO PURCHASE CONVERSION SITES.
----------------------------------------
See the preceding part of this Item 12 under "Developer's Option to
Purchase Conversion Sites." The applicable terms of the Franchise Agreement are
comparable to those in the Development Agreement, except that the terms of the
Franchise Agreement apply solely to the Territory, and if you fail to timely
accept or reject ENBC's offer to sell the Conversion Sites or ENBC is unable to
extend the offer for any reason, ENBC will not use the Marks at that Conversion
Site for one year following ENBC's acquisition of the Conversion Site, if you
are in full compliance with the Franchise Agreement. ENBC may, however, operate,
alter, modify, refurbish, remodel, promote or market that Conversion Site during
the one year period.
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SPECIAL DISTRIBUTION ARRANGEMENTS.
---------------------------------
See the preceding part of this Item 12 concerning Special Distribution
Arrangements under the Development Agreement. The applicable terms for Special
Distribution Arrangements under the Franchise Agreement are comparable to those
in the Development Agreement.
DELIVERY SERVICE.
----------------
See the preceding part of this Item 12 concerning the Development
Agreement. The applicable terms of the Franchise Agreement concerning Delivery
Service are comparable to those in the Development Agreement.
CATERING SERVICE.
----------------
See the preceding part of this Item 12 concerning the Development
Agreement. The applicable terms of the Franchise Agreement concerning Catering
Service are comparable to those in the Development Agreement.
RELOCATION OF THE UNIT.
----------------------
If your lease or sublease for the Site of the Unit expires or terminates
without your fault, if the Site is damaged, condemned or otherwise rendered
unusable as a Unit according to the Franchise Agreement, or if, in ENBC's and
your judgment, there is a change in the character of the location of the Site
sufficiently detrimental to its business potential to warrant its relocation,
ENBC will not unreasonably withhold permission for relocation of the Unit to a
site within the Territory which meets ENBC's then-current site criteria, subject
to the rights of existing Franchisees under their franchise agreements with
ENBC. Any relocation will be at your sole expense. The Unit is required to re-
open at the replacement Site as soon as reasonably practicable but under any
circumstance no more than 90 days after the closing of the original location
closed.
ITEM 13
-------
TRADEMARKS
ENBC owns registrations of certain Marks with the U.S. Patent and Trademark
Office on the principal register, including the following:
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<TABLE>
<CAPTION>
===============================================================================
NAME OR MARK REGISTRATION REGISTRATION
NUMBER CLASS DATE
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Bagel & Bagel and Design 1918543 USA 9/12/95
42
- -------------------------------------------------------------------------------
Bagel & Bagel and Design 1918541 USA 7/5/94
42
- -------------------------------------------------------------------------------
Baltimore Bagel 1799531 USA 10/19/93
30
- -------------------------------------------------------------------------------
Noah's Bagels 1838799 USA 6/7/94
46
- -------------------------------------------------------------------------------
Noah's Bagels 1841045 USA 6/21/94
100
- -------------------------------------------------------------------------------
Offerdahl's Bagel Gourmet 1675585 USA 2/11/92
42
- -------------------------------------------------------------------------------
Offerdahl's Bagel Gourmet 1684164 USA 1/18/90
30
- -------------------------------------------------------------------------------
Offerdahl's Bagel Gourmet and Design 1896387 USA 5/30/95
30 & 42
===============================================================================
</TABLE>
ENBC has also applied for the registration of certain Marks with the U.S. Patent
and Trademark Office on the principal register, including the following:
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<PAGE>
<TABLE>
<CAPTION>
===============================================================================
APPLICATION APPLICATION
NAME OR MARK NUMBER CLASS DATE
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Einstein Bros. 74/732659 USA 9/21/95
30
- -------------------------------------------------------------------------------
Einstein Bros. 74/732658 USA 9/21/95
29
- -------------------------------------------------------------------------------
Einstein Bros. 74/732660 USA 9/21/95
42
- -------------------------------------------------------------------------------
Einstein 74/675983 USA 5/15/95
42
- -------------------------------------------------------------------------------
Einstein 74/675985 USA 5/15/95
30
- -------------------------------------------------------------------------------
Bagel & Bagel 74/547132 USA 7/8/94
29 & 30
- -------------------------------------------------------------------------------
Bagel & Bagel 74/545735 USA 7/5/94
42
===============================================================================
</TABLE>
By not having a Principal Register federal registration for the above
marks, ENBC does not have certain presumptive legal rights granted by a
registration.
By signing the Franchise Agreement, you agree that ENBC owns the Marks and
that if you use the marks in an unauthorized manner, that use will constitute an
infringement of ENBC's rights in and to the Marks, and that all your use of the
Marks and any goodwill you establish by your use will only benefit ENBC. You
also agree to operate your Unit in strict compliance with ENBC's high standard
and in an safe and sanitary condition and to comply strictly with all of ENBC's
mandatory specifications, standards and operating procedures that relate to
Units, as ENBC may change periodically. Finally, you agree that you agree that
before you use them, you will submit to ENBC for its approval samples of all
advertising an promotional materials that ENBC has not prepared or previously
approved. (See Item 11)
On March 8, 1996, Peach State Restaurants, Inc. ("Peach State") filed a
Notice of Opposition in the U. S. Patent and Trademark Office, before the
Trademark Trial and Appeal Board, against ENBC's application for registration of
the mark Einstein's, Serial No. 74/675,983. Peach State claims that it has been
using the mark Einstein's for restaurant services since at least as early as May
24, 1991. Peach State, which has a restaurant in Atlanta, claims that its mark
"has a high degree of recognition, fame, and distinctiveness throughout Georgia
and other states. . . ." It further states that its restaurant services "are in
high demand in Georgia and by
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residents elsewhere in the United States who travel to Georgia." ENBC has not
yet been formally notified by the Trademark Office of this Notice of Opposition
and does not yet have a deadline for filing its Answer. ENBC intends to
vigorously defend the registrability of its mark.
The Hebrew University of Jerusalem ("Hebrew University") has filed with the
U.S. Patent and Trademark Office several extensions of time to oppose a number
of ENBC's trademark applications that include the name Einstein. Hebrew
University claims to own the right of publicity in the name, persona and
likeness of Albert Einstein. On November 27, 1995, ENBC's General Counsel
received a telephone call from an attorney who represents Hebrew University,
inquiring about ENBC's use of the name Einstein and, at that time, the attorney
told ENBC that ENBC's use of the name did not violate any rights of Hebrew
University, so long as there was no use of any other indicia that suggest Albert
Einstein. Although ENBC has not changed the nature of its use of the name
Einstein since that time, ENBC's outside trademark attorneys received a
telephone call from Mr. Roger Richman of The Roger Richman Agency, the licensing
agent for Hebrew University, on March 25, 1996. At that time, Mr. Richman
claimed that on behalf of Hebrew University he sought to stop ENBC's use of the
name Einstein, but invited a responsive letter that explains ENBC's position.
ENBC is preparing a response that vigorously sets forth its position. ENBC's
position is that there is no violation of any rights of Hebrew University
because (1) numerous cases and authorities agree that the mere use of a
celebrity's name does not violate the rights of that person unless additional
factors are present to trigger an association with that person and ENBC's use of
the name Einstein Bros. in connection with bagel restaurants is completely
unrelated to any logical association with the scientist Albert Einstein; (2)
Hebrew University has acquiesced to ENBC's use of the mark Einstein Bros. and is
estopped from taking any action on the basis of the telephone call on November
27, 1995 where the outside counsel and agent of Hebrew University specifically
agreed that ENBC was not violating any rights of Hebrew University; and (3)
widespread use of the name Einstein by many companies in diverse fields
establishes that any rights that Hebrew University may have in the name Einstein
do not extend to the field of bagel restaurants.
Other than as described above, there are no currently effective material
determinations of the U.S. Patent and Trademark Office, the trademark trial and
appeal board, the trademark administrator of any state, or any court, nor any
pending infringement, opposition, or cancellation proceeding, or any pending
material litigation, involving the Marks.
There are no agreements currently in effect which significantly limit
ENBC's rights to use or license the use of the Marks in any manner material to
you.
You must immediately notify ENBC of any apparent infringement of or
challenge to your use of any Mark, or any person's claim of any rights in any
Mark. You may not communicate with anyone except ENBC and its counsel with
respect to any infringement, challenge or claim. ENBC will have discretion to
take action as it deems appropriate along with any infringement, challenge or
claim, and the sole right to control exclusively any litigation or other
proceeding arising out of any infringement, challenge or claim under any Mark.
You must execute any and
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all instruments and documents, render the assistance, and do acts and things
that may, in the opinion of ENBC's counsel, be necessary or advisable in order
to protect and maintain ENBC's interests in any litigation or proceeding or
otherwise to protect and maintain ENBC's interests in the Marks. ENBC will
reimburse you for the reasonable out-of-pocket expenses you incur and pay in
complying with these requirements except to the extent ENBC recovers money on
your behalf in the action. Neither the Franchise Agreement nor the Development
Agreement require ENBC to take affirmative action in response to any apparent
infringement of or challenge to your use of any Mark, or any person's claim of
any rights in any Mark.
If it becomes advisable at any time in ENBC's sole judgment for you to
modify or discontinue the use of any Mark and/or for the Unit to use one or more
additional or substitute trade or service marks, you must immediately comply
with ENBC's directions to modify or otherwise discontinue the use of the Mark,
and/or to use one or more additional or substitute trademarks, service marks,
logos or commercial symbols or substitute trade dress after ENBC's notice to
you. Neither ENBC nor its affiliates will have any obligation to reimburse you
for any expenditures you make because of any discontinuance or modification.
There are no infringing uses actually known to ENBC that could materially
affect Developer's or Franchise Owner's use of the Marks.
ITEM 14
-------
PATENTS, COPYRIGHTS AND PROPRIETARY INFORMATION
PATENTS.
-------
ENBC has no patents that are material to the Franchise.
COPYRIGHTS.
----------
ENBC claims copyright protection covering various materials used in its
business and the operation of Units ("Copyrighted Works"). Under the applicable
agreement, ENBC may authorize you to use certain Copyrighted Works, which are
the valuable property of ENBC or its affiliates and of which ENBC or its
affiliate is the owner if you comply with the terms of the applicable agreement.
ENBC owns or is the licensee of the owner of the Copyrighted Works and may
create, acquire or obtain licenses for certain copyrights in various works of
authorship used for the operation of Units, including the Development Manual,
the Manuals, advertisements, promotional materials, labels, menus, coupons, gift
certificates, posters and signs, and may include all or part of the Marks,
Licensed Program, Trade Dress and other portions of the System.
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<PAGE>
You must immediately notify ENBC of any actual or apparent infringement of
or challenge to any of the Copyrighted Works, or any person's claim of any
rights in the Copyrighted Works, and you may not communicate with any person
other than ENBC and its counsel about any infringement, challenge or claim. ENBC
will have the discretion to take actions it thinks are appropriate in response
to infringement, and the right to control exclusively any settlement,
litigation, arbitration or administrative proceeding arising out of any alleged
infringement, challenge or claim or otherwise under the Copyrighted Works. ENBC
is under no obligation to participate in your defense and/or indemnify you for
damages or expenses you incur if you are a party to any administrative or
judicial proceeding involving the Copyrighted Work.
If it becomes advisable at any time in ENBC's sole judgment for you to
modify or discontinue use of any of the Copyrighted Works and/or for you to use
one or more additional or substitute copyrighted or copyrightable items, you
must immediately comply with ENBC's directions to modify or otherwise
discontinue the use of the copyrighted materials and/or to use one or more
substitute materials.
There are currently no effective determinations of the United States
Copyright Office or any court regarding any Copyrighted Works of ENBC, nor are
any proceedings pending, nor are there any currently effective agreements
between ENBC and third parties pertaining to ENBC's Copyrighted Works that will
or may significantly limit your use of ENBC's Copyrighted Works. ENBC is not
obligated under the Development Agreement or the Franchise Agreement or
otherwise to protect or defend its copyrights. ENBC knows of no infringements of
the Copyrighted Works that could materially affect your use of the Copyrighted
Works. ENBC has not registered any of the Copyrighted Works.
THE LICENSED PROGRAM AND SUPPORT/CONTROL PROGRAMS.
- -------------------------------------------------
The proprietary nature and ENBC's and your rights and obligations relating
to the Licensed Program and required software are described in Item 8.
CONFIDENTIAL INFORMATION.
- ------------------------
ENBC possesses and will further develop and acquire certain confidential
and proprietary information and trade secrets including the following categories
of information, methods, techniques, procedures and knowledge developed or that
ENBC or its affiliates or their consultants, contractors, or designees and/or
franchise owners and developers will develop (the "Confidential Information")
including: (1) methods, techniques, equipment, specifications, standards,
policies, procedures, information, concepts and systems on and knowledge of and
experience in the development, operation and franchising of Units; and (2)
marketing and promotional programs for Units; and (3) knowledge concerning
computer software programs which BCA authorizes for use along with the operation
of Units (including the Licensed Program), and all additions, modifications and
enhancements made to those programs, and all data generated from use of the
programs, including the logic, structure and operation of database
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file structures containing data and all additions, modifications and
enhancements made to those items; and (4) sales data and information concerning
consumer preferences and inventory requirements for Products, materials and
supplies, and specifications for and suppliers of certain materials, equipment
and fixtures for Units; and (5) ingredients, formulas, mixes, spices,
seasonings, recipes for and methods of preparation, cooking, baking, serving,
packaging, catering and delivery of, Products sold at Units; and (6) information
concerning Product sales, operating results, financial performance and other
financial data of Units; and (7) the Development Manual and the Manuals; and (8)
customer lists and Product sales of the Units; and (9) employee selection
procedures, training and staffing levels.
Under the Development Agreement, ENBC will disclose parts of the
Confidential Information to you as ENBC periodically deems necessary or
advisable for the development of Units during training and in guidance and
assistance furnished to you under the Development Agreement and you may learn or
otherwise obtain from ENBC additional Confidential Information during the
Agreement Term. Under the Franchise Agreement, ENBC will also disclose parts of
the Confidential Information as ENBC periodically deems necessary or advisable
for the operation of a Unit to you during training and in guidance and
assistance furnished to you during the term of the Franchise Agreement, and you
may learn or otherwise obtain from ENBC additional Confidential Information of
ENBC during the term of the Franchise Agreement. You must agree to disclose the
Confidential Information to your Owners and employees only to the extent
reasonably necessary and if those individuals have agreed to maintain the
information in confidence in an agreement ENBC can enforce.
The Confidential Information is confidential to and a valuable asset of
ENBC, is proprietary, includes trade secrets of ENBC and is disclosed to you on
the condition that you, and your Owners and employees who have access to the
Confidential Information agree that during and after the term of the applicable
agreement they: (1) will not use the Confidential Information in any other
business or capacity; (2) will maintain the absolute confidentiality of the
Confidential Information; (3) will not make unauthorized copies of any portion
of the Confidential Information disclosed in written or other tangible form; and
(4) will adopt and implement all reasonable procedures ENBC periodically
requires to prevent unauthorized use or disclosure of the Confidential
Information including requiring employees and Owners who have access to the
Confidential Information to execute non-competition and confidentiality
agreements in the forms attached to the Development Agreement and Franchise
Agreement or as ENBC otherwise requires periodically, and provide ENBC, at its
request, with signed copies of each of those agreements. Nothing contained in
the Development Agreement or Franchise Agreement will be construed to prohibit
you from using the Confidential Information in the operation of other Units,
under the a Franchise Agreement or Development Agreement with ENBC.
The restrictions on the disclosure and use of the Confidential Information
will not apply to the following: (a) information, methods, procedures,
techniques and knowledge which are or become generally known in the food service
business within the Development Area or Territory, other than through disclosure
you make (whether deliberate or inadvertent); and
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(b) the disclosure of the Confidential Information in judicial or administrative
proceedings to the extent that you are legally compelled to disclose the
information, if you have notified ENBC before disclosure and used your best
efforts, and afforded ENBC the opportunity to obtain an appropriate protective
order or other assurance satisfactory to ENBC of confidential treatment for the
information required to be so disclosed.
You must disclose to ENBC all ideas, concepts, methods, techniques and
products concerning the development and operation of Units you or your employees
conceive or develop or during the term of the applicable agreement. You must
grant to ENBC and agree to procure from your affiliates, owners or employees a
perpetual, non-exclusive and worldwide right to use same in all food service
businesses ENBC operates, its affiliates and its franchise owners. ENBC will
have no obligation to you to make any lump sum or on-going payments to you with
respect to any idea, concept, method, technique or product. You must agree that
you will not use nor will you allow any other person or entity to use any
concept, method, technique or product without obtaining ENBC's prior written
approval.
ITEM 15
-------
OBLIGATION TO PARTICIPATE IN THE
ACTUAL OPERATION OF THE FRANCHISE BUSINESS
DEVELOPMENT AGREEMENT
- ---------------------
FULL TIME SUPERVISION.
---------------------
You (or your designated Principal Owner(s) ENBC approves) and the Chief
Operating Officer (defined below) must exert full-time efforts to fulfill your
obligations under the Development Agreement and may not engage in any other
business or other activity, directly or indirectly, that requires any
significant management responsibility or time commitments, or that may otherwise
conflict with your obligations under the Development Agreement.
CHIEF OPERATING OFFICER.
-----------------------
Concurrently with the execution of the Development Agreement, you must
designate a person (other than the persons serving as the Development Director
(defined below), the Training Director and the Marketing Director (defined
below)) acceptable to ENBC to act as the chief operating officer of the business
you conduct under the Development Agreement (the "Chief Operating Officer").
The Chief Operating Officer must have appropriate multi-store food service
experience and be an Owner holding a significant, direct equity interest in you
at all times during the Agreement Term. If your relationship with the Chief
Operating Officer terminates or if the proposed Chief Operating Officer is
unable to satisfactorily complete ENBC's management training program, you must
promptly designate a replacement Chief Operating
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Officer acceptable to ENBC, who will satisfactorily complete the management
training program at your expense and subject to ENBC's then-current training
charges.
DEVELOPMENT DIRECTOR AND REAL ESTATE MANAGERS.
---------------------------------------------
Upon ENBC's written request, you must designate a person (other than the
persons serving as the Chief Operating Officer, the Training Director and the
Marketing Director) acceptable to ENBC to act as your Development Director (the
"Development Director") during the Development Term. If your relationship with
the Development Director terminates, you must promptly designate a replacement
Development Director acceptable to ENBC. The Development Director's duties will
include: (1) preparing and implementing a development plan for the Development
Area in form satisfactory to ENBC; and (2) consulting with ENBC concerning the
adaptation of ENBC's existing site criteria and lease requirements for the
Development Area; and (3) directing and coordinating your site evaluation
efforts; and (4) negotiating leases for proposed Unit sites; and (5) developing
Units in the Development Area. You are also obliged to hire and maintain the
number of real estate managers meeting ENBC's qualifications as ENBC specifies.
TRAINING DIRECTOR.
-----------------
You must designate a person (other than the persons serving as the Chief
Operating Officer, the Development Director or the Marketing Director)
acceptable to ENBC to act as your Training Director (the "Training Director")
who must satisfactorily complete ENBC's store-level management training program.
If the proposed Training Director completes the management training program to
ENBC's satisfaction, ENBC will certify him to fulfill the duties of the Training
Director. After the Training Director is certified, he or she will provide
training to the Unit that you develop. If ENBC chooses, your Training Director
will have to become re-certified periodically. If the Training Director ceases
to be an employee of yours or if the proposed Training Director is unable to
satisfactorily complete the management training program or any later training
program, you must promptly designate a replacement Training Director acceptable
to ENBC, who must, at your expense and subject to ENBC's then-current standard
charges, satisfactorily complete ENBC's management training program receive
ENBC's certification as described above. ENBC may, in its discretion as it
thinks is necessary, require the Training Director to attend or to participate
in, at your expense, additional or refresher training programs at locations ENBC
designates during the term of the Development Agreement. The Training Director's
duties will include: (1) training and supervision of Unit personnel; and (2)
furnishing on-site assistance to the personnel of Units according to the opening
of Units; and (3) ongoing consultation with ENBC and management personnel of
Units concerning training matters; and (4) periodic reporting to ENBC concerning
your training programs you establish and operate.
If ENBC authorizes and requires, in its discretion, you must develop,
operate and maintain a training program for employees other than management
personnel and, to the extent ENBC authorizes and approves in writing
periodically, train management personnel of the Units in the
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use of the System throughout the Agreement Term according to specifications ENBC
periodically requires.
MARKETING DIRECTOR.
------------------
Upon ENBC's written request, you must designate a person (other than the
persons serving as the Chief Operating Officer, the Development Director and the
Training Director) acceptable to ENBC to act as your Marketing Director (the
"Marketing Director"). If your relationship with the Marketing Director
terminates, you agree to promptly designate a replacement Marketing Director
acceptable to ENBC. The Marketing Director's duties will include: (1)
consulting with ENBC concerning the adaptation of ENBC's existing marketing
programs and materials for the Development Area; and (2) preparing and
implementing marketing plans for the grand opening of the Units; and (3)
preparing and implementing local marketing plans and marketing budgets for the
Units and the Development Area; and (4) coordinating the direction and
administration of any local marketing efforts of the Units; and (5) reporting
periodically to ENBC concerning your local marketing programs in the Development
Area.
MANAGEMENT PERSONNEL AND TRAINING.
---------------------------------
In addition to hiring, training and maintaining the personnel specified
above, you must hire, train and maintain the number and level of management
personnel required for the conduct of business under the Development Agreement
which will depend on the number of Units to be developed and the qualifications
of the personnel you select. You also must ensure that a full-time Unit Manager
and Additional Manager is hired and maintained at each Unit, as well as maintain
adequate management and supervision of all Units according to guidelines ENBC
periodically establishes. You must keep ENBC advised of the identities of those
personnel. You are responsible for ensuring that those personnel are properly
trained to perform their duties. ENBC, at its option and in its discretion, may
require your Training Director to provide initial management training program to
the Unit Manager and Additional Manager of each Unit at a training facility ENBC
certifies and accredits according to its requirements; this will apply only if
the Training Director currently is certified to provide the training. As
described in Item 14 above, ENBC requires you to obtain confidentiality
agreements from certain of your employees.
COMMISSARY MANAGEMENT.
---------------------
You must employ a Commissary Manager and an Additional Commissary Manager
to supervise the day-to-day operations of each Commissary you operate, both of
whom must complete a ENBC accredited and certified initial management program on
the operations of a Commissary. Item 11. You will hire all Commissary
employees and require them to sign ENBC's standard form of confidentiality
agreement for store personnel.
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GUARANTY.
--------
The Development Agreement requires that the Principal Owners of the
Developer and their spouses must sign the Guaranty and Assumption of Developer's
Obligations attached to the Development Agreement, although ENBC may accept
other assurances of performance ENBC in some cases. For purposes of the
Development Agreement, a "Principal Owner" is an owner which: (1) is a general
partner in the Developer; or (2) has a direct or indirect equity interest: (a)
in the Developer of 5% or more (regardless of whether the owner is entitled to
vote that interest); or (b) in any Unit other than the Units developed under the
Development Agreement, or any developer or franchise owner of Units other than
the Developer; or (3) is otherwise designated as a Principal Owner in the
Development Agreement. However, a reduction in a Principal Owner's equity
interest in the Developer below 5% will not affect his/her/its status as a
Principal Owner unless ENBC expressly agrees.
FRANCHISE AGREEMENT
- -------------------
MANAGEMENT AND PERSONNEL OF THE UNIT.
------------------------------------
You (or your supervising Principal Owner(s)) must supervise and oversee the
operation of the Unit. You also must employ and maintain at all times during the
term of the Franchise Agreement at least one Unit Manager and one Additional
Manager at the Unit. The Unit Manager will be the full-time manager of the Unit
and the Additional Manager will perform on a full-time basis other operations
for you as ENBC may reasonably and periodically specify, and both must
successfully complete to ENBC's satisfaction a ENBC certified initial management
training program for the operation of the Unit. You also must employ the number
of assistant managers required for adequate staffing of the Unit, and must at
all times keep ENBC advised of the identities of the Unit Manager, Additional
Manager and assistant managers. ENBC may deal with the Unit Manager, Additional
Manager and assistant managers on matters pertaining to day-to-day operations
of, and reporting requirements for, the Unit. The Unit at all times must be
under the direct, on-site supervision of the Unit Manager, Additional Manager or
an assistant manager who has completed a training program ENBC or you conduct
(if applicable and if your Training Director is certified under the terms of the
Development Agreement). If ENBC chooses, your then-current Unit Manager will
have to have an equity interest in the Unit during the term of the Franchise
Agreement. You must hire all employees of the Unit and are exclusively
responsible for the terms of their employment and compensation and for the
proper training of those employees in the operation of the Unit. As described in
Item 14 above, ENBC requires you to obtain confidentiality agreements from some
of your employees.
GUARANTY.
--------
The Franchise Agreement requires that the Principal Owners of the Franchise
Owner and their spouses sign the Guaranty and Assumption of Franchise Owner's
Obligations attached to
89
<PAGE>
the Franchise Agreement, although ENBC may in some cases accept other assurances
of performance. A Principal Owner for purposes of the Franchise Agreement is an
owner which: (1) is a general partner in the Franchisee; or (2) has a direct or
indirect equity interest: (a) in the Franchisee of 5% or more (regardless of
whether the owner is entitled to vote that interest); or (b) in any Unit other
than the Units developed under the Franchise Agreement, or any developer or
franchise owner of Units other than the Developer; or (3) is otherwise
designated as a Principal Owner in the Franchise Agreement. However, a reduction
in a Principal Owner's equity interest in the Franchisee below 5% will not
affect his/her/its status as a Principal Owner unless ENBC expressly agrees.
Certain provisions of the Franchise Agreement and Development Agreement and the
guaranties restrict the Franchise Owner, Developer and/or their Principal Owners
from participating in a competing business. (See Item 17)
ITEM 16
-------
RESTRICTIONS ON WHAT THE FRANCHISEE MAY SELL
DEVELOPMENT AGREEMENT.
---------------------
Under the Development Agreement, you may not offer or provide Products,
supplies or services from your Commissary to the general public. Your Commissay
is restricted to furnishing your Units in your Development Area with Products
and other goods and services that ENBC may require. Other than the terms by
which you must operate the Commissary, there is no provision in the Development
Agreement authorizing or restricting the goods or services you offer or provide.
However, you will be bound by the noncompete provisions of the Development
Agreement as well as the provisions of the Franchise Agreements executed under
the Development Agreement with respect to restrictions on goods and services
that Units developed under the Development Agreement offer.
FRANCHISE AGREEMENT.
-------------------
Under the Franchise Agreement, you must offer all the Products that ENBC
periodically authorizes for your Units and must provide all services that ENBC
periodically requires for Units. ENBC has the right, in its discretion, to
change those of Products and services, including to implement local or regional
variations, national uniformity and/or innovations or other changes in ENBC's
franchise program and business strategy, and there is no limit on this right.
You are prohibited from offering at your Unit or any other location or otherwise
according to the Marks any other products or services which have not been
approved for Units. The Franchise Agreement contains no restrictions on the
customers to whom you may sell the goods and services your Unit offers, except
that you only may deliver or cater under an effective Dining Rider or Catering
Rider and then only within the Territory required in the applicable Rider, all
as described in Item 12 above.
90
<PAGE>
ITEM 17
-------
RENEWAL, TERMINATION, TRANSFER AND DISPUTE RESOLUTION
The table below lists certain important provisions of the franchise
and related agreements. You should read these provisions in the agreements
attached to this offering circular.
<TABLE>
<CAPTION>
=================================================================================================================================
PROVISION SECTIONS IN FRANCHISE AGREEMENT AND DEVELOPMENT SUMMARY
AGREEMENT
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
(a) Term of franchise and Section 2.A of Franchise Agreement/Sections 3.A 15 years under Franchise Agreement. Under
development rights and 3.C and 16.E of Development Agreement Development Agreement, 2-5 years for development
rights only, until expiration of last Franchise
Agreement for all other rights and obligations,
including the operation of the Commissary.
- ---------------------------------------------------------------------------------------------------------------------------------
(b) Renewal or extension Sections 17.A-17.C of Franchise Agreement If you are and have been in good standing, you
of the term can acquire successor franchise on ENBC's
then-current terms for 5 years. No renewal of
Development Agreement.
- ---------------------------------------------------------------------------------------------------------------------------------
(c) Requirements for you Sections 17.A-17.C of Franchise Agreement Give proper notice, maintain possession of
to renew or extend premises or secure substitute premises, remodel
and/or expand, sign new agreement and pay fee,
sign release.
- ---------------------------------------------------------------------------------------------------------------------------------
(d) Termination by you Section 18.A of Franchise Agreement/Section 15.A If ENBC breaches Agreement and does not cure or
of Development Agreement begin to cure within stated periods.
- ---------------------------------------------------------------------------------------------------------------------------------
(e) Termination by ENBC Section 5.G. of Development Agreement ENBC may at anytime require you to cease operating
without cause your Commissary.
- ---------------------------------------------------------------------------------------------------------------------------------
(f) Termination by ENBC Sections 18.B and 18.C of Franchise ENBC can terminate if you commit a violation
with cause Agreement/Sections 15.B and 15.C of Development specified in the agreement
Agreement (See (g) below)
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
91
<PAGE>
<TABLE>
<CAPTION>
=================================================================================================================================
SECTIONS IN FRANCHISE AGREEMENT AND DEVELOPMENT
PROVISION AGREEMENT SUMMARY
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
(g) "Cause" defined -- Section 18.B of Franchise Agreement/Section 15.B 10 days to begin required Catering Service,
defaults which can be of Development Agreement Delivery Service or Special Distribution
cured Arrangements; 10 days to correct failure to make
payments due to ENBC or its affiliates for
Royalty, Software and Advertising/Marketing fees
and purchases from ENBC or its affiliates; 10 days
to correct failure to operate Commissary at the
time and location ENBC requires; 30 days to cure
or begin to cure standard/specification
violations or other violations; 24 hours to 5
days to cure health, safety or sanitation
problems; 10 days to cure failure to adhere to
the required financing plan (Development
Agreement only).
- ---------------------------------------------------------------------------------------------------------------------------------
(h) "Cause" defined -- Section 18.B of Franchise Agreement/Section 15.B Franchise Agreement: failure to commence
defaults which cannot of Development Agreement operation on time; abandonment or a transfer
be cured without ENBC's approval; misrepresentation or
omission in application for the Franchise or for
approval of a transfer; conviction or guilty plea
relating to a felony or other serious crimes;
misuse of or challenge to ENBC's intellectual
property rights; loss of right to possess the
Site; insolvency; violation by you or your Owners
of confidentiality or noncompete agreements;
uncured default under lease for Site; 3 or more
defaults in a 24-month period; 2 or more defaults
in a 12-month period; 3 or more (or 50% or more)
of the franchise agreements under the applicable
Development Agreement are terminated; you or your
affiliates terminate a franchise agreement with
ENBC without cause.
Development Agreement: failure to develop the
required number of Units; ENBC delivers to you
notice of termination of a franchise agreement;
you terminate a franchise agreement without
cause; other defaults similar to the non-curable
defaults under the franchise agreement.
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
92
<PAGE>
<TABLE>
<CAPTION>
=================================================================================================================================
SECTIONS IN FRANCHISE AGREEMENT AND DEVELOPMENT
PROVISION AGREEMENT SUMMARY
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
(i) Your obligations on Sections 19.A-19.F of Franchise Pay money owed, complete deidentification, return
termination/ Agreement/Sections 5.I and 16.A-16.E of confidential information (also, see (o) and (r)
non-renewal Development Agreement below); the expiration of the Agreement Term or
the Development Term does not affect your
operation of the Commissary, which continues
until terminated or until the last Unit you
developed has expired or been terminated,
whichever occurs first.
- ---------------------------------------------------------------------------------------------------------------------------------
(j) Assignment of Sections 16.A and 16.J of Franchise No restrictions on ENBC's right to assign. ENBC
contract by ENBC Agreement/Section 14.A of Development Agreement has the right to delegate the performance of any
or all of its obligations or duties.
- ---------------------------------------------------------------------------------------------------------------------------------
(k) "Transfer" by you -- Section 16.B of Franchise Agreement/Sections 5.G Includes transfer or pledge of Agreement, lease
definition and 14.B of Development Agreement or assets, mortgage, lien or security interest
ownership change, sale of voting interests or
securities, delegation of management functions,
or transfer by means of divorce, insolvency,
dissolution, will, intestate succession or
declaration of or transfer in trust.
- ---------------------------------------------------------------------------------------------------------------------------------
(l) ENBC's approval of Sections 16.B and 16.C of Franchise ENBC has the right to approve transfers.
transfer by Agreement/Sections 5.G., 14.B and 14.C of
franchisee Development Agreement
- ---------------------------------------------------------------------------------------------------------------------------------
(m) Conditions for ENBC's Section 16.D of Franchise Agreement/Section 14.D Franchise Agreement: ENBC will evaluate proposed
approval of transfer of Development Agreement transfers based on factors such as whether your
Owner reimburses ENBC for costs of evaluating the
transfer, transfer fee is paid, financing you may
provide is subordinate to the transferee's
obligations to ENBC, transferee signs then-current
undertakings ENBC requires, you, the transferring
Owner and the transferee (if applicable) sign
then-current releases ENBC requires, the
transferring Owner signs a noncompetition
agreement, you, your Owners and the transferee
pay fees due and unpaid, transferee's staff
completes training ENBC requires, transferee
agrees to be bound by the Franchise Agreement or
ENBC's then-current franchise agreement, the
transferee and your Owner agree (and sign a
consent agreeing) that ENBC's approval of the
transfer
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
93
<PAGE>
<TABLE>
<CAPTION>
==================================================================================================================================
SECTIONS IN FRANCHISE AGREEMENT AND DEVELOPMENT
PROVISION AGREEMENT SUMMARY
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
(m) Conditions for ENBC's is not a guaranty, the transfer is in compliance
approval of transfer with applicable laws, the sale of the Unit, lease
(continued) or assets only occurs at transfer, and the
transferee signs a guaranty and assumption of
obligations.
Development Agreement: ENBC will evaluate proposed
transfers based on factors such as whether
transferee meets ENBC's standards, the price and
terms of the transfer, your reimbursement for
ENBC's evaluation, payment of transfer fee,
financing you provide is subordinate to the
transferee's obligations to ENBC, transferee signs
then-current undertakings ENBC requires, you, the
transferring Owner and the transferee (if
applicable) sign then-current releases ENBC
requires and the transferring Owner signs a
noncompetition agreement.
- ----------------------------------------------------------------------------------------------------------------------------------
(n) ENBC's right of first Section 16.H of Franchise Agreement/Section ENBC can match any offer for your business, assets
refusal to acquire 14.G of Development Agreement or an ownership interest.
your business
- ----------------------------------------------------------------------------------------------------------------------------------
(o) ENBC's option to Section 19.F of Franchise Agreement ENBC has the option to buy the Unit after
purchase your termination or expiration of the Franchise
business Agreement
- ----------------------------------------------------------------------------------------------------------------------------------
(p) Your death or Section 16.E of Franchise Agreement/Section 14.C Franchise or ownership interest must be assigned
disability of Development Agreement to an approved buyer within 9 months.
- ----------------------------------------------------------------------------------------------------------------------------------
(q) Non-competition Section 10 of Franchise Agreement/Section 12 of No direct or indirect involvement in a competing
covenants during Development Agreement business anywhere; no solicitation of employees
the term of the of ENBC or its Franchisees; no diversion or
franchise attempts to divert business or customers to a
competing business.
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
94
<PAGE>
<TABLE>
<CAPTION>
==================================================================================================================================
SECTIONS IN FRANCHISE AGREEMENT AND DEVELOPMENT
PROVISION AGREEMENT SUMMARY
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
(r) Non-competition Section 19.D of Franchise Agreement/Section 16.D Franchise Agreement: No direct or indirect
covenants after the of Development Agreement involvement with (including owning interests in
franchise is or providing services for) a competing business
terminated or expires at the Site, within five miles from your Unit or
any other Unit or in the Marketing Area; no
diversion of business of a Unit or of employees
of a Unit or of ENBC or its affiliates.
Development Agreement: For two years, no direct
or indirect involvement with (including owning
interests in or providing services for) a
competing business within five miles from any
Unit, within the Development Area or within the
states where the Development Area is located; no
diversion of business of a Unit or of employees
of a Unit or of ENBC or its affiliates.
- ----------------------------------------------------------------------------------------------------------------------------------
(s) Modification of the Sections 5.C and 21.K of Franchise Modifications in writing only. Operations
agreement Agreement/Sections 13.J and 18.K of Development Manuals may change.
Agreement
- ----------------------------------------------------------------------------------------------------------------------------------
(t) Integration/merger Section 21.L of Franchise Agreement/Section 18.L Only the terms of the Agreement are binding.
clause of Development Agreement Other promises may not be enforceable.
- ----------------------------------------------------------------------------------------------------------------------------------
(u) Dispute resolution by None
arbitration or
mediation
- ----------------------------------------------------------------------------------------------------------------------------------
(v) Choice of forum Section 21.G of Franchise Agreement/Section 18.G Litigation must be in Jefferson County, Colorado
of Development Agreement state court or federal district of Colorado
- ----------------------------------------------------------------------------------------------------------------------------------
(w) Choice of law Section 21.F of Franchise Agreement/Section 18.F Colorado law applies
of Development Agreement
==================================================================================================================================
</TABLE>
95
<PAGE>
These states have statutes which may supersede the franchise agreement in
your relationship with the franchisor including the areas of termination and
renewal of your franchise: ARKANSAS [Stat. Section 72-204], CALIFORNIA
[Sections 20021, 20025, 20026, 20030], CONNECTICUT [Gen. Stat. Section 42-133f],
DELAWARE [Code Sections 2551-2556], HAWAII [Rev. Stat. Section 482E-6], ILLINOIS
[815 ILCS 705/19, 705/20], INDIANA [Stat. Sections 1 (7) and (8); and 23-2-2.7],
IOWA [Code Sections 523H.7; 523H.8], MICHIGAN [Stat. Section 445.1527(c)-(d)],
MINNESOTA [Stat. Section 80C.14], MISSISSIPPI [Code Section 75-24-53], MISSOURI
[Stat. Section 407.405], NEBRASKA [Rev. Stat. Section 87-404], NEW JERSEY [Stat.
Section 56:10-5], SOUTH DAKOTA [Codified Laws Section 37-5A-51], VIRGINIA [Code
13.1-557-574-13.1-564], WASHINGTON [Code Section 19.100.180(i)-(j)], WISCONSIN
[Stat. Sections 135.03; 135.04]. These and other states may have court
decisions which may supersede the franchise agreement in your relationship with
the franchisor including the areas of termination and renewal of your franchise.
Bankruptcy laws may supersede the franchise agreement in your relationship with
the franchisor including the areas of termination of your franchise.
ITEM 18
-------
PUBLIC FIGURES
ENBC does not use any public figure to promote its franchise.
ITEM 19
-------
EARNINGS CLAIMS
ENBC does not furnish or authorize its salespersons to furnish any oral or
written information concerning the actual or potential sales, costs, income or
profits of a Unit. Actual results vary from Unit to Unit and ENBC cannot
estimate the results of any particular franchise.
ITEM 20
-------
LIST OF OUTLETS
As of December 31, 1995, ENBC, directly or through its subsidiaries, owns
and operates 59 bagel stores including 15 Baltimore Bagel stores, 10 Offerdahl's
stores, 10 Bagel & Bagel stores, 8 Bagel Stop stores and 2 Bagel Shop stores.
In addition, ENBC, through a subsidiary and as of April 1, 1996, owns and
operates 45 Noah's New York Bagels shops in Washington and California. (See
Item 1) There have been no terminations, non-renewals, cancellations of any
franchises or failure of any franchisee to communicate with ENBC.
96
<PAGE>
<TABLE>
<CAPTION>
===============================================================================
STATUS OF COMPANY-OWNED BUSINESSES
FOR YEARS 1995/1994/1993/1/
- -------------------------------------------------------------------------------
BUSINESSES BUSINESSES TOTAL BUSINESSES
CLOSED DURING OPENED DURING OPERATING AT
STATE YEAR YEAR DECEMBER 31
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
California 0/0/0 15/0/0 15/0/0
- -------------------------------------------------------------------------------
Florida 0/0/0 10/0/0 10/0/0
- -------------------------------------------------------------------------------
Illinois 0/0/0 5/0/0 5/0/0
- -------------------------------------------------------------------------------
Kansas 0/0/0 6/0/0 6/0/0
- -------------------------------------------------------------------------------
Michigan 0/0/0 1/0/0 1/0/0
- -------------------------------------------------------------------------------
Missouri 0/0/0 4/0/0 4/0/0
- -------------------------------------------------------------------------------
TOTAL 0/0/0 41/0/0 41/0/0
===============================================================================
</TABLE>
1/ These numbers do not include bagel stores that ENBC acquired, operated for
a transitional period and then transferred to franchisees in 1995.
<TABLE>
<CAPTION>
===============================================================================
STATUS OF FRANCHISED BUSINESSES
FOR YEARS 1995/1994/1993
- -------------------------------------------------------------------------------
BUSINESSES BUSINESSES TOTAL BUSINESSES
CLOSED DURING OPENED DURING OPERATING AT
STATE YEAR YEAR DECEMBER 31
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Colorado 1/0/0 9/0/0 8/0/0
- -------------------------------------------------------------------------------
Utah 0/0/0 10/0/0 10/0/0
- -------------------------------------------------------------------------------
TOTALS 1/0/0 19/0/0 18/0/0
===============================================================================
</TABLE>
97
<PAGE>
<TABLE>
<CAPTION>
===============================================================================
PROJECTED STORE OPENINGS AS OF DECEMBER 31, 1995
- -------------------------------------------------------------------------------
FRANCHISE PROJECTED PROJECTED
AGREEMENTS FRANCHISED COMPANY
SIGNED BUT NEW OWNED
BUSINESS BUSINESSES OPENINGS IN
STATE NOT OPEN IN 1996 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Arizona 0 15 0
- -------------------------------------------------------------------------------
California 0 80 0
- -------------------------------------------------------------------------------
Colorado 0 10 0
- -------------------------------------------------------------------------------
District of
Columbia 0 4 0
- -------------------------------------------------------------------------------
Florida 0 30 0
- -------------------------------------------------------------------------------
Illinois 0 25 0
- -------------------------------------------------------------------------------
Indiana 0 3 0
- -------------------------------------------------------------------------------
Kansas 0 15 0
- -------------------------------------------------------------------------------
Massachusetts 0 12 0
- -------------------------------------------------------------------------------
Maryland 0 5 0
- -------------------------------------------------------------------------------
Michigan 0 9 0
- -------------------------------------------------------------------------------
Minnesota 0 10 0
- -------------------------------------------------------------------------------
Missouri 0 10 0
- -------------------------------------------------------------------------------
Nevada 0 5 0
- -------------------------------------------------------------------------------
Ohio 0 15 0
- -------------------------------------------------------------------------------
Pennsylvania 0 25 0
- -------------------------------------------------------------------------------
Rhode Island 0 3 0
- -------------------------------------------------------------------------------
Texas 0 14 0
- -------------------------------------------------------------------------------
Utah 0 10 0
- -------------------------------------------------------------------------------
Virginia 0 3 0
- -------------------------------------------------------------------------------
Wisconsin 0 10 0
- -------------------------------------------------------------------------------
</TABLE>
98
<PAGE>
<TABLE>
<CAPTION>
===============================================================================
PROJECTED STORE OPENINGS AS OF DECEMBER 31, 1995
- -------------------------------------------------------------------------------
FRANCHISE PROJECTED PROJECTED
AGREEMENTS FRANCHISED COMPANY
SIGNED BUT NEW OWNED
BUSINESS BUSINESSES OPENINGS IN
STATE NOT OPEN IN 1996 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
TOTAL 0 313 0
===============================================================================
</TABLE>
99
<PAGE>
<TABLE>
<CAPTION>
===============================================================================
PROJECTED DEVELOPERS OPERATING AS OF DECEMBER 31, 1995
- -------------------------------------------------------------------------------
DEVELOPMENT PROJECTED PROJECTED
AGREEMENTS NEW COMPANY
SIGNED BUT DEVELOPMENT OWNED
BUSINESS AGREEMENTS DEVELOPMENT
STATE NOT OPERATING IN 1996 AREAS IN 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Arizona 0 0 0
- -------------------------------------------------------------------------------
California 0 2 0
- -------------------------------------------------------------------------------
Colorado 0 0 0
- -------------------------------------------------------------------------------
District of Columbia 0 1 0
- -------------------------------------------------------------------------------
Florida 0 1 0
- -------------------------------------------------------------------------------
Illinois 0 1 0
- -------------------------------------------------------------------------------
Indiana 0 1 0
- -------------------------------------------------------------------------------
Kansas 0 1 0
- -------------------------------------------------------------------------------
Massachusetts 0 1 0
- -------------------------------------------------------------------------------
Maryland 0 1 0
- -------------------------------------------------------------------------------
Michigan 0 1 0
- -------------------------------------------------------------------------------
Minnesota 0 0 0
- -------------------------------------------------------------------------------
Missouri 0 1 0
- -------------------------------------------------------------------------------
Nevada 0 1 0
- -------------------------------------------------------------------------------
Ohio 0 1 0
- -------------------------------------------------------------------------------
Pennsylvania 0 2 0
- -------------------------------------------------------------------------------
Rhode Island 0 1 0
- -------------------------------------------------------------------------------
Texas 0 1 0
- -------------------------------------------------------------------------------
Utah 0 0 0
- -------------------------------------------------------------------------------
Virginia 0 2 0
- -------------------------------------------------------------------------------
Wisconsin 0 1 0
- -------------------------------------------------------------------------------
TOTAL 0 20 0
===============================================================================
</TABLE>
100
<PAGE>
ITEM 21
-------
FINANCIAL STATEMENTS
Attached as Exhibit E are ENBC's audited balance sheet as of December 31,
1995, and its audited statement of operations, statement of cash flows and
statement of stockholders' deficit for the period March 24, 1995 through
December 31, 1995. These financial statements were prepared under ENBC's former
corporate name, Einstein Bros. Bagels, Inc.
ITEM 22
-------
CONTRACTS
Attached to this offering circular are the following standard forms of
agreements that ENBC currently uses:
EXHIBITS
--------
Exhibit B Einstein/Noah Bagel Corp. Development Agreement
Exhibit C Einstein/Noah Bagel Corp. Franchise Agreement
Exhibit D Addendum to Lease
Exhibit F Financed Area Developer Loan Agreement
101
<PAGE>
EXHIBIT A
---------
STATE AGENCIES/AGENTS FOR
SERVICE OF PROCESS/EFFECTIVE DATES
----------------------------------
A-1
<PAGE>
EXHIBIT A
---------
STATE AGENCIES/AGENTS FOR
SERVICE OF PROCESS/EFFECTIVE DATES
----------------------------------
Listed here are the names, addresses and telephone numbers of the state
agencies having responsibility for franchising disclosure/registration laws. We
may not yet be registered to sell franchises in any or all of these states.
CALIFORNIA
Department of Corporations:
Los Angeles
Suite 600
3700 Wilshire Boulevard
Los Angeles, California 90010
(213) 736-2741
Sacramento
1115 Eleventh Street
Sacramento, California 95814
(916) 445-7205
San Diego
1350 Front Street
San Diego, California 92101
(619) 525-4044
San Francisco
1390 Market Street
San Francisco, California 94102
(415) 557-3787
Effective Date in California: November 15, 1995, as amended __________, 1996
ILLINOIS
Franchise Division
Office of Attorney General
500 South Second Street
Springfield, Illinois 62706
(217) 782-4465
Effective Date in Illinois: October 18, 1995, as amended January 10, 1996
INDIANA
Secretary of State
201 State House
Indianapolis, Indiana 46204
(317) 232-6681
Effective Date in Indiana: January 19, 1996
MARYLAND
(state agency)
Office of the Attorney General-
Securities Division
20th Floor
200 St. Paul Place
Baltimore, Maryland 21202-2021
(410) 576-6360
<PAGE>
(for service of process)
Maryland Securities Commissioner
at the Office of Attorney General-
Securities Division
20th Floor
200 St. Paul Place
Baltimore, Maryland 21202-2021
(410) 576-6360
Effective Date in Maryland: September 15, 1995
MICHIGAN
Consumer Protection Division
Antitrust and Franchise Unit
Michigan Department of Attorney General
670 Law Building
Lansing, Michigan 48913
(517) 373-7177
Effective Date in Michigan:
September 15, 1995
MINNESOTA
Minnesota Department of Commerce
133 East Seventh Street
St. Paul, Minnesota 55101
(612) 296-6328
NEW YORK
(for service of process)
Secretary of the State of New York
162 Washington Street
Albany, New York 11231
(518) 474-4750
(for other matters)
New York State Department of Law
Investor Protection and Securities Bureau
120 Broadway
New York, New York 10271-0332
(212) 416-8000
Effective Date in New York: November 14, 1995, as amended January 22, 1996
NORTH DAKOTA
North Dakota State Securities Commissioner
Office of the Commissioner of Securities
600 East Boulevard
Bismarck, ND 58505
(701) 328-4712
Effective Date in North Dakota:
December 28, 1995, as amended March 11, 1996
RHODE ISLAND
Division of Securities
Suite 232
233 Richmond Street
Providence, Rhode Island 02903
(401) 277-3048
Effective Date in Rhode Island:
September 22, 1995, as amended
March 15, 1996
SOUTH DAKOTA
Division of Securities
c/o 118 West Capitol
Pierre, South Dakota 57501
(605) 773-4013
2
<PAGE>
VIRGINIA
(for service of process)
Clerk, State Corporation Commission
1300 East Main Street
Richmond, Virginia 23219
(804) 371-9672
(for other matters)
State Corporation Commission
Division of Securities and Retail Franchising
1300 East Main Street
Ninth Floor
Richmond, Virginia 23219
(804) 371-9051
Effective Date in Virginia:
October 17, 1995
WASHINGTON
Director Department of Financial Institutions
Securities Division
P.O. Box 9033
Olympia, Washington 98507-9033
(360) 902-8760
Effective Date in Washington:
September 22, 1995, as amended
December 5, 1995
WISCONSIN
Securities and Franchise Registration
Wisconsin Securities Commission
101 East Wilson Street, 4th Floor
Madison, Wisconsin 53701
(608) 266-3431
Effective Date in Wisconsin:
December 4, 1995
3
<PAGE>
EXHIBIT B
EINSTEIN/NOAH BAGEL CORP.
DEVELOPMENT AGREEMENT
---------------------
B-1
<PAGE>
EINSTEIN/NOAH BAGEL CORP.
DEVELOPMENT AGREEMENT
---------------------
-----------------------------
DEVELOPER
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C> <C>
1. PREAMBLES............................................................. 1
2. CERTAIN DEFINITIONS................................................... 2
3. DEVELOPMENT RIGHTS AND OBLIGATIONS.................................... 9
A. GRANT OF DEVELOPMENT RIGHTS;
PRINCIPAL OWNERS' GUARANTY...................................... 9
B. TERRITORIAL RIGHTS.............................................. 10
C. DEVELOPMENT OBLIGATIONS......................................... 10
D. RIGHTS RETAINED BY COMPANY...................................... 11
E. DEVELOPER'S OPTION TO DEVELOP TARGET SITES...................... 12
F. DEVELOPER'S OPTION TO PURCHASE CONVERSION SITES................. 13
G. POST-TERM DEVELOPMENT........................................... 14
4. OTHER DISTRIBUTION METHODS............................................ 16
A. SPECIAL DISTRIBUTION ARRANGEMENTS............................... 16
B. DELIVERY SERVICE................................................ 16
C. CATERING SERVICE................................................ 17
5. DEVELOPMENT AND OPERATION OF COMMISSARIES............................. 18
A. OBLIGATION TO OPERATE COMMISSARIES.............................. 18
B. DEVELOPMENT AND OPENING OF COMMISSARIES......................... 19
C. TRAINING AND GUIDANCE........................................... 19
D. COMMISSARY MANUALS.............................................. 20
E. OPERATION OF THE COMMISSARY..................................... 20
F. INSURANCE....................................................... 21
G. TRANSFERS....................................................... 22
H. EXPIRATION AND TERMINATION OF COMMISSARY
OPERATIONS...................................................... 22
I. RIGHTS AND OBLIGATIONS OF COMPANY
AND DEVELOPER UPON TERMINATION OR
EXPIRATION OF RIGHT TO OPERATE A COMMISSARY..................... 22
6. GRANT OF FRANCHISES AND ADVERTISING REQUIREMENT....................... 23
A. SITE REVIEW AND APPROVAL........................................ 23
B. LEASE OF APPROVED SITES......................................... 24
C. EXECUTION OF FRANCHISE AGREEMENTS............................... 25
D. INITIAL FRANCHISE AND ROYALTY FEES.............................. 25
E. ADVERTISING EXPENDITURES........................................ 26
7. INITIAL PAYMENTS...................................................... 26
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
SECTION PAGE
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<S> <C> <C>
A. DEVELOPMENT FEE................................................. 26
B. REAL ESTATE SERVICES FEE........................................ 26
8. MARKS................................................................. 26
A. GOODWILL AND OWNERSHIP OF MARKS................................. 26
B. LIMITATIONS ON DEVELOPER'S USE OF MARKS......................... 27
C. NOTIFICATION OF INFRINGEMENTS AND CLAIMS........................ 27
D. DISCONTINUANCE OF USE OF MARKS.................................. 28
E. INDEMNIFICATION OF DEVELOPER.................................... 28
9. COPYRIGHTS............................................................ 28
A. OWNERSHIP OF COPYRIGHTED WORKS.................................. 28
B. LIMITATION ON DEVELOPER'S USE OF COPYRIGHTED
WORKS........................................................... 29
C. NOTIFICATION OF INFRINGEMENTS AND CLAIMS........................ 29
D. DISCONTINUANCE OF USE OF........................................ 30
10. COMPUTER SYSTEM AND SOFTWARE.......................................... 30
A. GRANT OF LICENSE................................................ 30
B. SOFTWARE LICENSE FEE............................................ 32
C. SOFTWARE SUPPORT SERVICE........................................ 32
D. SOFTWARE SUPPORT SERVICE FEE.................................... 33
E. MODIFICATION, ENHANCEMENT AND REPLACEMENT
OF COMPUTER SYSTEM AND SOFTWARE................................. 33
F. WARRANTIES AND LIMITATION OF LIABILITY.......................... 34
G. SUBCOMPONENT LICENSES AND THIRD-PARTY LICENSES.................. 34
H. COVENANT TO USE ONLY SPECIFIED SOFTWARE AND
LICENSED PROGRAM SUPPORT/CONTROL PROGRAMS....................... 35
11. CONFIDENTIAL INFORMATION.............................................. 35
12. EXCLUSIVE RELATIONSHIP................................................ 38
13. OBLIGATIONS OF DEVELOPER.............................................. 39
A. FULL TIME SUPERVISION........................................... 39
B. CHIEF OPERATING OFFICER......................................... 40
C. DEVELOPMENT DIRECTOR AND REAL ESTATE MANAGERS................... 40
D. TRAINING DIRECTOR............................................... 40
E. MARKETING DIRECTOR.............................................. 41
F. MANAGEMENT PERSONNEL AND TRAINING............................... 42
G. BUDGETS AND FINANCING PLANS..................................... 43
</TABLE>
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<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C> <C>
H. INSURANCE....................................................... 43
I. RECORDS AND REPORTS............................................. 44
J. DEVELOPMENT MANUAL, COMMISSARY MANUALS
AND STORE MANUALS............................................... 46
K. COMPLIANCE WITH LAWS AND GOOD BUSINESS PRACTICES................ 46
L. HUMAN RESOURCES................................................. 47
M. SPECIFICATIONS, STANDARDS AND PROCEDURES........................ 47
14. TRANSFER.............................................................. 49
A. BY COMPANY...................................................... 49
B. THIS AGREEMENT IS NOT TRANSFERABLE BY DEVELOPER................. 49
C. CERTAIN RIGHTS TO TRANSFER
OWNERSHIP INTERESTS IN DEVELOPER................................ 50
D. COMPANY'S RIGHT TO APPROVE TRANSFERS............................ 50
E. PUBLIC OR PRIVATE OFFERINGS..................................... 53
F. EFFECT OF CONSENT TO TRANSFER................................... 54
G. COMPANY'S RIGHT OF FIRST REFUSAL................................ 55
H. OWNERSHIP STRUCTURE............................................. 56
I. DELEGATION BY COMPANY........................................... 56
J. PERMITTED TRANSFERS............................................. 56
15. TERMINATION OF AGREEMENT............................................... 56
A. BY DEVELOPER.................................................... 56
B. BY COMPANY...................................................... 57
C. TERMINATION OF THE DEVELOPMENT
TERM AND CERTAIN RIGHTS OF DEVELOPER............................ 59
16. RIGHTS AND OBLIGATIONS OF COMPANY AND
DEVELOPER UPON TERMINATION OF THIS
AGREEMENT OR EXPIRATION OF THE AGREEMENT TERM......................... 60
A. PAYMENT OF AMOUNTS OWED TO COMPANY.............................. 60
B. MARKS AND COPYRIGHTED WORKS..................................... 60
C. CONFIDENTIAL INFORMATION........................................ 61
D. COVENANT NOT TO COMPETE......................................... 62
E. EFFECT ON COMMISSARIES.......................................... 63
F. CONTINUING OBLIGATIONS.......................................... 63
17. INDEPENDENT CONTRACTORS/INDEMNIFICATION............................... 63
18. ENFORCEMENT........................................................... 64
A. SEVERABILITY AND SUBSTITUTION OF VALID PROVISIONS............... 64
</TABLE>
iii
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<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C> <C>
B. WAIVER OF OBLIGATIONS........................................... 65
C. INJUNCTIVE RELIEF............................................... 66
D. RIGHTS OF PARTIES ARE CUMULATIVE................................ 67
E. COSTS AND LEGAL FEES............................................ 67
F. GOVERNING LAW................................................... 67
G. CONSENT TO JURISDICTION/CHOICE OF FORUM......................... 67
H. LIMITATIONS OF CLAIMS........................................... 68
I. WAIVER OF PUNITIVE DAMAGES...................................... 68
J. WAIVER OF JURY TRIAL............................................ 68
K. BINDING EFFECT.................................................. 68
L. CONSTRUCTION.................................................... 68
M. REASONABLENESS; APPROVALS....................................... 69
19. NOTICES AND PAYMENTS.................................................. 69
</TABLE>
EXHIBITS AND ATTACHMENTS
------------------------
EXHIBIT A - CATERING RIDER
EXHIBIT B - DELIVERY RIDER
EXHIBIT C - DEVELOPMENT FEE
EXHIBIT D - DEVELOPMENT AREA(S)
EXHIBIT E - DEVELOPMENT SCHEDULE
EXHIBIT F - FORM FRANCHISE AGREEMENT
EXHIBIT G - PRINCIPAL OWNERS, OTHER OWNERS, KEY
MANAGERS, PERMITTED COMPETITIVE BUSINESSES,
AND INITIAL CAPITALIZATION
EXHIBIT H - DEVELOPER ACKNOWLEDGMENTS AND
REPRESENTATIONS STATEMENT
EXHIBIT I - GUARANTY AND ASSUMPTION OF DEVELOPER'S
OBLIGATIONS
EXHIBIT J - CONFIDENTIALITY AND NONCOMPETE AGREEMENT
EXHIBIT K - PRINCIPAL MARKS TO BE USED BY DEVELOPER
iv
<PAGE>
EINSTEIN/NOAH BAGEL CORP.
DEVELOPMENT AGREEMENT
---------------------
THIS AGREEMENT is made and entered into this _____ day of ________________,
19____ (the "EFFECTIVE DATE"), by and between EINSTEIN/NOAH BAGEL CORP., a
Delaware corporation ("COMPANY"), and DEVELOPER (defined below).
"DEVELOPER":
------------------------------------------------------------
------------------------------------------------------------,
a
-----------------------------------------------------------
Principal Address:
------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
1. PREAMBLES.
---------
COMPANY and its Affiliates (as defined below) have developed and are
continuing to develop and refine methods of operating various food service
businesses, which are referred to in this Agreement as "UNITS" (defined below),
which feature Products (defined below) for on-premises dining and carry-out. In
addition to on-premises dining and carry-out, COMPANY may, in its sole
discretion, offer to a UNIT the right (a) to offer Delivery Service (defined
below) and/or (b) to offer Catering Service (defined below) and/or (c) to
operate Special Distribution Arrangements (defined below). UNITS operate at
locations that feature distinctive food service formats and trade dress and
utilize distinctive business formats, specifications, employee selection and
training programs, signs, equipment, layouts, systems, recipes, methods,
procedures, software, designs and marketing and advertising standards and
formats, all of which COMPANY is continuing to develop and refine and may modify
from time to time in its sole discretion, and all of which may have one or more
variations approved or specified by COMPANY from time to time (the "SYSTEM").
COMPANY operates, and franchises certain qualified persons to own and operate,
UNITS using all or a portion of the System and all or some of the Marks (defined
below).
COMPANY grants to certain qualified persons or entities who meet COMPANY's
qualifications and who are willing to undertake the investment and effort, the
right to develop a specified number of UNITS within a defined geographic area.
This Agreement governs the right and obligation of DEVELOPER to enter into
Franchise Agreements (defined below) which grant the right to develop UNITS
within the Development Area (defined below) in accordance with the Development
Schedule (defined below). The operation of each UNIT will be governed by a
Franchise Agreement (defined below).
<PAGE>
2. CERTAIN DEFINITIONS.
-------------------
For purposes of this Agreement, the terms listed below have the meanings
that follow them. Other terms used in this Agreement are defined in the context
in which they occur.
"ACCOUNTING PERIOD" - One of thirteen periods of four consecutive weeks in
each fiscal year of COMPANY that is designated by COMPANY as an accounting
period of COMPANY.
"AFFILIATE" - Any person or legal entity that directly or indirectly owns
or controls COMPANY, that is directly or indirectly owned or controlled by
COMPANY, or that is under common control with COMPANY. For purposes of this
definition, "CONTROL" means the power to direct or cause the direction of the
management and policies of an entity. Neither Boston Chicken, Inc. ("BCI") nor
any of its affiliates shall be considered Affiliates of COMPANY until such time
as BCI owns a direct Ownership Interest in COMPANY and otherwise meets the
foregoing criteria.
"AGREEMENT TERM" - The period commencing upon the Effective Date and ending
upon the expiration or termination of the last to expire or terminate of the
Franchises (defined below) and successor Franchises granted to DEVELOPER
pursuant to this Agreement, unless terminated sooner in accordance with the
provisions of this Agreement.
"APPROVED SITE" - A site which COMPANY has approved as meeting its minimum
criteria for the development and operation of any UNITS.
"BAGEL STORE" - A food service business, including a UNIT, which derives a
significant portion of its revenue from the sale of bagels and/or bagel-related
products or from any other product or service which is or hereafter becomes a
source of a significant portion of the revenue of a UNIT.
"CATERING AREA" - The geographic area in which COMPANY, in its sole
discretion, authorizes the owner of a Franchise (a "FRANCHISE OWNER") to provide
Catering Service pursuant to a Catering Rider, which area may be the same as,
smaller than, larger than or different from the Territory (defined in the
Franchise Agreement) of a UNIT.
"CATERING RIDER" - The form of rider to this Agreement or to a Franchise
Agreement used by COMPANY from time to time to authorize in its sole discretion
a Franchise Owner to offer Catering Service (defined below) within the
applicable Catering Area. The current form of COMPANY's Catering Rider is
attached hereto as Exhibit A.
"CATERING SERVICE" - The delivery of Products prepared at a UNIT or a
separate facility approved by COMPANY in writing (such approved facility is
referred to herein as a "CATERING FACILITY") to customers in the Catering Area
pursuant to COMPANY's standards and specifications for the provision of such
service, which COMPANY may change from time to time in its sole discretion,
where
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(1) such Products are intended to serve fifteen (15) or more persons,
or
(2) in addition to the delivery of Products, DEVELOPER provides
ancillary services to a customer at such location within the Catering Area,
including, by way of example and without limitation, the setting up for
serving or distribution of Products.
"COMMISSARY" - A food preparation facility operated by DEVELOPER pursuant
to this Agreement that:
(1) procures and receives those Products, ingredients and materials
used in the preparation and packaging of Products, and other materials and
supplies used in the operation of UNITS as COMPANY may specify from time to
time;
(2) prepares and packages Products in accordance with recipes,
methods, procedures, standards and specifications established by COMPANY,
in its sole discretion, from time to time; and
(3) distributes to Stores (defined below) Products and other materials
and supplies used in the operation of UNITS.
"COMPETITIVE BUSINESS" - A business or enterprise, other than a UNIT or
Commissary, that:
(1) offers food and/or beverage products at wholesale or retail, which
are the same as or similar to the Products, through:
(a) on-premises dining;
(b) carry-out;
(c) delivery service;
(d) catering service; or
(e) other distribution channels similar to those used by COMPANY; or
(2) grants or has granted franchises or licenses or establishes or has
established joint ventures, for the development and/or operation of one or
more businesses or enterprises described in the foregoing clause (1);
provided, however, that the term "Competitive Business" shall not include:
(a) any Boston Market restaurant operated pursuant to a valid
franchise or license agreement with Boston Chicken, Inc. or its
successors; or
(b) any business or enterprise that derives less than 10% of its
revenue from the sale of (i) bagels and/or bagel related products
(including but not limited to cream cheese and other spreads,
bagel sandwiches and bagel chips) or (ii) any other product which
accounts for 15% or more of the
3
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revenue of any UNIT owned or operated by COMPANY or a franchisee
of COMPANY.
"COMPUTER SYSTEM" - Those brands, types, makes, and/or models of
communications and computer systems and hardware specified or required by
COMPANY for use by, between, or among the Stores and/or DEVELOPER including, but
not limited to:
(1) back office and point of sale systems, data, audio, video, and
voice storage, retrieval, and transmission systems for use at the Stores
and/or at DEVELOPER's office, between or among the Stores and DEVELOPER and
between or among Stores and/or DEVELOPER and COMPANY;
(2) security systems;
(3) printers; and
(4) archival and back-up systems.
"CONTROLLING INTEREST" - If DEVELOPER is a:
(1) corporation, such number of the voting shares of DEVELOPER or such
other rights as (a) shall permit voting control of DEVELOPER on any issue
and (b) shall prevent any other person, group, combination, or entity from
blocking voting control on any issue or exercising any veto power; and
(2) general partnership, a managing partnership interest, such
percentage of the general partnership interests in DEVELOPER or such other
rights as (a) shall permit determination of the outcome on any issue and
(b) shall prevent any other person, group, combination, or entity from
blocking voting control on any issue or exercising any veto power;
(3) limited partnership, general partnership interest, such percentage
of limited partnership interests or such other rights as shall permit the
replacement or removal of any general partner; and
(4) limited liability company, such percentage of the membership
interests of DEVELOPER or such other rights as (a) shall permit voting
control of DEVELOPER on any issue, and (b) shall prevent any other person,
group, combination, or entity from blocking voting control on any issue or
exercising any veto power.
"DELIVERY AREA" - The geographic area in which COMPANY, in its sole
discretion, authorizes a franchise owner to provide Delivery Service (defined
below) pursuant to a Delivery Rider (defined below), which area may be the same
as, smaller than, larger than or different from the Territory of a UNIT.
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<PAGE>
"DELIVERY RIDER" - The form of rider to this Agreement or to a Franchise
Agreement used by COMPANY from time to time to authorize or require in its sole
discretion a franchise owner of a UNIT to offer Delivery Service within the
applicable Delivery Area. The current form of COMPANY's Delivery Rider is
attached hereto as Exhibit B.
"DELIVERY SERVICE" - The delivery of Products prepared at a UNIT or a
separate delivery facility approved by COMPANY (such approved facility is
referred to herein as a "DELIVERY FACILITY") to customers in the Delivery Area
pursuant to COMPANY's standards and specifications for the provision of such
service, which COMPANY may change from time to time in its sole discretion,
where
(1) such Products are intended to serve fewer than fifteen (15)
persons, and
(2) such service involves the provision of no services other than the
delivery of Products to a customer at a location within the Delivery Area.
"DEVELOPMENT AREA" - The aggregate of the geographic areas described in
Exhibit D to this Agreement.
"DEVELOPMENT SCHEDULE" - The schedule of the number of UNITS required to be
open and operational at specified dates in each Sub-Area (defined below) and the
required opening dates for each of them set forth in Exhibit E to this
Agreement.
"DEVELOPMENT TERM" - The period during which DEVELOPER is authorized and
required to develop UNITS pursuant to this Agreement, which will commence on the
Effective Date and will expire, unless terminated earlier in accordance with the
terms of this Agreement, on the earlier to occur of (i) the last opening date
set forth in the Development Schedule; or (ii) the first date on which the
number of Stores for which a Franchise Agreement has been executed and delivered
for a location in the Development Area is equal to the Total Development Quota
(as defined in the Development Schedule set forth in Exhibit E to this
Agreement).
"FRANCHISE" - The right to operate a UNIT at a particular location and to
use one or more of the Marks and the System in the operation thereof.
"FRANCHISE AGREEMENT" - at COMPANY's option, either:
(1) the form of franchise agreement (including exhibits, riders,
addenda and attachments thereto) attached hereto as Exhibit F; or
(2) the form of franchise agreement (including all exhibits, riders,
guarantees and other agreements used in connection therewith) used by
COMPANY from time to time in the offering and granting of Franchises in the
United States of America,
5
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in either instance revised by COMPANY in good faith to the extent necessary to
have the Franchise Agreement reflect the substantive changes contained in
Addendum No. 1 to the Franchise Agreement attached hereto as part of Exhibit F.
"IMMEDIATE FAMILY" - (1) The spouse of a person; and (2) the natural and
adoptive parents and natural and adopted children and siblings of such person
and their spouses; and (3) the natural and adoptive parents and natural and
adopted children and siblings of the spouse of such person; and (4) any other
member of the household of such person; provided, in the case of natural and
adopted children and siblings and their spouses and the parents, children and
siblings of spouses, that such person received or had access to Confidential
Information, including as an employee, supplier, officer, director, stockholder
or agent of DEVELOPER or any other operator of a UNIT.
"LICENSED PROGRAM" - The retail store-level computer software programs
(other than the Support/Control Program, as defined below) developed by or for
COMPANY and designated by COMPANY from time to time as specified or required in
connection with utilization of the Computer System, which may include, without
limitation, COMPANY's required point-of-sale, bookkeeping, inventory, training,
marketing, employee selection, operations and financial information, collection
and retrieval systems (including COMPANY's general ledger system utilizing the
standard chart of accounts prescribed by COMPANY from time to time) for use in
connection with the operation of UNITS or franchise owners' and developers'
businesses, including any updates, supplements, modifications or enhancements
thereto made from time to time, all related documentation, the tangible media
upon which such programs are recorded, and the database file structure thereof,
but excluding any data or databases owned or compiled by COMPANY or its
Affiliates or their licensors for use with the Licensed Program or otherwise or
any data generated by the use of the Licensed Program. The Licensed Program
includes, but is not limited to, programs utilized by UNITS for point-of-sale
and cash management, customer feedback kiosks, inventory management, order
processing, employee feedback, production scheduling, labor scheduling, ideal
food costs, store operations and smart form reporting.
"MARKS" - The trademarks, service marks, logos and other commercial symbols
which COMPANY authorizes DEVELOPER to use to identify the services and/or
products offered by Stores (defined below), which may include the marks
"EINSTEIN BROS.," "BAGEL & BAGEL," "OFFERDAHL'S," "BALTIMORE BAGELS," or "NOAH'S
BAGELS," and the "TRADE DRESS" (defined in the Franchise Agreement); provided
that such trademarks, service marks, logos, other commercial symbols, and the
Trade Dress are subject to modification and discontinuance at COMPANY's sole
discretion and may include additional or substitute trademarks, service marks,
logos, commercial symbols and trade dress as provided in this Agreement.
"OWNER" - Each person or entity holding direct or indirect, record or
beneficial Ownership Interests in DEVELOPER, and each person who has other
direct or indirect property rights in DEVELOPER or this Agreement.
6
<PAGE>
"OWNERSHIP INTERESTS" - In relation to a: (i) corporation, the record or
beneficial ownership of one or more shares in the corporation; (ii) partnership,
the record or beneficial ownership of a general or limited partnership interest;
(iii) limited liability company, the record or beneficial ownership of a
membership interest in the limited liability company; or (iv) trust, the
ownership of a beneficial interest of such trust.
"PERMITTED COMPETITIVE BUSINESS" - A business which constitutes a
Competitive Business on the date of this Agreement and is disclosed in Exhibit G
to this Agreement, provided that such business (1) is not on the date of this
Agreement and does not at any time thereafter become a Bagel Store, and (2) does
not offer bagels or bagel-related products on its menu, provided that if such
business is a franchised or licensed business of a franchisor which, pursuant to
an agreement executed prior to the date of this Agreement and under which, after
the date of this Agreement, the franchisor or licensor specifies that such
business offer bagels or bagel-related products as a required menu item, it
shall continue to be deemed a Permitted Competitive Business so long as it does
not become a Bagel Store.
"PRINCIPAL OWNER" - Each Owner which:
(1) is a general partner in DEVELOPER; or
(2) has a direct or indirect equity interest of 10% or more
(regardless of whether such Owner is entitled to vote thereon) in (a)
DEVELOPER or (b) any UNIT or (c) any developer and/or franchise owner of
UNITS other than DEVELOPER; provided, however, that a reduction in a
Principal Owner's equity interest below 10% shall not affect his/her/its
status as a Principal Owner unless such reduction is the result of the
transfer of all his/her/its equity interests in DEVELOPER, a UNIT or such
developer and/or franchise owner of UNITS; or
(3) is designated as a Principal Owner in Section 2 of Exhibit G to
this Agreement.
"PRODUCTS" - Products approved or required by COMPANY from time to time, in
its sole discretion, for sale at or from UNITS, including, without limitation,
bagels, bagel-related products, cream cheese and other spreads, sandwiches,
soups, salads, baked goods, breakfast items, an assortment of hot and cold
beverages, teas (leaves, bags, dry mixes and related forms), coffees (beans,
ground and related forms) and other food products and merchandise, provided that
the foregoing products are subject to modification or discontinuance in
COMPANY's sole discretion, from time to time, and may include additional or
substitute products.
"REQUIRED TELEVISION ADVERTISING" - Television advertising in the
Designated Market Area ("DMA") (as defined by A.C. Nielsen Co. from time to
time) in which the Development Area is located at a minimum of 200 gross ratings
points for a minimum of 36 weeks per calendar year, provided that COMPANY may,
in its sole discretion, from time to time use a market designation comparable
to, but different from, the DMA for purposes of this definition.
7
<PAGE>
"SPECIAL DISTRIBUTION AGREEMENT" - A separate agreement whereby COMPANY
authorizes a Franchise Owner to operate a Special Distribution Arrangement
(defined below) at a Special Distribution Location (as defined below) designated
by COMPANY.
"SPECIAL DISTRIBUTION ARRANGEMENT" - The sale of all or some of the
Products, as designated by COMPANY, at or from a Special Distribution Location
(defined below), whether or not by or through on-premises food service
facilities or concessions, pursuant to COMPANY's standards and specifications
for such sales, which COMPANY may change from time to time in its sole
discretion.
"SPECIAL DISTRIBUTION LOCATION" - A facility or location, including by way
of example and without limitation, a grocery store, convenience store,
supermarket, school, hospital, office, work site, military facility,
entertainment or sporting facility or event, airport, bus or train station,
park, toll road or limited access highway facility, or other similar facility,
at or from which COMPANY, in its sole discretion, authorizes the operation of a
Special Distribution Arrangement pursuant to a Special Distribution Agreement,
which facility may be located within or outside the Development Area or any
Sub-Area.
"SPECIFIED SOFTWARE" - Such software (other than the Licensed Program and
Support/Control Programs), programming, and services which COMPANY from time to
time specifies or requires in connection with utilization of the Computer
System, the Licensed Program and the Support/Control Programs.
"STORE" - A UNIT developed, owned and operated by DEVELOPER pursuant to
this Agreement and a Franchise Agreement.
"SUB-AREAS" - The geographic areas designated as Sub-Areas in Exhibit D to
this Agreement which, taken together, make up the Development Area.
"SUB-AREA TERM" - The period during which DEVELOPER is authorized and
required to develop UNITS in a given Sub-Area pursuant to this Agreement, which
will commence on the Effective Date and will expire, unless terminated earlier
in accordance with the terms of this Agreement, on the earlier to occur of: (i)
the last opening date set forth in Exhibit D to this Agreement for that
Sub-Area; or (ii) the first date on which the number of Stores in the Sub-Area
for which a Franchise Agreement has been executed and delivered is equal to the
Sub-Area Quota (as set forth in Exhibit E ) for that Sub-Area.
"SUPPORT/CONTROL PROGRAMS" - The computer software programs developed by or
for COMPANY and designated from time to time as specified or required in
connection with real estate services and other functions performed by COMPANY
pursuant to this Agreement or in connection with support, supervision, reporting
or control of UNITS and in connection with analysis, tracking, maintenance,
feedback and communication functions related thereto or to the employees
thereof, including but not limited to, Notes Databases, structured reporting and
related software.
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"UNIT" - A food service business that:
(1) offers Products for consumer consumption through on-premises
dining and carry-out, provided that COMPANY may, in its sole discretion,
authorize and/or require such business to offer Delivery Service pursuant
to a Delivery Rider and/or approve the Franchise Owner of such business to
offer Catering Service pursuant to a Catering Rider or to operate Special
Distribution Arrangements pursuant to a Special Distribution Agreement
(defined below); and
(2) operates using the System and one or more of the Marks; and
(3) is either operated by COMPANY or its Affiliates or pursuant to a
valid franchise from COMPANY.
3. DEVELOPMENT RIGHTS AND OBLIGATIONS.
----------------------------------
3.A. GRANT OF DEVELOPMENT RIGHTS;
PRINCIPAL OWNERS' GUARANTY.
--------------------------
DEVELOPER has requested that COMPANY grant to DEVELOPER the right to
develop, own and operate, strictly in accordance with the Sub-Area Development
Quotas and the Total Development Quota, UNITS in the Development Area.
DEVELOPER's request, with respect to the primary Marks and concepts associated
therewith (as listed on Exhibit K attached hereto), has been approved by COMPANY
in reliance upon all of the representations made by DEVELOPER and its Owners in
any submitted application and/or during the application process and in the
Developer Acknowledgements and Representations Statement, a copy of which is
attached to this Agreement as Exhibit H and which shall be executed by DEVELOPER
concurrently with this Agreement. Within sixty (60) days of execution of this
Agreement, DEVELOPER agrees to prepare and submit to COMPANY for COMPANY's
review, amendment, and approval a real estate development plan for developing
UNITS in the Development Area, including, without limitation, designed by which
of COMPANY's approved retail bagel store programs DEVELOPER intends to develop
in the Development Area or Sub-Area (the "MARKET REAL ESTATE DEVELOPMENT PLAN")
(which shall utilize, among other sources, information from the Demographic
Detail Report (defined below in Section 6.A.) which DEVELOPER purchases from
COMPANY). Provided that DEVELOPER is in full compliance with all of the terms
and conditions of this Agreement, including, without limitation, the development
obligations contained in Section 3.C. hereof, and DEVELOPER is in full
compliance with all of their obligations under all Franchise Agreements executed
pursuant hereto, COMPANY will grant to DEVELOPER during the Development Term and
in accordance with Section 6 hereof, the right to develop and operate the number
and types of UNITS in each Sub-Area of the Development Area as specified on
Exhibit D to this Agreement. DEVELOPER acknowledges and agrees that DEVELOPER's
rights under this Agreement are limited to the designated number of Stores for
each Sub-Area and the schedule and timing of the opening of Stores in each Sub-
Area during the respective Sub-Area Terms as set forth on Exhibit D to this
Agreement. DEVELOPER is not granted any rights to develop or operate, and
9
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DEVELOPER will not develop or operate, UNITS outside the Sub-Areas, except
pursuant to rights granted to DEVELOPER under other agreements entered into with
COMPANY.
DEVELOPER expressly acknowledges and agrees that it has no right to renew
its rights under this Agreement upon the expiration or termination of the
Agreement Term or the Development Term. DEVELOPER acknowledges and agrees that
the execution and delivery of this Agreement shall constitute notice to
DEVELOPER of non-renewal for purposes of fulfilling the requirements of any
applicable state or federal law governing the non-renewal of franchise or
development rights.
DEVELOPER shall cause all Principal Owners and their spouses as of the
Effective Date to execute and deliver to COMPANY concurrently with the execution
of this Agreement and all persons or entities that become Principal Owners after
the Effective Date and their spouses to promptly thereafter execute and deliver
to COMPANY, the form of Guaranty and Assumption of Developer's Obligations
("GUARANTY") attached hereto as Exhibit I.
Notwithstanding the foregoing:
(a) DEVELOPER shall not be required to cause the execution and
delivery of the Guaranties referred to in this Section if, and for such
period of time as, DEVELOPER does not pay dividends, distributions or
unreasonable compensation to any Owner at any time that the Owners' equity
in DEVELOPER is either less than $5,000,000 or would be reduced to below
that amount by reason of such payment; and
(b) spouses of guarantors shall not be required to execute any
Guaranties referred to in this Section unless, under applicable law
(including, without limitation, the law of the state in which such
guarantors and/or their spouses reside), their failure to execute would
render the Guaranties null and void.
3.B. TERRITORIAL RIGHTS.
------------------
Except as otherwise provided in this Agreement (including, without
limitation, Section 4 and Sections 3.E. and 3.F.), and provided that DEVELOPER
is in full compliance with this Agreement and with all Franchise Agreements,
COMPANY and its Affiliates will not during the Sub-Area Term for each Sub-Area
operate or grant franchises for the operation of UNITS within such Sub-Area.
3.C. DEVELOPMENT OBLIGATIONS.
-----------------------
DEVELOPER agrees that during the Development Term, it will continuously
exert its best efforts to promote and enhance the development of UNITS within
the Development Area. Without limiting the foregoing obligation, DEVELOPER
agrees to have open and in operation in each Sub-Area the number and types of
UNITS set forth as the respective Sub-Area Quota in Exhibit E attached hereto by
the opening dates specified therein. DEVELOPER and COMPANY acknowledge and agree
that a Store that closes for more than five (5) days (not
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counting COMPANY-approved holidays) during any period of 12 months shall not be
counted as open and in operation as of the next store opening date after such
closing for purposes of determining DEVELOPER's compliance with the Development
Schedule for the Sub-Area in which the Store is located unless such closing is
due to circumstances listed in the last paragraph of Section 18.B of this
Agreement, in which case, the provisions of Section 18.B shall apply. DEVELOPER
also agrees that it will at all times faithfully, honestly and diligently
perform its obligations under this Agreement and that it will update the Market
Real Estate Development Plan as COMPANY requires from time to time. DEVELOPER
acknowledges that COMPANY makes no representations or warranties that the
Development Area or the Sub-Areas can support, or that there are sufficient
sites for, the number of UNITS specified in the Development Schedule. DEVELOPER
acknowledges and agrees that its failure to open and operate UNITS pursuant to
this Agreement shall be a material breach of this Agreement entitling COMPANY to
all remedies available to it pursuant to this Agreement and applicable law.
3.D. RIGHTS RETAINED BY COMPANY.
--------------------------
COMPANY (on behalf of itself, its Affiliates and its designees) retains all
rights with respect to UNITS, the Marks, the Copyrighted Works, and the sale of
Products and any other products and services, anywhere in the world, including,
without limitation:
(1) the right to operate or grant others (including any person or
entity related to any manner whatsoever to COMPANY) the right to operate
food service businesses, including, without limitation, UNITS and/or Bagel
Stores, at such locations within and/or outside the Development Area and
each Sub-Area, both during and upon expiration or termination of the
Development Term or Agreement Term, and on such terms and conditions as
COMPANY, in its sole discretion, deems appropriate (subject to the rights
granted to DEVELOPER in Section 3.B. of this Agreement); and
(2) subject to any rights of DEVELOPER under Section 4 of this
Agreement, the right, and the right to grant others (including any person
or entity related in any manner whatsoever to COMPANY) the right, to
develop, manufacture, market, distribute and/or sell Products and/or any
other product or service within and/or outside the Development Area and
each Sub-Area through any channel of distribution whatsoever, whether
wholesale, retail or otherwise, including, without limitation, through
Special Distribution Arrangements, Delivery Service, Catering Service and
BOSTON MARKET outlets under or in association with the Marks or any other
trademarks and/or to own or operate any other business under the Marks or
any other trademarks; and
(3) subject to Sections 3.E. and 3.F. below, the right to develop
Target Sites (defined below) and to acquire, operate and convert to a UNIT
any business, including, without limitation, a business operating one or
more Bagel Stores (other than UNITS) or other food service businesses
located or operating within and/or outside the Development Area and any
Sub-Area.
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3.E. DEVELOPER'S OPTION TO DEVELOP TARGET SITES.
------------------------------------------
Notwithstanding anything to the contrary in this Agreement, if during the
Sub-Area Term of a particular Sub-Area COMPANY locates a site within such
Sub-Area at which a Bagel Store is not then operated but which, in COMPANY's
judgment, is suitable for a UNIT (a "TARGET SITE"), COMPANY shall, as soon as is
practicable after the site is identified (taking into consideration any
applicable contractual or legal prohibitions or limitations), notify DEVELOPER
in writing of such Target Site if COMPANY intends that such Target Site be
developed and operated as a UNIT. Such notice will include a designation of the
type of UNIT COMPANY intends to develop at the Target Site. Within ten (10) days
after DEVELOPER's receipt of COMPANY's notice regarding such Target Site
(including any relevant site-related materials in COMPANY'S possession),
DEVELOPER shall notify COMPANY if DEVELOPER desires to develop and operate a
UNIT at such Target Site as described in the notice.
If DEVELOPER timely notifies COMPANY in writing that DEVELOPER desires to
develop and operate a UNIT at such Target Site and COMPANY has fully negotiated
a lease or purchase agreement for such Target Site, then DEVELOPER shall (1)
obtain the consent of the landlord to execute and shall execute such lease or an
assignment and assumption of lease, if applicable, or (2) obtain the consent of
the seller to execute and shall execute a purchase agreement or an assignment
and assumption of purchase agreement, if applicable, and (3) execute a Franchise
Agreement and such ancillary documents as are then customarily used by COMPANY
in the grant of franchises for UNITS (collectively, the "Franchise Documents")
as modified for use in connection with the Target Site, as necessary, and (4)
pay COMPANY a site location and negotiation fee (the "SITE LOCATION AND
NEGOTIATION FEE") equal to Twenty Thousand Dollars ($20,000.00) plus COMPANY's
reasonable out-of-pocket expenses incurred in locating such Target Site and
negotiating the lease or purchase agreement, all within ten (10) business days
after COMPANY's delivery to DEVELOPER of the lease or purchase agreement, as the
case may be, and the Franchise Documents. The Site Location and Negotiation Fee
is paid to compensate COMPANY for the internal costs of the site location
services it provides. COMPANY shall fully cooperate with DEVELOPER in obtaining
the landlord's consent to DEVELOPER's execution of such lease or the seller's
consent to DEVELOPER's execution of such purchase agreement or assignment of
purchase agreement as the case may be.
If DEVELOPER timely notifies COMPANY in writing that DEVELOPER desires to
develop and operate a UNIT at such Target Site and COMPANY has not fully
negotiated a lease or purchase agreement for such Target Site, then DEVELOPER
will have thirty (30) days in which to negotiate and deliver to COMPANY a lease
or purchase agreement for such Target Site in form for execution. If COMPANY
disapproves the lease or purchase agreement for failure to meet COMPANY's
requirements, DEVELOPER will have ten (10) business days within which to
negotiate and deliver to COMPANY a revised lease or purchase agreement for such
Target Site in form for execution. If COMPANY approves the lease or the purchase
agreement for such Target Site, then DEVELOPER will (1) execute such lease or
purchase agreement, as applicable, and (2) execute the Franchise Documents, and
(3) pay to COMPANY a site location fee (the "SITE LOCATION FEE") equal to Ten
Thousand Dollars ($10,000.00), plus COMPANY's reasonable out-of-pocket expenses
in locating such Target Site and, to the extent applicable,
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partially negotiating the lease or purchase agreement, all within ten business
(10) days after COMPANY's delivery of the Franchise Documents to DEVELOPER.
If DEVELOPER (a) declines the option to develop a Target Site, (b) fails to
timely notify COMPANY of its election to develop a Target Site or (c) fails to
timely execute the approved lease or purchase agreement and Franchise Documents
for a Target Site and pay the applicable fee as provided herein, then COMPANY or
its designee may develop and operate a UNIT at such Target Site.
Any Target Site for which DEVELOPER executes the Franchise Documents and
develops and opens a UNIT will count toward the Sub-Area Quota for the Sub-Area
in which such Target Site is located. COMPANY will not be required to give
notice to DEVELOPER or offer to DEVELOPER a franchise to develop a UNIT with
regard to any suitable Target Site or Conversion Site (defined below) in a
Sub-Area that COMPANY desires to develop and operate as a UNIT after the total
number of sites for which DEVELOPER has executed a Franchise Agreement and
accepted as Target Sites or Conversion Sites for that Sub-Area equals the
Sub-Area Quota.
3.F. DEVELOPER'S OPTION TO PURCHASE CONVERSION SITES.
-----------------------------------------------
If, during the applicable Sub-Area Term for a particular Sub-Area, COMPANY
acquires the shares or assets (which may include, by way of illustration and not
by way of limitation, furniture, fixtures, equipment, leasehold improvements
and/or leasehold interests) of any business operating a Bagel Store at one or
more sites located within such Sub-Area which meet COMPANY's specifications and
standards as in effect from time to time for conversion to UNITS (the
"CONVERSION SITES"), and COMPANY determines in its sole discretion to convert
such Conversion Sites to UNITS, COMPANY agrees to offer to sell such Conversion
Sites to DEVELOPER for the price paid therefor by COMPANY. Such price will
include that portion of the direct and indirect costs and liabilities incurred
or assumed by COMPANY in making such acquisition and allocated to such
Conversion Site whether paid or owed to the seller of such Conversion Sites, an
Affiliate or third parties and other expenses allocated or otherwise related to
such Conversion Sites (including losses, whether from continuing operations or
closing acquired units) plus interest at the COMPANY's cost of money on the
balance of such amounts from time to time, provided that:
(1) such sale will not, in the COMPANY's judgment, conflict with any
existing legal obligation of COMPANY or the business being acquired; and
(2) such sale will not, in the COMPANY's judgment, preclude the
completion of the acquisition on the terms agreed to by COMPANY; and
(3) such sale will not, in COMPANY's judgment, interfere with any
other legal agreement, arrangement or combination or affect federal or
state income tax consequences arising from the acquisition in a manner
adverse to any of the parties thereto; and
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(4) such sale may, at COMPANY's option, include (at a price determined
on the same basis as for Conversion Sites) certain acquired stores which
fall within the Development Area or any Sub-Area but which do not meet
COMPANY's criteria for conversion to UNITS and which may have to be closed
or sold to a third party subsequent to DEVELOPER's acquisition; and
(5) DEVELOPER agrees to (a) execute, concurrently with DEVELOPER's
purchase, the Franchise Documents, as modified for use in connection with a
Conversion Site as necessary, for each and every such Conversion Site, (b)
convert each such Conversion Site to the type of UNIT designated by COMPANY
as soon as practicable thereafter (but in no event later than the date
specified by COMPANY) in accordance with COMPANY's standards and
specifications and (c) close or sell, within the reasonable time period
specified by COMPANY, any acquired sites which are not suitable for
conversion.
DEVELOPER shall have thirty (30) days after receipt of COMPANY's offer in which
to accept or reject such offer by written notice to COMPANY. If accepted,
DEVELOPER shall have thirty (30) days from the date of acceptance within which
to complete the acquisition.
In the event DEVELOPER rejects or fails to timely accept COMPANY's offer to
sell such Conversion Sites or COMPANY is unable to extend such offer for any of
the aforementioned reasons, COMPANY agrees that, provided DEVELOPER is in full
compliance with this Agreement and all Franchise Agreements to which they are
parties, it will not utilize or license the use of the Marks at such Conversion
Sites for one (1) year following COMPANY's acquisition thereof; provided,
however, that COMPANY may operate, alter, modify, refurbish, remodel, promote
and market any such Conversion Sites and use the Licensed Program and Computer
System in the operation thereof during such one (1) year period. For purposes of
this Section 3.F., all references to COMPANY shall be deemed to include its
Affiliates.
Any Conversion Site for which DEVELOPER executes the Franchise Documents
and develops and opens a UNIT shall count toward the Sub-Area Quota for the
Sub-Area in which such Conversion Site is located as of the date of conversion.
COMPANY agrees to use reasonable efforts to obtain input (including market
and competitive information) from DEVELOPER in connection with the due diligence
process undertaken by COMPANY in any potential acquisition of Conversion Sites
in a particular Sub-Area during the applicable Sub-Area Term.
3.G. POST-TERM DEVELOPMENT.
---------------------
(1) Notwithstanding anything contained in this Section 3 to the
contrary, if, at any time during the period commencing 18 months prior to
expiration of the Development Term for each Sub-Area (including any
Sub-Areas added pursuant to Section 3.G) and ending 24 months following the
expiration of the Development Term
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for such Sub-Area (the "Post-Development Period"), either (a) COMPANY or
its Affiliates or (b) DEVELOPER determines that such Sub-Area may
accommodate additional UNITS beyond that which are required under the
Agreement (the "Post-Development Stores") and desires to conduct such
additional development following the expiration of the Development Term for
such Sub-Area, the party desiring to conduct such development shall provide
the other with notice thereof ("Development Plan Notice"). Such notice
shall contain any demographic, competitive or market analysis on which the
notifying party based its determination and the development plan and
schedule proposed for such additional development.
(2) The parties shall, as soon as practicable following issuance and
receipt of a Development Plan Notice and for a period of 45 days
thereafter, engage in good faith negotiations for the execution of a new
development agreement (the "Post-Development Agreement") in the form of
development agreement then being used by COMPANY, which may contain
different terms and/or higher fees than the Agreement, for the right to
develop and acquire the franchise to operate the agreed-upon number of
UNITS.
(3) If COMPANY and DEVELOPER timely agree on the terms of the
Post-Development Agreement within the period specified in paragraph
(2) above, COMPANY shall provide DEVELOPER with execution forms of the
Post-Development Agreement, and DEVELOPER shall execute and return the
Post-Development Agreement to COMPANY within 15 days of its receipt thereof
and pay all fees due upon the execution thereof.
(4) As to any particular Sub-Area, COMPANY shall have no obligation to
negotiate with DEVELOPER pursuant hereto and may develop in such Sub-Area
the Post-Development Stores itself, through its Affiliates or other
franchisees or licensees if:
(a) DEVELOPER fails to commence good faith negotiations within
seven (7) days of its receipt of a Development Plan Notice from
COMPANY; or
(b) DEVELOPER and COMPANY have engaged in good faith negotiations
as required hereunder but are unable to agree upon a final development
schedule or form of Post-Development Agreement during the 45-day
negotiation period; or
(c) DEVELOPER fails to execute the Post-Development Agreement and
pay all fees required thereunder within the periods specified in
subparagraph (3) below; or
(d) the Agreement is terminated, either in whole or with respect
to the applicable Sub-Area, prior to its expiration date; or
(e) DEVELOPER or any of its Principal Owners receives a notice to
cure, termination or default from COMPANY with respect to a breach or
default
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of any provision of the Agreement, and Franchise Agreement or any
other agreement with COMPANY and which, if curable, has not been cured
within any applicable cure period; or
(f) the Post-Development Period expires without either party
issuing a Development Plan Notice.
4. OTHER DISTRIBUTION METHODS.
--------------------------
4.A. SPECIAL DISTRIBUTION ARRANGEMENTS.
---------------------------------
DEVELOPER acknowledges and agrees that: (1) DEVELOPER is not granted, and
COMPANY has no obligation to offer to DEVELOPER, any rights to operate Special
Distribution Arrangements within or outside the Development Area or the Sub-
Areas pursuant to this Agreement; and (2) the right to operate or grant to
others the right to operate Special Distribution Arrangements is specifically
reserved to COMPANY or its designees. If COMPANY, at any time and in its sole
discretion, determines to offer DEVELOPER the right to operate a Special
Distribution Arrangement at a Special Distribution Location designated by
COMPANY, COMPANY will so notify DEVELOPER by delivering to DEVELOPER a form of
Special Distribution Agreement. DEVELOPER will have fifteen (15) days after its
receipt thereof to execute and deliver to COMPANY such executed Special
Distribution Agreement. If DEVELOPER fails to execute and deliver to COMPANY the
executed Special Distribution Agreement within such fifteen (15) day period or
commence such Special Distribution Arrangement within the period specified
therein, then DEVELOPER shall have no right to operate such Special Distribution
Arrangement thereafter. COMPANY reserves the right under the Special
Distribution Agreement, at any time and in its sole discretion with or without
cause and regardless of the investment made by DEVELOPER in establishing or
operating the Special Distribution Arrangement or the length of time the Special
Distribution Arrangement has been in effect, to suspend or terminate DEVELOPER's
right to operate the Special Distribution Arrangement, effective ninety (90)
days after COMPANY's written notice to DEVELOPER. Notwithstanding the foregoing,
COMPANY agrees that, if during the Development Term it intends to engage in a
Special Distribution Arrangement at or from (a) a military facility, (b) an
entertainment or sporting facility or event, (c) an airport, bus or train
station, (d) a toll road or limited access highway facility, or (e) any
specialty kiosk located in or adjacent to any similar facilities, located within
the Development Area, COMPANY will offer DEVELOPER a Special Distribution
Agreement, the execution of which shall be governed by this Section 4.A.
4.B. DELIVERY SERVICE.
----------------
DEVELOPER acknowledges and agrees that: (1) DEVELOPER is not granted, and
COMPANY has no obligation to offer to DEVELOPER, any rights within or outside
the Development Area or the Sub-Areas to offer Delivery Service from any of the
Stores or otherwise pursuant to this Agreement; and (2) the right to provide
Delivery Service is specifically reserved to COMPANY or its designees. If
COMPANY, at any time and in its sole discretion, determines to offer Delivery
Service in a designated Delivery Area in which a Store
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is located, COMPANY will offer DEVELOPER the right to offer Delivery Service by
delivering to DEVELOPER a form of Delivery Rider to this Agreement (or to the
applicable Franchise Agreement). DEVELOPER will have fifteen (15) days after its
receipt thereof to execute and deliver to COMPANY such executed Delivery Rider.
A Delivery Facility will not be counted as a separate Store for purposes of the
Sub-Area Quotas or the Total Development Quota set forth in the Development
Schedule. If DEVELOPER fails to execute and deliver to COMPANY such executed
Delivery Rider within such fifteen (15) day period or commence Delivery Service
within the specified period, then DEVELOPER shall have no right to provide
Delivery Service at such Store thereafter.
If COMPANY determines in its sole discretion that all franchise owners of
UNITS in the trade area where a Store is located, as such trade area is
determined by COMPANY in its sole discretion and which in no event shall exceed
the Marketing Area (as defined in the Franchise Agreement), shall offer Delivery
Service, COMPANY will notify DEVELOPER and will deliver to DEVELOPER a Delivery
Rider to this Agreement (or to the applicable Franchise Agreement) which
DEVELOPER shall execute and return to COMPANY within fifteen (15) days after its
receipt.
COMPANY reserves the right under the Delivery Rider, at any time and in its
sole discretion, with or without cause and regardless of the investment made by
DEVELOPER in establishing and conducting Delivery Service or the length of time
DEVELOPER has offered Delivery Service: (1) to reduce, modify or expand the
Delivery Area, effective upon COMPANY's written notice to DEVELOPER, provided,
however, that if a reduction or modification of the Delivery Area amounts to a
termination of substantially all of DEVELOPER's rights to provide such services
(except in the case of the exercise by COMPANY of its remedies under Section
15.C of this Agreement), such reduction or modification shall not be effective
until 90 days after COMPANY's written notice to DEVELOPER; or (2) to suspend or
terminate DEVELOPER's right to offer Delivery Service, effective ninety (90)
days after COMPANY's written notice to DEVELOPER; and COMPANY may otherwise
terminate DEVELOPER's right to offer Delivery Service on the terms of the
Delivery Rider. In the event that COMPANY suspends or terminates DEVELOPER's
right to offer Delivery Service, COMPANY reserves the right to require DEVELOPER
to reinstate Delivery Service upon fifteen (15) days' prior written notice to
DEVELOPER.
4.C. CATERING SERVICE.
----------------
DEVELOPER acknowledges and agrees that: (1) DEVELOPER is not granted, and
COMPANY has no obligation to offer to DEVELOPER, any rights within or outside
the Development Area or the Sub-Areas to offer Catering Service from any of the
Stores or otherwise pursuant to this Agreement; and (2) the right to provide
Catering Service is specifically reserved to COMPANY or its designees. If
COMPANY, at any time and in its sole discretion, determines to offer Catering
Service in a designated Catering Area in which a Store is located, COMPANY will
offer DEVELOPER the right to offer Catering Service by delivering to DEVELOPER a
form of Catering Rider to this Agreement (or to the applicable Franchise
Agreement). DEVELOPER will have fifteen (15) days after its receipt thereof to
execute and
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deliver to COMPANY such executed Catering Rider. A Catering Facility will not be
counted as a separate Store for purposes of the Sub-Area Quotas or the Total
Development Quota set forth in the Development Schedule. If DEVELOPER fails to
execute and deliver to COMPANY such executed Catering Rider within such fifteen
(15) day period or commence Catering Service within the specified period, then
DEVELOPER shall have no right to provide Catering Service within the designated
Catering Area thereafter.
If COMPANY determines in its sole discretion that all franchise owners of
UNITS in the trade area where a Store is located, as such trade area is
determined by COMPANY in its sole discretion and which in no event shall exceed
the Marketing Area (as defined in the Franchise Agreement), shall offer Catering
Service, COMPANY will notify DEVELOPER and will deliver to DEVELOPER a Catering
Rider to this Agreement (or to the applicable Franchise Agreement) which
DEVELOPER shall execute and return to COMPANY within fifteen (15) days after its
receipt.
COMPANY reserves the right under the Catering Rider, at any time and in its
sole discretion, with or without cause and regardless of the investment made by
DEVELOPER in establishing and conducting Catering Service or the length of time
DEVELOPER has offered Catering Service: (1) to reduce, modify or expand the
Catering Area, effective upon COMPANY's written notice to DEVELOPER, provided,
however, that if a reduction or modification of the Catering Area amounts to a
termination of substantially all of DEVELOPER's rights to provide such services
(except in the case of the exercise by COMPANY of its remedies under Section
15.C of this Agreement), such reduction or modification shall not be effective
until 90 days after COMPANY's written notice to DEVELOPER; or (2) to suspend or
terminate DEVELOPER's right to offer Catering Service, effective ninety (90)
days after COMPANY's written notice to DEVELOPER (in which case, DEVELOPER will
not fill any orders for Catering Service after the expiration of such ninety
(90) day period); and COMPANY may otherwise terminate DEVELOPER's right to offer
Catering Service pursuant to the terms of the Catering Rider. In the event that
COMPANY terminates or suspends DEVELOPER's right to offer Catering Service,
COMPANY reserves the right to require DEVELOPER to reinstate Catering Service
upon fifteen (15) days' prior written notice to DEVELOPER.
5. DEVELOPMENT AND OPERATION OF COMMISSARIES.
-----------------------------------------
5.A. OBLIGATION TO OPERATE COMMISSARIES.
----------------------------------
DEVELOPER acknowledges and agrees that in order to meet COMPANY's standards
and specifications for Products (including, without limitation, the preparation
and packaging of Products) and to maintain appropriate quality controls as
required by this Agreement and the Franchise Agreements entered into by
DEVELOPER, it will be necessary for DEVELOPER to establish one or more
Commissaries in the Development Area. DEVELOPER agrees that, subject to this
Agreement and such Franchise Agreements, it will establish and operate the
number of Commissaries reasonably determined by COMPANY from time to time to be
sufficient to supply the Stores.
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DEVELOPER agrees that each Commissary (and, where the Commissary is
operated under the same roof as a UNIT or other approved retail establishment,
that part of such facility which functions as the Commissary): (1) will not
under any circumstances offer for sale or sell to the general public any
products or services; (2) will procure, prepare and distribute to UNITS only
those Products and other materials and supplies specified by COMPANY; and (3)
will not use a Commissary or its premises for any purpose other than the
operation of the Commissary on the terms of this Agreement.
5.B. DEVELOPMENT AND OPENING OF COMMISSARIES.
---------------------------------------
The location of any Commissary established by DEVELOPER pursuant to this
Agreement shall be subject to COMPANY's approval in the manner described in
Section 6.A. of this Agreement, and Section 6.B. of this Agreement shall apply
to the lease for the Commissary. Each Commissary shall be developed, constructed
and equipped in the manner described in Sections 4.B., 4.C. and 4.D of the
Franchise Agreement. Section 4.F. of the Franchise Agreement shall apply to the
opening and commencement of operation of the Commissary and Sections 4.H. and
4.I. of the Franchise Agreement shall apply to the relocation and financing of
the Commissary, respectively. Notwithstanding the foregoing, DEVELOPER shall not
be required to utilize the Trade Dress at a Commissary and DEVELOPER shall not
be obligated to commence operation of a Commissary until 180 days after receipt
of written notice that COMPANY requires DEVELOPER to develop a Commissary to
supply the Stores specified in such notice.
5.C. TRAINING AND GUIDANCE.
---------------------
DEVELOPER shall employ and maintain at all times at each Commissary
throughout its operation at least one (1) Commissary Manager and one (1)
Additional Commissary Manager. The Commissary Manager shall be the full time
manager of the Commissary and the Additional Commissary Manager shall perform on
a full-time basis such other operations for DEVELOPER as COMPANY may reasonably
specify from time to time and both must successfully complete to COMPANY's
satisfaction a COMPANY-certified management training program for the operation
of the Commissary. DEVELOPER shall also employ the number of assistant managers
and other personnel required for adequate staffing of each Commissary, and shall
at all times keep COMPANY advised of the identities of the Commissary Manager,
the Additional Commissary Manager and the assistant managers of each Commissary.
Each Commissary at all times shall be under the direct, on-site supervision of a
Commissary Manager, an Additional Commissary Manager or an assistant manager who
has completed a training program conducted by COMPANY or DEVELOPER (if
applicable) and who has been certified under the terms of the Development
Agreement. DEVELOPER shall hire all employees of each Commissary and shall be
exclusively responsible for the terms of their employment and compensation and
for the proper training of such employees in the operation of a Commissary.
In the event the certified Commissary Manager and/or the certified
Additional Commissary Manager ceases to hold such position at the Commissary,
FRANCHISE OWNER shall have thirty (30) days in which to appoint a substitute or
replacement Commissary Manager
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and/or Additional Commissary Manager, who must attend and complete to COMPANY's
satisfaction the initial management training program as specified above promptly
after appointment. If COMPANY in its sole discretion determines that the
Commissary Manager or Additional Commissary Manager or any subsequently
appointed Manager or Additional Commissary Manager has failed to satisfactorily
complete the initial management training program or any additional or refresher
training program, FRANCHISE OWNER shall immediately hire a substitute Commissary
Manager or Additional Commissary Manager and promptly arrange for such person to
complete the initial management training program to the satisfaction of COMPANY.
5.D. COMMISSARY MANUALS.
------------------
COMPANY shall loan to DEVELOPER, for its sole use, one (1) copy of a set of
COMPANY's confidential manuals relating to the development and operation of
Commissaries (collectively the "Commissary Manuals"). The Commissary Manuals
shall be furnished in the same manner and on the same terms as set out in
Section 5.C. of the Franchise Agreement with respect to the Store Manuals.
5.E. OPERATION OF THE COMMISSARY.
---------------------------
DEVELOPER shall operate each Commissary in accordance with the standards,
specifications and procedures which the COMPANY prescribes, and which COMPANY
may change, in its sole discretion, from time to time, as set forth in the
Commissary Manuals or otherwise in writing. Such standards, specifications and
procedures may include, without limitation, requirements for: (1) Product
preparation; (2) delivery drivers and delivery vehicles (whether or not owned by
DEVELOPER); (3) management of the Commissary; (4) training of Commissary
personnel involved in Product preparation and delivery; (5) Commissary design,
layout, equipment, fixtures and signage; (6) Product packaging; and (7)
materials and supplies used in the operation of the Commissary.
Without limiting the foregoing, DEVELOPER agrees to:
(1) require all Commissary delivery drivers to strictly comply with
all regulations, laws and ordinances applicable to the operation of motor
vehicles and to use due care, taking into consideration road conditions,
when operating motor vehicles in connection with Commissary operations;
(2) require all Commissary delivery drivers to maintain adequate motor
vehicle liability insurance that complies with all applicable laws and
regulations and that extends to the operation of a motor vehicle used for
commercial delivery;
(3) maintain all Commissary motor vehicles in good and safe operating
condition in full compliance with all applicable laws and regulations;
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(4) conduct initial and periodic (at least once every six months)
driving records checks on all Commissary delivery drivers;
(5) require all Commissary delivery drivers to possess and maintain a
valid driver's license;
(6) suspend or, where appropriate under COMPANY's specifications and
standards as in effect from time to time, terminate any Commissary delivery
driver who does not conform to COMPANY's applicable standards and
specifications for Commissary operations;
(7) ensure that each Commissary is adequately stocked at all times
with food and beverage products, ingredients and other items necessary to
prepare and supply to the Stores serviced by the Commissary sufficient
Products and other materials and supplies to ensure the optimum performance
of those Stores;
(8) ensure that each Commissary and its facilities are kept clean and
are operated in a first class, sanitary, attractive and efficient manner
and in accordance with COMPANY's standards and specifications;
(9) ensure that the food preparation personnel at each Commissary are
properly trained in the preparation of Products and that they prepare
Products at all times in accordance with COMPANY's standards and
specifications; and
(10) use the Commissary, the premises of the Commissary and the motor
vehicles used in the operation of the Commissary solely for the purposes
contemplated by this Agreement.
DEVELOPER agrees that COMPANY may conduct quality, service, cleanliness and
other inspections of any Commissary from time to time and without notice in
order to determine compliance with this Agreement and with the standards and
specifications applied by COMPANY from time to time.
COMPANY and DEVELOPER acknowledge and agree that the term "Royalty Base
Revenue" (as defined in the Franchise Agreement) shall not include revenue, if
any, derived from DEVELOPER's or a Commissary's sale of products or other
materials and supplies to Stores for resale to the public at such Stores.
5.F. INSURANCE.
---------
During the operation of each Commissary, DEVELOPER shall maintain in force
policies of insurance for the Commissary in the same manner as is required for
the Stores pursuant to Section 12.G. of the Franchise Agreement.
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5.G. TRANSFERS.
---------
DEVELOPER agrees that no obligations, rights or interests of DEVELOPER in
(a) A Commissary, (b) the lease for the premises of a Commissary or (c) the
assets of a Commissary may be transferred without the prior written consent of
COMPANY. Any purported transfer in violation of this Section shall constitute a
breach of this Agreement and shall convey to the transferee no rights or
interests in the foregoing.
As used in this Section, the term "transfer" shall have the meaning
ascribed to it in the Franchise Agreement. In addition to the foregoing, a
transfer will require the prior written consent of COMPANY where such transfer
occurs by reason of: (a) divorce; (b) insolvency; (c) dissolution of a
corporation, partnership or limited liability company; (d) will; (e) intestate
succession; or (f) declaration of or transfer in trust.
No transfer restricted by this Section may be effected unless a transfer of
the Stores which are serviced by the Commissary is made simultaneously to the
same transferee.
In granting its approval of a proposed transfer, COMPANY may also impose
reasonable conditions upon its consent, including, without limitation, those
conditions provided for in the Franchise Agreement. Furthermore, any proposed
transfer under this Section shall be subject to a right of first refusal of
COMPANY on the terms set forth in Section 16.H. of the Franchise Agreement.
5.H. EXPIRATION AND TERMINATION OF COMMISSARY OPERATIONS.
---------------------------------------------------
COMPANY may require DEVELOPER to cease operation of a Commissary in the
event that DEVELOPER does not comply with this Agreement with respect to such
Commissary. Unless earlier terminated as provided herein, DEVELOPER's right and
obligation to operate a Commissary shall expire when the Franchise Agreement for
the last Store serviced by the Commissary has been terminated or has expired
without renewal. Furthermore, DEVELOPER agrees that, notwithstanding any other
provision of this Agreement to the contrary, COMPANY may, at any time and in its
sole discretion with or without cause and regardless of the investment made by
DEVELOPER in establishing a Commissary or the length of time DEVELOPER has
operated the Commissary, require DEVELOPER to cease operation of the Commissary,
effective upon 90 days written notice from COMPANY (except in the case of the
exercise by COMPANY of its remedies under Section 15.C of this Agreement, in
which case, the obligation to cease such operations shall be effective
immediately upon written notice from COMPANY.
5.I. RIGHTS AND OBLIGATIONS OF COMPANY
---------------------------------
AND DEVELOPER UPON TERMINATION OR
---------------------------------
EXPIRATION OF RIGHT TO OPERATE A COMMISSARY.
-------------------------------------------
Upon the expiration or termination of DEVELOPER's right to operate a
Commissary, DEVELOPER shall immediately remove the Marks from all vehicles used
in the operation of the Commissary and shall return to COMPANY all copies of the
Commissary Manuals.
22
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Furthermore, COMPANY shall have the right to purchase the assets of the
Commissary on the same terms as set forth in Section 19.F. of the Franchise
Agreement, including the ancillary rights set forth in Section 19.F.
6. GRANT OF FRANCHISES AND ADVERTISING REQUIREMENT.
-----------------------------------------------
6.A. SITE REVIEW AND APPROVAL.
------------------------
Annually throughout the Development Term, DEVELOPER shall purchase from
COMPANY demographic detail reports on the demographics of each Sub-Area
("DEMOGRAPHIC DETAIL REPORT") in which DEVELOPER retains the right to develop
Stores. Such Demographic Detail Report shall be available to DEVELOPER at
COMPANY's then-current charges. At DEVELOPER's request, Company may provide
other demographic services at COMPANY's then current charges. Those charges will
vary with the type of service requested.
At DEVELOPER's request, COMPANY will provide to DEVELOPER, at COMPANY's
then-current charges, a report and grid map containing certain demographic
information concerning a proposed site and surrounding area, which report and
grid map may be prepared by COMPANY or by an independent demographic statistics
service at COMPANY's direction.
DEVELOPER shall comply with COMPANY's specifications and requirements
regarding site selection, development and construction, including, without
limitation, those concerning relations with and use of approved general
contractors, subcontractors, real estate developers and lessors and, if
requested by COMPANY, real estate broker(s). DEVELOPER shall submit to COMPANY a
complete site approval request package and location feasibility analysis (a
"SITE PACKAGE") on COMPANY's specified forms (containing such demographic,
commercial, and other information and photographs as COMPANY may require from
time to time) for each site at which DEVELOPER proposes and intends in good
faith to establish and operate a UNIT and which DEVELOPER reasonably believes to
conform to certain minimum site selection criteria established by COMPANY from
time to time in its sole discretion. Each such Site Package shall include a
designation of the type of UNIT DEVELOPER intends to develop at the site. In
approving or disapproving any proposed site, COMPANY may consider such matters
as it deems material from time to time, which factors may (but are not required
to) include, without limitation, the type of UNIT proposed, demographic
characteristics, traffic patterns, parking, visibility, allowed signage, the
predominant character of the neighborhood, competition from other businesses
providing similar services within the area (including other UNITS), the
proximity to other businesses, the exclusivity granted to other franchise owners
or developers of UNITS, the nature of other businesses in proximity to the site,
and other commercial characteristics (including the purchase price or rental
obligations and other lease terms for the proposed site) and the size,
appearance, and other physical characteristics of the proposed site. DEVELOPER
acknowledges and agrees that COMPANY may alter the criteria or impose additional
criteria for acceptable sites for UNITS at any time or from time to time in its
sole discretion, that DEVELOPER shall abide by such site criteria as they exist
from time to time and comply with its development obligations hereunder
(including, but not limited to, Exhibit F
23
<PAGE>
hereof) and that no extension or alteration of the Opening Date (as set forth in
Exhibit E) of any UNIT shall arise by reason of such altered or additional site
criteria).
DEVELOPER further acknowledges that each such proposed site will be
evaluated based on the information provided in the Site Package and on the
circumstances existing at the time of such evaluation. Consequently, a proposed
site might be rejected when submitted, but if later re-submitted, approved for
development by DEVELOPER, another developer or franchise owner or by COMPANY or
its Affiliates, subject to DEVELOPER's rights to exclusivity under this
Agreement.
COMPANY will approve or disapprove sites by delivery of written notice to
DEVELOPER. (A site which COMPANY has approved pursuant hereto is referred to as
an "APPROVED SITE.") COMPANY agrees to exert its reasonable best efforts to
deliver such notification to DEVELOPER within thirty (30) days after receipt by
COMPANY of a complete Site Package and such other materials requested by COMPANY
from time to time, containing all information required by COMPANY. COMPANY shall
have the right in its sole discretion to approve or disapprove a site, and
DEVELOPER acknowledges and agrees that COMPANY shall have no liability therefor.
Notwithstanding any other provision of this Agreement, COMPANY's failure to
provide DEVELOPER with notice of its approval or disapproval of one or more
proposed sites shall in no event constitute a waiver of COMPANY's right to
approve or disapprove such sites or cause any extension of the applicable
Development Schedule.
6.B. LEASE OF APPROVED SITES.
-----------------------
DEVELOPER acknowledges that COMPANY has developed a standard form lease
(the "FORM STORE LEASE") for UNITS. COMPANY will furnish DEVELOPER with a copy
of the current forms of Form Store Lease and DEVELOPER acknowledges that COMPANY
may modify such forms from time to time in its sole discretion. DEVELOPER shall
present the Form Store Lease to the lessor of an Approved Site, as applicable,
and use its best efforts to cause the lessor or seller of such Approved Site to
execute the Form Store Lease as the lease, sublease or assignment of lease
(referred to herein as the "SITE AGREEMENT"), as applicable, for such Approved
Site. If DEVELOPER fails to obtain the lessor's agreement to use the Form Store
Lease as the Site Agreement, DEVELOPER shall cause lessor to include in the Site
Agreement such standard lease terms as COMPANY may require or otherwise
specifically approve in writing from time to time in its sole discretion.
After receiving a copy of a proposed Site Agreement in form for execution,
COMPANY shall have the right, in its sole discretion, to approve, approve with
modification or disapprove such proposed Site Agreement, and DEVELOPER
acknowledges and agrees that COMPANY shall have no liability therefor. COMPANY
agrees to exert its best efforts to deliver such notification to DEVELOPER
within twenty (20) days after receipt by COMPANY of the proposed Site Agreement.
DEVELOPER agrees that it will not execute a Site Agreement without the prior
written approval of COMPANY, and any such Site Agreement shall contain the
express condition precedent of COMPANY's prior written approval thereof.
DEVELOPER shall deliver to COMPANY a copy of the fully signed Site Agreement as
previously approved
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<PAGE>
within fifteen (15) days after its full execution. DEVELOPER further agrees that
it will not execute or agree to any modification of the Site Agreement which
would affect COMPANY's rights without the prior written approval of COMPANY.
If DEVELOPER fails to obtain lawful possession of an Approved Site (through
lease, sublease or assignment) within sixty (60) days after delivery of
COMPANY's approval of the Approved Site, COMPANY may, in its sole discretion,
withdraw approval of such site at any time.
If DEVELOPER owns an Approved Site, DEVELOPER will, at the request of
COMPANY, enter into a lease with COMPANY under COMPANY's then-current form of
lease for a term equal to the term of the Franchise and for a rental equal to
the Approved Site's fair market rental value, and will sublease the Approved
Site from COMPANY on the same terms as the prime lease. If DEVELOPER and COMPANY
cannot agree on the fair market rental value of such an Approved Site, then such
rental value shall be determined by an independent appraiser selected by COMPANY
and DEVELOPER, and if they are unable to agree on an independent appraiser,
COMPANY and DEVELOPER shall each select an independent appraiser, who shall
select a third independent appraiser, and the fair market rental value shall be
deemed to be the average of the three (3) independent appraisals made by such
appraisers.
6.C. EXECUTION OF FRANCHISE AGREEMENTS.
---------------------------------
Provided that (1) DEVELOPER is then in full compliance with all of the
terms and conditions of this Agreement, (2) DEVELOPER is in full compliance with
all Franchise Agreements it has entered into, and (3) DEVELOPER has obtained
legal possession of an Approved Site, COMPANY agrees to offer to DEVELOPER a
Franchise to operate a UNIT at such Approved Site by delivering to DEVELOPER a
Franchise Agreement in form for execution by DEVELOPER and its Principal Owners.
Such Franchise Agreement shall be executed and returned to COMPANY at the
earlier of fifteen (15) days after COMPANY's delivery thereof, or prior to the
opening of the UNIT, together with the fees required to be paid upon execution
thereof. COMPANY may withdraw its offer to grant a Franchise for a UNIT at such
Approved Site and withdraw its approval of such site at any time prior to
COMPANY's receipt of all applicable payments and COMPANY's execution of the
Franchise Agreement. In no event may a UNIT developed hereunder be opened for
business prior to DEVELOPER's receipt of written notice from COMPANY authorizing
the opening of such Store.
6.D. INITIAL FRANCHISE AND ROYALTY FEES.
----------------------------------
For each Franchise granted pursuant to this Agreement during the
Development Term or the applicable Sub-Area Term, the fees shall be as provided
in the then-current form of Franchise Agreement, except that the Initial
Franchise Fee (defined in the Franchise Agreement) shall be Thirty-Five Thousand
Dollars ($35,000.00), and the Royalty Fee (as defined in the Franchise
Agreement) shall be an amount equal to eight percent (8%) of the Store's Royalty
Base Revenue (as defined in the Franchise Agreement).
25
<PAGE>
6.E. ADVERTISING EXPENDITURES.
------------------------
DEVELOPER shall cause each Store it owns to contribute to the Local Ad Fund
(as defined in the Franchise Agreement) for such Store an amount equal to the
standard Local Ad Fund contribution required pursuant to the applicable
Franchise Agreement; provided, however, that, on notice from COMPANY, DEVELOPER
shall also cause each such Store to contribute to the standard Local Ad Fund
such additional amounts which, when aggregated with the Local Ad Fund
contributions of the other Stores, will be sufficient to enable DEVELOPER,
through the Local Ad Fund, to commence Required Television Advertising within
one year of the opening of the first Store and to continue Required Television
Advertising thereafter throughout the Agreement Term.
7. INITIAL PAYMENTS.
----------------
7.A. DEVELOPMENT FEE.
---------------
Concurrently with the execution of this Agreement, DEVELOPER shall pay to
COMPANY the sum set forth on Exhibit C hereof as a nonrefundable development fee
(the "DEVELOPMENT FEE") which shall be deemed fully earned by COMPANY upon
execution of this Agreement. The Development Fee shall equal the sum derived by
multiplying the number of Stores to be developed under this Agreement, as set
forth on Exhibit E, by Five Thousand Dollars ($5,000.00). The Development Fee is
paid to compensate COMPANY for its services in connection with this Agreement,
including but not limited to providing assistance in the development of
DEVELOPER's Market Real Estate Development Plan and providing initial
orientation training programs.
7.B. REAL ESTATE SERVICES FEE.
------------------------
Concurrently with the execution of this Agreement, DEVELOPER shall pay to
COMPANY a nonrefundable real estate services fee (the "Real Estate Services
Fee"), which fee shall be deemed fully earned by COMPANY upon execution of this
Agreement. The Real Estate Services Fee shall equal the total derived by
multiplying the number of Stores to be developed under this Agreement, as set
forth on Exhibit E, by Five Thousand Dollars ($5,000.00). The Real Estate
Services Fee is paid to compensate COMPANY for its services in connection with
this Agreement, including but not limited to providing certain advisory services
regarding demographic analysis and cannibalization studies for trade areas
related to proposed and established UNITS, maintenance of lease files and
compliance with reporting requirements thereunder, and general advisory services
regarding other real estate matters.
8. MARKS.
-----
8.A. GOODWILL AND OWNERSHIP OF MARKS.
-------------------------------
DEVELOPER acknowledges that DEVELOPER's right to use the Marks, as
described in this Agreement, is derived solely from this Agreement and is
limited to the development of
26
<PAGE>
UNITS by DEVELOPER pursuant to and in compliance with this Agreement and all
applicable standards, specifications, and procedures prescribed by COMPANY from
time to time during the Agreement Term. Any unauthorized use of the Marks by
DEVELOPER shall constitute a breach of this Agreement and an infringement of the
rights of COMPANY in and to the Marks. DEVELOPER acknowledges and agrees that
all usage of the Marks by DEVELOPER and any goodwill established thereby shall
inure to the exclusive benefit of COMPANY and that this Agreement does not
confer any goodwill or other interests in the Marks upon DEVELOPER, other than
the right to use the Marks in the development of the Stores in compliance with
this Agreement. All provisions of this Agreement applicable to the Marks shall
apply to any other trademarks, service marks, commercial symbols and trade dress
hereafter authorized, in writing (including by inclusion in any trademark usage
or similar guide or manual issued to franchise owners by COMPANY), for use by
and licensed to DEVELOPER by COMPANY.
8.B. LIMITATIONS ON DEVELOPER'S USE OF MARKS.
---------------------------------------
DEVELOPER shall not use any Mark as part of any corporate name or other
name of DEVELOPER or with any prefix, suffix, or other modifying words, terms,
designs, or symbols, or in any modified form, nor may DEVELOPER use any Mark in
connection with the performance or sale of any unauthorized services or products
or in any other manner not expressly authorized in writing by COMPANY. DEVELOPER
agrees to clearly identify itself as an independent operator/developer and
licensee of COMPANY and to display the Marks prominently in the manner
prescribed by COMPANY. DEVELOPER agrees to give such notices of trademark and
service mark registrations as COMPANY specifies and to obtain such business name
registrations as may be required under applicable law.
8.C. NOTIFICATION OF INFRINGEMENTS AND CLAIMS.
----------------------------------------
DEVELOPER shall immediately notify COMPANY of any apparent infringement of
or challenge to DEVELOPER's use of any Mark, or claim by any person of any
rights in any Mark. DEVELOPER shall not communicate with any person other than
COMPANY and its counsel with respect to any such infringement, challenge or
claim. COMPANY shall have sole discretion to take such action as it deems
appropriate in connection with the foregoing, and the right to control
exclusively any settlement, litigation, arbitration or Patent and Trademark
Office or other proceeding arising out of any such alleged infringement,
challenge or claim or otherwise relating to any Mark. DEVELOPER agrees to
execute any and all instruments and documents, render such assistance, and do
such acts and things as may, in the opinion of COMPANY's counsel, be necessary
or advisable to protect and maintain the interests of COMPANY in any litigation
or other proceeding or to otherwise protect and maintain the interests of
COMPANY in the Marks. COMPANY will reimburse DEVELOPER for the reasonable
out-of-pocket expenses incurred and paid by DEVELOPER in complying with the
requirements imposed by this Section; provided, however, that if any action
taken by COMPANY results in any monetary recovery for DEVELOPER (by way of
counterclaim or otherwise) which exceeds DEVELOPER's costs, then DEVELOPER must
pay its own costs and share pro rata in COMPANY's costs therefor up to the
amount of DEVELOPER's share of such recovery.
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<PAGE>
8.D. DISCONTINUANCE OF USE OF MARKS.
------------------------------
If it becomes advisable at any time in COMPANY's sole judgment for the
DEVELOPER to modify or discontinue use of any Mark and/or for the DEVELOPER to
use one or more additional or substitute trademarks or service marks or an
additional or substitute type of trade dress, DEVELOPER agrees to immediately
comply with COMPANY's directions to modify or otherwise discontinue the use of
such Mark, and/or to use one or more additional or substitute trademarks,
service marks, logos or commercial symbols or additional or substitute trade
dress after notice thereof by COMPANY. Neither COMPANY nor its Affiliates shall
have any obligation to reimburse DEVELOPER for any expenditures made by
DEVELOPER to modify or discontinue the use of a Mark or to adopt additional or
substitute marks for discontinued Marks, including, without limitation, any
expenditures relating to advertising or promotional materials or to compensate
DEVELOPER for any goodwill related to the discontinued Mark.
8.E. INDEMNIFICATION OF DEVELOPER.
----------------------------
COMPANY agrees to indemnity DEVELOPER against and to reimburse DEVELOPER
for all damages for which DEVELOPER is held liable in any claim, action or
proceeding brought by any person or entity claiming to have trademark or other
rights to any of the Marks or any name or trademark similar thereto arising out
of DEVELOPER's authorized use of the Marks, pursuant to and in compliance with
this Agreement, and for all costs reasonably incurred by DEVELOPER in the
defense of any such claim brought against DEVELOPER or in any proceeding in
which DEVELOPER is named as a party, provided that DEVELOPER has timely notified
COMPANY of such claim or proceeding, has given COMPANY sole control of the
defense and settlement of any such claim, has otherwise complied with the
requirements of this Agreement regarding use of the Marks, and this Agreement is
in full force and effect, and provided further, that the indemnification
provided by this Section 8.E shall not extend to any claim, action or proceeding
brought by any person or entity alleging any prior common law trademark rights.
9. COPYRIGHTS.
----------
9.A. OWNERSHIP OF COPYRIGHTED WORKS.
------------------------------
DEVELOPER and COMPANY acknowledge and agree (1) that COMPANY may authorize
DEVELOPER to use certain copyrighted or copyrightable works (the "Copyrighted
Works"), (2) that the Copyrighted Works are the valuable property of COMPANY or
its Affiliates or, as applicable, their licensors and (3) that the DEVELOPER's
rights to use the Copyrighted Works are granted to DEVELOPER solely on the
condition that DEVELOPER complies with the terms of this Section. DEVELOPER
acknowledges and agrees that COMPANY owns or is the licensee of the owner of the
Copyrighted Works and may further create, acquire or obtain licenses for certain
copyrights in various works of authorship used in connection with the operation
of UNITS, including, but not limited to, all categories of works eligible for
protection under the United States copyright laws, all of which shall be deemed
to be Copyrighted Works under this Agreement. Such Copyrighted Works include,
but are not
28
<PAGE>
limited to, the Development Manual, advertisements, promotional materials,
labels, menus, posters, coupons, gift certificates, signs and store designs,
plans and specifications and may include all or part of the Marks, Trade Dress
(defined in the Franchise Agreement), Licensed Program and other portions of the
System. DEVELOPER acknowledges that this Agreement does not confer any interest
in the Copyrighted Works upon DEVELOPER, other than the right to use them in
connection with the development of the Stores in compliance with this Agreement.
If COMPANY authorizes DEVELOPER to prepare any adaptation, translation or work
derived from the Copyrighted Works, or if DEVELOPER prepares any Copyrighted
Works such as menus, advertisements, posters or promotional materials, DEVELOPER
hereby agrees that such adaptation, translation, derivative work or Copyrighted
Work shall be the property of COMPANY and DEVELOPER hereby assigns all its
right, title and interest therein to COMPANY (or such other person identified by
COMPANY). DEVELOPER agrees to execute any documents, in recordable form, which
COMPANY determines are necessary to reflect such ownership. DEVELOPER shall
submit all such adaptations, translations, derivative works and Copyrighted
Works to COMPANY for approval prior to use.
9.B. LIMITATION ON DEVELOPER'S USE OF COPYRIGHTED WORKS.
--------------------------------------------------
DEVELOPER acknowledges that DEVELOPER's right to use the Copyrighted Works,
as described in this Agreement, is derived solely from this Agreement and is
limited solely to uses directly connected with the development of Stores by
DEVELOPER during the Development Term pursuant to and in compliance with this
Agreement and all applicable standards, specifications, and operating procedures
prescribed by COMPANY from time to time. DEVELOPER shall ensure that all
Copyrighted Works used hereunder shall bear an appropriate copyright notice
under the Universal Copyright Convention or other copyright laws prescribed by
COMPANY specifying that COMPANY or an Affiliate of COMPANY is the owner of the
copyright therein. Any unauthorized use, adaptation, publication, reproduction,
preparation of derivative works, distribution of copies (whether by sale or
other transfer of ownership, or by rental, lease or lending), or attempts to
recreate all or a portion of such Copyrighted Works shall constitute a breach of
this Agreement and an infringement of the rights of COMPANY in and to the
Copyrighted Works.
9.C. NOTIFICATION OF INFRINGEMENTS AND CLAIMS.
----------------------------------------
DEVELOPER shall immediately notify COMPANY of any actual or apparent
infringement of or challenge to any of the Copyrighted Works, or claim by any
person of any rights in the Copyrighted Works. DEVELOPER shall not communicate
with any person other than COMPANY and its counsel in connection with any such
infringement, challenge or claims. COMPANY shall have the sole discretion to
take such action as it deems appropriate in connection with the foregoing, and
the right to control exclusively any settlement, litigation, arbitration or
administrative proceeding arising out of any such alleged infringement,
challenge or claim or otherwise relating to the Copyrighted Works. DEVELOPER
agrees to execute any and all instruments and documents, render such assistance,
and do such acts and things as may, in the opinion of COMPANY's counsel, be
necessary or advisable to protect and maintain the interests of COMPANY in any
litigation or other proceeding or to otherwise protect and
29
<PAGE>
maintain the interests of COMPANY in the Copyrighted Works. COMPANY will
reimburse DEVELOPER for the reasonable out-of-pocket expenses incurred and paid
by DEVELOPER in complying with the requirements imposed by this Section;
provided, however, that if any action taken by COMPANY results in any monetary
recovery for DEVELOPER (by way of counterclaim or otherwise) which exceeds
DEVELOPER's costs, then DEVELOPER must pay its own costs and share pro rata in
COMPANY's costs therefor up to the amount of DEVELOPER's share of such recovery.
9.D. DISCONTINUANCE OF USE OF COPYRIGHTED WORKS.
------------------------------------------
If it becomes advisable at any time in COMPANY's sole judgment for
DEVELOPER to modify or discontinue use of any of the Copyrighted Works and/or
for DEVELOPER to use one or more additional or substitute copyrighted or
copyrightable items, DEVELOPER agrees to immediately comply with COMPANY's
directions to modify or otherwise discontinue the use of the Copyrighted Works
and/or to use one or more substitute materials. Neither COMPANY nor its
Affiliates shall have any obligation to reimburse DEVELOPER for any expenditures
made by DEVELOPER to modify or discontinue the use of any Copyrighted Work or to
adopt additional or substitute copyrighted or copyrightable items.
10. COMPUTER SYSTEM AND SOFTWARE.
----------------------------
10.A. GRANT OF LICENSE.
----------------
COMPANY hereby grants to DEVELOPER a nonexclusive, nontransferable,
nonassignable license to use the Licensed Program and Support/Control Programs,
subject to the following terms and conditions:
(1) The Licensed Program and Support/Control Programs shall be installed
and tested on the Computer System at DEVELOPER's principal office by
COMPANY or its designee. If DEVELOPER does not purchase the Computer
System from COMPANY, DEVELOPER must pay COMPANY a reasonable
installation and testing fee upon completion of COMPANY's installation
and testing of the operation of the Licensed Program and
Support/Control Programs with the Computer System. DEVELOPER
acknowledges and agrees that COMPANY's current installation and
testing fee of $3,500.00 is reasonable. COMPANY agrees that the
installation and testing fee applicable to any Franchise Agreements
executed pursuant to this Agreement will not exceed $3,500.
(2) Except with the prior written consent of COMPANY, the Licensed Program
and Support/Control Programs shall not be operated by persons other
than DEVELOPER and employees of DEVELOPER, shall not be operated on
equipment other than the Computer System, shall not be used in
conjunction with any other computer applications program, and shall
not be operated at locations other than DEVELOPER's principal office;
provided, however, that with prior notice to COMPANY, DEVELOPER may
operate the Licensed Program and
30
<PAGE>
Support/Control Programs on equipment other than the Computer System
and at a location other than DEVELOPER's principal office to the
extent required due to malfunction of the Computer System or other
cause beyond the reasonable control of DEVELOPER, but not for any
period longer than seven (7) consecutive days unless otherwise agreed
in writing by COMPANY.
(3) The Licensed Program and Support/Control Programs shall be used in
DEVELOPER's development and supervision of the Stores and shall not be
used for any other purpose.
(4) Without limiting the foregoing, DEVELOPER shall not, and shall not
allow its employees or agents to: (a) sell, assign, lease, sublicense,
pledge, grant a security interest with respect to, market or
commercially exploit, in any way, the Licensed Program or
Support/Control Programs or any component thereof, or any data
generated by the use of the Licensed Program or Support/Control
Programs or any component thereof; (b) disclose or grant access to the
Licensed Program or Support/Control Programs, or any data generated by
the use thereof or any component thereof, to any third party other
than one to whom COMPANY has consented in writing and who has agreed
in writing with COMPANY to keep them confidential; (c) copy or
reproduce the Licensed Program or Support/Control Programs, or any
data generated by the use thereof or any component thereof, in any
manner, except to the extent necessary for normal back-up and
operating thereof; or (d) alter, modify or adapt the Licensed Program
or Support/Control Programs, any documentation relating thereto or any
component thereof, including, but not limited to, by translating,
decompiling, reverse engineering or disassembling them.
(5) DEVELOPER acknowledges and agrees that the Licensed Program and
Support/Control Programs and any data generated by their use are the
valuable, proprietary property and trade secret of COMPANY or, as
applicable, of COMPANY's licensor, and DEVELOPER agrees to use the
utmost care to safeguard the Licensed Program and Support/Control
Programs and any data generated by their use and to maintain the
copyright protection and the secrecy and confidentiality thereof.
DEVELOPER shall not undertake to patent, copyright or otherwise assert
proprietary rights to the Licensed Program or Support/Control Programs
or any data generated by their use or any portion thereof. DEVELOPER
recognizes that all or part of the Licensed Program and
Support/Control Programs and any data generated by their use may be
copyrighted and agrees that this shall not be construed as causing the
copyrighted material to be public information. DEVELOPER will ensure
that all copies of the Licensed Program and Support/Control Programs
and any data generated by their use or any components thereof in its
possession contain an appropriate copyright notice under the Universal
Copyright Convention or other notice of proprietary rights specified
by COMPANY.
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<PAGE>
(6) DEVELOPER shall promptly disclose to COMPANY all ideas and suggestions
for modifications or enhancements of the Licensed Program and/or
Support/Control Programs conceived or developed by or for DEVELOPER,
and COMPANY and its Affiliates shall have the right to use and license
such ideas and suggestions. All modifications and enhancements made to
the Licensed Program or Support/Control Programs together with the
copyright therein shall be the property of COMPANY or its licensor, as
applicable, without regard to the source of the modification or
enhancement, and DEVELOPER hereby assigns all of its right, title, and
interest in any ideas, modifications, and enhancements to COMPANY (or
such other persons designated by COMPANY). DEVELOPER agrees to execute
any document, in recordable form, which COMPANY determines is
necessary to reflect such ownership.
(7) COMPANY shall have the right at all times to access the Licensed
Program and Support/Control Programs and to retrieve, analyze and use
all data in the files of DEVELOPER related thereto.
(8) COMPANY shall provide to DEVELOPER all upgrades, modifications,
improvements, enhancements, extensions and other changes to the
Licensed Program and Support/Control Programs approved by COMPANY for
use in connection with the operation of UNITS, and DEVELOPER shall
promptly implement their use.
(9) Upon expiration or termination of this Agreement, DEVELOPER shall
allow COMPANY's employees or agents to remove the Licensed Program and
Support/Control Programs from the Computer System, shall immediately
return the Licensed Program and Support/Control Programs, each
component thereof, and any data generated by their use to COMPANY, and
shall immediately destroy any and all back-up or other copies of the
Licensed Program, the Support/Control Programs, any parts thereof,
documentation for the Licensed Program and Support/Control Programs
and any data generated by their use, and other materials or
information which relate to or reveal the Licensed Program and
Support/Control Programs, their operation or any data generated by
their use.
10.B. SOFTWARE LICENSE FEE.
--------------------
DEVELOPER agrees to pay to COMPANY upon installation of the Licensed
Program on DEVELOPER's Computer System, a software license fee (the "Software
License Fee") in the amount of Fifteen Thousand Dollars ($15,000.00). The
Software License Fee shall be fully earned by COMPANY upon installation of the
Licensed Program on the Computer System and is non-refundable in whole or in
part.
10.C. SOFTWARE SUPPORT SERVICE.
------------------------
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<PAGE>
During the Agreement Term and, provided that DEVELOPER is in compliance
with the terms of this Agreement, COMPANY shall provide to DEVELOPER such
support services as COMPANY deems reasonably necessary to cause the Licensed
Program and Support/Control Programs to perform on the Computer System in
accordance with the standards therefor as specified from time to time by
COMPANY. Such support services shall not extend to (a) error corrections,
operational support and assistance resulting from DEVELOPER's use or operation
of software which is not authorized by COMPANY for use on the Computer System,
(b) software training or (c) hardware maintenance. Such support service shall
include non-procedural Help Desk calls. All procedural Help Desk calls will be
handled by COMPANY for an additional fee of $25 per call.
10.D. SOFTWARE SUPPORT SERVICE FEE.
----------------------------
For the software support service with respect to the Licensed Program
provided to DEVELOPER, as described above, DEVELOPER agrees to pay to COMPANY a
periodic software support service fee ("Software Support Fee") in the amount of
Four Hundred Dollars ($400.00). Such fee shall be payable in advance for each
Accounting Period on or before the eighth (8th) day prior to commencement of
such period commencing on the installation of the Licensed Program on the
Computer System. The Software Support Fee may be increased by COMPANY from time
to time, at its sole option, upon written notice to DEVELOPER, subject to any
limitation set forth in the Franchise Agreement.
For the software support service relating to the Support/Control Programs
provided to DEVELOPER by COMPANY, no additional fee will be charged. In the
event DEVELOPER requests, and COMPANY, in its sole discretion, determines to
perform, other support services (e.g., software training, hardware maintenance)
not provided for in this Agreement, COMPANY will charge DEVELOPER an additional
fee at COMPANY's then-current hourly rate, plus expenses for such support
services. DEVELOPER acknowledges that COMPANY's current rate for such services
is $75 per hour and agrees that such rate is reasonable.
10.E. MODIFICATION, ENHANCEMENT AND REPLACEMENT
OF COMPUTER SYSTEM AND SOFTWARE.
-------------------------------
DEVELOPER acknowledges that COMPANY may, during the term of this Agreement,
require DEVELOPER to modify, enhance and/or replace all or any part of the
Computer System, the Licensed Program, the Support/Control Programs and/or the
Specified Software at DEVELOPER's expense, and agrees, within sixty (60) days of
receipt of notice from COMPANY, to acquire, or acquire the right to use for the
remainder of the term of this Agreement and implement, the modified, enhanced or
replacement version of the Computer System, the Licensed Program, the
Support/Control Programs and/or Specified Software as specified by COMPANY and
to take any and all other actions as may be necessary to enable them to operate
as specified by COMPANY. Any such modifications, enhancements, and replacements
may require DEVELOPER to incur additional costs to purchase, lease and/or
license new or modified computer hardware and/or software or other equipment and
to obtain different and/or additional service and support services during the
term of this Agreement.
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DEVELOPER acknowledges that COMPANY cannot estimate the costs of future
enhancements, modifications, and replacements to the Computer System, the
Licensed Program, the Support/Control Programs and/or Specified Software, and
that the cost to DEVELOPER of obtaining such enhancements, modifications, and
replacements, may not be fully amortizable over the remainder of the Development
Term or the Agreement Term. Nonetheless, DEVELOPER agrees to incur such costs in
connection therewith, provided that the COMPANY is then currently specifying the
same enhancements, modifications, and replacements for use in COMPANY-operated
UNITS.
10.F. WARRANTIES AND LIMITATION OF LIABILITY.
--------------------------------------
COMPANY represents and warrants to DEVELOPER that: (1) COMPANY has the
right to license the Licensed Program and Support/Control Programs to DEVELOPER,
as set forth in this Agreement; and (2) to the best of COMPANY's knowledge, the
Licensed Program and Support/Control Programs do not, and as a result of any
enhancements, improvements or modifications provided by COMPANY, will not
infringe upon any United States patent, copyright or other proprietary right of
any third party. In the event DEVELOPER's use of the Licensed Program or
Support/Control Programs or any portion thereof, as provided by COMPANY, is
enjoined as a result of a claim by a third party of patent or copyright
infringement or violation of proprietary rights, COMPANY shall, in its sole
discretion, either (i) procure for DEVELOPER the right to continue use of the
Licensed Program or Support/Control Programs as contemplated hereunder, or (ii)
replace the Licensed Program or Support/Control Programs or modify it such that
there is no infringement of the third party's rights. Such action by COMPANY
shall be DEVELOPER's sole and exclusive remedy against COMPANY in such event.
COMPANY does not represent or warrant to DEVELOPER, and expressly disclaims
any warranty, that the Licensed Program or Support/Control Programs are error-
free or that their operation and use by DEVELOPER will be uninterrupted or
error-free. COMPANY shall have no obligation or liability for any expense or
loss incurred by DEVELOPER arising from use of the Licensed Program or
Support/Control Programs in conjunction with any other computer program.
EXCEPT FOR THE ABOVE EXPRESS LIMITED WARRANTIES, COMPANY MAKES NO
WARRANTIES, EXPRESS OR IMPLIED, ORAL OR WRITTEN, WITH RESPECT TO THE LICENSED
PROGRAM, SUPPORT/CONTROL PROGRAMS, PROGRAM DOCUMENTATION, OR ANY OTHER MATERIAL
FURNISHED HEREUNDER, OR ANY COMPONENT THEREOF AND THERE ARE EXPRESSLY EXCLUDED
ALL WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE WITH
RESPECT THERETO.
10.G. SUBCOMPONENT LICENSES AND THIRD-PARTY LICENSES.
----------------------------------------------
DEVELOPER acknowledges that the Licensed Program and Support/Control
Programs contain third-party components and subcomponents which COMPANY has the
authority to
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license to DEVELOPER as part of the Licensed Program and Support/Control
Programs pursuant to and in accordance with software license agreements with
third-party vendors (collectively, the "Component Licenses"). In addition,
DEVELOPER acknowledges that acquisitions by DEVELOPER of all or portions of the
Computer System and the Specified Software from or through the COMPANY are
governed by license or other agreements by and between third-party vendors and
COMPANY, which agreements specifically permit COMPANY to sell and/or sublicense
all or portions of the Computer System and the Specified Software to DEVELOPER
or specifically require DEVELOPER to agree to be bound by the terms thereof
(either type of license hereinafter referred to as the "Third Party Licenses").
DEVELOPER therefore hereby agrees to be bound by the terms of each Component
License and, to the extent DEVELOPER purchases all or portions of the Specified
Software or the Computer System from or through COMPANY, each relevant Third
Party License, in each case as if DEVELOPER was a party thereto, and agrees that
the vendors and licensors of all or portions of the Specified Software and the
Computer System and the licensors of all or portions of the Licensed Program
(collectively, the "Vendors") are third-party beneficiaries of this Agreement
with full rights to enforce this Agreement as it pertains to the purchased items
and the Licensed Program and Support/Control Programs. DEVELOPER further agrees
to indemnify and hold harmless COMPANY and each of the Vendors from and against
all costs, expenses, and damages arising out of or based upon any breach or
claim of a breach of this Agreement, the Third Party Licenses or Component
Licenses by DEVELOPER, its directors, officers, employees, agents and owners.
10.H. COVENANT TO USE ONLY SPECIFIED SOFTWARE AND
LPROGRAM SUPPORT/CONTROL PROGRAMS.
-----------------------------------------
DEVELOPER acknowledges that operating non-Specified Software on the
Computer System with the Specified Software and/or the License Program and
Support/Control Programs may cause errors or other interruptions to or problems
with the Specified Software, Licensed Program and/or Support/Control Programs.
Therefore, DEVELOPER hereby agrees to operate only Specified Software, the
Licensed Program and the Support/Control Programs on the Computer System.
11. CONFIDENTIAL INFORMATION.
------------------------
COMPANY or its licensors, as applicable, possess and may further develop
and acquire certain confidential and proprietary information and trade secrets,
including, but not limited to, the following categories of information, methods,
techniques, procedures and knowledge developed or to be developed by COMPANY or
its Affiliates or their consultants, contractors or designees, and/or franchise
owners and developers (the "CONFIDENTIAL INFORMATION"):
(1) methods, techniques, equipment, specifications (including Design
Specifications, as defined in the Franchise Agreement), standards,
policies, procedures, information, concepts and systems relating to and
knowledge of and experience in the development, operation and franchising
of UNITS and the development and operation of Commissaries; and
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(2) marketing and promotional programs for UNITS; and
(3) knowledge concerning the logic, structure and operation of
computer software programs which COMPANY authorizes for use in connection
with the operation of UNITS (including, without limitation, the Licensed
Program), and all additions, modifications and enhancements thereof, and
all data generated from use of such programs and the logic, structure and
operation of database file structures containing such data and all
additions, modifications and enhancements thereof; and
(4) sales data and information concerning consumer preferences and
inventory requirements for Products, materials and supplies, and
specifications for and suppliers of certain materials, equipment and
fixtures for UNITS (including, without limitation, the Stores) and for
Commissaries; and
(5) ingredients, formulas, mixes, spices, seasonings, recipes for and
methods of preparation, baking, cooking, freezing, serving, packaging,
catering and delivery of, Products and other items sold at UNITS; and
(6) information concerning Product sales, operating results, financial
performance and other financial data of UNITS (including, without
limitation, the Stores); and
(7) the Development Manual (defined in Section 13.J. of this
Agreement), the Commissary Manuals (defined in Section 5.D of this
Agreement) and the Store Manuals (defined in the Franchise Agreement); and
(8) customer lists and Product sales of the Stores; and
(9) employee selection procedures, training and staffing levels.
COMPANY will disclose to DEVELOPER such parts of the Confidential
Information as COMPANY deems necessary or advisable from time to time in its
sole discretion for the development of UNITS and Commissaries in providing
training and in guidance and assistance furnished to DEVELOPER under this
Agreement. DEVELOPER may also learn or otherwise obtain from COMPANY and its
Affiliates and other licensors of components or elements of the System
additional Confidential Information during the Agreement Term. DEVELOPER
acknowledges and agrees that neither DEVELOPER nor any other person or entity
will acquire by or through DEVELOPER any interest in or right to use the
Confidential Information, other than the right to use it in the development of
UNITS and Commissaries pursuant to this Agreement, and that the use or
duplication of the Confidential Information in any other business would
constitute an unfair method of competition with COMPANY and with other UNIT
developers and franchise owners. DEVELOPER agrees to disclose the Confidential
Information to Owners and to its employees only to the extent reasonably
necessary for the development of UNITS pursuant to this Agreement and only if
such individuals have agreed to maintain such information in confidence in an
agreement enforceable by COMPANY.
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DEVELOPER acknowledges and agrees that the Confidential Information is
confidential to and a valuable asset of COMPANY or its licensors, as applicable,
is proprietary, includes trade secrets of COMPANY and is disclosed to DEVELOPER
solely on the condition that DEVELOPER, its Owners and employees who have access
to the Confidential Information agree, and DEVELOPER does hereby agree that,
during and after the Agreement Term, DEVELOPER, its Owners and such employees:
(a) will not use the Confidential Information in any other business or
capacity (unless, in the case of the Licensed Program, separately licensed
by the owner thereof); and
(b) will maintain the absolute confidentiality of the Confidential
Information; and
(c) will not make unauthorized copies of any portion of the
Confidential Information disclosed in written or other tangible form; and
(d) will adopt and implement all reasonable procedures prescribed from
time to time by COMPANY to prevent unauthorized use or disclosure of the
Confidential Information, including, without limitation, requiring
employees and Owners who will have access to such information to execute
non-competition and confidentiality agreements in the form attached hereto
as Exhibit J (the "CONFIDENTIALITY AND NON-COMPETITION AGREEMENT").
DEVELOPER shall provide COMPANY, at its request, executed originals of each
such Confidentiality and Non-Competition Agreement.
Nothing contained in this Agreement shall be construed to prohibit
DEVELOPER from using the Confidential Information in connection with the
operation of any UNIT pursuant to a Franchise Agreement or pursuant to another
development agreement between COMPANY and DEVELOPER.
Notwithstanding anything to the contrary contained in this Agreement
and provided DEVELOPER shall have obtained COMPANY's prior written consent, the
restrictions on DEVELOPER's disclosure and use of the Confidential Information
shall not apply to the following:
(i) information, methods, procedures, techniques and knowledge
which are or become generally known in the food service business within the
Development Area, other than through disclosure (whether deliberate or
inadvertent) by DEVELOPER or any other party having an obligation of
confidentiality to COMPANY; and
(ii) the disclosure of the Confidential Information in judicial
or administrative proceedings to the extent that DEVELOPER is legally
compelled to disclose such information, provided DEVELOPER has notified
COMPANY prior to disclosure and shall have used its best efforts to obtain,
and shall have afforded COMPANY the
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opportunity to obtain an appropriate protective order or other assurance
satisfactory to COMPANY of confidential treatment for the information
required to be so disclosed.
DEVELOPER agrees to disclose to COMPANY all ideas, concepts, methods,
techniques and products conceived or developed by DEVELOPER, Owners, affiliates
or employees thereof during the Agreement Term relating to the development and
operation of UNITS and Commissaries, provided that the aforementioned parties
will not be obligated to make such disclosures if doing so would violate any
contractual obligations of DEVELOPER which:
(A) arose prior to DEVELOPER's execution of this Agreement; and
(B) DEVELOPER disclosed to COMPANY in writing prior to the Effective
Date.
DEVELOPER hereby assigns to COMPANY and agrees to procure from its Owners,
affiliates and employees assignment of any such ideas, concepts, methods,
techniques and products which DEVELOPER is required to disclose to COMPANY
hereunder. COMPANY shall have no obligation to make any lump sum or on-going
payments to DEVELOPER or its Owners, affiliates or employees with respect to any
such idea, concept, method, technique or product. DEVELOPER agrees that
DEVELOPER will not use nor will it allow any other person or entity to use any
such concept, method, technique or product without obtaining COMPANY's prior
written approval.
12. EXCLUSIVE RELATIONSHIP.
----------------------
DEVELOPER acknowledges and agrees that COMPANY would be unable to protect
the Confidential Information against unauthorized use or disclosure and would be
unable to encourage a free exchange of ideas and information among franchise
owners and developers of UNITS, if developers, franchise owners and their
Principal Owners (and members of their Immediate Families) were permitted to
engage in, hold interests in or perform services for Competitive Businesses.
DEVELOPER further acknowledges and agrees that the restrictions contained in
this Section will not hinder its activities or the activities of its Principal
Owners (or members of their Immediate Families) under this Agreement or in
general. COMPANY has entered into this Agreement with DEVELOPER on the express
condition that, with respect to the development and operation of food service
businesses that sell Products, DEVELOPER and its Principal Owners and members of
their respective Immediate Families will deal exclusively with COMPANY.
DEVELOPER therefore agrees that, during the Agreement Term, neither DEVELOPER
nor any Principal Owner of DEVELOPER, nor any member of the Immediate Family of
DEVELOPER or of a Principal Owner of DEVELOPER, shall directly or indirectly:
(a) have any interest as a record or beneficial owner in any
Competitive Business (this restriction shall not be applicable to the
ownership of shares of a class of securities listed on a stock exchange or
traded on the over-the-counter market and quoted by a national inter-dealer
quotation system that represent less than three percent (3%) of the number
of shares of that class of securities issued and outstanding); or
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(b) perform services as a director, officer, manager, employee,
consultant, representative, agent, or otherwise for any Competitive
Business; or
(c) divert or attempt to divert any business or any customers of any
UNIT to any Competitive Business.
DEVELOPER further agrees that, during the Agreement Term, neither DEVELOPER nor
any Principal Owner of DEVELOPER, nor any member of the Immediate Family of
DEVELOPER or a Principal Owner of DEVELOPER shall directly or indirectly employ
or seek to employ any person who is employed by COMPANY, its Affiliates or by
any other developer or franchise owner of UNITS, nor induce nor attempt to
induce any such person to leave said employment without the prior written
consent of such person's employer.
Furthermore, if DEVELOPER is a corporation, limited liability company or
partnership, it will not engage in any business or other activity, directly or
indirectly, other than the development and operation of UNITS.
DEVELOPER acknowledges and agrees that the failure of any person or entity
restricted pursuant to this Section to comply with the restrictions of this
Section (regardless of whether that person or entity actually has executed this
Agreement or a Confidentiality and Non-Competition Agreement) shall constitute a
breach of this Agreement.
The restrictions of this Section shall not be construed to prohibit
DEVELOPER, any Principal Owner of DEVELOPER, or any member of the Immediate
Family of DEVELOPER or its Principal Owners from having a direct or indirect
Ownership Interest in any UNITS, development agreements or franchise agreements
for the development or operation of UNITS, or any entity owning, controlling or
operating UNITS, or from providing services to any such UNITS pursuant to other
agreements with COMPANY. Furthermore, the restrictions of this Section shall not
prohibit DEVELOPER, any Principal Owner or any member of the Immediate Family of
DEVELOPER or a Principal Owner (to the extent such person is an individual) from
performing services for or having an Ownership Interest in a Permitted
Competitive Business, or from conducting customary promotion and advertising of
a Permitted Competitive Business. Such person(s) and business(es), if any, are
identified on Exhibit G attached hereto.
13. OBLIGATIONS OF DEVELOPER.
------------------------
13.A. FULL TIME SUPERVISION.
---------------------
DEVELOPER (or the Principal Owner(s) designated in Exhibit G of this
Agreement and approved by COMPANY) and the Chief Operating Officer (as defined
below) shall exert full-time efforts to fulfill the obligations of DEVELOPER
under this Agreement and shall not engage in any other business or other
activity, directly or indirectly, that requires any significant management
responsibility or time commitments, or that may otherwise conflict with
DEVELOPER's obligations under this Agreement.
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13.B. CHIEF OPERATING OFFICER.
-----------------------
Prior to or concurrently with the execution of this Agreement, DEVELOPER
has designated the person identified on Exhibit G to this Agreement to act as
the Chief Operating Officer of the business conducted by DEVELOPER pursuant to
this Agreement (the "CHIEF OPERATING OFFICER"). DEVELOPER represents that the
Chief Operating Officer holds and will continue to hold a significant, direct
equity interest in DEVELOPER at all times during the Agreement Term. If the
relationship of the Chief Operating Officer with DEVELOPER terminates or if he
is unable to satisfactorily complete COMPANY's management training program,
DEVELOPER agrees to promptly designate a replacement Chief Operating Officer
acceptable to COMPANY, in its sole discretion, who shall at DEVELOPER's expense
and subject to COMPANY's then-current training charges, satisfactorily complete
the management training program.
13.C. DEVELOPMENT DIRECTOR AND REAL ESTATE MANAGERS.
---------------------------------------------
Upon COMPANY's written request, DEVELOPER shall designate a person (other
than the persons serving as the Chief Operating Officer, the Training Director
and the Marketing Director ) acceptable to COMPANY to act as the Development
Director of DEVELOPER (the "DEVELOPMENT DIRECTOR") during the Development Term.
If the relationship of the Development Director with DEVELOPER terminates,
DEVELOPER agrees to promptly designate a replacement Development Director
acceptable to COMPANY.
The Development Director's duties will include, without limitation:
(1) preparing and implementing a development plan for the Development
Area in form satisfactory to COMPANY; and
(2) consulting with COMPANY concerning the adaptation of COMPANY's
existing site criteria and lease (or purchase) requirements for the
Development Area; and
(3) directing and coordinating the site evaluation efforts of
DEVELOPER; and
(4) negotiating leases or purchase agreements for proposed Store
sites; and
(5) developing Stores in the Development Area.
DEVELOPER shall also hire and maintain the number of real estate managers
meeting COMPANY's qualifications as COMPANY shall specify.
13.D. TRAINING DIRECTOR.
-----------------
Upon COMPANY's written request, DEVELOPER shall designate a person (other
than the persons serving as the Chief Operating Officer, the Development
Director or the Marketing Director) acceptable to COMPANY to act as the Training
Director of DEVELOPER (the
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"TRAINING DIRECTOR") who must satisfactorily complete COMPANY's management
training program. If the proposed Training Director completes the management
training program to COMPANY's satisfaction, COMPANY will certify him to fulfill
the duties of the Training Director. Thereafter, DEVELOPER agrees to send the
Training Director, from time to time as determined by COMPANY, to one or more
locations which COMPANY designates for a period to be determined by COMPANY in
order for COMPANY to re-certify the Training Director. So long as the Training
Director's certification is current, the Training Director shall be responsible
for training the employees of each Store and each Commissary at DEVELOPER's
training facility, provided that (i) DEVELOPER has been authorized in writing by
COMPANY to operate such a facility and (ii) such facility meets, and has been
approved by COMPANY, in writing, as meeting, the specifications COMPANY
prescribes for training facilities from time to time. If the Training Director
ceases to be an employee of DEVELOPER or if the proposed Training Director is
unable to satisfactorily complete the management training program or any
subsequent training program, DEVELOPER agrees to promptly designate a
replacement Training Director acceptable to COMPANY, who must, at DEVELOPER's
expense and subject to COMPANY's then-current standard charges, satisfactorily
complete COMPANY's management training program and be certified by COMPANY as
provided above. COMPANY may, in its sole discretion as it deems necessary,
require the Training Director to attend or to participate in, at DEVELOPER's
expense, additional or refresher training programs at locations designated by
COMPANY during the term of this Agreement.
The Training Director's duties will include, without limitation:
(1) training and supervising Store and Commissary personnel; and
(2) furnishing on-site assistance to the personnel of Stores and
Commissaries in connection with Store and Commissary openings; and
(3) ongoing consultation with COMPANY and Store and Commissary
management personnel concerning training matters; and
(4) periodic reporting to COMPANY concerning DEVELOPER's training
programs established and operated by DEVELOPER.
DEVELOPER agrees, if authorized and required by COMPANY, in its sole
discretion, to develop, operate and maintain throughout the Agreement Term a
training program (including appropriate training facilities) for its employees
in the use of the System in accordance with specifications prescribed by COMPANY
from time to time.
13.E. MARKETING DIRECTOR.
------------------
Upon COMPANY's written request, DEVELOPER shall designate a person (other
than the persons serving as the Chief Operating Officer, the Development
Director and the Training Director) acceptable to COMPANY to act as the
Marketing Director of DEVELOPER (the "MARKETING DIRECTOR"). If the relationship
of the Marketing Director with DEVELOPER
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terminates, DEVELOPER agrees to promptly designate a replacement Marketing
Director acceptable to COMPANY.
The Marketing Director's duties will include, without limitation:
(1) consulting with COMPANY concerning the adaptation of COMPANY's
existing marketing programs and materials for the Development Area; and
(2) preparing and, subject to COMPANY's approval, implementing
marketing plans for the grand opening of the Stores; and
(3) preparing and, subject to COMPANY's approval, implementing local
marketing plans and marketing budgets for the Stores; and
(4) coordinating the direction and administration of any local
marketing efforts of the Stores; and
(5) reporting periodically to COMPANY concerning local marketing
programs of DEVELOPER in the Development Area.
13.F. MANAGEMENT PERSONNEL AND TRAINING.
---------------------------------
In addition to hiring, training and maintaining the personnel described in
Paragraphs B. through E. of this Section, DEVELOPER shall hire, train and
maintain the number and level of management personnel required for the conduct
of its business pursuant to this Agreement, including, without limitation, a
full-time Store Manager and a full-time Additional Manager for each Store and a
full-time Commissary Manager and a full-time Additional Commissary Manager for
each Commissary, in accordance with guidelines established from time to time by
COMPANY. DEVELOPER shall keep COMPANY advised of the identities of such
personnel. DEVELOPER shall be responsible for ensuring that such personnel are
properly trained to perform their duties. COMPANY will from time to time make
available a management training program for such personnel at times and
locations designated by COMPANY. Such management training program will be made
available at no charge to DEVELOPER's initial Chief Operating Officer,
Development Director, Training Director and Marketing Director and, at
DEVELOPER's request and at COMPANY's then-current standard charges, including,
without limitation, travel and lodging expenses of COMPANY personnel for
training not conducted at COMPANY's principal offices, additional DEVELOPER
personnel and any replacement or substitute Chief Operating Officer, Development
Director, Training Director and/or Marketing Director, subject to space
availability in COMPANY's regularly scheduled management training programs. All
management personnel shall be required to complete to COMPANY's satisfaction
either COMPANY's management training program, a management training program
provided by DEVELOPER and approved by COMPANY or another management training
program certified and accredited by COMPANY.
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After COMPANY has certified him pursuant to this Agreement, DEVELOPER's
Training Director shall provide an initial management training program to the
Store Manager and Additional Manager of each Store and the Commissary Manager
and Additional Commissary Manager of each Commissary at a training facility
(including a facility maintained by DEVELOPER if COMPANY so requires) certified
and accredited by COMPANY in accordance with COMPANY's requirements therefor.
COMPANY will provide DEVELOPER with appropriate training materials or refresher
or updated training materials at COMPANY's then-current standard charges
therefor.
13.G. BUDGETS AND FINANCING PLANS.
---------------------------
DEVELOPER shall maintain sufficient financial resources to fulfill its
obligations under this Agreement and under Franchise Agreements executed
pursuant to this Agreement. Within 30 days after the execution of this
Agreement, DEVELOPER shall submit to COMPANY for its approval, in a format
specified by COMPANY, a written plan for the funding of the development of
Stores pursuant to this Agreement (a "Funding Plan"), which plan shall be
reasonably acceptable to COMPANY and which shall include details of the sources
and terms of such funding and such other information or documents required by
COMPANY. Among other factors, COMPANY may consider DEVELOPER's proposed
debt/equity ratio and amount of indebtedness in reviewing such plan. Once a
Funding Plan is approved by COMPANY, DEVELOPER must execute and adhere to the
plan. The plan shall be subject to periodic review by COMPANY which may
require, in its sole discretion, modifications to meet its then current minimum
standards for developer financing plans.
13.H. INSURANCE.
---------
During the Agreement Term, in addition to insurance required to be
maintained in connection with the development and operation of each Store,
DEVELOPER agrees to maintain under policies of insurance issued by insurers
rated "A-" or better by Alfred M. Best Company, Inc. and approved by Company:
(1) such insurance as is necessary to comply with all legal
requirements concerning insurance coverage (including, without limitation,
workers' compensation requirements and insurance coverage) for persons
attending COMPANY training programs on behalf of DEVELOPER; and
(2) commercial general liability insurance (including, but not limited
to, coverage for motor vehicles used in the development of Stores and in
the operation of Commissaries hereunder, whether or not such vehicles are
owned by DEVELOPER) against claims for bodily and personal injury, death
and property damage caused by or occurring in conjunction with the conduct
of business by DEVELOPER pursuant to this Agreement, under one or more
policies of insurance containing minimum liability coverage prescribed by
COMPANY from time to time.
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COMPANY may periodically increase the amounts of coverage required under such
insurance policies and require different or additional kinds of insurance at any
time, including excess liability insurance, to reflect inflation, identification
of new risks, changes in law or standards of liability, higher damage awards or
other relevant changes in circumstances. Each insurance policy shall name
COMPANY as an additional named insured, shall contain a waiver of all
subrogation rights against COMPANY, its Affiliates, and their successors and
assigns, and shall provide for thirty (30) days' prior written notice to COMPANY
of any material modification, cancellation, or expiration of such policy. The
maintenance of insurance coverage which meets the minimum requirements described
in this Section and such additional coverages which DEVELOPER determines are
appropriate for its particular circumstance shall be the responsibility of
DEVELOPER.
Upon execution of this Agreement, DEVELOPER shall provide COMPANY with
evidence of such insurance. Thereafter, prior to the expiration of each
insurance policy, DEVELOPER shall furnish to COMPANY a copy of each renewal or
replacement insurance policy to be maintained by DEVELOPER for the immediately
following term and evidence of the payment of the premium therefor.
DEVELOPER's obligation to maintain insurance coverage as herein described
shall not be affected in any manner by reason of any separate insurance
maintained by COMPANY, nor shall the maintenance of such insurance relieve
DEVELOPER of any indemnification obligations under this Agreement.
13.I. RECORDS AND REPORTS.
-------------------
DEVELOPER shall maintain and use at its principal office the Computer
System, in such form as is specified by COMPANY from time to time, and shall
transmit information to, or allow the electronic collection of information by,
COMPANY therefrom. DEVELOPER agrees, at its expense, to maintain and preserve
at its principal office, full, complete and accurate records and reports and, if
required by COMPANY, computer diskettes and databases in the form specified by
COMPANY from time to time pertaining to the development and operation of Stores
and the performance by DEVELOPER of its obligations under this Agreement,
including but not limited to, records and information relating to the following:
site reports, Site Agreements for Stores, supervisory reports relating to
operation of Stores, records reflecting the financial condition and performance
of DEVELOPER (utilizing COMPANY's bookkeeping, accounting, recordkeeping and
records retention system including, without limitation, a general ledger system
which utilizes a standard chart of accounts prescribed by COMPANY from time to
time and timely entry of information into data bases of the Computer System and
periodic printouts of reports generated from the Computer System), and
information relating to employee turnover. To determine whether DEVELOPER is
complying with this Agreement, COMPANY or its agents shall have the right at any
reasonable time to inspect, audit and copy any books, records, reports, computer
data bases and documents pertaining to DEVELOPER's obligations hereunder.
DEVELOPER agrees to cooperate fully with COMPANY in connection with any such
inspection or audit.
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In addition to the reports and information required in connection with the
development and operation of Stores, DEVELOPER shall adopt a fiscal year
consistent with the fiscal year adopted by COMPANY from time to time and furnish
to COMPANY in the form and format from time to time prescribed by COMPANY
(including, without limitation, via computer diskette and restated in accordance
with COMPANY's financial reporting periods and consistent with COMPANY's then-
current financial reporting periods and accounting practices and procedures):
(1) weekly reports of sales and Royalty Base Revenue for the Stores
each Monday (for the preceding Monday through Sunday period) and, if
requested by COMPANY, daily reports of sales and Royalty Base Revenue for
the Stores, by facsimile or telephone no later than 10:00 a.m. Rocky
Mountain time on the following day; and
(2) by the twentieth (20th) day of each Accounting Period, a report
(in such form as COMPANY may request from time to time) on DEVELOPER's
financing plan and DEVELOPER's activities during the immediately preceding
Accounting Period including, but not limited to, DEVELOPER's activities in
locating and developing sites and monitoring the operation of Stores,
training activities, employee statistics and violations of health codes and
other laws; and
(3) upon request by COMPANY, such other data, reports, information and
supporting records for such periods as COMPANY may from time to time
prescribe (including, without limitation, daily and weekly sales reports by
means of telephonic, facsimile or other reporting system).
(4) within sixty (60) days after the end of DEVELOPER's fiscal year, a
fiscal year end balance sheet, an income statement for such fiscal year
reflecting all year-end adjustments and a statement of changes in cash
flow, prepared in accordance with generally accepted accounting principles
consistently applied and in the format prescribed by COMPANY from time to
time; and
(5) at least sixty (60) days prior to each required opening date on
the Development Schedule, an anticipated development program/plan, in form
prescribed by COMPANY from time to time, for the next succeeding required
opening date; and
Each such report and financial statement submitted by DEVELOPER shall be
signed to DEVELOPER and verified as correct in the manner prescribed in COMPANY.
DEVELOPER agrees to maintain and to furnish to COMPANY upon request
complete copies of all income, sales, value added, use and service tax returns,
and employee withholding, worker's compensation and similar reports filed by
DEVELOPER reflecting DEVELOPER's activities and the activities of the Stores.
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DEVELOPER shall immediately report to COMPANY any events or developments
which may have a materially adverse impact on the operation of any Store, the
performance of DEVELOPER under this Agreement, or the goodwill associated with
the Marks and UNITS.
13.J. DEVELOPMENT MANUAL, COMMISSARY MANUALS
--------------------------------------
AND STORE MANUALS.
-----------------
COMPANY will loan to DEVELOPER for DEVELOPER's sole use during the
Agreement Term one (1) copy of a confidential manual relating to the development
and operation of UNITS and human resources policies and procedures, which may
consist of one or more volumes, handbooks, manuals, written materials, video or
audio cassette tapes, computer diskettes, and other materials and intangibles,
as may be modified, added to, replaced or supplemented by COMPANY from time to
time in its sole discretion (which modifications, additions or supplements may
contain information developed for COMPANY by DEVELOPER with respect to the type
of UNIT developed pursuant to this Agreement), whether by way of supplements,
replacement pages, franchise bulletins, or other official pronouncements or
means (collectively the "DEVELOPMENT MANUAL"). The Development Manual may be
modified from time to time in COMPANY's sole discretion to reflect changes in
the System or specifications, standards, policies and procedures for UNITS or
such other changes or additions as COMPANY deems necessary or advisable.
DEVELOPER shall keep its copy of the Development Manual current by immediately
inserting all modified pages or materials furnished by COMPANY. In the event of
a dispute about the contents of the Development Manual, the master copies
maintained by COMPANY at its principal office shall be controlling. DEVELOPER
acknowledges that the Development Manual is part of the Confidential Information
and will be protected accordingly. DEVELOPER acknowledges and agrees that the
content of the Development Manual and the Commissary Manuals, as modified from
time to time, is incorporated herein by reference and that DEVELOPER will comply
with all procedures, standards, specifications and requirements specified
therein as though each such item were set forth in detail in this Agreement.
COMPANY also will loan to DEVELOPER for its use during the term of each
Franchise Agreement one (1) copy of the Store Manuals for each Store developed
and opened by DEVELOPER under this Agreement. The Store Manuals for the first
Store to be developed under this Agreement will be made available to DEVELOPER
promptly after execution of this Agreement.
13.K. COMPLIANCE WITH LAWS AND GOOD BUSINESS PRACTICES.
------------------------------------------------
DEVELOPER shall secure and maintain in force in its name all required
licenses, permits, and certificates relating to the conduct of its business
pursuant to this Agreement. DEVELOPER shall comply with all applicable laws,
ordinances and regulations, including, without limitation, laws and governmental
regulations relating to the preparation, purchase and handling of food products,
Delivery Service, Catering Service, Special Distribution Arrangements and the
operation of Commissaries (if applicable), occupational hazards, health, safety
and sanitation, worker's compensation insurance, unemployment insurance, and
withhold-
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ing and payment of all taxes. All advertising by DEVELOPER shall be approved by
COMPANY and be completely factual, in good taste in the judgment of COMPANY, and
conform to high standards of ethical advertising. DEVELOPER shall in all
dealings with its customers, suppliers, COMPANY and public officials adhere to
high standards of honesty, integrity, fair dealing and ethical conduct.
DEVELOPER agrees to refrain from any business or advertising practice which may
be injurious to the business of COMPANY and the goodwill associated with the
Marks and UNITS. DEVELOPER shall notify COMPANY in writing:
(1) within three (3) days after the commencement of any action, suit,
or proceeding, and of the issuance of any order, writ, injunction, award,
or decree of any court, agency, or other governmental instrumentality,
which may adversely affect the operation or financial condition of
DEVELOPER, the Stores or the Commissaries
(2) immediately after receipt of any notice of violation of any law,
ordinance or regulation relating to health, sanitation or the operation of
the Stores or the Commissaries.
13.L. HUMAN RESOURCES.
---------------
DEVELOPER shall adopt, observe and enforce those human resources policies,
programs and standards which COMPANY includes in the Store Manuals and
Commissary Manuals or otherwise designates in writing as mandatory.
13.M. SPECIFICATIONS, STANDARDS AND PROCEDURES.
----------------------------------------
DEVELOPER agrees to comply strictly with all of COMPANY's mandatory
specifications, standards and procedures relating to the Stores and
Commissaries, which specifications, standards and procedures COMPANY may modify,
supplement or replace from time to time. Any failure by DEVELOPER to adhere to
such mandatory specifications, standards and procedures or to pass COMPANY's
periodic quality control inspections shall constitute a breach of this
Agreement. DEVELOPER agrees and acknowledges that COMPANY's mandatory
specifications, standards and operating procedures relating to the appearance,
function, cleanliness, days and hours of operation (days and hours of operation
may vary somewhat among UNITS based on COMPANY's reasonable judgment of the
requirements of the Store's trade area and whether COMPANY has approved any
special services to be offered at or from a site), and operation of a UNIT,
including, but not limited to:
(1) type, brand, quality, taste, weight, dimensions, ingredients,
uniformity, manner of preparation, preservation and sale of all Products
and Supplies and Materials; and
(2) sales and marketing procedures and customer service; and
(3) advertising and promotional programs; and
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(4) layout, decor and color scheme of the Store; and
(5) recruitment, selection, training, appearance and dress of
employees, including, without limitation, use of COMPANY's employee
selection and training materials; and
(6) safety, maintenance, appearance, cleanliness, sanitation,
standards of service and operation of Stores; and
(7) submission of requests for approval of brands of food and
packaging products, supplies and suppliers; and
(8) use and illumination of signs, posters, displays, standard formats
and similar items; and
(9) identification of DEVELOPER (and/or the entity executing Franchise
Agreements for Stores pursuant to the Development Agreement) as the owner
of Stores in the Development Area; and
(10) types of and use of fixtures, furnishings, equipment, computer
hardware and software, vehicles, and signs; and
(11) carry-out, on-premises dining and (if authorized by COMPANY and
agreed to by DEVELOPER) Delivery Service, Catering Service and Special
Distribution Arrangements; and
(12) required and approved menu items; and
(13) general staffing levels for the Stores and number, type and
qualifications of Store personnel; and
(14) participation in market research and test programs required or
approved by COMPANY concerning various aspects of the System, including,
without limitation, procedures, systems, techniques, furnishings, fixtures,
equipment, ingredients, signs, labels, trade dress, logos, packaging,
supplies, marketing materials and strategies, merchandising and new menu
items and services. DEVELOPER agrees, if requested by COMPANY, to
participate in COMPANY's customer surveys and market research programs.
DEVELOPER acknowledges and agrees that all mandatory specifications, standards
and operating and inspection procedures prescribed from time to time by COMPANY
in the Store Manuals or otherwise communicated to DEVELOPER in writing, shall
constitute binding obligations on the part of DEVELOPER as if fully set forth
herein, and any failure by DEVELOPER to adhere to such mandatory specifications,
standards and operating and inspection procedures or to pass COMPANY'S periodic
quality control inspections shall
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constitute grounds for termination of this Agreement by COMPANY, as provided for
herein. All references herein to this Agreement shall include all such
mandatory specifications, standards, and operating procedures.
14. TRANSFER.
--------
14.A. BY COMPANY.
----------
This Agreement is fully transferable by COMPANY and shall inure to the
benefit of any assignee or other legal successor to the interests of COMPANY
herein.
14.B. THIS AGREEMENT IS NOT TRANSFERABLE BY DEVELOPER.
-----------------------------------------------
DEVELOPER understands, acknowledges and agrees (and hereby represents and
warrants that its Owners understand and agree) that the rights and duties
created by this Agreement are personal to DEVELOPER and its Owners and that a
material cause for COMPANY's agreeing to enter into this Agreement is its
reliance on the individual and collective character, skill, aptitude, business
ability, and financial capacity of DEVELOPER and its Owners. Therefore, except
as provided in Section 14.C. below, no Ownership Interest in DEVELOPER, no
obligations of DEVELOPER under this Agreement, and no interest in this Agreement
may be transferred. Any purported transfer in violation of this Section shall
constitute a breach of this Agreement and shall convey to the transferee no
obligations under, rights to or interest in the foregoing.
As used in this Agreement, a "transfer" shall include, without limitation,
the following, whether voluntary, involuntary, direct or indirect, or
conditional:
(1) an assignment, sale, gift or pledge;
(2) the grant of a mortgage, lien or security interest, including,
without limitation, the grant of a collateral assignment;
(3) a merger, consolidation, share exchange or issuance of additional
Ownership Interests or securities representing or potentially representing
Ownership Interests or redemption of Ownership Interests;
(4) a sale or exchange of voting interests or securities convertible
to voting interests, or an agreement granting the right to exercise or
control the exercise of voting rights of any holder of Ownership Interests
or to control the operations or affairs of DEVELOPER; and
(5) except where specifically approved by COMPANY, a management
agreement whereby DEVELOPER delegates (i) any of its obligations under this
Agreement; or (ii) any or all of the management functions with respect to a
Store or the business to be conducted by DEVELOPER pursuant to this
Agreement.
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In addition to the foregoing, a transfer (as defined above) will require the
prior written consent of COMPANY where such transfer occurs by virtue of (a)
divorce; (b) insolvency; (c) dissolution of a corporation, partnership or
limited liability company; (d) will; (e) intestate succession; or (f)
declaration of or transfer in trust.
14.C. CERTAIN RIGHTS TO TRANSFER
OWNERSHIP INTERESTS IN DEVELOPER.
--------------------------------
Subject to (1) COMPANY's rights of first refusal under Section 14.G and (2)
COMPANY's right to approve the proposed purchaser under Section 14.D., Ownership
Interests (including stock options or other options to acquire Ownership
Interests) may be transferred if:
(1) the proposed transfer is by an Owner who is not a Principal Owner;
and
(2) the proposed transfer does not by itself or in conjunction with
other transfers, result in the transfer of a Controlling Interest in
DEVELOPER or of a change in the composition of the group holding a
Controlling Interest in DEVELOPER; and
(3) the proposed transfer is not to a Competitive Business or to a
direct or indirect owner of interests in a Competitive Business; and
(4) DEVELOPER and its Owners are in full compliance with this
Agreement.
In addition, an Owner's Ownership Interests in DEVELOPER shall be
transferred to a transferee approved by COMPANY pursuant to Section 14.D within
a reasonable time, not to exceed nine (9) months, after the death, permanent
incapacity or liquidation of the Owner.
14.D. COMPANY'S RIGHT TO APPROVE TRANSFERS.
------------------------------------
COMPANY reserves the right to approve the proposed purchaser and transfer
of any Ownership Interests in DEVELOPER which are permitted or mandated under
Section 14.C. to be transferred. If any Owner intends to transfer Ownership
Interests, DEVELOPER shall deliver to COMPANY written notice of such proposed
transfer at least thirty (30) days prior to its intended effective date. Such
notice shall describe in detail the proposed transfer (including, without
limitation, the nature of the transfer, the nature and amount of the interests
being transferred, the reason for the transfer, the price and terms of the
transfer and effective date) and identify and provide information regarding the
proposed purchaser. COMPANY shall have thirty (30) days from delivery of such
notice within which to evaluate the proposed transaction and to notify DEVELOPER
of its approval or disapproval (with reasons) of the proposed transfer. If
approved, the transfer must take place as described in the notice (as modified
by any conditions imposed by COMPANY in granting its approval) and within thirty
(30) days of the delivery of notice of COMPANY's approval. In evaluating
whether to grant its approval, COMPANY may evaluate any and all reasonable
factors including, without limitation:
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(1) whether the proposed transferee and, if applicable, its owners are
(a) of good moral character, (b) otherwise meet COMPANY's then applicable
standards for developers of UNITS and (c) are in full compliance with any
other franchise agreements or development agreements between COMPANY and
them; and
(2) whether the price and terms of the proposed transfer are not so
burdensome as to adversely affect or have a potentially adverse effect on
COMPANY's rights and interest under this Agreement.
In granting its approval, COMPANY may also impose certain reasonable
conditions, including, without limitation, the following:
(1) that DEVELOPER reimburse COMPANY for any costs and expenses
incurred by COMPANY in evaluating the proposed transfer;
(2) that DEVELOPER, the transferring Owner or the proposed purchaser
pay a transfer fee in the amount of $10,000;
(3) that, if the transferring Owner finances any part of the sale
price, it agrees, in a manner satisfactory to COMPANY, that all obligations
of the purchaser under or pursuant to any promissory notes, agreements or
security interests reserved by the transferring Owner be subordinate to any
obligations of the purchaser to pay amounts due COMPANY and its Affiliates;
(4) that the purchaser execute any individual undertakings then being
required by COMPANY of other Owners of developers or franchise owners of
UNITS;
(5) that DEVELOPER, the transferring Owner and the purchaser (if the
purchaser is then the owner of interests in another developer or franchise
owner of UNITS) execute a general release and consent agreement, in form
satisfactory to COMPANY, of any and all claims against COMPANY, its
Affiliates, and their respective shareholders, officers, directors,
employees and agents for matters arising on or before the effective date of
the transfer; and
(6) that the transferring Owner execute a noncompetition agreement in
favor of COMPANY and the transferee, providing that the transferring Owner
shall not directly or indirectly (through a member of the Immediate Family
of the transferring Owner of DEVELOPER, or otherwise), for a period of two
(2) years commencing on the effective date of such transfer:
(a) have any interest as a disclosed or beneficial owner in any
Competitive Business located or operating:
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(i) within a five (5) mile radius of any UNIT in
operation or under development in the Development Area on the
effective date of the transfer; or
(ii) within a five (5) mile radius of any other UNIT in
operation or under development on the effective date of the
transfer; or
(iii) within the Development Area; or
(iv) within the state(s) where the Development Area is
located;
or
(b) perform services as a director, officer, manager, employee,
consultant, representative, agent or otherwise for any Competitive
Business located or operating:
(i) within a five (5) mile radius of any UNIT in
operation or under development in the Development Area on the
effective date of the transfer; or
(ii) within a five (5) mile radius of any other UNIT in
operation or under development on the effective date of the
transfer; or
(iii) within the Development Area; or
(iv) within the state(s) where the Development Area is
located; or
(c) divert or attempt to divert any business or any customers of
any UNIT to any Competitive Business;
or
(d) employ or seek to employ any person who is employed by
COMPANY, its Affiliates or by any other developer or franchise owner
of COMPANY, nor induce nor attempt to induce any such person to leave
said employment without the prior written consent of such person's
employer.
The rights of Owners to transfer interests in DEVELOPER may be exercised
only by the Owners and shall not be exercisable by a receiver, trustee,
liquidator or other person acting in a comparable capacity with respect thereto.
The restrictions of subparagraph (6)(a) of this Section 14.D. will not be
applicable to the ownership of shares of a class of securities listed on a stock
exchange or traded on the over-the-
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counter market and quoted by a national inter-dealer quotation system that
represent less than three percent (3%) of the number of shares of that class of
securities issued and outstanding nor shall they be construed to prohibit
DEVELOPER, any Principal Owner of Developer or any member of the Immediate
Family of DEVELOPER or any Principal Owner from having a direct or indirect
Ownership Interest in any UNIT, development agreements or franchise agreements
for the development or operation of UNITS, or any entity owning, controlling or
operating UNITS, or from providing services to UNITS pursuant to other
agreements with COMPANY. Furthermore, the restrictions of this Section 14.D
shall not prohibit DEVELOPER, any Owner of DEVELOPER, or (to the extent of such
person is an individual) any member of the Immediate Family of an Owner of
DEVELOPER from performing services for or having an Ownership Interest in a
Permitted Competitive Business, or from conducting customary promotion and
advertising of a Permitted Competitive Business.
14.E. PUBLIC OR PRIVATE OFFERINGS.
---------------------------
DEVELOPER acknowledges and agrees that it is the intent of COMPANY and
DEVELOPER that DEVELOPER not be or become a public company or "reporting
company" (as defined in Sections 12(b), 12(g) or 15(d) of the Securities
Exchange Act of 1934, as amended, or otherwise) including by way of an initial
public offering or a transfer to or merger with an existing public company.
Accordingly, DEVELOPER agrees that securities of DEVELOPER or an entity owning a
direct or indirect equity interest in DEVELOPER or this Agreement, or any Store
or Franchise Agreement may not be offered pursuant to a public offering.
DEVELOPER further agrees that such securities will not be offered pursuant to a
private placement without COMPANY's prior written consent. COMPANY hereby
grants its consent to a private placement of securities by DEVELOPER provided
that DEVELOPER ensures that:
(1) such private placement complies with all applicable federal, state
and local laws governing offerings of securities and all applicable
agreements between DEVELOPER and COMPANY or its Affiliates;
(2) such private placement complies with each of the relevant transfer
procedures, requirements and limitations contained herein;
(3) such private placement does not result in any change in operating
control of DEVELOPER or any Store or in the parties owning a Controlling
Interest or in the individual or individuals controlling the management,
policies or decision-making power of DEVELOPER;
(4) each person or entity receiving securities under such private
placement shall be an accredited investor, as defined by applicable law,
and shall have been identified and be reasonably acceptable to COMPANY;
provided, however, that DEVELOPER may allow unaccredited investors to
receive securities if DEVELOPER has complied with applicable law with
respect thereto;
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(5) a draft of any offering memorandum or information proposed to be
used in connection with any such private placement is submitted to COMPANY
for review and comment within a reasonable time prior to its use, that the
reasonable comments and suggestions of COMPANY thereto are given due
consideration and that a final version of such memorandum or information be
provided to COMPANY at least five (5) days prior to its distribution to
prospective investors;
(6) any offering memorandum or information used in connection with any
such private placement shall clearly state that it is not an offering by
COMPANY and that COMPANY has not participated in its preparation and has
not supplied any financial information projections, budgets, cost estimates
or similar information contained therein (all of which shall be the
responsibility of DEVELOPER);
(7) each recipient of information relating to such private placement
agrees to maintain it in confidence;
(8) the structure, timing, allocation and nature of such private
placement is reasonably acceptable to COMPANY;
(9) DEVELOPER does not as a result of the private placement, become a
"Reporting Company" under Sections 12(b), 12(g) or 15(d) of the Securities
Exchange Act of 1934, as amended; and
(10) each person who or entity which becomes an Owner or Principal
Owner as a result of such private placement agrees and undertakes to become
bound by any provisions of this Agreement pertaining to Owners or Principal
Owners, as applicable.
DEVELOPER agrees to indemnify COMPANY for and hold COMPANY harmless against
any and all costs, expenses, claims, actions, judgments and liabilities
(including, but not limited to, costs and expenses related to legal defense)
arising from or relating to any private placement approved by COMPANY pursuant
to this Section. DEVELOPER also agrees to reimburse COMPANY for its reasonable
expenses incurred in connection with any such private placement (including
attorney's fees) and to comply with all requirements of COMPANY in connection
with such offering, including, without limitation, adding appropriate
disclaimers to the offering documents and execution of appropriate
indemnification agreements.
14.F. EFFECT OF CONSENT TO TRANSFER.
-----------------------------
COMPANY's consent to a transfer of this Agreement or any interest subject
to the restrictions of this Section shall not constitute a waiver of any claims
it may have against DEVELOPER (or its Owners), nor shall it be deemed a waiver
of COMPANY's right to demand full compliance with any of the terms or conditions
of this Agreement by the transferee. COMPANY's consent to any such transfer
shall not, unless expressly provided in such consent, effect a release of
DEVELOPER (or its Owners, as the case may be) post-transfer.
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14.G. COMPANY'S RIGHT OF FIRST REFUSAL.
--------------------------------
If DEVELOPER or any of its Owner(s) desire to make a transfer of an
interest that is permitted under this Agreement, DEVELOPER or its Owner(s) shall
obtain a bona fide, arms length executed purchase agreement (and any proposed
ancillary agreements) in complete and definitive form and not subject to any
financing or other material, substantive contingency and an earnest money
deposit (in the amount of ten percent (10%) or more of the purchase price) from
a qualified, responsible, bona fide and fully disclosed purchaser. A true and
complete copy of such purchase agreement (conditioned on COMPANY's first refusal
rights) and any proposed ancillary agreements shall immediately be submitted to
COMPANY by DEVELOPER, such Owner(s), or both. The purchase agreement must apply
only to an interest which is permitted to be transferred under this Agreement,
may not include the purchase of any other property or rights of DEVELOPER (or
such Owner(s)) and the price and terms of purchase offered to DEVELOPER (or such
Owner(s)) in the purchase agreement for the aforementioned interests will
reflect the bona fide price offered therefor and shall not reflect any value for
any other property or rights. If the proposed purchaser proposes to buy any
other property or rights from DEVELOPER (or such Owner(s)) under a separate,
contemporaneous purchase agreement, DEVELOPER shall submit to COMPANY a true and
complete copy of a bona fide, arms length executed purchase agreement (and any
proposed ancillary agreements) in complete and definitive form and not subject
to any financing or other material, substantive contingency. COMPANY shall have
the right, exercisable by written notice delivered to DEVELOPER (or such
Owner(s)) within thirty (30) days from the date of receipt by COMPANY of an
exact copy of such purchase agreement, together with payment of any applicable
transfer fee, and a completed executed application for COMPANY's consent to the
transfer, to purchase such interest for the price and on the terms and
conditions contained in such purchase agreement, provided that COMPANY may
substitute cash, a cash equivalent, or marketable securities of equivalent value
for any form of payment proposed in such purchase agreement, COMPANY's credit
shall be deemed equal to the credit of any proposed purchaser, and COMPANY shall
have not less than sixty (60) days to prepare for closing. Regardless of
whether included in the purchase agreement, COMPANY shall be entitled to all
customary representations and warranties given by the seller of a business,
including, without limitation, representations and warranties as to: (i)
ownership, condition and title to the Ownership Interests and/or assets being
purchased; (ii) absence of liens and encumbrances relating to such Ownership
Interests or assets; (iii) validity of contracts of any legal entity whose
Ownership Interests are purchased and (iv) liabilities, contingent or otherwise,
of any legal entity whose Ownership Interests are purchased. If COMPANY does
not exercise its right of first refusal, DEVELOPER (or such Owner(s)) may
complete the sale to such purchaser pursuant to and on the exact terms of the
purchase agreement, subject to COMPANY's approval of the transfer, as provided
for in this Agreement, provided that if the sale to such purchaser is not
completed within one hundred twenty (120) days after receipt of such purchase
agreement by COMPANY, or there is a change in the terms of the sale, COMPANY
shall again have an additional right of first refusal for thirty (30) days as
set forth in this Agreement on the modified or initial terms and conditions of
sale.
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14.H. OWNERSHIP STRUCTURE.
-------------------
DEVELOPER represents and warrants that its Owners are as set forth on
Exhibit G and covenants that DEVELOPER will not permit the identity of such
Owners, or their respective interests in DEVELOPER, to change without complying
with this Agreement.
14.I. DELEGATION BY COMPANY.
---------------------
DEVELOPER agrees that COMPANY shall have the right, from time to time, to
delegate the performance of any portion or all of its obligations and duties
under this Agreement to designees, whether the same are agents of COMPANY or
independent contractors with which COMPANY has contracted to provide such
services.
14.J. PERMITTED TRANSFERS.
-------------------
Notwithstanding anything to the contrary contained in this Agreement and
provided (a) DEVELOPER reimburses any costs incurred by COMPANY in connection
therewith, (b) DEVELOPER, its Owners and the transferees comply with the
provisions of the HSR Act, if applicable, prior to such a transfer, (c)
DEVELOPER, its Owners and the transferees comply with all other restrictions of
this Agreement applicable to Owners and ownership interests (including, without
limitation, those restricting an Owner's ownership of interests in a Competitive
Business), and (d) the transfer does not, by itself or in conjunction with other
transfers, result in the transfer of a Controlling Interest in DEVELOPER or of a
change in the composition of the group holding a Controlling Interest in
DEVELOPER, the provisions of this Section 14 (including, without limitation, the
requirement of the payment of transfer fees under Section 14.D(2) and the right
of first refusal granted to COMPANY in Section 14.G) shall not restrict or apply
to any assignment, sale, transfer of an Ownership Interest which:
(1) is pursuant and according to the terms of a written stock or other
equity interest option or stock or other equity interest bonus plan which
benefits employees of DEVELOPER and/or of the Boston Chicken, Inc.
franchise owner which provides management services to DEVELOPER pursuant to
a support services agreement, and has been approved by COMPANY; or
(2) is made for bona fide estate planning purposes (a) to a
corporation, trust, partnership, or other entity controlled by the
transferring Owner or (b) pursuant to an inter vivos or testamentary
document or the laws of descent and distribution.
15. TERMINATION OF AGREEMENT.
------------------------
15.A. BY DEVELOPER.
------------
If DEVELOPER is in full compliance with this Agreement and with all
Franchise Agreements and COMPANY materially breaches this Agreement, DEVELOPER
may terminate this Agreement effective thirty (30) days after COMPANY's receipt
of written notice of
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termination if DEVELOPER gives written notice of such breach to COMPANY and
COMPANY does not:
(1) correct such breach within thirty (30) days after COMPANY's
receipt of such notice of material breach; or
(2) if such breach cannot reasonably be cured within thirty (30) days
after COMPANY's receipt of such notice, undertake within thirty (30) days
after COMPANY's receipt of such notice, and continue until completion,
reasonable efforts to cure such breach.
Any attempt to terminate this Agreement by DEVELOPER other than as provided in
this Section 15.A. shall be a breach by DEVELOPER of this Agreement.
15.B. BY COMPANY.
----------
COMPANY may terminate this Agreement, effective upon delivery of notice of
termination to DEVELOPER or, where expressly applicable, upon failure to cure to
COMPANY's satisfaction any breach of this Agreement before the expiration of any
period of time within which such breach may be cured in accordance with the
provisions set forth below, if:
(1) DEVELOPER fails to satisfy the development obligations for the
Development Area or any Sub-Area pursuant to this Agreement; or
(2) any person or entity makes an assignment or transfer in violation
of this Agreement; or
(3) DEVELOPER or any Principal Owner of DEVELOPER has made any
material misrepresentation or omission in its application or acquisition of
this Agreement or in connection with any transfer hereunder; or
(4) DEVELOPER or any Owner of DEVELOPER is convicted by a trial court
of, or pleads guilty or no contest to, a felony, or to any other crime or
offense that may adversely affect the reputation of UNITS or the goodwill
associated with the Marks, or engages in any misconduct which may adversely
affect the reputation of UNITS or the goodwill associated with the Marks;
or
(5) DEVELOPER or any of its Owners or employees makes any unauthorized
use of the Marks or the Copyrighted Works, makes any unauthorized use,
disclosure or duplication of the Confidential Information, the Development
Manual, the Commissary Manual, any of the Store Manuals or the Copyrighted
Works, or challenges or seeks to challenge the validity of COMPANY's or its
Affiliates' rights in and to the Marks, the Copyrighted Works or the
Confidential Information (unless the foregoing prohibited act is
inadvertent and does not have, or threaten to have, an adverse effect upon
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COMPANY, its business concept, its business operations, the business of any
UNIT, any Mark, the Confidential Information, the Development Manual, or
the Copyrighted Works, and DEVELOPER ceases and desists any such prohibited
act promptly upon notice and reimburses COMPANY for all damages, losses,
costs, and expenses incurred by COMPANY in connection with such prohibited
acts); or
(6) DEVELOPER, its Principal Owners, or members of their Immediate
Families (whether or not bound by individual noncompetition undertakings)
or other persons who have executed such individual undertakings violate the
restrictions on the operation of Competitive Businesses during the
Agreement Term set forth in Section 11 of this Agreement or Owners who have
access to the Confidential Information violate the covenants concerning
competition and confidentiality contained in the form of Confidentiality
and Non-Competition Agreement attached hereto as Exhibit J (regardless of
whether any such party has executed this Agreement or a Confidentiality and
Non-Competition Agreement); or
(7) DEVELOPER fails to deliver or adhere to Funding Plan approved by
COMPANY as required pursuant to Section 13.G. of this Agreement and does
not correct such failure within ten (10) days after written notice of such
failure is delivered to DEVELOPER; or
(8) DEVELOPER fails to make payments of any amounts due to COMPANY and
does not correct such failure within ten (10) days after written notice of
such failure is delivered to DEVELOPER; or
(9) DEVELOPER fails to timely commence or provide:
(a) Delivery Service pursuant to a Delivery Rider executed by
COMPANY and DEVELOPER; or
(b) Catering Service pursuant to a Catering Rider executed by
COMPANY and DEVELOPER; or
(c) Special Distribution Arrangements pursuant to a Special
Distribution Agreement executed by COMPANY and DEVELOPER,
in accordance with COMPANY's standards, specifications, and procedures, and
does not correct such failure within 10 days after DEVELOPER's receipt of
COMPANY's written notice of such failure to comply; or, if such failure
cannot reasonably be corrected within the aforesaid 10-day period but can
be corrected within a reasonably short time (not to exceed an additional 30
days), undertake within 10 days after DEVELOPER's receipt of COMPANY's
written notice, and continue until completion, best efforts to correct such
failure within such reasonably short time (not to exceed an additional 30
days) and furnish proof acceptable to COMPANY, upon its request, of such
efforts and the date full compliance will be achieved; or
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(10) DEVELOPER fails to operate a Commissary at the time specified by
COMPANY and at the location approved by COMPANY in accordance with
COMPANY's standards, specifications and procedures and does not correct
such failure within 10 days after DEVELOPER's receipt of COMPANY's written
notice of such failure to comply; or, if such failure cannot reasonably be
corrected within the aforesaid 10-day period but can be corrected within a
reasonably short time (not to exceed an additional 30 days), undertake
within 10 days after DEVELOPER's receipt of COMPANY's written notice, and
continue until completion, best efforts to correct such failure within such
reasonably short time (not to exceed an additional 30 days) and furnish
proof acceptable to COMPANY, upon its request, of such efforts and the date
full compliance will be achieved; or
(11) DEVELOPER or any of its Owners fail: (a) to comply with any
other provision of this Agreement, and does not correct such failure within
thirty (30) days after DEVELOPER's receipt of COMPANY's written notice of
such failure to comply; or (b) if such failure cannot reasonably be
corrected within the aforesaid thirty (30) day period but can be corrected
within a reasonably short time (not to exceed an additional thirty (30)
days), undertake within ten (10) days after DEVELOPER's receipt of
COMPANY's written notice, and continue until completion, best efforts to
correct such failure within such reasonably short time (not to exceed an
additional thirty (30) days) and furnish proof acceptable to COMPANY, upon
its request, of such efforts and the date full compliance will be achieved;
or
(12) DEVELOPER or any of its Principal Owners fails on three or more
separate occasions within any period of 18 consecutive months to comply
with this Agreement in any material respect; or
(13) COMPANY has delivered a notice of termination of a Franchise
Agreement executed pursuant to this Agreement in accordance with its terms
and conditions or DEVELOPER has attempted to terminate a Franchise
Agreement with COMPANY in breach thereof; or
(14) DEVELOPER becomes insolvent in the sense that it is unable to pay
its bills as they become due; or
(15) DEVELOPER has attempted to terminate this Agreement without
complying with Section 15.A. of this Agreement.
15.C. TERMINATION OF THE DEVELOPMENT
TERM AND CERTAIN RIGHTS OF DEVELOPER.
------------------------------------
In the event COMPANY is entitled to terminate this Agreement in accordance
with Paragraph B. of this Section, COMPANY, in its sole discretion, shall have
the option to terminate any one or more of the following instead of terminating
this Agreement:
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(1) DEVELOPER's right to develop UNITS for which no Franchise
Agreement has been executed under Section 3.A.; and
(2) DEVELOPER's territorial rights granted pursuant to Section 3.A. in
some or all of the Sub-Areas; and
(3) DEVELOPER's option to develop UNITS at Target Sites under Section
3.E.; and
(4) DEVELOPER's option to purchase, and develop and operate UNITS at
Conversion Sites under Section 3.F.; and
(5) any Delivery Rider(s) in effect between COMPANY and DEVELOPER; and
(6) any Catering Rider(s) in effect between COMPANY and DEVELOPER; and
(7) any Special Distribution Arrangement(s) in effect between COMPANY
and DEVELOPER, and
(8) require DEVELOPER to cease operation of one or more Commissaries,
effective ten (10) days after delivery of written notice thereof to DEVELOPER.
If any of such rights, options or arrangements are terminated in accordance with
this Paragraph, such termination shall be without prejudice to COMPANY's right
to terminate this Agreement or other such rights, options or arrangements at any
time thereafter for the same default or as a result of any additional defaults
of this Agreement in accordance with Paragraph B. of this Section.
16. RIGHTS AND OBLIGATIONS OF COMPANY AND
DEVELOPER UPON TERMINATION OF THIS
AGREEMENT OR EXPIRATION OF THE AGREEMENT TERM.
---------------------------------------------
16.A. PAYMENT OF AMOUNTS OWED TO COMPANY.
----------------------------------
DEVELOPER shall immediately pay to COMPANY upon termination of this
Agreement or upon expiration of the Agreement Term any amounts owed by DEVELOPER
to COMPANY or its Affiliates which are then unpaid plus interest due on any of
the foregoing.
16.B. MARKS AND COPYRIGHTED WORKS.
---------------------------
Upon the termination of this Agreement or expiration of the Agreement Term,
DEVELOPER shall:
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(1) immediately cease use of all of the Marks and not thereafter
directly or indirectly at any time or in any manner identify itself or any
business as a current or former developer of or as otherwise associated
with COMPANY, or use any Mark, any colorable imitation thereof or use any
mark substantially identical to or deceptively similar to any Mark in any
manner or for any purpose, or utilize for any purpose any trade name,
trademark or service mark or other commercial symbol or trade dress that
suggests or indicates a connection or association with COMPANY; and
(2) immediately remove all signs containing any Mark, and return to
COMPANY or destroy all forms, advertising and promotional materials and
other materials containing any Mark or otherwise identifying or relating to
the Marks; and
(3) immediately take such action as may be required to cancel or, at
COMPANY's option, to transfer to COMPANY or its designee, all fictitious or
assumed name or equivalent registrations relating to its use of any Mark;
and
(4) immediately cease use of all Copyrighted Works which were
furnished and/or licensed to DEVELOPER by COMPANY pursuant to this
Agreement and return to COMPANY or destroy, at COMPANY's option, all forms,
advertising and promotional materials or other materials containing such
Copyrighted Works.
DEVELOPER shall furnish to COMPANY within thirty (30) days after the effective
date of termination or expiration, evidence satisfactory to COMPANY of
DEVELOPER's compliance with all of the foregoing obligations. Notwithstanding
the foregoing, DEVELOPER shall continue to have the right to use the Marks and
Copyrighted Works pursuant to any Franchise Agreements it has entered into
pursuant to this Agreement which are then in effect.
16.C. CONFIDENTIAL INFORMATION.
------------------------
DEVELOPER agrees that upon termination of this Agreement or expiration of
the Agreement Term:
(1) it, and all of its affiliates, Owners, employees, agents or other
representatives, will immediately cease to use and will maintain the
absolute confidentiality of any Confidential Information of COMPANY
disclosed to or otherwise learned or acquired by DEVELOPER and will refrain
from using such Confidential Information in any business or otherwise; and
(2) it will return to COMPANY all copies of the Development Manual and
any other confidential materials which have been loaned or made available
to it by COMPANY pursuant to this Agreement.
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16.D. COVENANT NOT TO COMPETE.
-----------------------
Upon expiration of the Agreement Term or termination of this Agreement by
COMPANY or by DEVELOPER, other than pursuant to Section 15.A., neither DEVELOPER
nor any of its Principal Owners shall directly or indirectly (through a member
of the Immediate Family of DEVELOPER or a Principal Owner of DEVELOPER, or
otherwise) for a period of two (2) years commencing on the effective date of
such termination or expiration or the date on which DEVELOPER ceases to conduct
its activities hereunder, whichever is later:
(1) have any interest as a disclosed or beneficial owner in any
Competitive Business located or operating:
(a) within a five (5) mile radius of any UNIT in operation or
under development in the Development Area on the effective date of
termination or expiration of this Agreement; or
(b) within a five (5) mile radius of any other UNIT in operation
or under development on the effective date of termination or
expiration of this Agreement; or
(c) within the Development Area; or
(d) within the state(s) where the Development Area is located; or
(2) perform services as a director, officer, manager, employee,
consultant, representative, agent or otherwise for any Competitive Business
located or operating:
(a) within a five (5) mile radius of any UNIT in operation or
under development in the Development Area on the effective date of
termination or expiration of this Agreement; or
(b) within a five (5) mile radius of any other UNIT in operation
or under development on the effective date of termination or
expiration of this Agreement; or
(c) within the Development Area; or
(d) within the state(s) where the Development Area is located; or
(3) divert or attempt to divert any business or any customers of any
UNIT to any Competitive Business; or
(4) employ or seek to employ any person who is employed by COMPANY,
its Affiliates or by any other developer or franchise owner of COMPANY, nor
induce
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nor attempt to induce any such person to leave said employment without the
prior written consent of such person's employer.
The restrictions of Subparagraph (1) of this Paragraph D. will not be
applicable to the ownership of shares of a class of securities listed on a stock
exchange or traded on the over-the-counter market and quoted by a national
inter-dealer quotation system that represent less than three percent (3%) of the
number of shares of that class of securities issued and outstanding nor shall
they be construed to prohibit DEVELOPER, any Principal Owner of Developer or any
member of the Immediate Family of DEVELOPER or any Principal Owner from having a
direct or indirect Ownership Interest in any UNIT, development agreements or
franchise agreements for the development or operation of UNITS, or any entity
owning, controlling or operating UNITS, or from providing services to UNITS
pursuant to other agreements with COMPANY. Furthermore, the restrictions of
this Paragraph D. shall not prohibit DEVELOPER, any Principal Owner of
DEVELOPER, or (to the extent of such person is an individual) any member of the
Immediate Family of DEVELOPER or a Principal Owner of DEVELOPER from performing
services for or having an Ownership Interest in a Permitted Competitive
Business, or from conducting customary promotion and advertising of a Permitted
Competitive Business.
16.E. EFFECT ON COMMISSARIES.
----------------------
It is understood and agreed that the termination or expiration of the
Development Term or the Agreement Term shall not affect the operation of the
Commissaries which shall continue on the terms of this Agreement. DEVELOPER's
right and obligation to operate a Commissary pursuant to this Agreement shall
expire or terminate solely as set out in Section 5 of this Agreement.
16.F. CONTINUING OBLIGATIONS.
----------------------
All obligations of COMPANY and DEVELOPER under this Agreement which
expressly or by their nature survive or are intended to survive the termination
of this Agreement or expiration of the Agreement Term shall continue in full
force and effect subsequent to and notwithstanding its expiration or termination
and until they are satisfied in full or by their nature expire.
17. INDEPENDENT CONTRACTORS/INDEMNIFICATION.
---------------------------------------
It is understood and agreed by the parties hereto that this Agreement does
not create a fiduciary relationship between them, that COMPANY and DEVELOPER are
and shall be independent contractors, and that nothing in this Agreement is
intended to make either party a general or special agent, joint venturer,
partner, or employee of the other for any purpose. DEVELOPER shall
conspicuously identify itself in all dealings with customers, suppliers,
vendors, public officials, DEVELOPER personnel, and others as a developer of
UNITS licensed by COMPANY and shall conspicuously and prominently place such
other notices of independent ownership on such forms, business cards,
stationery, advertising, and such other materials as COMPANY may require from
time to time.
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DEVELOPER agrees to defend and hold COMPANY, its Affiliates and their
respective shareholders, directors, officers, employees, agents, successors and
assignees harmless against and to reimburse them for:
(a) all claims, losses, obligations, damages and taxes described in
this Section;
(b) any and all claims, losses, damages and liabilities of customers
and others directly or indirectly arising out of this Agreement, the
development or operation of any UNITS pursuant to this Agreement or the
development and operation of Commissaries pursuant to this Agreement
(including, without limitation, breach or violation of any agreement,
contract or commitment by DEVELOPER resulting from DEVELOPER's execution
and delivery of this Agreement or performance of any of its obligations
hereunder or liabilities asserted by Owners or employees, agents or other
representatives of DEVELOPER arising in connection with training provided
by COMPANY or its Affiliates or designees or otherwise);
(c) the conduct of Catering Service or Delivery Service
(d) the operation of Special Distribution Arrangements;
(e) unauthorized activities conducted in association with the Marks;
or
(f) the transfer of any interest in this Agreement, any UNITS, to the
extent that such claims, obligations, damages, losses or liabilities do not
arise solely from the gross negligence or wrongful conduct of COMPANY.
For purposes of this indemnification, "claims" shall mean and include all
obligations, actual, consequential, special, and punitive damages and costs
reasonably incurred in the defense of any such claim against COMPANY or amounts
paid and costs reasonably incurred in the settlement of any such claims,
including, without limitation, reasonable accountants', attorneys', attorney
assistants', arbitrators' and expert witness fees, cost of investigation and
proof of facts, court costs, other litigation expenses, and travel and living
expenses. COMPANY shall have the right to defend any such claim against it in
such manner as COMPANY deems appropriate or desirable in its sole discretion.
This indemnity shall continue in full force and effect subsequent to and
notwithstanding the expiration or termination of this Agreement.
18. ENFORCEMENT.
-----------
18.A. SEVERABILITY AND SUBSTITUTION OF VALID PROVISIONS.
-------------------------------------------------
If any provision of this Agreement relating to the in-term exclusive
dealing covenants is declared or made invalid or unenforceable by judicial
action, legislation or other government action, COMPANY may, if it believes in
its sole discretion that the continuation of this Agreement would not be in its
best interests, terminate this Agreement effective upon sixty (60) days' prior
written notice to DEVELOPER.
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<PAGE>
All other provisions of this Agreement are severable and this Agreement
shall be interpreted and enforced as if all completely invalid or unenforceable
provisions were not contained herein and partially valid and enforceable
provisions shall be enforced to the extent valid and enforceable. To the extent
the post-transfer restrictive covenants or post-termination/post-expiration
restrictive covenants contained herein are deemed unenforceable by virtue of
their scope in terms of geographic area, business activity prohibited, or length
of time, but may be made enforceable by reductions or alterations of either or
any thereof, DEVELOPER and COMPANY agree that same shall be enforced to the
fullest extent permissible under the laws and public policies applied in the
jurisdiction in which enforcement is sought. If any applicable and binding law
or rule of any jurisdiction requires a greater prior notice of the termination
of this Agreement than is required hereunder, or the taking of some other action
not required hereunder, or if under any applicable and binding law or rule of
any jurisdiction, any provision of this Agreement or any specification, standard
or operating procedure prescribed by COMPANY is invalid or unenforceable, the
prior notice and/or other action required by such law or rule shall be
substituted for the comparable provisions hereof, and COMPANY shall have the
right, in its sole discretion, to modify such invalid or unenforceable
provision, specification, standard or operating procedure to the extent required
to be valid and enforceable. Such modifications to this Agreement shall be
effective only in such jurisdiction and shall be enforced as originally made and
entered into in all other jurisdictions.
18.B. WAIVER OF OBLIGATIONS.
---------------------
COMPANY and DEVELOPER may by written instrument unilaterally waive or
reduce any obligation of or restriction upon the other under this Agreement,
effective upon delivery of written notice thereof to the other or such other
effective date stated in the notice of waiver. Whenever this Agreement requires
COMPANY's prior approval or consent, DEVELOPER shall make a timely written
request therefor and such approval shall be obtained in writing.
With respect to this Agreement, the Franchise Agreements, the relationship
of the parties, the Stores, Catering Service, Delivery Service, Special
Distribution Arrangements or any other matter, COMPANY makes no representations,
warranties or guarantees upon which DEVELOPER may rely, and assumes no liability
or obligation to DEVELOPER, by granting any waiver, approval, or consent to
DEVELOPER, or by reason of any neglect, delay, or denial of any request
therefor. Any waiver granted by COMPANY: (1) shall be without prejudice to any
other rights COMPANY may have, (2) will be subject to continuing review by
COMPANY, and (3) as to continuing waivers, may be revoked prospectively, in
COMPANY's sole discretion, at any time and for any reason, effective upon
delivery to DEVELOPER of ten (10) days' prior written notice.
COMPANY and DEVELOPER shall not be deemed to have waived or impaired any
right, power or option reserved by this Agreement (including, without
limitation, the right to demand full compliance with every term, condition and
covenant in this Agreement, or to declare any breach thereof to be a default and
to terminate this Agreement prior to the expiration of its term), by virtue of
any:
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(i) custom or practice of the parties at variance with the terms
hereof; or
(ii) any failure, refusal, or neglect of COMPANY or DEVELOPER to
exercise any right under this Agreement or to insist upon full compliance
by the other with its obligations hereunder, including, without limitation,
any mandatory specification, standard or operating procedure; or
(iii) any waiver, forbearance, delay, failure, or omission by COMPANY
to exercise any right, power, or option, whether of the same, similar or
different nature, with respect to any UNIT or any development or franchise
agreement therefor; or
(iv) any grant of a Franchise Agreement to DEVELOPER; or
(v) the acceptance by COMPANY of any payments from DEVELOPER after any
breach of this Agreement.
Neither COMPANY nor DEVELOPER shall be liable for loss or damage or deemed
to be in breach of this Agreement if its failure to perform its obligations
results from any of the following and is not caused by the non-performing party:
(vi) acts of God; or
(vii) acts of war or insurrection; or
(viii) strikes, lockouts, boycotts, fire and other casualties.
Any delay resulting from any of said causes shall extend the time allowed for
performance accordingly or excuse performance, in whole or in part, as may be
reasonable for the Store(s) directly affected thereby, except that such causes
shall not excuse payment of amounts owed at the time of such occurrence or
payment of any fees thereafter nor otherwise affect the Development Schedule or
the development of other UNITS to be developed under this Agreement, and as soon
as performance is possible the non-performing party shall immediately resume
performance and, in no event, shall non-performance be excused for more than six
(6) months.
18.C. INJUNCTIVE RELIEF.
-----------------
Nothing in this Agreement shall bar COMPANY's right to seek specific
performance of the provisions of this Agreement and injunctive relief against
threatened conduct that will cause it loss or damages under customary equity
rules, including applicable rules for obtaining restraining orders and
preliminary injunctions. DEVELOPER agrees that COMPANY may obtain such
injunctive relief in addition to such further or other relief as may be
available at law or in equity. DEVELOPER agrees that COMPANY will not be
required to post a bond to obtain
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<PAGE>
any injunctive relief and that DEVELOPER's only remedy if an injunction is
entered against DEVELOPER will be the dissolution of that injunction, if
warranted, upon due hearing (all claims for damages by reason of the wrongful
issuance of such injunction being expressly waived hereby). Any such action
shall be brought as provided in Paragraph G of this Section.
18.D. RIGHTS OF PARTIES ARE CUMULATIVE.
--------------------------------
The rights of COMPANY and DEVELOPER hereunder are cumulative and no
exercise or enforcement by COMPANY or DEVELOPER of any right or remedy hereunder
shall preclude the exercise or enforcement by COMPANY or DEVELOPER of any other
right or remedy hereunder or to which COMPANY or DEVELOPER is entitled by law.
18.E. COSTS AND LEGAL FEES.
--------------------
If COMPANY engages legal counsel in connection with any failure by
DEVELOPER to comply with this Agreement, DEVELOPER shall reimburse COMPANY for
costs and expenses incurred by COMPANY, including, without limitation,
reasonable accountants', attorneys', attorneys assistants', arbitrators' and
expert witness fees, cost of investigation and proof of facts, court costs,
other litigation expenses and travel and living expenses, whether incurred prior
to, in preparation for, in contemplation of or in connection with the filing of
any judicial or arbitration proceeding to enforce this Agreement.
18.F. GOVERNING LAW.
--------------
EXCEPT TO THE EXTENT GOVERNED BY THE UNITED STATES TRADEMARK ACT OF 1946
(LANHAM ACT, 15 U.S.C. (S)(S) 1051 ET SEQ.), THIS AGREEMENT AND THE RELATIONSHIP
BETWEEN THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE INTERNAL LAWS OF THE STATE OF COLORADO EXCEPT THAT SUCH STATE'S CHOICE OF
LAW AND CONFLICT OF LAW RULES SHALL NOT APPLY AND ANY FRANCHISE REGISTRATION,
DISCLOSURE, RELATIONSHIP OR SIMILAR STATUTE WHICH MAY BE ADOPTED BY THE STATE OF
COLORADO SHALL NOT APPLY UNLESS ITS JURISDICTIONAL REQUIREMENTS ARE MET
INDEPENDENTLY WITHOUT REFERENCE TO THIS PARAGRAPH.
18.G. CONSENT TO JURISDICTION/CHOICE OF FORUM.
---------------------------------------
DEVELOPER AGREES THAT DEVELOPER SHALL, AND COMPANY MAY, AT ITS OPTION,
INSTITUTE ANY ACTION ARISING OUT OF OR RELATING TO THIS AGREEMENT IN ANY STATE
COURT OF GENERAL JURISDICTION IN JEFFERSON COUNTY, COLORADO OR THE UNITED STATES
FEDERAL DISTRICT COURT FOR THE DISTRICT OF COLORADO, OR THE STATE COURT OF
GENERAL JURISDICTION OR UNITED STATES FEDERAL DISTRICT COURT NEAREST TO
COMPANY'S EXECUTIVE OFFICE AT THE TIME SUCH ACTION IS FILED. DEVELOPER
IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY SUCH
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<PAGE>
COURT AND WAIVES ANY OBJECTION IT MAY HAVE TO EITHER THE JURISDICTION OR VENUE
OF ANY SUCH COURT.
18.H. LIMITATIONS OF CLAIMS.
---------------------
EXCEPT FOR CLAIMS BROUGHT BY COMPANY WITH REGARD TO DEVELOPER'S OBLIGATIONS
TO MAKE PAYMENTS TO COMPANY PURSUANT TO THIS AGREEMENT OR TO INDEMNIFY COMPANY
PURSUANT TO SECTION 17, ANY AND ALL CLAIMS ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE RELATIONSHIP OF DEVELOPER AND COMPANY PURSUANT HERETO SHALL BE
BARRED UNLESS AN ACTION IS COMMENCED WITHIN: (1) TWO (2) YEARS FROM THE DATE ON
WHICH THE ACT OR EVENT GIVING RISE TO THE CLAIM OCCURRED, OR (2) ONE (1) YEAR
FROM THE DATE ON WHICH DEVELOPER OR COMPANY KNEW OR SHOULD HAVE KNOWN, IN THE
EXERCISE OF REASONABLE DILIGENCE, OF THE FACTS GIVING RISE TO SUCH CLAIMS,
WHICHEVER OCCURS FIRST.
18.I. WAIVER OF PUNITIVE DAMAGES.
--------------------------
COMPANY AND DEVELOPER HEREBY WAIVE TO THE FULLEST EXTENT PERMITTED BY LAW,
ANY RIGHT OR CLAIM FOR ANY PUNITIVE, EXEMPLARY, CONSEQUENTIAL OR SPECULATIVE
DAMAGES AGAINST THE OTHER AND AGREE THAT IN THE EVENT OF A DISPUTE BETWEEN THEM,
EXCEPT AS OTHERWISE PROVIDED HEREIN, EACH SHALL BE LIMITED TO THE RECOVERY OF
ACTUAL DAMAGES SUSTAINED BY IT.
18.J. WAIVER OF JURY TRIAL.
--------------------
COMPANY AND DEVELOPER IRREVOCABLY WAIVE TRIAL BY JURY ON ANY ACTION,
PROCEEDING OR COUNTERCLAIM, WHETHER AT LAW OR IN EQUITY, BROUGHT BY EITHER OF
THEM.
18.K. BINDING EFFECT.
--------------
This Agreement is binding upon the parties hereto and their respective
executors, administrators, heirs, assigns, and successors in interest, and shall
not be modified except by written agreement signed by both DEVELOPER and
COMPANY.
18.L. CONSTRUCTION.
------------
The preambles and exhibits are a part of this Agreement, this Agreement
constitutes the entire agreement of the parties, and there are no other oral or
written understandings or agreements between COMPANY and DEVELOPER relating to
the subject matter of this Agreement. Except as otherwise set forth herein,
nothing in this Agreement is intended, nor shall be deemed, to confer any rights
or remedies upon any person or legal entity not a party hereto. The
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<PAGE>
headings of the several sections and paragraphs hereof are for convenience only
and do not define, limit, or construe the contents of such sections or
paragraphs. The term "DEVELOPER" as used in this Agreement is applicable to one
or more persons or entities as the case may be, and the singular usage includes
the plural and the masculine and neuter usages include each other and the
feminine.
If two or more persons are at any time DEVELOPER hereunder, whether or not
as partners or joint venturers, their obligations and liabilities to COMPANY
shall be joint and several. This Agreement shall be executed in multiple
copies, each of which shall be deemed an original.
18.M. REASONABLENESS; APPROVALS.
-------------------------
COMPANY and DEVELOPER agree to act reasonably in all dealings with each
other pursuant to this Agreement. Whenever the consent or approval of either
party is required or contemplated hereunder, the party whose consent or approval
is required agrees not to unreasonably withhold the same, unless expressly
subject to such party's sole discretion pursuant to the terms of this Agreement.
19. NOTICES AND PAYMENTS.
--------------------
All written notices and reports permitted or required to be delivered by
the provisions of this Agreement or of the Development Manual shall be deemed so
delivered at the time delivered by hand, one (1) business day after transmission
by facsimile with proof of receipt, one (1) business day after being placed in
the hands of a commercial courier service for overnight delivery, or three (3)
business days after placement in the United States Mail by Registered or
Certified Mail, Return Receipt Requested, postage prepaid and properly
addressed. Unless otherwise notified in writing, all notices, reports and/or
payments to COMPANY shall be sent to COMPANY at 1526 Cole Boulevard, Suite 200,
Golden, Colorado 80401-4086, to the attention of the Vice President, Franchise
Development, with a copy to Vice President, General Counsel, or its most current
principal business address of which DEVELOPER has been notified. Notices to
DEVELOPER shall be sent to DEVELOPER at the address shown on the first page of
this Agreement or to DEVELOPER's most current principal business address of
which COMPANY has been notified, as applicable. All payments and reports
required by this Agreement shall be directed to COMPANY at the above address, or
to such other persons and places as COMPANY may direct from time to time. Any
required payment or report not actually received by COMPANY during regular
business hours on the date due (or postmarked by postal authorities at least two
(2) days prior thereto) shall be deemed delinquent.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement in multiple originals on the day and year first above written and
COMPANY has accepted this Agreement in Jefferson County, Colorado.
EINSTEIN/NOAH BAGEL CORP. ----------------------------------
DEVELOPER
By: By:
-------------------------- ------------------------------------
Title: Title:
----------------------- ------------------------------
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EXHIBIT A
TO THE DEVELOPMENT AGREEMENT
BY AND BETWEEN EINSTEIN/NOAH BAGEL CORP.
AND
__________________________________________________________
DATED ______________________
CATERING RIDER
--------------
[PLEASE REFER TO THE FRANCHISE AGREEMENT, ATTACHED AS EXHIBIT C TO THIS OFFERING
CIRCULAR, WHICH INCLUDES THE CATERING RIDER AS EXHIBIT A.]
<PAGE>
EXHIBIT B
TO THE DEVELOPMENT AGREEMENT
BY AND BETWEEN EINSTEIN/NOAH BAGEL CORP.
AND
__________________________________________________________
DATED ______________________
DELIVERY RIDER
--------------
[PLEASE REFER TO THE FRANCHISE AGREEMENT, ATTACHED AS EXHIBIT C TO THIS OFFERING
CIRCULAR, WHICH INCLUDES THE DELIVERY RIDER AS EXHIBIT B.]
<PAGE>
EXHIBIT C
TO THE DEVELOPMENT AGREEMENT
BY AND BETWEEN EINSTEIN/NOAH BAGEL CORP.
AND ___________________________________________
DATED _____________________________
DEVELOPMENT FEE
---------------
<PAGE>
DEVELOPMENT FEE
---------------
1. DEVELOPMENT FEE. The Development Fee referred to in Section 7.A.
of this Agreement shall be _________________________ Thousand
Dollars ($_________).
EINSTEIN/NOAH BAGEL CORP. __________________________________
DEVELOPER
By:__________________________ By:_______________________________
Title:______________________ Title:__________________________
C-1
<PAGE>
EXHIBIT D
TO THE DEVELOPMENT AGREEMENT
BY AND BETWEEN EINSTEIN/NOAH BAGEL CORP.
AND
__________________________________________________________
DATED ______________________
DEVELOPMENT AREA(S)
-------------------
<PAGE>
DEVELOPMENT AREA(S)
-------------------
The Development Area referred to in Section 2 of this Agreement shall
consist of the aggregate of the Sub-Areas described as follows:
SUB-AREA NO. 1
--------------
SUB-AREA NO. 2
--------------
D-1
<PAGE>
SUB-AREA NO. 3
--------------
EINSTEIN/NOAH BAGEL CORP.
DEVELOPER
By:______________________________ By:___________________________
Title:__________________________ Title:______________________
D-2
<PAGE>
EXHIBIT E
TO THE DEVELOPMENT AGREEMENT
BY AND BETWEEN EINSTEIN/NOAH BAGEL CORP.
AND
_______________________________________________________
DATED _________________________
DEVELOPMENT SCHEDULE
--------------------
<PAGE>
DEVELOPMENT SCHEDULE
--------------------
1. STORE DEVELOPMENT. DEVELOPER agrees to develop a total of
-----------------
________________________ (_____) Stores in accordance with the terms of this
Agreement.
2. DEVELOPMENT OBLIGATIONS. DEVELOPER agrees to have each Store
specified below open on or before the specified "OPENING DATE" shown below and
to have open and in operation in each Sub-Area indicated, on or before the
Opening Dates specified below, the cumulative numbers of Stores shown below:
SUB-AREA NO. 1
--------------
<TABLE>
<CAPTION>
CUMULATIVE NUMBER
OF STORES TO BE
STORE OPENING OPEN AND IN OPERATION
NUMBER DATE (THE "SUB-AREA QUOTA")
- ------ ------- ----------------------
<S> <C> <C>
</TABLE>
E-1
<PAGE>
<TABLE>
<CAPTION>
SUB-AREA NO. 2
--------------
CUMULATIVE NUMBER
OF STORES TO BE
STORE OPENING OPEN AND IN OPERATION
NUMBER DATE (THE "SUB-AREA QUOTA")
- ------- ------- ----------------------
<S> <C> <C>
</TABLE>
<TABLE>
<CAPTION>
SUB-AREA NO. 3
--------------
CUMULATIVE NUMBER
OF STORES TO BE
STORE OPENING OPEN AND IN OPERATION
NUMBER DATE (THE "SUB-AREA QUOTA")
- ------- -------- ----------------------
<S> <C> <C>
</TABLE>
E-2
<PAGE>
TOTAL DEVELOPMENT QUOTA FOR THE
DEVELOPMENT AREA (THE "TOTAL
DEVELOPMENT QUOTA"):
-------------------
EINSTEIN/NOAH BAGEL CORP. --------------------------------------
DEVELOPER
By: By:
------------------------------- ----------------------------------
Title: Title:
---------------------------- --------------------------------
E-3
<PAGE>
EXHIBIT F
TO THE DEVELOPMENT AGREEMENT
BY AND BETWEEN EINSTEIN/NOAH BAGEL CORP.
AND
______________________________________________________
DATED ________________
FORM FRANCHISE AGREEMENT
------------------------
[PLEASE REFER TO THE FRANCHISE AGREEMENT ATTACHED AS EXHIBIT C TO THIS OFFERING
CIRCULAR.]
<PAGE>
EXHIBIT G
TO THE DEVELOPMENT AGREEMENT
BY AND BETWEEN EINSTEIN/NOAH BAGEL CORP.
AND
________________________________________________________
DATED __________________
PRINCIPAL OWNERS, OTHER OWNERS, KEY MANAGERS,
PERMITTED COMPETITIVE BUSINESSES,
AND INITIAL CAPITALIZATION
--------------------------
<PAGE>
PRINCIPAL OWNERS, OTHER OWNERS, KEY MANAGERS,
PERMITTED COMPETITIVE BUSINESSES,
AND INITIAL CAPITALIZATION
--------------------------
1. PRINCIPAL OWNERS: Listed below is the full name and mailing address
of each person or entity who is a Principal Owner of DEVELOPER, and a
description of the nature and amount of such Principal Owner's direct or
indirect equity or voting interest in DEVELOPER:
Name: Number of Interests Owned:
--------------------------------- --------------
Address: % of Total Interests:
------------------------------ -------------------
- -------------------------------------- Number of Interests Owner is Entitled to
Vote:
- -------------------------------------- -----------------------------------
Other Interest (Describe):
- -------------------------------------- --------------
- -------------------------------------- ----------------------------------------
Name: Number of Interests Owned:
--------------------------------- --------------
Address: % of Total Interests:
------------------------------ -------------------
- -------------------------------------- Number of Interests Owner is Entitled to
Vote:
- -------------------------------------- -----------------------------------
Other Interest (Describe):
- -------------------------------------- --------------
- -------------------------------------- ----------------------------------------
Name: Number of Interests Owned:
--------------------------------- --------------
Address: % of Total Interests:
------------------------------ -------------------
- -------------------------------------- Number of Interests Owner is Entitled to
Vote:
- -------------------------------------- -----------------------------------
Other Interest (Describe):
- -------------------------------------- --------------
- -------------------------------------- ----------------------------------------
Name: Number of Interests Owned:
--------------------------------- --------------
Address: % of Total Interests:
------------------------------ -------------------
- -------------------------------------- Number of Interests Owner is Entitled to
Vote:
- -------------------------------------- -----------------------------------
Other Interest (Describe):
- -------------------------------------- --------------
- -------------------------------------- ----------------------------------------
G-1
<PAGE>
2. DESIGNATED PRINCIPAL OWNERS: The following individuals above are
designated as Principal Owners based upon their business experience, financial
capacity or other personal attributes:
Name: Name:
---------------------------- ------------------------------
Name: Name:
---------------------------- ------------------------------
3. OTHER OWNERS. Listed below is the full name and mailing address of
each person or entity, other than the Principal Owners, who directly or
indirectly owns an equity or voting interest in DEVELOPER and a description of
the nature of the interest (attach additional sheet if required):
Name: Number of Interests Owned:
--------------------------------- --------------
Address: % of Total Interests:
------------------------------ -------------------
- -------------------------------------- Number of Interests Owner is Entitled to
Vote:
- -------------------------------------- -----------------------------------
Other Interest (Describe):
- -------------------------------------- --------------
- -------------------------------------- ----------------------------------------
Name: Number of Interests Owned:
--------------------------------- --------------
Address: % of Total Interests:
------------------------------ -------------------
- -------------------------------------- Number of Interests Owner is Entitled to
Vote:
- -------------------------------------- -----------------------------------
Other Interest (Describe):
- -------------------------------------- --------------
- -------------------------------------- ----------------------------------------
4. MANAGEMENT: As required pursuant to Sections 13.A. and 13.B. of this
Agreement, the following Principal Owners and the Chief Operating Officer shall
exert full-time efforts to fulfill the obligations of DEVELOPER under this
Agreement:
Name: Name:
------------------------------- -----------------------------------
(Principal Owner) (Chief Operating Officer)
Name:
-------------------------------
(Principal Owner)
G-2
<PAGE>
5. OWNERS OF PERMITTED COMPETITIVE BUSINESSES: Listed below are the
Permitted Competitive Businesses and the Owners who are permitted hereunder to
engage in those businesses.
NAME OF OWNER: NAME OF OWNER:
- -------------------------------- --------------------------------
Name of Competitive Business: Name of Competitive Business:
- -------------------------------- --------------------------------
Address of Competitive Business: Address of Competitive Business:
- -------------------------------- --------------------------------
- -------------------------------- --------------------------------
NAME OF OWNER: NAME OF OWNER:
- -------------------------------- --------------------------------
Name of Competitive Business: Name of Competitive Business:
- -------------------------------- --------------------------------
Address of Competitive Business: Address of Competitive Business:
- -------------------------------- --------------------------------
- -------------------------------- --------------------------------
DEVELOPER and its Owners represent and warrant that they have previously
provided to COMPANY a true, correct, complete and detailed description of all
Competitive Businesses in which they own, directly or indirectly, interests and
that all such Competitive Businesses are
G-3
<PAGE>
disclosed in this Exhibit G. DEVELOPER and its Owners acknowledge that COMPANY
has relied on the aforementioned description of such Competitive Businesses in
entering into this Agreement with DEVELOPER.
6. INITIAL CAPITALIZATION. DEVELOPER: (a) represents and warrants that it
has developed and previously provided to COMPANY a description of its initial
capital structure (the "Initial Capital Structure") which is a true, correct,
complete and detailed description of DEVELOPER's capital structure; (b)
covenants that it will not deviate from the Initial Capital Structure without
COMPANY's prior written consent; and (c) acknowledges that COMPANY has relied on
the Initial Capital Structure in entering into this Agreement.
EINSTEIN/NOAH BAGEL CORP. ------------------------------------------
DEVELOPER
By: By:
----------------------------- --------------------------------------
Title: Title:
------------------------- ---------------------------------
G-4
<PAGE>
EXHIBIT H
TO THE DEVELOPMENT AGREEMENT
BY AND BETWEEN EINSTEIN/NOAH BAGEL CORP.
AND
_____________________________________________________________
DATED ______________________
DEVELOPER ACKNOWLEDGMENTS AND REPRESENTATIONS STATEMENT
-------------------------------------------------------
<PAGE>
ACKNOWLEDGMENTS AND REPRESENTATIONS STATEMENT
---------------------------------------------
1. DEVELOPER acknowledges that it has read the Development Agreement (the
"AGREEMENT") between Einstein/Noah Bagel Corp. ("COMPANY") and DEVELOPER dated
as of the date hereof and COMPANY's Franchise Offering Circular in their
entirety and that it understands and accepts the terms, conditions and covenants
contained in the Agreement as being reasonably necessary to maintain COMPANY's
high standards of quality and service and the uniformity of those standards at
all UNITS in order to protect and preserve the goodwill of the Marks.
(Capitalized terms not defined herein shall have the respective meanings set
forth in the Agreement.) DEVELOPER acknowledges that: (a) COMPANY delivered and
DEVELOPER received a copy of COMPANY's Franchise Offering Circular at the
earlier of (i) DEVELOPER's first personal meeting with COMPANY or (ii) ten
business days prior to the execution of the Agreement or the payment of any
consideration by DEVELOPER in connection with the transaction contemplated in
the Agreement; and (b) COMPANY delivered and DEVELOPER received the Agreement in
form for execution at least five (5) business days prior to the execution of the
Agreement.
2. Attached to COMPANY's Franchise Offering Circular is a copy of the
current form of Franchise Agreement. DEVELOPER acknowledges that the Franchise
Agreement attached to COMPANY's Franchise Offering Circular is the current form
of Franchise Agreement and that COMPANY, at its sole discretion, may from time
to time modify or amend in any respect the standard form of Franchise Agreement
used by COMPANY in offering or granting a UNIT franchise.
3. DEVELOPER acknowledges that the food service business is a highly
competitive industry, with constantly changing market conditions. DEVELOPER
acknowledges that it has conducted an independent investigation of the business
contemplated by the Agreement and recognizes that, like any other business, the
nature of the business conducted by UNITS may change over time, that an
investment in a UNIT involves business risks, and that the success of the
venture is largely dependent upon the business abilities and efforts of
DEVELOPER.
4. DEVELOPER acknowledges and agrees that some aspects of COMPANY's
franchise program and the System are still under development and that COMPANY
expects that there will be some significant variations in the System in
different regional markets which may exist for an initial or transitional
period, or on a permanent basis. COMPANY may, for example, allow DEVELOPER to
use one recipe for bagels, cream cheeses or other items while allowing other
developers and franchise owners to use different recipes. COMPANY may also allow
variations between developers and franchise owners in the areas of trademarks,
trade dress, operational items or other aspects of UNITS. DEVELOPER acknowledges
and agrees that only COMPANY may determine what variations DEVELOPER may use and
that DEVELOPER will in any event conform strictly to the standards and
specifications which COMPANY establishes for DEVELOPER's Stores.
COMPANY intends to allow these variations in the System: (a) as part of
ongoing research and development for UNITS generally; and (b) to test whether
regional variations in
H-1
<PAGE>
UNITS may be advantageous. DEVELOPER understands and accepts that, over time
during the term of the Agreement COMPANY will continue to develop and refine
various aspects of the System and that as new products, new operating
procedures, new trade dress and other refinements are introduced, COMPANY may,
in its sole discretion, cease to allow some or all of the variations and may
require local or regional variations or national uniformity among UNITS as to
aspects for which COMPANY had previously allowed variations. DEVELOPER
acknowledges and agrees that this may mean that DEVELOPER may be required, for
example, to change one or more of (a) the recipes DEVELOPER uses for bagels,
cream cheese or other items; (b) the trademarks and/or service marks DEVELOPER
uses; (c) the trade dress or operational procedures DEVELOPER uses; or (d) other
aspects of your UNITS. Some or all of these changes may require DEVELOPER to
make substantial additional capital expenditures. DEVELOPER acknowledges and
agrees that COMPANY may discontinue any of the variations which it had
previously allowed DEVELOPER to utilize and that DEVELOPER will conform to all
required local, regional and/or national standards and specifications and other
requirements which COMPANY may establish from time to time even if it means
substantial additional expense for DEVELOPER Further, COMPANY acknowledges and
agrees that it shall provide to COMPANY the data COMPANY requires concerning
DEVELOPER'S operations in order to allow COMPANY to assess the success of
different variations in its retail store concept.
Furthermore, DEVELOPER acknowledges and agrees that COMPANY may continue to
operate and/or franchise others to operate UNITS in certain areas under
trademarks and service marks other than "EINSTEIN BROS.," including without
limitation "BAGEL & BAGEL," "BALTIMORE BAGELS," "NOAH'S NEW YORK BAGELS" or
"OFFERDAHL'S." COMPANY may allow the use of such other marks temporarily,
indefinitely or permanently and on a local, regional, national or international
basis. DEVELOPER further understands and agrees that COMPANY may, rather than
operating and franchising a national chain of bagel stores operating under a
single trademark or service mark, determine in its sole discretion to operate
and franchise a network of bagel shops operating under different names and in
different geographic areas.
5. DEVELOPER acknowledges that neither COMPANY nor any officer, director,
employee, agent, representative or Affiliate thereof or agents, has made any
representations or statements of actual, average, projected or forecasted sales,
profits, earnings, cash flow or costs with respect to any UNITS or the business
contemplated by the Agreement. Neither COMPANY's sales personnel nor any
employee, officer, director, agent, representative or affiliate of COMPANY is
authorized to make any claims or statements as to the sales, profits, earnings,
cash flow, costs or prospects or chances of success that any developer or
franchisee can expect or that present or past developers or franchisees have
had. COMPANY specifically instructs its sales personnel, employees, officers,
directors, agents, representatives and affiliates that they are not permitted to
make such claims or statements as to the sales, profits, earnings, cash flow,
costs or the prospects or chances of success, nor are they authorized to
represent or estimate amounts of sales, profits, earnings, cash flow, costs or
other measures as to any aspect of the operation of UNITS. COMPANY recommends
that applicants for development rights make their own investigations and
determine whether or not the business contemplated by this Agreement is
profitable. COMPANY will not be bound by any unauthorized representations as to
DEVELOPER's sales, profits, earnings, cash flow, costs or prospects or chances
of success.
H-2
<PAGE>
COMPANY recommends that each applicant for development rights consult with an
attorney of its choosing and further be represented by legal counsel at the time
of its closing. DEVELOPER acknowledges that it has had ample opportunity to
consult with legal counsel and other professional advisors. DEVELOPER
acknowledges that it has not received or relied on any representations about the
development rights granted in the Agreement by COMPANY, or its officers,
directors, employees or agents, that are contrary to the statements made in
COMPANY's Franchise Offering Circular.
6. DEVELOPER hereby acknowledges and agrees that COMPANY's approval of a
proposed site or Site Agreement for a UNIT or a Commissary does not constitute
an assurance, representation or warranty of any kind, express or implied, as to
the suitability of the proposed site or Site Agreement for a UNIT or a
Commissary or the successful operation or profitability of a UNIT or a
Commissary operated at such site. COMPANY's approval of any such site or Site
Agreement indicates only that COMPANY believes that such site or Site Agreement
falls within acceptable minimum criteria established by COMPANY solely for
COMPANY's purposes at the time of COMPANY's approval thereof. Both DEVELOPER and
COMPANY acknowledge that application of criteria that have been effective with
respect to other sites and premises may not be predictive of potential for all
sites and that, subsequent to COMPANY's approval of a proposed site, demographic
and/or economic factors, such as competition from other similar businesses,
included in or excluded from COMPANY's criteria could change, thereby altering
the potential of a proposed site. Such factors are unpredictable and are beyond
COMPANY's control. COMPANY shall not be responsible for the failure of a site
approved by COMPANY to meet DEVELOPER's expectations as to revenue or
operational criteria. DEVELOPER further acknowledges and agrees that its
acceptance of a franchise for the operation of a UNIT at any such site and its
acceptance of the right and obligation to operate a Commissary are based on its
own independent investigation of the suitability of the site.
7. DEVELOPER acknowledges that COMPANY's approval of a financing plan for
DEVELOPER's development and operation of the Stores under the Agreement does not
constitute any assurance that such financing plan is adequate, favorable or not
unduly burdensome, or that such Stores will be successful if the financing plan
is implemented by DEVELOPER. COMPANY's approval of the financing plan indicates
only that such financing plan meets or that COMPANY has waived COMPANY's then-
current minimum standards established by COMPANY solely for its own purposes at
the time of approval thereof.
8. DEVELOPER acknowledges that in all of COMPANY's dealings with
DEVELOPER, the officers, directors, employees and agents of COMPANY act only in
a representative capacity and not in an individual capacity. DEVELOPER further
acknowledges that the Agreement, and all business dealings between DEVELOPER and
such individuals as a result of the Agreement, are solely between DEVELOPER and
COMPANY. DEVELOPER further represents to COMPANY, as an inducement to its entry
into this Agreement, that neither DEVELOPER nor its Owners have made any
misrepresentations in obtaining the rights granted under the Agreement.
9. If DEVELOPER is a legal entity, DEVELOPER:
H-3
<PAGE>
A. represents that it is duly organized and validly existing in good
standing under the laws of the jurisdiction of its organization, is
qualified to do business in all jurisdictions in which its business
activities or the nature of properties owned by DEVELOPER requires such
qualification, and has the authority to execute and deliver the Agreement
and perform all of DEVELOPER's obligations under the Agreement; and
B. agrees that all certificates representing Ownership Interests of
DEVELOPER now outstanding or hereafter issued will be endorsed with a
legend in form approved by COMPANY reciting that the transfer of Ownership
Interests in DEVELOPER is subject to restrictions contained in the
Agreement.
10. DEVELOPER, whether or not a legal entity, represents and warrants that
DEVELOPER is not subject to any restriction, agreement, contract, commitment,
law, judgment or decree which would prohibit or be breached or violated by
DEVELOPER's execution and delivery of the Agreement or performance of its
obligations thereunder. At COMPANY's request, DEVELOPER shall furnish an opinion
of counsel to COMPANY, in form and substance satisfactory to COMPANY, to the
effect that the Agreement is a valid and binding agreement of DEVELOPER,
enforceable against DEVELOPER in accordance with its terms, and that DEVELOPER
is not subject to any restriction, agreement, law, judgment or decree which
would prohibit or be violated by DEVELOPER's execution and delivery of the
Agreement and performance of its obligations thereunder.
11. DEVELOPER further represents and warrants that all Owners of DEVELOPER
and their interests therein are completely and accurately listed in Exhibit G to
the Agreement and covenants that DEVELOPER will make, execute and deliver to
COMPANY such revisions thereto as may be necessary during the term of the
Agreement to reflect any changes in the information contained therein.
12. DEVELOPER represents and warrants that its domicile is as set forth
below:
------------------------------------------------------------
Address
------------------------------------------------------------
City and State
Dated:
----------------------
----------------------------
DEVELOPER
By:
-------------------------
Title:
--------------------
H-4
<PAGE>
EXHIBIT I
TO THE DEVELOPMENT AGREEMENT
BY AND BETWEEN EINSTEIN/NOAH BAGEL CORP.
AND ______________________________________
DATED ____________________
GUARANTY AND ASSUMPTION OF DEVELOPER'S OBLIGATIONS
--------------------------------------------------
<PAGE>
GUARANTY AND ASSUMPTION OF DEVELOPER'S OBLIGATIONS
--------------------------------------------------
THIS GUARANTY AND ASSUMPTION OF DEVELOPER'S OBLIGATIONS is given this
___________ day of ________________________, 19__ , by the undersigned.
DEVELOPER:
-----------------------------------
(NAME)
DATE OF DEVELOPMENT AGREEMENT:
--------------------------
In consideration of, and as an inducement to, the execution of the
above-mentioned Einstein/Noah Bagel Corp. Development Agreement (the
"AGREEMENT") by EINSTEIN/NOAH BAGEL CORP. ("COMPANY"), each of the undersigned
and any other parties who sign counterparts of this guaranty (referred to herein
individually as a "GUARANTOR" and collectively as "GUARANTORS") hereby
personally and unconditionally: (a) guarantees to COMPANY, and its successors
and assigns, for the term of the Agreement and thereafter as provided in the
Agreement, that DEVELOPER shall punctually pay and perform each and every
undertaking, agreement and covenant set forth in the Agreement; and (b) agrees
to be personally bound by, and personally liable for the breach of, each and
every provision in the Agreement, both monetary obligations and other
obligations, including without limitation, the obligation to pay costs and legal
fees as provided in the Agreement and the obligation to take or refrain from
taking specific actions or to engage or refrain from engaging in specific
activities, including without limitation the provisions of the Agreement
relating to competitive activities.
Each Guarantor waives:
1. acceptance and notice of acceptance by COMPANY of the foregoing
undertakings; and
2. notice of demand for payment of any indebtedness or nonperformance
of any obligations hereby guaranteed; and
3. protest and notice of default to any party with respect to the
indebtedness or nonperformance of any obligations hereby guaranteed; and
4. any right he may have to require that an action be brought against
DEVELOPER or any other person as a condition of liability; and
I-1
<PAGE>
5. all rights to payments and claims for reimbursement or subrogation
which he may have against DEVELOPER arising as a result of his execution of
and performance under this guaranty by the undersigned (including by way of
counterparts); and
6. any and all other notices and legal or equitable defenses to which
he may be entitled.
Each Guarantor consents and agrees that:
(A) his direct and immediate liability under this guaranty shall be
joint and several not only with DEVELOPER, but also among the Guarantors;
and
(B) he shall render any payment or performance required under the
Agreement upon demand if DEVELOPER fails or refuses punctually to do so;
and
(C) such liability shall not be contingent or conditioned upon
pursuit by COMPANY of any remedies against DEVELOPER or any other person;
and
(D) such liability shall not be diminished, relieved or otherwise
affected by any subsequent rider or amendment to the Agreement or by any
extension of time, credit or other indulgence which COMPANY may from time
to time grant to DEVELOPER or to any other person, including, without
limitation, the acceptance of any partial payment or performance, or the
compromise or release of any claims, none of which shall in any way modify
or amend this guaranty, which shall be continuing and irrevocable
throughout the Agreement Term of the Agreement and for so long thereafter
as there are any monies or obligations owing by DEVELOPER to COMPANY under
the Agreement; and
(E) the written acknowledgment of DEVELOPER, accepted in writing by
COMPANY, or the judgment of any court or arbitration panel of competent
jurisdiction establishing the amount due from DEVELOPER shall be conclusive
and binding on the undersigned as guarantors.
If COMPANY is required to enforce this guaranty in a judicial or
arbitration proceeding, and prevails in such proceeding, it shall be entitled to
reimbursement of its costs and expenses, including, but not limited to,
reasonable accountants', attorneys', attorneys' assistants', arbitrators' and
expert witness fees, costs of investigation and proof of facts, court costs,
other litigation expenses and travel and living expenses, whether incurred prior
to, in preparation for or in contemplation of the filing of any such proceeding.
If COMPANY is required to engage legal counsel in connection with any failure by
the undersigned to comply with this Guaranty, the Guarantors shall reimburse
COMPANY for any of the above-listed costs and expenses incurred by it.
I-2
<PAGE>
Each of the undersigned Guarantors represents and warrants that, if no
signature appears below for such Guarantor's spouse, such guarantor is either
not married or, if married, is a resident of a state which does not require the
consent of both spouses to encumber the assets of the Guarantor's marital
estate.
IN WITNESS WHEREOF, each Guarantor has hereunto affixed his signature on
the same day and year as the Agreement was executed.
GUARANTOR(S)
- ------------
SPOUSE:
- ------------------------------- -------------------------------
NAME: NAME:
SPOUSE:
- ------------------------------- -------------------------------
NAME: NAME:
SPOUSE:
- ------------------------------- -------------------------------
NAME: NAME:
SPOUSE:
- ------------------------------- -------------------------------
SPOUSE:
- ------------------------------- -------------------------------
SPOUSE:
- ------------------------------- -------------------------------
I-3
<PAGE>
EXHIBIT J
TO THE EINSTEIN/NOAH BAGEL CORP.
DEVELOPMENT AGREEMENT
BY AND BETWEEN
EINSTEIN/NOAH BAGEL CORP.
AND _______________________________
DATED _________________________________
CONFIDENTIALITY AND NON-COMPETE AGREEMENT
-----------------------------------------
[PLEASE REFER TO THE FRANCHISE AGREEMENT, ATTACHED AS EXHIBIT C TO THIS OFFERING
CIRCULAR, WHICH INCLUDES THE CONFIDENTIALITY AND NON-COMPETE AGREEMENT AS
EXHIBIT H.]
<PAGE>
EXHIBIT K
TO THE DEVELOPMENT AGREEMENT
BY AND BETWEEN EINSTEIN/NOAH BAGEL CORP.
AND
_______________________________________________________
DATED _________________________
PRINCIPAL MARKS TO BE USED BY DEVELOPER
The UNITS to be developed pursuant to this Agreement shall be
identified by the following principal Marks (subject to the rights of COMPANY to
discontinue or modify such Marks pursuant to Section 8 of this Agreement) and
shall be operated in accordance with the COMPANY's requirements associated with
such Mark as in effect from time to time.
K-1
<PAGE>
EXHIBIT C
---------
EINSTEIN/NOAH BAGEL CORP.
FRANCHISE AGREEMENT
-------------------
C-1
<PAGE>
EINSTEIN/NOAH BAGEL CORP.
FRANCHISE AGREEMENT
-------------------
------------------------------
FRANCHISE OWNER
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C> <C>
1. INTRODUCTION AND CERTAIN DEFINITIONS.................................. 1
A. INTRODUCTION.................................................... 1
B. DEFINITIONS..................................................... 2
2. GRANT OF FRANCHISE.................................................... 8
A. GRANT OF FRANCHISE; TERM; PRINCIPAL OWNERS'
GUARANTY........................................................ 8
B. TERRITORIAL RIGHTS.............................................. 9
C. RIGHTS RETAINED BY COMPANY...................................... 9
D. FRANCHISE OWNER'S OPTION TO PURCHASE CONVERSION
SITES........................................................... 10
3. OTHER DISTRIBUTION METHODS............................................ 11
A. SPECIAL DISTRIBUTION ARRANGEMENTS............................... 11
B. DELIVERY SERVICE................................................ 12
C. CATERING SERVICE................................................ 13
4. DEVELOPMENT AND OPENING OF THE STORE.................................. 14
A. SITE SELECTION AND LEASE........................................ 14
B. STORE DESIGN SPECIFICATIONS AND CONSTRUCTION PLANS.............. 14
C. DEVELOPMENT OF THE STORE........................................ 14
D. EQUIPMENT, FIXTURES, FURNISHINGS AND SIGNS...................... 15
E. COMPUTER SYSTEM................................................. 16
F. STORE OPENING................................................... 16
G. GRAND OPENING PROGRAM........................................... 16
H. RELOCATION OF THE STORE......................................... 17
I. FINANCING PLAN.................................................. 17
5. TRAINING AND GUIDANCE................................................. 18
A. TRAINING........................................................ 18
B. GUIDANCE AND ASSISTANCE......................................... 18
C. STORE MANUALS................................................... 19
6. MARKS................................................................. 20
A. GOODWILL AND OWNERSHIP OF MARKS................................. 20
B. LIMITATIONS ON FRANCHISE OWNER'S USE OF MARKS................... 20
C. NOTIFICATION OF INFRINGEMENTS AND CLAIMS........................ 21
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C> <C>
D. DISCONTINUANCE OF USE OF MARKS.................................. 21
E. INDEMNIFICATION OF FRANCHISE OWNER.............................. 21
7. COPYRIGHTS............................................................ 22
A. OWNERSHIP OF COPYRIGHTED WORKS.................................. 22
B. LIMITATION ON FRANCHISE OWNER'S USE OF
COPYRIGHTED WORKS............................................... 22
C. NOTIFICATION OF INFRINGEMENTS AND CLAIMS........................ 23
D. DISCONTINUANCE OF USE OF COPYRIGHTED WORKS...................... 23
8. LICENSED PROGRAM AND COMPUTER SYSTEM.................................. 24
A. GRANT OF LICENSE................................................ 24
B. SOFTWARE LICENSE FEE............................................ 26
C. SOFTWARE SUPPORT SERVICE........................................ 26
D. SOFTWARE SUPPORT SERVICE FEE.................................... 26
E. MODIFICATION, ENHANCEMENT,
AND REPLACEMENT OF COMPUTER SYSTEM,
LICENSED PROGRAM AND SPECIFIED SOFTWARE......................... 26
F. WARRANTIES AND LIMITATION OF LIABILITY.......................... 27
G. SUBCOMPONENT LICENSES AND THIRD-PARTY LICENSES.................. 28
9. CONFIDENTIAL INFORMATION.............................................. 28
10. EXCLUSIVE RELATIONSHIP................................................ 31
11. FEES.................................................................. 32
A. INITIAL FRANCHISE FEE........................................... 32
B. ROYALTY FEE..................................................... 32
C. DEFINITION OF "ROYALTY BASE REVENUE"............................ 33
D. INTEREST ON LATE PAYMENTS....................................... 33
E. APPLICATION OF PAYMENTS......................................... 33
F. ELECTRONIC FUNDS TRANSFER....................................... 34
12. STORE IMAGE AND OPERATION............................................. 34
A. CONDITION AND APPEARANCE OF THE STORE........................... 34
B. STORE MENU AND SERVICES......................................... 36
C. APPROVED PRODUCTS, DISTRIBUTORS AND SUPPLIERS................... 37
D. SPECIFICATIONS, STANDARDS AND PROCEDURES........................ 39
E. COMPLIANCE WITH LAWS AND GOOD BUSINESS PRACTICES................ 40
F. MANAGEMENT AND PERSONNEL OF THE STORE........................... 41
G. INSURANCE....................................................... 41
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C> <C>
H. CREDIT CARDS AND OTHER METHODS OF PAYMENT....................... 42
13. ADVERTISING........................................................... 43
A. MARKETING FUND.................................................. 43
B. LOCAL ADVERTISING FUND.......................................... 45
C. ADVERTISING BY FRANCHISE OWNER.................................. 47
14. ACCOUNTING, REPORTS AND FINANCIAL STATEMENTS.......................... 48
15. INSPECTIONS AND AUDITS................................................ 49
A. COMPANY'S RIGHT TO INSPECT THE STORE............................ 49
B. COMPANY'S RIGHT TO AUDIT........................................ 50
16. TRANSFER.............................................................. 51
A. BY COMPANY...................................................... 51
B. NONTRANSFERABILITY OF CERTAIN RIGHTS............................ 51
C. COMPANY'S RIGHT TO APPROVE TRANSFERS............................ 52
D. CONDITIONS FOR APPROVAL OF TRANSFERS............................ 53
E. DEATH OR INCAPACITY OF FRANCHISE OWNER.......................... 56
F. PUBLIC OR PRIVATE OFFERING...................................... 56
G. EFFECT OF CONSENT TO TRANSFER................................... 58
H. COMPANY'S RIGHT OF FIRST REFUSAL................................ 58
I. OWNERSHIP STRUCTURE............................................. 59
J. DELEGATION BY COMPANY........................................... 59
K. PERMITTED TRANSFERS............................................. 59
17. GRANT OF SUCCESSOR FRANCHISES......................................... 60
A. FRANCHISE OWNER'S RIGHT TO A SUCCESSOR FRANCHISE................ 60
B. NOTICES......................................................... 61
C. SUCCESSOR FRANCHISE AGREEMENT/RELEASES.......................... 61
18. TERMINATION OF THE FRANCHISE.......................................... 62
A. BY FRANCHISE OWNER.............................................. 62
B. BY COMPANY...................................................... 62
C. TERMINATION OF CERTAIN RIGHTS OF FRANCHISE OWNER................ 65
19. RIGHTS AND OBLIGATIONS OF COMPANY AND FRANCHISE
OWNER UPON TERMINATION OR EXPIRATION OF THE AGREEMENT................. 66
A. PAYMENT OF AMOUNTS OWED TO COMPANY.............................. 66
B. MARKS, TRADE DRESS, AND COPYRIGHTED WORKS....................... 66
C. CONFIDENTIAL INFORMATION........................................ 68
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C> <C>
D. COVENANT NOT TO COMPETE......................................... 68
E. CONTINUING OBLIGATIONS.......................................... 69
F. COMPANY'S RIGHT TO PURCHASE ASSETS OF THE STORE................. 69
20. RELATIONSHIP OF THE PARTIES/INDEMNIFICATION........................... 71
A. INDEPENDENT CONTRACTORS......................................... 71
B. NO LIABILITY FOR ACTS OF OTHER PARTY............................ 71
C. TAXES........................................................... 71
D. INDEMNIFICATION................................................. 72
21. ENFORCEMENT........................................................... 72
A. SEVERABILITY AND SUBSTITUTION OF VALID PROVISIONS............... 72
B. WAIVER OF OBLIGATIONS........................................... 73
C. INJUNCTIVE RELIEF............................................... 74
D. RIGHTS OF PARTIES ARE CUMULATIVE................................ 74
E. COSTS AND LEGAL FEES............................................ 75
F. GOVERNING LAW................................................... 75
G. CONSENT TO JURISDICTION/CHOICE OF FORUM......................... 75
H. LIMITATIONS OF CLAIMS........................................... 75
I. WAIVER OF PUNITIVE DAMAGES...................................... 76
J. WAIVER OF JURY TRIAL............................................ 76
K. BINDING EFFECT.................................................. 76
L. CONSTRUCTION.................................................... 76
M. REASONABLENESS; APPROVALS....................................... 76
22. NOTICES AND PAYMENTS.................................................. 77
</TABLE>
iv
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS AND ATTACHMENTS
- ------------------------
<S> <C>
EXHIBIT A - CATERING RIDER
EXHIBIT B - DELIVERY RIDER
EXHIBIT C - FRANCHISE OWNER ACKNOWLEDGMENTS AND
REPRESENTATIONS STATEMENT
EXHIBIT D - PERMITTED COMPETITIVE BUSINESSES, FORM
DEVELOPMENT AGREEMENT (FOR SINGLE-STORE
FRANCHISES) AND IDENTITY OF DEVELOPER AND DATE
OF DEVELOPMENT AGREEMENT
EXHIBIT E - PRINCIPAL OWNERS, OTHER OWNERS, DESIGNATED
PRINCIPAL OWNERS, STORE MANAGER, SUPERVISING
OWNERS AND INITIAL CAPITALIZATION
EXHIBIT F - SITE AND TERRITORY
EXHIBIT G - GUARANTY AND ASSUMPTION OF FRANCHISE OWNER'S
OBLIGATIONS
EXHIBIT H - CONFIDENTIALITY AND NON-COMPETE AGREEMENT
EXHIBIT I - AUTHORIZATION AGREEMENT FOR PREARRANGED
PAYMENTS (DIRECT DEBITS)
EXHIBIT J - COLLATERAL ASSIGNMENT OF TELEPHONE NUMBERS
AND LISTINGS
EXHIBIT K - PRINCIPAL MARKS
</TABLE>
v
<PAGE>
EINSTEIN/NOAH BAGEL CORP.
FRANCHISE AGREEMENT
-------------------
THIS AGREEMENT is made and entered into this day of , 199__ (the
"EFFECTIVE DATE"), by and between EINSTEIN/NOAH BAGEL CORP., a DELAWARE
CORPORATION ("COMPANY"), and FRANCHISE OWNER (as defined below).
"FRANCHISE OWNER": _______________________________________ ,
a______________________________________
Principal Address: _______________________________________
_______________________________________
_______________________________________
1. INTRODUCTION AND CERTAIN DEFINITIONS.
------------------------------------
1.A. INTRODUCTION.
------------
COMPANY and its Affiliates (as defined below) have developed and may
continue to develop methods of operating food service businesses, including the
food service businesses referred to in this Agreement as a "UNIT" (defined
below), which feature Products (defined below) for carry-out and on-premises
dining. In addition to carry-out and on-premises dining, COMPANY may, in its
sole discretion, offer to a UNIT the right to offer Delivery Service (defined
below); or Catering Service (defined below) or to operate Special Distribution
Arrangements (defined below). UNITS operate at locations that feature
distinctive food service formats and Trade Dress (defined below) and utilize
distinctive business formats, specifications, employee selection and training
programs, signs, equipment, layouts, systems, recipes, methods, procedures,
software, designs and marketing and advertising standards and formats, all of
which COMPANY may modify from time to time in its sole discretion (the
"SYSTEM"). COMPANY operates, and franchises certain qualified persons and
entities to own and operate, UNITS using all or a portion of the System and all
or some of the Marks (defined below).
FRANCHISE OWNER has requested that COMPANY grant it a franchise to own
and operate a UNIT at the Site (defined below). FRANCHISE OWNER's request and
the Site have been approved by COMPANY in reliance upon all of the
representations made in FRANCHISE OWNER'S application, in FRANCHISE OWNER's Site
Approval Package (as defined in the Development Agreement), during the
application process and in the Franchise Owner Acknowledgments and
Representations Statement, a copy of which is attached hereto as Exhibit A,
which shall be executed by FRANCHISE OWNER concurrently with this Agreement.
Pursuant to the terms of the Development Agreement (defined below)
COMPANY has granted to FRANCHISE OWNER (referred to in the Development Agreement
as "DEVELOPER") the right to acquire the franchise to own and operate one (1) or
more UNITS.
<PAGE>
1.B. DEFINITIONS.
-----------
For purposes of this Agreement, the terms listed below have the
meanings that follow them. Other terms used in this Agreement are defined in
the context in which they occur.
"ACCOUNTING PERIOD" - One of thirteen periods of four consecutive
weeks in each fiscal year of COMPANY that is designated by COMPANY as an
accounting period of COMPANY.
"AFFILIATE" - Any person or legal entity that directly or indirectly
owns or controls COMPANY, that is directly or indirectly owned or controlled by
COMPANY, or that is under common control with COMPANY. For purposes of this
definition, "CONTROL" means the power to direct or cause the direction of the
management, policies and operation of an entity. Neither Boston Chicken, Inc.
("BCI") nor any of its affiliates shall be considered Affiliates of COMPANY
until such time as BCI owns a direct Ownership Interest in COMPANY and otherwise
meets the foregoing definition of "Affiliates".
"BAGEL STORE" - A food service business, including a UNIT, which
derives a significant portion of its revenue from the sale of bagels and/or
bagel-related products or from any other product or service which is or
hereafter becomes a source of a significant portion of the revenue of any UNIT.
"CATERING AREA" - The geographic area in which COMPANY, in its sole
discretion, authorizes FRANCHISE OWNER to provide Catering Service pursuant to a
Catering Rider, which area may be the same as, smaller than, larger than or
different from the Territory (defined below).
"CATERING RIDER" - The form of rider to a Franchise Agreement (as
defined in the Development Agreement) used by COMPANY from time to time to
authorize in its sole discretion a franchise owner of a UNIT to offer Catering
Service (defined below) within the applicable Catering Area. The current form
of COMPANY's Catering Rider is attached hereto as Exhibit A.
"CATERING SERVICE" - The delivery of Products prepared at a UNIT or a
separate facility approved by COMPANY in writing (such approved facility is
referred to herein as a "CATERING FACILITY") to customers in the Catering Area
pursuant to COMPANY's standards and specifications for the provision of such
service, which COMPANY may change from time to time in its sole discretion,
where
(1) such Products are intended to serve fifteen (15) or more persons,
or
(2) in addition to the delivery of Products, FRANCHISE OWNER provides
ancillary services to a customer at a location within the Catering Area,
including, by way of example and without limitation, the setting up for
serving or distribution of Products.
"COMMISSARY" - A food preparation facility operated by DEVELOPER pursuant
to this Agreement that:
2
<PAGE>
(1) procures and receives Products, ingredients and materials used in
the preparation and packaging of Products, and other materials and supplies
used in the operation of UNITS;
(2) prepares and packages Products in accordance with recipes,
methods, procedures, standards and specifications established by COMPANY,
in its sole discretion, from time to time; and
(3) distributes to UNITS Products and other materials and supplies
used in the operation of UNITS.
"COMPETITIVE BUSINESS" - A business or enterprise, other than a UNIT or
Commissary, that:
(1) offers food and/or beverage products at wholesale or retail, which
are the same as or similar to the Products through:
(a) on-premises dining;
(b) carry-out;
(c) delivery service;
(d) catering service; or
(e) other distribution channels; similar to those used by
COMPANY; or
(2) grants or has granted franchises or licenses or establishes or has
established joint ventures, for the development and/or operation of one or
more businesses or enterprises described in the foregoing clause (1);
provided, however, that the term "Competitive Business" shall not include:
(a) any Boston Market restaurant operated pursuant to a valid
franchise or license agreement with Boston Chicken, Inc. or
its successors; or
(b) any business or enterprise that derives less than 10% of its
revenue from the sale of (i) bagels and/or bagel related
products (including but not limited to cream cheese and
other spreads, bagel sandwiches and bagel chips) or (ii) any
other product which accounts for 15% or more of the revenue
of any UNIT owned or operated by COMPANY or a franchisee of
COMPANY.
3
<PAGE>
"COMPUTER SYSTEM" - Those brands, types, makes, and/or models of
communications and computer systems and hardware specified or required by
COMPANY for use by, between, or among UNITS, including, but not limited to:
(1) back office and point of sale systems, data, audio, video, and
voice storage, retrieval, and transmission systems for use at the Store,
between or among UNITS, and between and among the Store and COMPANY and/or
FRANCHISE OWNER;
(2) security systems;
(3) printers; and
(4) archival and back-up systems.
"CONTROLLING INTEREST" - If FRANCHISE OWNER is a:
(1) corporation, such number of the voting shares of FRANCHISE OWNER
or such other rights as (a) shall permit voting control of FRANCHISE OWNER
on any issue and (b) shall prevent any other person, group, combination, or
entity from blocking voting control on any issue or exercising any veto
power; and
(2) general partnership, a managing partnership interest, such
percentage of the general partnership interests in FRANCHISE OWNER or such
other rights as (a) shall permit determination of the outcome on any issue
and (b) shall prevent any other person, group, combination, or entity from
blocking voting control on any issue or exercising any veto power;
(3) limited partnership, general partnership interest, such percentage
of limited partnership interests or such other rights as shall permit the
replacement or removal of any general partner; and
(4) limited liability company, such percentage of the membership
interests of FRANCHISE OWNER or such other rights as (a) shall permit
voting control of FRANCHISE OWNER on any issue and (b) shall prevent any
other person, group, combination or entity from blocking voting control on
any issue or exercising any veto power.
"DELIVERY AREA" - The geographic area in which COMPANY, in its sole
discretion, authorizes FRANCHISE OWNER to provide Delivery Service (defined
below) pursuant to a Delivery Rider (defined below), which area may be the same
as, smaller than, larger than or different from the Territory (defined below).
"DELIVERY RIDER" - The form of rider to a Franchise Agreement used by
COMPANY from time to time to authorize or require in its sole discretion a
franchise owner of a UNIT to
4
<PAGE>
offer Delivery Service within the applicable Delivery Area. The current form of
COMPANY's Delivery Rider is attached hereto as Exhibit B.
"DELIVERY SERVICE" - The delivery of Products prepared at a UNIT or a
separate delivery facility approved by COMPANY (such approved facility is
referred to herein as a "DELIVERY FACILITY") to customers in the Delivery Area
pursuant to COMPANY's standards and specifications for the provision of such
service, which COMPANY may change from time to time in its sole discretion,
where
(1) such Products are intended to serve fewer than fifteen (15)
persons, and
(2) such service involves the provision of no services other than the
delivery of Products to a customer at a particular location within the
Delivery Area.
"DEVELOPMENT AGREEMENT" - The Bagel Corporation of America Development
Agreement executed by COMPANY and DEVELOPER, if any, dated as of the date stated
in Exhibit D attached hereto, pursuant to which DEVELOPER was granted the right
to develop one (1) or more UNITS in a geographic area in which the Store is
located.
"IMMEDIATE FAMILY" - (1) The spouse of a person; and (2) the natural and
adoptive parents and natural and adopted children and siblings of such person
and their spouses; and (3) the natural and adoptive parents and natural and
adopted children and siblings of the spouse of such person; and (4) any other
member of the household of such person; provided, in the case of natural and
adopted children and siblings and their spouses and the parents, children and
siblings of spouses, that such person received or had access to Confidential
Information, including as an employee, supplier, officer, director, stockholder
or agent of FRANCHISE OWNER or any other operator of a UNIT.
"LICENSED PROGRAM" - The computer software programs developed by or for
COMPANY and/or designated by COMPANY from time to time as specified or required
in connection with utilization of the Computer System, which may include,
without limitation, COMPANY's point-of-sale, bookkeeping, inventory, training,
marketing, employee selection, operations and financial information, collection
and retrieval systems (including COMPANY's general ledger system utilizing the
standard chart of accounts prescribed by COMPANY from time to time) for use in
connection with the operation of UNITS or franchise owners' and developers'
businesses, including any updates, supplements, modifications or enhancements
thereto made from time to time, all related documentation, the tangible media
upon which such programs are recorded, and the database file structure thereof,
but excluding any data or databases owned or compiled by COMPANY or its
Affiliates or their licensors for use with the Licensed Program or otherwise or
any data generated by the use of the Licensed Program.
"MARKETING AREA" - The geographic area in which the Store and other UNITS
(regardless of the principal Mark under which the UNITS operate) are located
which COMPANY designates from time to time in its sole discretion as a distinct
area for marketing purposes. In making such determination, COMPANY may take
into consideration:
5
<PAGE>
(1) information obtained from Arbitron, A. C. Nielsen Co. or a
comparable source or
(2) penetration of various forms of media such as radio, cable
television, broadcast television, local and regional newspapers and similar
media; or
(3) demographic characteristics (for example, urban versus suburban);
or
(4) political, man-made, or natural boundaries (for example, city,
county or other political boundaries, expressways, railroads or rivers); or
(5) other reasonable factors, including, without limitation, any
combination of the foregoing.
"MARKS" - The trademarks, service marks, logos and other commercial symbols
which COMPANY authorizes FRANCHISE OWNER to use to identify the services and/or
products offered by UNITS, including the marks "EINSTEIN," "EINSTEIN BROS.,"
"BAGEL & BAGEL," "BALTIMORE BAGELS," "NOAH'S BAGELS," or "OFFERDAHL'S BAGEL
GOURMET" and the TRADE DRESS (defined below); provided that such trademarks,
service marks, logos, other commercial symbols, and the Trade Dress are subject
to modification and discontinuance at COMPANY's sole discretion and may include
additional or substitute trademarks, service marks, logos, commercial symbols
and trade dress as provided in this Agreement. The principal Marks which
FRANCHISE OWNER is authorized to use in the operation of the Store as of the
date of this Agreement are set forth in Exhibit K attached to this Agreement.
"OWNERSHIP INTERESTS" - In relation to a: (i) corporation, the record or
beneficial ownership of one or more shares in the corporation; (ii) partnership,
the record or beneficial ownership of a general or limited partnership interest;
(iii) limited liability company, the record or beneficial ownership of a
membership interest in the limited liability company; or (iv) trust, the
ownership of a beneficial interest of such trust.
"OWNER" - Each person or entity holding direct or indirect, record or
beneficial Ownership Interests in FRANCHISE OWNER and each person who has other
direct or indirect property rights in FRANCHISE OWNER, this Agreement, the
Franchise or the Store.
"PERMITTED COMPETITIVE BUSINESS" - A business which constitutes a
Competitive Business and is disclosed in Exhibit D to this Agreement, provided
that such business (1) was not on the date of the Development Agreement and does
not at any time thereafter become a Bagel Store, and (2) does not offer bagels
or bagel-related products on its menu, provided that if such business is a
franchised or licensed business of a franchisor which, pursuant to an agreement
which is executed prior to the date of the Development Agreement and under
which, after the date of the Development Agreement, the franchisor or licensor
specifies that such business offer bagels or bagel-related products as a
required menu item, it shall be deemed a Permitted Competitive Business so long
as it does not become a Bagel Store.
6
<PAGE>
"PRINCIPAL OWNER" - Each Owner which:
(1) is a general partner in FRANCHISE OWNER; or
(2) has a direct or indirect equity interest of 10% or more
(regardless of whether such Owner is entitled to vote thereon) in (a)
FRANCHISE OWNER or (b) any UNIT or (c) any developer and/or franchise owner
of UNITS other than FRANCHISE OWNER; provided, however, that a reduction in
a Principal Owner's equity interest below 10% shall not affect his/her/its
status as a Principal Owner unless such reduction is the result of the
transfer of all his/her/its equity interests in FRANCHISE OWNER, a UNIT or
such developer and/or franchise owner of a UNIT; or
(3) is designated as a Principal Owner in Section 2 of Exhibit G to
this Agreement;
"PRODUCTS" - Products approved or required by COMPANY from time to time in
its sole discretion for sale at or from UNITS, including, without limitation,
bagels, bagel-related products, cream cheese and other spreads, sandwiches,
soups, salads, baked goods, breakfast items, an assortment of hot and cold
beverages, teas (leaves, bags, dry mixes and related forms), coffees (beans,
ground and related forms) and other food products and merchandise, provided that
the foregoing products are subject to modification or discontinuance in
COMPANY's sole discretion from time to time and may include additional or
substitute products.
"SITE" - The location identified in Exhibit F of this Agreement. As used
herein, the term "SITE" also refers to the interior and exterior of the
structure housing the Store.
"SPECIAL DISTRIBUTION AGREEMENT" - A separate agreement whereby COMPANY
authorizes a franchise owner of a UNIT to operate a Special Distribution
Arrangement (defined below) at a Special Distribution Location (defined below)
designated by COMPANY.
"SPECIAL DISTRIBUTION ARRANGEMENT" - The sale of all or some of the
Products, as designated by COMPANY, at or from a Special Distribution Location
(defined below), whether or not by or through on-premises food service
facilities or concessions, pursuant to COMPANY's standards and specifications
for such sales, which COMPANY may change from time to time in its sole
discretion.
"SPECIAL DISTRIBUTION LOCATION" - A facility or location, including by
way of example and without limitation, a grocery store, convenience store,
supermarket, a school, hospital, office, work site, military facility,
entertainment or sporting facility or event, airport, bus or train station,
park, toll road or limited access highway facility or other similar facility, at
or from which COMPANY, in its sole discretion, authorizes the operation of a
Special Distribution Arrangement pursuant to a Special Distribution Agreement,
which facility may be located within or outside the Territory.
7
<PAGE>
"SPECIFIED SOFTWARE" - Such software, programming, and services, other than
the Licensed Program, which COMPANY from time to time specifies or requires in
connection with utilization of the Computer System.
"STORE" - The UNIT which FRANCHISE OWNER is franchised to operate at the
Site pursuant to this Agreement.
"TERRITORY" - The geographic area described in Exhibit F of this Agreement.
"TRADE DRESS" - The unit design, decor and image which COMPANY authorizes
and requires for use in connection with the operation of the Store, as it may be
revised and further developed by COMPANY or its Affiliates from time to time and
as further described in the Manuals (defined below).
"UNIT" - A food service business that:
(1) offers Products (defined below) for consumer consumption through
on-premises dining and carry-out, provided that COMPANY may, in its sole
discretion, authorize such business to offer Delivery Service pursuant to a
Delivery Rider and/or approve the franchise owner of such business to offer
Catering Service pursuant to a Catering Rider or to operate Special
Distribution Arrangements pursuant to a Special Distribution Agreement
(defined below); and
(2) operates using the System and the Marks; and
(3) is either operated by COMPANY or its Affiliates or pursuant to a
valid franchise from COMPANY.
2. GRANT OF FRANCHISE.
------------------
2.A. GRANT OF FRANCHISE; TERM; PRINCIPAL OWNERS' GUARANTY.
----------------------------------------------------
Subject to the provisions of this Agreement, COMPANY hereby grants to
FRANCHISE OWNER a franchise (the "FRANCHISE") to operate the Store at the Site,
and to use the Marks and System in the operation thereof, for a term of fifteen
(15) years commencing on the date of this Agreement. Termination or expiration
of this Agreement shall constitute a termination or expiration of the Franchise
and any and all licenses granted herein. FRANCHISE OWNER agrees that it will at
all times faithfully, honestly and diligently perform its obligations hereunder,
and that it will continuously exert its best efforts to promote and enhance the
business of the Store and the goodwill of the Marks. FRANCHISE OWNER shall not
conduct the business of the Store from any location other than the Site, except
as otherwise provided under this Agreement, and will not offer Catering Service,
Delivery Service or Special Distribution Arrangements within or outside the
Territory, except as provided in Section 3 of this Agreement. FRANCHISE OWNER
shall cause all persons or entities who are Principal Owners as of the Effective
Date, and their spouses, to execute and deliver to COMPANY concurrently with
this Agreement, and all persons or entities which become Principal Owners
thereafter, and their
8
<PAGE>
spouses, to execute and deliver to COMPANY promptly thereafter, the form of
Guaranty and Assumption of Franchise Owner's Obligations ("GUARANTY") attached
hereto as Exhibit G.
Notwithstanding the foregoing:
(a) FRANCHISE OWNER shall not be required to cause the execution
and delivery of the Guaranties referred to in this Section
if, and for such period of time as, FRANCHISE OWNER does not
pay dividends or unreasonable compensation to any Owner at
any time that members' equity is either less than $5,000,000
or would be reduced to below that amount by reason of such
payment; and
(b) spouses of guarantors shall not be required to execute any
Guaranties referred to in this Section unless, under
applicable law (including, without limitation, the law of
the state in which such guarantors and/or their spouses
reside), their failure to execute would render the
Guaranties null and void.
2.B. TERRITORIAL RIGHTS.
------------------
Except as otherwise provided in this Agreement (including, without
limitation, Section 2.D. and Section 3) and provided that FRANCHISE OWNER is in
full compliance with this Agreement, COMPANY and its Affiliates will not during
the term of this Agreement operate or grant franchises for the operation of
UNITS within the Territory other than the Franchise granted to FRANCHISE OWNER
pursuant to this Agreement.
2.C. RIGHTS RETAINED BY COMPANY.
--------------------------
COMPANY (on behalf of itself, its Affiliates and its designees) retains all
rights with respect to UNITS, the Marks, Copyrighted Works (defined below), and
the sale of Products and any other products and services, anywhere in the world,
including, without limitation:
(1) the right to operate or grant others (including any person or
entity related in any manner whatsoever to COMPANY) the right to operate
food service businesses, including, without limitation, UNITS and/or Bagel
Stores, at such locations within and/or outside the Territory, both during
and upon expiration or termination of the term of this Agreement, and on
such terms and conditions as COMPANY, in its sole discretion, deems
appropriate (subject to the rights granted to FRANCHISE OWNER in Section
2.B. of this Agreement); and
(2) subject to any rights of FRANCHISE OWNER under Section 3 of this
Agreement, the right, and the right to grant others (including any person
or entity related in any manner whatsoever to COMPANY) the right, to
develop, manufacture, market, distribute and/or sell Products and/or any
other product or service within and/or outside the Territory through any
channel of distribution whatsoever, whether wholesale, retail or otherwise,
including, without limitation, through Special Distribution Arrangements
9
<PAGE>
(including, without limitation, through BOSTON MARKET outlets), Delivery
Service and Catering Service under or in association with the Marks or any
other trademark and/or to own or operate any other business under the Marks
or any other trademarks; and
(3) subject to Section 2.D. below, the right to acquire, operate and
convert to a UNIT any business, including, without limitation, a business
operating one or more Bagel Stores (other than UNITS) or other food service
businesses located or operating within and/or outside the Territory.
2.D. FRANCHISE OWNER'S OPTION TO PURCHASE CONVERSION SITES.
-----------------------------------------------------
If, during the term of this Agreement, COMPANY acquires the shares or
assets (which may include, by way of illustration and not by way of limitation,
furniture, fixtures, equipment, leasehold improvements and/or leasehold
interests) of any business operating a Bagel Store at one or more sites located
within the Territory which meet COMPANY's specifications and standards as in
effect from time to time for conversion to UNITS (the "CONVERSION SITES"), and
COMPANY determines to convert such Conversion Sites to UNITS, COMPANY agrees to
offer to sell such Conversion Sites to FRANCHISE OWNER for the price paid
therefor by COMPANY. Such price will include that portion of the direct and
indirect costs and liabilities incurred or assumed by COMPANY in making such
acquisition and allocated to such Conversion Sites whether paid or owed to the
seller of such Conversion Sites, an Affiliate or any other party, and other
expenses allocated or otherwise related to such Conversion Sites (including
losses, whether from continuing operations or closing acquired locations) plus
interest at COMPANY's cost of money on the balance of such amounts from time to
time, provided that:
(1) such sale will not in COMPANY's judgment conflict with any
existing legal obligation of COMPANY or the business being acquired; and
(2) such sale will not in COMPANY's judgment preclude the completion
of the acquisition on the terms agreed to by COMPANY; and
(3) such sale will not, in COMPANY's judgment, interfere with any
other legal agreement, arrangement or combination or affect federal or
state income tax consequences arising from the acquisition in a manner
adverse to any of the parties thereto; and
(4) such sale may, at COMPANY's discretion, include (at a price
determined on the same basis as for Conversion Sites) certain acquired
stores which fall within the Territory but which do not meet COMPANY's
criteria for conversion to UNITS and which may have to be closed or sold to
a third party subsequent to FRANCHISE OWNER's acquisition; and
(5) FRANCHISE OWNER agrees to (a) execute, concurrently with FRANCHISE
OWNER's purchase, COMPANY's then current form of standard franchise
agreement containing COMPANY's then current fees and expense requirements
and such
10
<PAGE>
ancillary documents (including guarantees) as are then customarily used by
COMPANY in the grant of franchises for UNITS, as modified for use in
connection with a Conversion Site as necessary, for each and every such
Conversion Site, (b) convert each such Conversion Site to the type of UNIT
designated by COMPANY as soon as practicable thereafter (but in no event
later than the date specified by COMPANY) in accordance with COMPANY's
standards and specifications, and (c) close or sell, within the reasonable
time period specified by COMPANY, any acquired sites which are not suitable
for conversion.
FRANCHISE OWNER shall have thirty (30) days after receipt of COMPANY's offer in
which to accept or reject such offer by written notice to COMPANY. If accepted,
FRANCHISE OWNER shall have 30 days from the date of acceptance within which to
complete the acquisition.
In the event FRANCHISE OWNER rejects or fails to timely accept COMPANY's
offer to sell such Conversion Sites or COMPANY is unable to extend such offer
for any of the aforementioned reasons, COMPANY agrees that, provided that
FRANCHISE OWNER is in full compliance with this Agreement, it will not utilize
or license the use of the Marks at such Conversion Sites for a period of one (1)
year following COMPANY's acquisition thereof; provided, however, that COMPANY
may operate, alter, modify, refurbish, remodel, promote or market any such
Conversion Sites and use the Licensed Program and Computer System in the
operation thereof during such one (1) year period. For purposes of this
Section, all references to COMPANY shall be deemed to include its Affiliates.
COMPANY agrees to use reasonable efforts to obtain input (including market
and competitive information) from FRANCHISE OWNER in connection with the due
diligence process undertaken by COMPANY in any potential acquisition of
Conversion Sites in a particular Sub-Area during the applicable Sub-Area Term.
3. OTHER DISTRIBUTION METHODS.
--------------------------
3.A. SPECIAL DISTRIBUTION ARRANGEMENTS.
---------------------------------
FRANCHISE OWNER acknowledges and agrees that: (1) FRANCHISE OWNER is not
granted, and COMPANY has no obligation to offer to FRANCHISE OWNER, any rights
to operate Special Distribution Arrangements within or outside the Territory
pursuant to this Agreement; and (2) the right to operate or grant to others the
right to operate Special Distribution Arrangements is specifically reserved to
COMPANY or its designees. If COMPANY, at any time and in its sole discretion,
determines to offer FRANCHISE OWNER the right to operate a Special Distribution
Arrangement at a Special Distribution Location designated by COMPANY, COMPANY
will so notify FRANCHISE OWNER by delivering to FRANCHISE OWNER a form of
Special Distribution Agreement. FRANCHISE OWNER will have fifteen (15) days
after its receipt thereof to execute and deliver to COMPANY such executed
Special Distribution Agreement. If FRANCHISE OWNER fails to execute and deliver
to COMPANY the executed Special Distribution Agreement within such fifteen (15)
day period or commence such Special Distribution Arrangement within the period
specified therein, then
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FRANCHISE OWNER shall have no right to operate such Special Distribution
Arrangement thereafter. COMPANY reserves the right under the Special
Distribution Agreement, at any time and in its sole discretion with or without
cause and regardless of the investment made by FRANCHISE OWNER in establishing
or operating the Special Distribution Arrangement or the length of time the
Special Distribution Arrangement has been in effect, to suspend or terminate
FRANCHISE OWNER's right to operate the Special Distribution Arrangement,
effective ninety (90) days after COMPANY's written notice to FRANCHISE OWNER.
Notwithstanding the foregoing, COMPANY agrees that, if during the Development
Term it intends to engage in a Special Distribution Arrangement at or from (a) a
military facility, (b) an entertainment or sporting facility or event, (c) an
airport, bus or train station, (d) a toll road or limited access highway
facility or (e) any specialty kiosk located in or adjacent to any similar
facilities, located within the Territory, COMPANY will offer FRANCHISE OWNER a
Special Distribution Agreement, the execution of which shall be governed by this
Section 3.A.
3.B. DELIVERY SERVICE.
----------------
FRANCHISE OWNER acknowledges and agrees that: (1) FRANCHISE OWNER is not
granted, and COMPANY has no obligation to offer to FRANCHISE OWNER, any rights
within or outside the Territory to offer Delivery Service from the Store or
otherwise pursuant to this Agreement; and (2) the right to provide Delivery
Service is specifically reserved to COMPANY or its designees. If COMPANY, at
any time and in its sole discretion, determines to offer Delivery Service in a
designated Delivery Area in which the Store is located, COMPANY will offer to
FRANCHISE OWNER, or to DEVELOPER pursuant to the Development Agreement, the
right to offer Delivery Service by delivering to FRANCHISE OWNER (or DEVELOPER)
a form of Delivery Rider to this Agreement (or a Delivery Rider to the
Development Agreement). FRANCHISE OWNER (or DEVELOPER) will have fifteen (15)
days after its (or DEVELOPER's) receipt thereof to execute and deliver to
COMPANY such executed Delivery Rider. If FRANCHISE OWNER (or DEVELOPER) fails
to execute and deliver such executed Delivery Rider to COMPANY within such
fifteen (15) day period or to commence Delivery Service within the specified
period, then FRANCHISE OWNER (or DEVELOPER) shall have no right to provide
Delivery Service at the Store thereafter.
If COMPANY determines in its sole discretion that all franchise owners of
UNITS in the trade area where the Store is located (as such trade area is
determined by COMPANY in its sole discretion and which in no event shall exceed
the Marketing Area) shall offer Delivery Service, COMPANY will notify FRANCHISE
OWNER (or DEVELOPER) and will deliver to FRANCHISE OWNER (or DEVELOPER) a
Delivery Rider to this Agreement (or the Development Agreement) which FRANCHISE
OWNER (or DEVELOPER) shall execute and deliver to COMPANY within fifteen (15)
days after its receipt.
COMPANY reserves the right under the Delivery Service Rider, at any time
and in its sole discretion, with or without cause and regardless of the
investment made by FRANCHISE OWNER (or DEVELOPER) in establishing and conducting
Delivery Service or the length of time FRANCHISE OWNER (or DEVELOPER) has
offered Delivery Service: (1) to reduce, modify or expand the Delivery Area,
effective upon COMPANY's written notice to
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FRANCHISE OWNER, provided, however, that if a reduction or modification of the
Delivery Area amounts to a termination of substantially all of FRANCHISE OWNER's
rights to provide such services (except in the case of the exercise by COMPANY
of its remedies under Section 18.C of this Agreement), such reduction or
modification shall not be effective until 90 days after COMPANY's written notice
to FRANCHISE OWNER; or (2) to suspend or terminate FRANCHISE OWNER's (or
DEVELOPER's) right to offer Delivery Service, effective ninety (90) days after
COMPANY's written notice to FRANCHISE OWNER (or DEVELOPER); and COMPANY may
otherwise terminate FRANCHISE OWNER's (or DEVELOPER's) right to offer Delivery
Service pursuant to the terms of the Delivery Rider. In the event that COMPANY
suspends or terminates FRANCHISE OWNER's (or DEVELOPER's) right to offer
Delivery Service, COMPANY reserves the right to require FRANCHISE OWNER (or
DEVELOPER) to reinstate Delivery Service upon fifteen (15) days' prior written
notice to FRANCHISE OWNER (or DEVELOPER).
3.C. CATERING SERVICE.
----------------
FRANCHISE OWNER acknowledges and agrees that: (1) FRANCHISE OWNER is not
granted, and COMPANY has no obligation to offer to FRANCHISE OWNER, any rights
within or outside the Territory to offer Catering Service from the Store or
otherwise pursuant to this Agreement; and (2) the right to provide Catering
Service is specifically reserved to COMPANY or its designees. If COMPANY, at
any time and in its sole discretion, determines to offer Catering Service in a
designated Catering Area in which the Store is located, COMPANY will offer
FRANCHISE OWNER, or to DEVELOPER pursuant to the Development Agreement the right
to offer Catering Service by delivering to FRANCHISE OWNER (or DEVELOPER) a form
of Catering Rider to this Agreement (or to the Development Agreement).
FRANCHISE OWNER (or DEVELOPER) will have fifteen (15) days after its (or
DEVELOPER's) receipt thereof to execute and deliver to COMPANY the executed
Catering Rider. If FRANCHISE OWNER (or DEVELOPER) fails to execute and deliver
such executed Catering Rider to COMPANY within such fifteen (15) day period or
commence Catering Service within the specified period, then FRANCHISE OWNER (or
DEVELOPER) shall have no right to provide Catering Service within the designated
Catering Area thereafter.
If COMPANY determines in its sole discretion that all franchise owners of
UNITS in the trade area where a Store is located (as such trade area is
determined by COMPANY in its sole discretion and which in no event shall exceed
the Marketing Area), shall offer Catering Service, COMPANY will notify FRANCHISE
OWNER (or DEVELOPER) and will deliver to FRANCHISE OWNER (or DEVELOPER) a
Catering Rider to this Agreement (or to the Development Agreement) which
FRANCHISE OWNER (or DEVELOPER) shall execute and return to COMPANY within
fifteen (15) days after its receipt. COMPANY reserves the right under the
Catering Rider, at any time and in its sole discretion, with or without cause
and regardless of the investment made by FRANCHISE OWNER (or DEVELOPER) in
establishing and conducting Catering Service or the length of time FRANCHISE
OWNER (or DEVELOPER) has offered Catering Service: (1) to reduce, modify or
expand the Catering Area, effective upon COMPANY's written notice to FRANCHISE
OWNER, provided, however, that if a reduction or modification of the Catering
Area amounts to a termination of substantially all of FRANCHISE OWNER's rights
to provide such services (except in the case of the exercise by
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COMPANY of its remedies under Section 18.C of this Agreement), such reduction or
modification shall not be effective until 90 days after COMPANY's written notice
to FRANCHISE OWNER; or (2) to suspend or terminate FRANCHISE OWNER's (or
DEVELOPER's) right to offer Catering Service, effective ninety (90) days after
COMPANY's written notice to FRANCHISE OWNER (or DEVELOPER) (in which case
FRANCHISE OWNER (or DEVELOPER) will not fill any orders for Catering Service
after the expiration of such ninety (90) day period); and COMPANY may otherwise
terminate FRANCHISE OWNER's (or DEVELOPER's) right to offer Catering Service
pursuant to the terms of the Catering Rider. In the event that COMPANY
terminates or suspends FRANCHISE OWNER's (or DEVELOPER's) right to offer
Catering Service, COMPANY reserves the right to require FRANCHISE OWNER (or
DEVELOPER) to reinstate Catering Service upon fifteen (15) days' prior written
notice to FRANCHISE OWNER (or DEVELOPER).
4. DEVELOPMENT AND OPENING OF THE STORE.
------------------------------------
4.A. SITE SELECTION AND LEASE.
------------------------
Prior to execution of this Agreement, FRANCHISE OWNER shall have obtained
COMPANY's approval of and the legal right of possession of the Site in
accordance with the terms of the Development Agreement.
4.B. STORE DESIGN SPECIFICATIONS AND CONSTRUCTION PLANS.
--------------------------------------------------
COMPANY will furnish to FRANCHISE OWNER specifications of COMPANY's
requirements for design, decoration, layout, equipment, furnishings, fixtures
and signs for UNITS using the principal Marks designed on Exhibit K and the
Trade Dress and operating procedures associated therewith (the "DESIGN
SPECIFICATIONS"). FRANCHISE OWNER acknowledges and agrees that the Design
Specifications, which include Trade Dress, are an integral part of the System
and that the Store will be designed and constructed in accordance with the
Design Specifications. FRANCHISE OWNER will cause to be prepared and submitted
to COMPANY for approval the preliminary layout for the Store (if not already
submitted to and approved by COMPANY) and detailed construction plans and
specifications and space plans for the Store (the "CONSTRUCTION PLANS") that
comply with the Design Specifications and all applicable ordinances, building
codes, permit requirements, and lease requirements and restrictions.
4.C. DEVELOPMENT OF THE STORE.
------------------------
Within ninety (120) days after the date of execution of this Agreement,
FRANCHISE OWNER agrees at its expense to do or cause to be done the following:
(1) secure all financing required to fully develop the Store in
accordance with this Section; and
(2) submit the Construction Plans and preliminary layout to COMPANY
for approval; and
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(3) obtain all required zoning changes, planning consents, building,
utility, sign, health, sanitation and business permits, licenses and
approvals and any other required permits and licenses; and
(4) construct all required improvements in compliance with
Construction Plans approved by COMPANY; and
(5) decorate and lay out the Store in compliance with Design
Specifications and plans and specifications approved by COMPANY; and
(6) (a) acquire the Computer System for the Store and acquire the
right to use, for the remainder of the term of the Franchise Agreement
applicable to the Store, the Specified Software in the manner specified by
COMPANY; (b) obtain any and all peripheral equipment and accessories and
arrange for any and all support services that may be necessary to enable
the Computer System, the Licensed Program, and the Specified Software to
operate as specified by COMPANY, and (c) take all other actions (including
but not limited to installation of electrical wiring and cabling, and
temperature and humidity controls) that may be necessary to prepare the
Store to enable the Computer System, the Licensed Program, and the
Specified Software to operate as specified by COMPANY; and
(7) purchase or lease and install all required equipment, vehicles,
furnishings, fixtures and signs; and
(8) purchase an adequate opening inventory of Products, and Supplies
and Materials (defined below); and
(9) obtain all customary contractors' sworn statements and partial and
final waivers of lien for construction, remodelling, decorating and
installation services; and
(10) open the Store for business and thereafter operate the Store on a
regular and continuing basis for the term hereof.
4.D. EQUIPMENT, FIXTURES, FURNISHINGS AND SIGNS.
------------------------------------------
FRANCHISE OWNER agrees to use in the development and operation of the Store
only those brands, types and/or models of equipment, vehicles, signs displaying
the Marks, fixtures and furnishings which meet COMPANY's specifications.
FRANCHISE OWNER may purchase approved brands, types and/or models of equipment,
fixtures and signs which meet the COMPANY's specifications only from suppliers
designated or approved by COMPANY, which may include COMPANY. At FRANCHISE
OWNER's request, COMPANY will from time to time supply FRANCHISE OWNER with a
list of suppliers who sell items which meet COMPANY's specifications.
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4.E. COMPUTER SYSTEM.
---------------
FRANCHISE OWNER agrees to use in the development and operation of the Store
only those brands, types, makes, and/or models of communications and computer
systems or hardware which COMPANY has from time to time specified or required
for the Computer System. FRANCHISE OWNER also agrees to use in the development
and operation of the Store only the Specified Software and the Licensed Program,
as comprised from time to time in accordance with the specifications and
requirements of COMPANY.
4.F. STORE OPENING.
-------------
FRANCHISE OWNER agrees not to open the Store for business until:
(1) COMPANY notifies FRANCHISE OWNER in writing that all of FRANCHISE
OWNER's obligations pursuant to Paragraphs A, B, C and D of this Section 4
have been fulfilled; and
(2) preopening training of Store personnel has been completed to
COMPANY's satisfaction; and
(3) all amounts then due to COMPANY and its Affiliates have been paid
and all required Guaranties are executed and delivered to COMPANY; and
(4) COMPANY has been furnished with copies of all insurance policies
required pursuant to this Agreement, or such other evidence of insurance
coverage and payment of premiums as COMPANY requests.
FRANCHISE OWNER agrees to comply with these conditions and to be prepared to
open the Store for business within ninety (120) days after the date of this
Agreement. COMPANY's determination that FRANCHISE OWNER has met all of
COMPANY's pre-opening requirements shall not constitute a waiver of non-
compliance by FRANCHISE OWNER or of COMPANY's right to demand full compliance
with such requirements. FRANCHISE OWNER further agrees to open the Store for
business and commence conduct of business at the Store pursuant to this
Agreement within five (5) days after COMPANY gives notice to FRANCHISE OWNER
stating that the Store is ready for opening.
4.G. GRAND OPENING PROGRAM.
---------------------
FRANCHISE OWNER agrees to conduct a grand opening advertising and
promotional program for the Store during the period commencing thirty (30) days
prior to, and ending ninety (90) days after, the opening of the Store and to
expend no less than Ten Thousand Dollars ($10,000.00) on such advertising and
promotion during such period. Such advertising and promotional program shall:
(1) be in addition to advertising and promotion conducted pursuant to
Section 13 of this Agreement; and
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(2) utilize marketing and public relations programs and media and
advertising materials approved by COMPANY; and
(3) be conducted in accordance with COMPANY's specifications and
standards and pursuant to a grand opening plan which FRANCHISE OWNER shall
prepare and submit to COMPANY for approval at least forty-five (45) days
prior to the opening date of the Store. If FRANCHISE OWNER does not
prepare a grand opening program and obtain COMPANY's approval of such plan,
COMPANY may prepare the grand opening plan for the Store.
COMPANY may, in its discretion, reduce the amount of required spending for the
grand opening program, reduce the time period during which the grand opening
program shall be conducted, and/or direct that a portion of such funds be re-
directed to a Local Ad Fund established pursuant to Section 13.B of this
Agreement; provided that (a) COMPANY reasonably determines that the Marketing
Area in which the Store is opened has been sufficiently covered by the opening
of other UNITS, and (b) COMPANY is acting comparably with respect to its own
UNITS in similar situations.
4.H. RELOCATION OF THE STORE.
-----------------------
If FRANCHISE OWNER's lease or sublease for the Site of the Store expires or
terminates without fault of FRANCHISE OWNER, if the Site is destroyed, condemned
or otherwise rendered unusable as a UNIT in accordance with this Agreement, or
if, in the judgment of COMPANY and FRANCHISE OWNER, there is a change in the
character of the location of the Site sufficiently detrimental to its business
potential to warrant its relocation, COMPANY will not unreasonably withhold
permission for relocation of the Store to a site within the Territory which
meets COMPANY's then-current site criteria, subject to the rights of existing
Franchisees under their franchise agreements with COMPANY. Any such relocation
shall be at FRANCHISE OWNER's sole expense. FRANCHISE OWNER shall seek and
obtain COMPANY's approval of the replacement site pursuant to COMPANY's then
current site approval process, and the Store shall re-open at the replacement
Site as soon as reasonably practicable but in no event more than ninety (90)
days after the closing of the original location.
4.I. FINANCING PLAN.
--------------
Within ten (10) days after the execution of this Agreement, FRANCHISE OWNER
must submit a written plan for FRANCHISE OWNER's funding of the development and
operation of the Store, which plan shall be reasonably acceptable to COMPANY and
which shall include details of the sources and terms of such funding and such
other information or documents required by COMPANY from time to time. FRANCHISE
OWNER may not begin development of the Store until COMPANY has given its
approval of such plan, which approval COMPANY may give or withhold in its sole
discretion. Among other factors, COMPANY may consider FRANCHISE OWNER's
debt/equity ratio and amount of indebtedness in reviewing such plan. Once a
plan is approved by COMPANY, FRANCHISE OWNER must execute and adhere to the
plan. Any proposed material deviation from or modifications to the originally
approved plan must be submitted to COMPANY for prior approval.
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5. TRAINING AND GUIDANCE.
---------------------
5.A. TRAINING.
--------
Prior to the commencement of the operation of the Store, the manager of the
Store (the "STORE MANAGER") and one (1) other management level employee (the
"ADDITIONAL MANAGER"), appointed by FRANCHISE OWNER in accordance with this
Agreement and identified in Section 4 of Exhibit E, must attend and complete to
COMPANY's satisfaction a COMPANY accredited and certified initial management
training program in the operation of a UNIT. Such training program may include
classroom training, instruction at designated facilities and hands-on training
in an operating UNIT. DEVELOPER's Training Director shall provide such training
program at DEVELOPER's training facilities in accordance with COMPANY's
requirements therefor, provided that DEVELOPER's Training Director is currently
certified to provide such training program under the terms of the Development
Agreement. In addition, whether DEVELOPER or COMPANY is providing such
training, COMPANY may, in its sole discretion as it deems necessary, require the
Store Manager and/or the Additional Manager to work full-time without
compensation by COMPANY and at FRANCHISE OWNER's expense for up to ten (10)
weeks at a UNIT selected by COMPANY.
COMPANY may, in its sole discretion as it deems necessary, require the
Store Manager, Additional Manager or assistant managers of the Store or
FRANCHISE OWNER to attend or to participate in updated, additional or refresher
training programs during the term of this Agreement. COMPANY also may charge
for updated, additional or refresher training materials supplied to FRANCHISE
OWNER or its personnel.
In the event the certified Store Manager and/or the certified Additional
Manager ceases to hold such position at the Store, FRANCHISE OWNER shall have
thirty (30) days in which to appoint a substitute or replacement Store Manager
and/or Additional Manager, who must attend and complete to COMPANY's
satisfaction the initial management training program as specified above promptly
after appointment. If COMPANY in its sole discretion determines that the Store
Manager or Additional Manager or any subsequently appointed Store Manager or
Additional Manager has failed to satisfactorily complete the initial management
training program or any additional or refresher training program, FRANCHISE
OWNER shall immediately hire a substitute Store Manager or Additional Manager
and promptly arrange for such person to complete the initial management training
program to the satisfaction of COMPANY.
FRANCHISE OWNER shall be responsible for the travel, living and other
expenses (including, without limitation, local transportation expenses) and
compensation of FRANCHISE OWNER, the Store Manager, the Additional Manager,
assistant managers, and any other agents or employees of FRANCHISE OWNER
incurred in connection with attendance at training programs or work at UNITS
that is part of their training.
5.B. GUIDANCE AND ASSISTANCE.
-----------------------
COMPANY shall, in its sole discretion, furnish guidance to FRANCHISE OWNER
with respect to:
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(1) recipes, methods, specifications, standards and operating
procedures utilized by UNITS and any modifications thereof; and
(2) purchasing approved equipment, fixtures, furnishings, signs,
Products, and Supplies and Materials (defined below); and
(3) development and implementation of local advertising and
promotional programs; and
(4) general operating and management procedures of UNITS; and
(5) establishing and conducting employee training programs at the
Store; and
(6) opening the Store.
Such guidance shall, in the discretion of COMPANY, be furnished in the form of
COMPANY's Manuals (defined below in this Section), bulletins, video or audio
cassette tapes, computer diskettes, written materials, reports and
recommendations, other materials and intangibles, refresher training programs
and/or telephonic consultations or consultations at the offices of COMPANY or at
the Store. If special training of Store personnel or other assistance in
operating the Store is requested by FRANCHISE OWNER and COMPANY determines in
its sole discretion that such training or assistance or assistance should take
place at the Store, all expenses for such training or assistance shall be paid
by FRANCHISE OWNER, including, without limitation, COMPANY's per diem charges
and travel and living expenses for COMPANY personnel.
5.C. STORE MANUALS.
-------------
COMPANY shall loan to FRANCHISE OWNER, for its sole use, one (1) copy of a
set of COMPANY's confidential manuals relating to the development and operation
of UNITS, which may consist of one or more volumes, handbooks, manuals, written
materials, video or audio cassette tapes, computer diskettes or any other
materials or intangibles, all of which may be modified, added to, replaced or
supplemented by COMPANY from time to time in its sole discretion (which
modifications, additions or supplements may contain information developed by
COMPANY by DEVELOPER or FRANCHISE OWNER with respect to the type of UNIT
developed pursuant to this Agreement), whether by way of supplements,
replacement pages, franchise bulletins, or other official pronouncements or
means (collectively the "STORE MANUALS"). The Store Manuals may be modified from
time to time at COMPANY's sole discretion to reflect changes in the System or
specifications, standards, policies and procedures for UNITS, to specify brands,
types and/or models of equipment which must be used by FRANCHISE OWNER in the
operation of the Store, and to specify changes in the decor, format, image,
Products, services and operations of UNITS prescribed by COMPANY or such other
changes or additions as COMPANY deems necessary or advisable. FRANCHISE OWNER
shall keep its copy of the Store Manuals current by immediately inserting all
modified pages or materials furnished by COMPANY. In the event of a dispute
about the contents of the Store Manuals, the master copies maintained by COMPANY
at its principal office shall be controlling.
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FRANCHISE OWNER acknowledges that the Store Manuals are part of the Confidential
Information and will be used and protected accordingly. FRANCHISE OWNER
acknowledges and agrees that the content of the Store Manuals, as modified from
time to time, is incorporated herein by reference and that FRANCHISE OWNER will
comply with all procedures, standards, specifications and requirements specified
therein as though each such item were set forth in detail in this Agreement.
6. MARKS.
-----
6.A. GOODWILL AND OWNERSHIP OF MARKS.
-------------------------------
FRANCHISE OWNER acknowledges that FRANCHISE OWNER's right to use the Marks,
as described in this Agreement, is derived solely from this Agreement and is
limited to the development and operation of the Store by FRANCHISE OWNER
pursuant to and in compliance with this Agreement and all applicable standards,
specifications, and operating procedures prescribed by COMPANY from time to time
during the term of the Franchise. Any unauthorized use of the Marks by FRANCHISE
OWNER shall constitute a breach of this Agreement and an infringement of the
rights of COMPANY in and to the Marks. FRANCHISE OWNER acknowledges and agrees
that all usage of the Marks by FRANCHISE OWNER and any goodwill established
thereby shall inure to the exclusive benefit of COMPANY and that this Agreement
does not confer any goodwill or other interests in the Marks upon FRANCHISE
OWNER, other than the right to use the Marks in the operation of the Store in
compliance with this Agreement. All provisions of this Agreement applicable to
the Marks shall apply to any other trademarks, service marks, commercial symbols
and trade dress hereafter authorized, in writing (including by inclusion in any
trademark usage or similar guide or manual issued to franchise owners by
COMPANY), for use by and licensed to FRANCHISE OWNER by COMPANY.
6.B. LIMITATIONS ON FRANCHISE OWNER'S USE OF MARKS.
---------------------------------------------
FRANCHISE OWNER agrees to use the Marks as the sole trade identification of
the Store and the Products, provided that FRANCHISE OWNER shall identify itself
as the independent owner and licensee of the Store in the manner prescribed by
COMPANY. FRANCHISE OWNER shall not use any Mark as part of any corporate name or
other name of FRANCHISE OWNER or with any prefix, suffix, or other modifying
words, terms, designs, or symbols, or in any modified form, nor may FRANCHISE
OWNER use any Mark in connection with the performance or sale of any
unauthorized services or products or in any other manner not expressly
authorized in writing by COMPANY. FRANCHISE OWNER agrees to display the Marks
prominently in the manner prescribed by COMPANY at the Store and in connection
with advertising and marketing materials. FRANCHISE OWNER agrees to give such
notices of trademark and service mark registrations as COMPANY specifies and to
obtain such business name registrations as may be required under applicable law.
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6.C. NOTIFICATION OF INFRINGEMENTS AND CLAIMS.
----------------------------------------
FRANCHISE OWNER shall immediately notify COMPANY of any apparent
infringement of or challenge to FRANCHISE OWNER's authorized use of any Mark, or
claim by any person of any rights in any Mark, and FRANCHISE OWNER shall not
communicate with any person other than COMPANY and its counsel in connection
with any such infringement, challenge or claim. COMPANY shall have sole
discretion to take such action as it deems appropriate in connection with the
foregoing, and the right to control exclusively any settlement, litigation,
arbitration or U.S. Patent and Trademark Office or other proceeding arising out
of any such alleged infringement, challenge or claim or otherwise relating to
any Mark. FRANCHISE OWNER agrees to execute any and all instruments and
documents, render such assistance, and do such acts and things as may, in the
opinion of COMPANY's counsel, be necessary or advisable to protect and maintain
the interests of COMPANY in any litigation or other proceeding or to otherwise
protect and maintain the interests of COMPANY in the Marks. COMPANY will
reimburse FRANCHISE OWNER for the reasonable out-of-pocket expenses incurred and
paid by FRANCHISE OWNER in complying with the requirements imposed by this
Paragraph, provided, however, that if any action taken by COMPANY results in any
monetary recovery for FRANCHISE OWNER (by way of counterclaim or otherwise)
which exceeds FRANCHISE OWNER's costs, then FRANCHISE OWNER must pay its own
costs and share pro rata in COMPANY's costs therefor up to the amount of
FRANCHISE OWNER's share of such recovery.
6.D. DISCONTINUANCE OF USE OF MARKS.
------------------------------
If it becomes advisable at any time in COMPANY's sole judgment for the
Store to modify or discontinue use of any Mark and/or for the Store to use one
or more additional or substitute trademarks or service marks or an additional or
substitute type of trade dress, FRANCHISE OWNER agrees to immediately comply
with COMPANY's directions to modify or otherwise discontinue the use of such
Mark, and/or to use one or more additional or substitute trademarks, service
marks, logos or commercial symbols or additional or substitute trade dress after
notice thereof by COMPANY. Neither COMPANY nor its Affiliates shall have any
obligation to reimburse FRANCHISE OWNER for any expenditures made by FRANCHISE
OWNER to modify or discontinue the use of a Mark or to adopt additional marks or
substitutes for a discontinued Mark, including, without limitation, any
expenditures relating to advertising or promotional materials or to compensate
FRANCHISE OWNER for any goodwill related to the discontinued Mark.
6.E. INDEMNIFICATION OF FRANCHISE OWNER
----------------------------------
COMPANY agrees to indemnify FRANCHISE OWNER against and to reimburse
FRANCHISE OWNER for all damages for which FRANCHISE OWNER is held liable in any
claim, action or proceeding brought by any person or entity claiming to have
trademark or other rights to any of the Marks or any name or trademark similar
thereto arising out of FRANCHISE OWNER's authorized use of the Marks, pursuant
to and in compliance with this Agreement, and for all costs reasonably incurred
by FRANCHISE OWNER in the defense of any such claim brought against FRANCHISE
OWNER or in any proceeding in which FRANCHISE OWNER
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is named as a party, provided that FRANCHISE OWNER has timely notified COMPANY
of such claim or proceeding, has given COMPANY sole control of the defense and
settlement of any such claim, has otherwise complied with the requirements of
this Agreement regarding use of the Marks, and this Agreement is in full force
and effect, and provided further, that the indemnification provided by this
Section 6.E shall not extend to any claim, action or proceeding brought by any
person or entity alleging any prior common law trademark rights.
7. COPYRIGHTS.
----------
7.A. OWNERSHIP OF COPYRIGHTED WORKS.
------------------------------
FRANCHISE OWNER and COMPANY acknowledge and agree (1) that COMPANY may
authorize FRANCHISE OWNER to use certain copyrighted or copyrightable works (the
"COPYRIGHTED WORKS"), (2) that the Copyrighted Works are the valuable property
of COMPANY or its Affiliates or, as applicable, their licensors and (3) that the
FRANCHISE OWNER's rights to use the Copyrighted Works are granted to FRANCHISE
OWNER solely on the condition that FRANCHISE OWNER complies with the terms of
this Section. FRANCHISE OWNER acknowledges and agrees that COMPANY owns or is
the licensee of the owner of the Copyrighted Works and may further create,
acquire or obtain licenses for certain copyrights in various works of authorship
used in connection with the operation of UNITS, including, but not limited to,
all categories of works eligible for protection under the United States
copyright law, all of which shall be deemed to be Copyrighted Works under this
Agreement. Such Copyrighted Works include, but are not limited to, the Store
Manuals, advertisements, promotional materials, labels, menus, posters, coupons,
gift certificates, signs and store designs, plans and specifications and may
include all or part of the Marks, Licensed Program, Trade Dress and other
portions of the System. FRANCHISE OWNER acknowledges that this Agreement does
not confer any interest in the Copyrighted Works upon FRANCHISE OWNER, other
than the right to use them in the operation of the Store in compliance with this
Agreement. If COMPANY authorizes FRANCHISE OWNER to prepare any adaptation,
translation or work derived from the Copyrighted Works, or if FRANCHISE OWNER
prepares any Copyrighted Works such as menus, advertisements, posters or
promotional material, FRANCHISE OWNER hereby agrees that such adaptation,
translation, derivative work or Copyrighted Work shall be the property of
COMPANY, and FRANCHISE OWNER hereby assigns all its right, title and interest
therein to COMPANY (or such other person identified by COMPANY). FRANCHISE OWNER
agrees to execute any documents, in recordable form, which COMPANY determines
are necessary to reflect such ownership. FRANCHISE OWNER shall submit all such
adaptations, translations, derivative works and Copyrighted Works to COMPANY for
approval prior to use.
7.B. LIMITATION ON FRANCHISE OWNER'S USE OF COPYRIGHTED WORKS.
--------------------------------------------------------
FRANCHISE OWNER acknowledges that FRANCHISE OWNER's right to use the
Copyrighted Works, as described in this Agreement, is derived solely from this
Agreement and is limited to the use of such Copyrighted Works pursuant to and in
compliance with this
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Agreement and all applicable standards, specifications, and operating procedures
prescribed by COMPANY from time to time during the term of this Agreement.
FRANCHISE OWNER shall ensure that all Copyrighted Works used hereunder shall
bear an appropriate copyright notice under the Universal Copyright Convention or
other copyright laws prescribed by COMPANY specifying that COMPANY or an
Affiliate of COMPANY is the owner of the copyrights therein. Any unauthorized
use, adaptation, publication, reproduction, preparation of derivative works,
distribution of copies (whether by sale or other transfer of ownership, or by
rental, lease or lending), or attempts to recreate all or a portion of such
Copyrighted Works shall constitute a breach of this Agreement and an
infringement of the rights of COMPANY in and to the Copyrighted Works.
7.C. NOTIFICATION OF INFRINGEMENTS AND CLAIMS.
----------------------------------------
FRANCHISE OWNER shall immediately notify COMPANY of any actual or apparent
infringement of or challenge to any of the Copyrighted Works, or claim by any
person of any rights in the Copyrighted Works. FRANCHISE OWNER shall not
communicate with any person other than COMPANY and its counsel in connection
with any such infringement, challenge or claims. COMPANY shall have the sole
discretion to take such action as it deems appropriate in connection with the
foregoing, and the right to control exclusively any settlement, litigation,
arbitration or administrative proceeding arising out of any such alleged
infringement, challenge or claim or otherwise relating to the Copyrighted Works.
FRANCHISE OWNER agrees to execute any and all instruments and documents, render
such assistance, and do such acts and things as may, in the opinion of COMPANY's
counsel, be necessary or advisable to protect and maintain the interests of
COMPANY in any litigation or other proceeding or to otherwise protect and
maintain the interests of COMPANY in the Copyrighted Works. COMPANY will
reimburse FRANCHISE OWNER for the reasonable out-of-pocket expenses incurred and
paid by FRANCHISE OWNER in complying with the requirements imposed by this
Paragraph provided, however, that if any action taken by COMPANY results in any
monetary recovery for FRANCHISE OWNER (by way of counterclaim or otherwise)
which exceeds FRANCHISE OWNER's costs, then FRANCHISE OWNER must pay its own
costs and share pro rata in COMPANY's costs therefor up to the amount of
FRANCHISE OWNER's share of such recovery.
7.D. DISCONTINUANCE OF USE OF COPYRIGHTED WORKS.
------------------------------------------
If it becomes advisable at any time in COMPANY's sole judgment for
FRANCHISE OWNER to modify or discontinue use of any of the Copyrighted Works
and/or for FRANCHISE OWNER to use one or more additional or substitute
copyrighted or copyrightable items, FRANCHISE OWNER agrees to immediately comply
with COMPANY's directions to modify or otherwise discontinue the use of the
Copyrighted Works and/or to use any substitute materials specified by COMPANY.
Neither COMPANY nor its Affiliates shall have any obligation to reimburse
FRANCHISE OWNER for any expenditures made by FRANCHISE OWNER to modify or
discontinue the use of any Copyrighted Work or to adopt additional or substitute
copyrighted or copyrightable items.
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8. LICENSED PROGRAM AND COMPUTER SYSTEM.
------------------------------------
8.A. GRANT OF LICENSE.
----------------
COMPANY hereby grants to FRANCHISE OWNER a nonexclusive, nontransferable,
nonassignable license to use the Licensed Program, subject to the following
terms and conditions:
(1) The Licensed Program shall be installed and tested on the Computer
System by COMPANY or its designee. If FRANCHISE OWNER does not
purchase the Computer System from COMPANY, FRANCHISE OWNER must pay
COMPANY a reasonable installation and testing fee upon completion of
COMPANY's installation and testing of the operation of the Licensed
Program with the Computer System. FRANCHISE OWNER acknowledges and
agrees that COMPANY's current installation and testing fee of
$3,500.00 is reasonable. COMPANY agrees that the installation and
testing fee applicable pursuant to this Agreement will not exceed
$3,500.
(2) Except with the prior written consent of COMPANY, the Licensed Program
(a) shall not be operated by persons other than FRANCHISE OWNER and
employees of FRANCHISE OWNER, (b) shall not be operated on equipment
other than the Computer System, (c) shall be used only in conjunction
with the Specified Software and not with any other computer
applications program, and (d) shall not be operated at locations other
than the Store and the FRANCHISE OWNER's principal office; provided,
however, that with prior notice to COMPANY, FRANCHISE OWNER may
operate the Licensed Program on equipment other than the Computer
System and at a location other than the Store and the FRANCHISE
OWNER's principal office to the extent required due to malfunction of
the Computer System or other cause beyond the reasonable control of
FRANCHISE OWNER, but not for any period longer than seven (7)
consecutive days unless otherwise agreed in writing by COMPANY.
(3) The Licensed Program shall be used in FRANCHISE OWNER's operation of
the Store and shall not be used for any other purpose.
(4) Without limiting the foregoing, FRANCHISE OWNER shall not, and shall
not allow its employees or agents to: (a) sell, assign, lease,
sublicense, pledge, grant a security interest with respect to, market
or commercially exploit, in any way, the Licensed Program or any
component thereof, or any data generated by the use of the Licensed
Program or any component of the Licensed Program; (b) disclose or
grant access to the Licensed Program, or any data generated by the use
of the Licensed Program or any component of the Licensed Program, to
any third party other than one to whom COMPANY has consented in
writing and who has agreed in writing with COMPANY to keep the
Licensed Program confidential; (c) copy or reproduce the Licensed
Program, or any data generated by the use of the Licensed Program or
any component of the Licensed Program, in any manner,
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except to the extent necessary for normal back-up and operating
thereof; or (d) alter, modify or adapt the Licensed Program, any
documentation relating thereto or any component of the Licensed
Program, including, but not limited to, by translating, decompiling,
reverse engineering or disassembling the Licensed Program.
(5) FRANCHISE OWNER acknowledges and agrees that the Licensed Program and
any data generated by the use of the Licensed Program is the valuable,
proprietary property and trade secret of COMPANY or, as applicable,
COMPANY's licensor and FRANCHISE OWNER agrees to use the utmost care
to safeguard the Licensed Program and any data generated by the use of
the Licensed Program and to maintain the copyright protection and the
secrecy and confidentiality thereof. FRANCHISE OWNER shall not
undertake to patent, copyright or otherwise assert proprietary rights
to the Licensed Program and any data generated by the use of the
Licensed Program or any portion thereof. FRANCHISE OWNER recognizes
that all or part of the Licensed Program and any data generated by the
use of the Licensed Program may be copyrighted and agrees that this
shall not be construed as causing the copyrighted material to be
public information. FRANCHISE OWNER will ensure that all copies of the
Licensed Program and any data generated by the use of the Licensed
Program or any components of the Licensed Program in its possession
contain an appropriate copyright notice under the Universal Copyright
Convention or other notice of proprietary rights specified by COMPANY.
(6) FRANCHISE OWNER shall promptly disclose to COMPANY all ideas and
suggestions for modifications or enhancements of the Licensed Program
conceived or developed by or for FRANCHISE OWNER, and COMPANY and its
Affiliates shall have the right to use and license such ideas and
suggestions. All modifications and enhancements made to the Licensed
Program together with the copyright therein shall be the property of
COMPANY, without regard to the source of the modification or
enhancement, and FRANCHISE OWNER hereby assigns all of its right,
title, and interest in any ideas, modifications, and enhancements to
COMPANY. FRANCHISE OWNER agrees to execute any document, in recordable
form, which COMPANY determines is necessary to reflect such ownership.
(7) COMPANY shall have the right at all times to access the Licensed
Program and to retrieve, analyze and use all data in the files of
FRANCHISE OWNER for the Licensed Program.
(8) COMPANY shall provide to FRANCHISE OWNER all upgrades, modifications,
improvements, enhancements, extensions and other changes to the
Licensed Program approved by COMPANY for use in connection with the
operation of UNITS and FRANCHISE OWNER shall promptly implement their
use.
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(9) Upon expiration or termination of this Agreement, FRANCHISE OWNER
shall allow COMPANY's employees or agents to remove the Licensed
Program from the Computer System, shall immediately return the
Licensed Program, each component thereof, and any data generated by
the use of the Licensed Program to COMPANY, and shall immediately
destroy any and all back-up or other copies of the Licensed Program or
parts thereof, documentation for the Licensed Program and any data
generated by the use of the Licensed Program, and other materials or
information which relate to or reveal the Licensed Program and its
operation and any data generated by the use of the Licensed Program.
8.B. SOFTWARE LICENSE FEE.
--------------------
FRANCHISE OWNER agrees to pay to COMPANY upon installation of the Licensed
Program on FRANCHISE OWNER's Computer System, a software license fee (the
"Software License Fee") in the amount of Fifteen Thousand Dollars ($15,000.00).
The Software License Fee shall be fully earned by COMPANY upon installation of
the Licensed Program on the Computer System and is non-refundable in whole or in
part.
8.C. SOFTWARE SUPPORT SERVICE.
------------------------
During the term of this Agreement and, provided that FRANCHISE OWNER is in
compliance with the terms of this Agreement, COMPANY shall provide to FRANCHISE
OWNER such support services as COMPANY deems reasonably necessary to cause the
Licensed Program to perform on the Computer System in accordance with the
standards for the Licensed Program as specified from time to time by COMPANY,
provided, however, that in no event will such support services be less than
COMPANY provides to COMPANY-operated UNITS. Such support services shall not
extend to error corrections, operational support and assistance resulting from
FRANCHISE OWNER's use or operation of software which is not authorized by this
Agreement for use on the Computer System.
8.D. SOFTWARE SUPPORT SERVICE FEE.
----------------------------
For the software support service provided to FRANCHISE OWNER, as described
above, FRANCHISE OWNER agrees to pay to COMPANY a periodic software support
service fee ("Software Support Fee") in the amount of Four Hundred Dollars
($400.00). Such fee shall be payable in advance for each Accounting Period on or
before the eighth (8th) day prior to commencement of such period commencing on
the installation of the Licensed Program on the Computer System. The Software
Support Fee may be increased by COMPANY from time to time, at its sole option,
upon written notice to FRANCHISE OWNER.
8.E. MODIFICATION, ENHANCEMENT,
AND REPLACEMENT OF COMPUTER SYSTEM,
LICENSED PROGRAM AND SPECIFIED SOFTWARE.
---------------------------------------
FRANCHISE OWNER acknowledges that COMPANY may, during the term of this
Agreement, require FRANCHISE OWNER to modify, enhance and/or replace all or any
part
26
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of the Computer System, the Licensed Program and/or the Specified Software at
FRANCHISE OWNER's expense, and agrees, within sixty (60) days of receipt of
notice from COMPANY, to acquire, or acquire the right to use for the remainder
of the term of this Agreement and implement, the modified, enhanced or
replacement version of the Computer System, the Licensed Program and/or the
Specified Software specified by COMPANY and to take any and all other actions as
may be necessary to enable them, as modified, enhanced or replaced, to operate
as specified by COMPANY. Any such modifications, enhancements, and replacements
may require FRANCHISE OWNER to incur costs to purchase, lease and/or license new
or modified computer hardware and/or software or other equipment and to obtain
different and/or additional service and support services during the term of this
Agreement. FRANCHISE OWNER acknowledges that COMPANY cannot estimate the costs
of such future enhancements, modifications, and replacements and that such costs
may not be fully amortizable over the remaining term of the Franchise Agreement.
Nonetheless, FRANCHISE OWNER agrees to incur such costs, where directed by
COMPANY to do so, provided that the COMPANY is then currently specifying the
same enhancements, modifications, and replacements for use in COMPANY-operated
UNITS.
8.F. WARRANTIES AND LIMITATION OF LIABILITY.
--------------------------------------
COMPANY represents and warrants to FRANCHISE OWNER that: (1) COMPANY has
the right to license the Licensed Program to FRANCHISE OWNER, as set forth in
this Agreement; and (2) to the best of COMPANY's knowledge the Licensed Program
does not, and as a result of any enhancements, improvements or modifications
provided by COMPANY, will not, to the best of COMPANY's knowledge, infringe upon
any United States patent, copyright or other proprietary right of any third
party. In the event FRANCHISE OWNER's use of the Licensed Program as required by
COMPANY is enjoined as a result of a claim by a third party of patent or
copyright infringement or violation of proprietary rights, COMPANY shall, in its
sole discretion, either (i) procure for FRANCHISE OWNER the right to continue
use of the Licensed Program as contemplated hereunder, or (ii) replace the
Licensed Program or modify it such that there is no infringement of the third
party's rights. Such action by COMPANY shall be FRANCHISE OWNER's sole and
exclusive remedy against COMPANY in such event.
COMPANY does not represent or warrant to FRANCHISE OWNER, and expressly
disclaims any warranty, that the Licensed Program is error-free or that the
operation and use of the Licensed Program by FRANCHISE OWNER will be
uninterrupted or error-free. COMPANY shall have no obligation or liability for
any expense or loss incurred by FRANCHISE OWNER arising from use of the Licensed
Program in conjunction with any other computer program not authorized by
COMPANY.
EXCEPT FOR THE ABOVE EXPRESS LIMITED WARRANTIES, COMPANY MAKES NO
WARRANTIES, EXPRESS OR IMPLIED, ORAL OR WRITTEN, WITH RESPECT TO THE LICENSED
PROGRAM, PROGRAM DOCUMENTATION, OR ANY OTHER MATERIAL FURNISHED HEREUNDER, OR
ANY COMPONENT THEREOF AND THERE ARE EXPRESSLY EXCLUDED ALL WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT THERETO.
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<PAGE>
8.G. SUBCOMPONENT LICENSES AND THIRD-PARTY LICENSES.
----------------------------------------------
FRANCHISE OWNER acknowledges that the Licensed Program contains third-party
components and subcomponents which COMPANY has the authority to license to
FRANCHISE OWNER as part of the Licensed Program pursuant to and in accordance
with software license agreements with third-party vendors (collectively, the
"Component Licenses"). In addition, FRANCHISE OWNER acknowledges that
acquisitions by FRANCHISE OWNER of all or portions of the Computer System and
the Specified Software from or through the COMPANY are governed by license or
other agreements by and between third-party vendors and COMPANY, which
agreements specifically permit COMPANY to sell and/or sublicense all or portions
of the Computer System and the Specified Software to FRANCHISE OWNER or
specifically require FRANCHISE OWNER to agree to be bound by the terms thereof
(either type of license hereinafter referred to as the "Third Party Licenses").
FRANCHISE OWNER therefore hereby agrees to be bound by the terms of each
Component License and each relevant Third Party License, in each case as if
FRANCHISE OWNER was a party thereto, and agrees that the vendors and licensors
of all or portions of the Specified Software and the Computer System and the
licensors of all or portions of the Licensed Program (collectively, the
"Vendors") are third-party beneficiaries of this Agreement with full rights to
enforce their respective rights under this Section 8 of this Agreement.
FRANCHISE OWNER further agrees to indemnify and hold harmless COMPANY and each
of the Vendors from and against all costs, expenses, and damages arising out of
or based upon any breach or claim of a breach of this Agreement, the Third Party
Licenses or Component Licenses by FRANCHISE OWNER, its directors, officers,
employees, agents and owners.
9. CONFIDENTIAL INFORMATION
------------------------
COMPANY or its licensors, as applicable, possess and may further develop
and acquire certain confidential and proprietary information and trade secrets
including, but not limited to, the following categories of information, methods,
techniques, procedures and knowledge developed or to be developed by COMPANY,
its consultants or contractors, its Affiliates or its designees, and/or
franchise owners and developers (the "CONFIDENTIAL INFORMATION"):
(1) methods, techniques, equipment, specifications (including Design
Specifications), standards, policies, procedures, information, concepts and
systems relating to and knowledge of and experience in the development,
operation and franchising of UNITS; and
(2) marketing and promotional programs for UNITS; and
(3) knowledge concerning the logic, structure and operation of
computer software programs which COMPANY authorizes for use in connection
with the operation of UNITS (including, without limitation, the Licensed
Program) and all additions, modifications and enhancements thereof, and all
data generated from use of such programs and the logic, structure and
operation of the data base file structures containing such data and all
additions, modifications and enhancements thereof; and
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(4) sales data and information concerning consumer preferences and
inventory requirements for Products, materials and supplies, and
specifications for and knowledge of suppliers of certain materials,
equipment and fixtures for UNITS; and
(5) ingredients, formulas, mixes, spices, seasonings, recipes for, and
methods of preparation, baking, cooking, freezing, serving, packaging,
catering and delivery of, Products and other items sold at UNITS; and
(6) information concerning customers, customer lists, Product sales,
operating results, financial performance and other financial data of UNITS;
and
(7) the Store Manuals and the Development Manual (defined in the
Development Agreement); and
(8) employee selection procedures, training and staffing levels.
COMPANY will disclose to FRANCHISE OWNER such parts of the Confidential
Information as COMPANY deems necessary or advisable from time to time in its
sole discretion for the operation of a UNIT during training, and in guidance and
assistance furnished to FRANCHISE OWNER during the term of the Franchise, and
FRANCHISE OWNER may learn or otherwise obtain from COMPANY and its Affiliates
and other licensors of components or elements of the System, other developers
and other franchise owners additional Confidential Information of COMPANY during
the term of the Franchise. FRANCHISE OWNER acknowledges and agrees that neither
FRANCHISE OWNER nor any other person or entity will acquire by or through
FRANCHISE OWNER any interest in or right to use the Confidential Information
other than the FRANCHISE OWNER's right to utilize it in the operation of the
Store pursuant to this Agreement, and that the use or duplication of the
Confidential Information in any other business would constitute an unfair method
of competition with COMPANY and other UNIT developers and franchise owners.
FRANCHISE OWNER agrees to disclose the Confidential Information to its Owners
and to employees of the Store only to the extent reasonably necessary for the
operation of the Store and only if such individuals have agreed to maintain such
information in confidence in an agreement enforceable by COMPANY.
FRANCHISE OWNER acknowledges and agrees that the Confidential Information
is confidential to and a valuable asset of COMPANY or its licensors, if
applicable, is proprietary, includes trade secrets of COMPANY, and is disclosed
to FRANCHISE OWNER solely on the condition that FRANCHISE OWNER, its Owners and
its employees who have access to the Confidential Information agree, and
FRANCHISE OWNER does hereby agree, that, during and after the term of this
Agreement, FRANCHISE OWNER, its Owners and such employees:
(a) will not use the Confidential Information in any other business or
capacity (unless in the case of the Licensed Program, separately licensed
by the owner thereof); and
(b) will maintain the absolute secrecy and confidentiality of the
Confidential Information; and
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<PAGE>
(c) will not make unauthorized copies of any portion of the
Confidential Information disclosed in written or other tangible form; and
(d) will adopt and implement all reasonable procedures prescribed from
time to time by COMPANY to prevent unauthorized use or disclosure of or
access to the Confidential Information, including, without limitation,
requiring employees and Owners who will have access to such information to
execute non-competition and confidentiality agreements in the form attached
hereto as Exhibit H (the "CONFIDENTIALITY AND NON-COMPETITION AGREEMENT").
FRANCHISE OWNER shall provide COMPANY, at its request, executed originals
of each such Confidentiality and Non-Competition Agreement.
Notwithstanding the foregoing and any other provision of this Agreement,
FRANCHISE OWNER may use the Confidential Information in connection with the
operation of other UNITS (in addition to the Store) pursuant to other franchise
agreements with COMPANY.
Notwithstanding anything to the contrary contained in this Agreement and
provided FRANCHISE OWNER shall have obtained COMPANY's prior written consent,
the restrictions on FRANCHISE OWNER's disclosure and use of the Confidential
Information shall not apply to the following:
(i) information, methods, procedures, techniques and knowledge which
are or become generally known in the food service business in the
Territory, other than through disclosure (whether deliberate or
inadvertent) by FRANCHISE OWNER or any other party having an obligation of
confidentiality to COMPANY; and
(ii) the disclosure of the Confidential Information in judicial or
administrative proceedings to the extent that FRANCHISE OWNER is legally
compelled to disclose such information, provided FRANCHISE OWNER has
notified COMPANY prior to disclosure and shall have used its best efforts
to obtain, and shall have afforded COMPANY the opportunity to obtain, an
appropriate protective order or other assurance satisfactory to COMPANY of
confidential treatment for the information required to be so disclosed.
FRANCHISE OWNER agrees to disclose to COMPANY all ideas, concepts, methods,
techniques and products conceived or developed by FRANCHISE OWNER, its
affiliates, Owners or employees during the term of this Agreement relating to
the development and operation of UNITS, provided that FRANCHISE OWNER will not
be obligated to make such disclosures if doing so would violate any contractual
obligations of FRANCHISE OWNER (or DEVELOPER, if applicable) which:
(A) arose prior to DEVELOPER's execution of the Development Agreement
(or, if there is no Development Agreement, then which arose prior to
FRANCHISE OWNER's execution of this Agreement); and
(B) DEVELOPER disclosed to COMPANY in writing prior to or upon
execution of the Development Agreement.
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FRANCHISE OWNER hereby grants to COMPANY and agrees to procure from its
Affiliates, Owners or employees a perpetual, non-exclusive, and worldwide right
to use any such ideas, concepts, methods, techniques and products in all food
service businesses operated by COMPANY or its Affiliates, franchisees and
designees. COMPANY shall have no obligation to make any lump sum or on-going
payments to FRANCHISE OWNER with respect to any such ideas, concepts, methods,
techniques or products. FRANCHISE OWNER agrees that FRANCHISE OWNER will not
use nor will it allow any other person or entity to use any such concept,
method, technique or product without obtaining COMPANY's prior written approval.
10. EXCLUSIVE RELATIONSHIP.
----------------------
FRANCHISE OWNER acknowledges and agrees that COMPANY would be unable to
protect the Confidential Information against unauthorized use or disclosure and
would be unable to encourage a free exchange of ideas and information among
franchise owners and developers of UNITS if franchise owners, developers and
their Principal Owners (and members of their Immediate Families) were permitted
to engage in, hold interests in or perform services for Competitive Businesses.
FRANCHISE OWNER further acknowledges and agrees that the restrictions contained
in this Section 10 will not hinder its activities or the activities of its
Principal Owners (or member of their Immediate Families) under this Agreement or
in general. COMPANY has entered into this Agreement with FRANCHISE OWNER on the
express condition that, with respect to the operation of food service businesses
that sell Products, FRANCHISE OWNER and its Principal Owners and members of
their respective Immediate Families will deal exclusively with COMPANY.
FRANCHISE OWNER therefore agrees that during the term of this Agreement, neither
FRANCHISE OWNER nor any Principal Owner of FRANCHISE OWNER, nor any member of
the Immediate Family of FRANCHISE OWNER or of any Principal Owner, shall
directly or indirectly:
(a) have any interest as a record or beneficial owner in any
Competitive Business (this restriction shall not be applicable to the
ownership of shares of a class of securities listed on a stock exchange or
traded on the over-the-counter market and quoted on a national inter-dealer
quotation system that represent less than three percent (3%) of the number
of shares of that class of securities issued and outstanding);
(b) perform services as a director, officer, manager, employee,
consultant, representative, agent, or otherwise for any Competitive
Business; or
(c) divert or attempt to divert any business or any customers of any
UNIT to any Competitive Business.
FRANCHISE OWNER also agrees that, during the term of this Agreement, neither
FRANCHISE OWNER nor any Principal Owner of FRANCHISE OWNER, nor any member of
the Immediate Family of FRANCHISE OWNER or a Principal Owner shall directly or
indirectly employ or seek to employ any person who is employed by COMPANY, its
Affiliates or by any other developer or franchise owner of UNITS, nor induce any
such person to leave said employment without the prior written consent of such
person's employer.
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Furthermore, if FRANCHISE OWNER is a corporation, limited liability company
or partnership, it will not engage in any business or other activity, directly
or indirectly, other than the development and operation of the Store and other
UNITS developed and operated pursuant to other agreements with COMPANY.
FRANCHISE OWNER acknowledges and agrees that the failure of any person or
entity restricted pursuant to this Section 10 to comply with the restrictions of
this Section 10 (regardless of whether that person or entity actually has
executed this Agreement or a Confidentiality and Non-Competition Agreement)
shall constitute a breach of this Agreement.
The restrictions of this Section 10 shall not be construed to prohibit
FRANCHISE OWNER, any Principal Owner of FRANCHISE OWNER, or any member of the
Immediate Family of FRANCHISE OWNER or its Principal Owners from having a direct
or indirect ownership interest in any UNIT, development agreements or franchise
agreements for the development or operation of UNITS, or any entity owning,
controlling or operating UNITS, or from providing services to any such UNITS
pursuant to other agreements with COMPANY. Furthermore, the restrictions of
this Section 10 shall not prohibit FRANCHISE OWNER, any Principal Owner, or any
member of the Immediate Family of FRANCHISE OWNER or a Principal Owner (to the
extent any such person is an individual) from performing services for or having
an ownership interest in a Permitted Competitive Business, or from conducting
customary promotion and advertising of a Permitted Competitive Business. Such
person(s) and business(es), if any, are identified in Exhibit D attached to this
Agreement.
11. FEES.
----
11.A. INITIAL FRANCHISE FEE.
---------------------
FRANCHISE OWNER agrees to pay to COMPANY upon execution of this Agreement
an initial franchise fee (the "INITIAL FRANCHISE FEE") in the amount of Thirty-
Five Thousand Dollars ($35,000.00). The Initial Franchise Fee (and any deposits
applicable thereto under the Development Agreement) shall be fully earned by
COMPANY upon the earlier of payment thereof or execution of this Agreement. The
Initial Franchise Fee is non-refundable in whole or in part and is paid to
compensate COMPANY for various services provided to FRANCHISE OWNER, including
but not limited to providing initial training, furnishing plans and
specifications for the Store and inspecting the Store prior to opening. The
Initial Franchise Fee is not compensation for the use of the Marks or the
Copyrighted Works.
11.B. ROYALTY FEE.
-----------
FRANCHISE OWNER agrees to pay to COMPANY a continuing royalty fee (the
"ROYALTY FEE") in an amount equal to eight percent (8%) of the Store's Royalty
Base Revenue (as defined in Paragraph C of this Section). The Royalty Fee shall
be payable to COMPANY on or before the twentieth (20th) day of each Accounting
Period based on the Store's Royalty Base Revenue for the immediately preceding
Accounting Period. The Royalty Fee is paid, in part, to compensate COMPANY for
various services provided to FRANCHISE OWNER after the Store opens, including,
but not limited to, quality, service, and cleanliness inspections.
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COMPANY, upon written notice to FRANCHISE OWNER shall have the right to change
the timing of FRANCHISE OWNER's payments of Royalty Fees and Marketing
Contributions (as defined below) due under this Agreement, provided that COMPANY
shall make such payments due no more frequently than twice each Accounting
Period. FRANCHISE OWNER shall not subordinate to any other obligation its
obligation to pay the Royalty Fee or any other fee or charge hereunder. Each
payment of Royalty Fees shall be accompanied by a report, in a form approved by
COMPANY, reflecting the calculation of the amount of the Royalty Fee remitted,
the amount of Local Expenditures (defined below) for the period covered as well
as such other information as COMPANY requires from time to time (a "Royalty
Reporting Form").
11.C. DEFINITION OF "ROYALTY BASE REVENUE".
-----------------------------------
As used in this Agreement, the term "ROYALTY BASE REVENUE" shall mean and
include the gross revenue from all sales of Products and all other products and
services sold or performed by or for FRANCHISE OWNER or the Store in, at, from,
or away from the Store, or through or by means of the business conducted
pursuant to this Agreement, whether for cash or credit, including any assumed
gross revenue calculated for the purpose of an insurance claim for lost profits
to the extent such claim is paid by the insurer, but excluding: (1) all sales
or service taxes collected from customers and paid or payable to the appropriate
taxing authority; (2) all customer refunds, valid discounts and coupons, and
credits made by the Store (such exclusions shall not include any reductions for
credit card user fees, returned checks or reserves for bad credit or doubtful
accounts); (3) any portion of employee meals for which FRANCHISE OWNER does not
charge the employee; and (4) any monies received by the Store from other UNITS
as a result of and directly attributable to any approved Commissary operated out
of the Store.
11.D. INTEREST ON LATE PAYMENTS.
-------------------------
All fees and other amounts which FRANCHISE OWNER owes to COMPANY or its
Affiliates, shall bear interest after due date for the number of days which such
payment is overdue at a rate equal to the lesser of: (1) eighteen percent (18%)
per annum; or (2) the highest legal rate permitted by applicable law. FRANCHISE
OWNER acknowledges that this Paragraph shall not constitute COMPANY's agreement
to accept such payments after same are due or a commitment by COMPANY to extend
credit to, or otherwise finance FRANCHISE OWNER's operation of the Store.
Further, FRANCHISE OWNER acknowledges that failure to pay all such amounts when
due shall, notwithstanding the provisions of this Paragraph, constitute grounds
for termination of this Agreement, as provided in this Agreement.
11.E. APPLICATION OF PAYMENTS.
-----------------------
Notwithstanding any designation by FRANCHISE OWNER, COMPANY shall have sole
discretion to apply any payments received from FRANCHISE OWNER or any
indebtedness of COMPANY to FRANCHISE OWNER, to any past due indebtedness, of
whatever nature, of FRANCHISE OWNER to COMPANY or its Affiliates.
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11.F. ELECTRONIC FUNDS TRANSFER.
-------------------------
COMPANY reserves the right to require FRANCHISE OWNER to remit fees and
other amounts due to COMPANY hereunder via electronic funds transfer or other
similar means utilizing the Computer System or otherwise. If COMPANY notifies
FRANCHISE OWNER to use such payment method, FRANCHISE OWNER agrees to comply
with procedures specified by COMPANY and/or perform such acts and deliver and
execute such documents, including authorization (in the form attached hereto as
Exhibit I or such other form as COMPANY shall accept) for direct debits from
FRANCHISE OWNER's business bank operating account, as may be necessary to assist
in or accomplish payment by such method. Under this procedure FRANCHISE OWNER
shall authorize COMPANY to initiate debit entries and/or credit correction
entries to a designated checking or savings account for payments of fees and
other amounts payable to COMPANY and its Affiliates and any interest charges due
thereon. FRANCHISE OWNER shall make the funds available to COMPANY for
withdrawal by electronic transfer no later than the due date for payment
therefor. If FRANCHISE OWNER has not timely reported the Store's Royalty Base
Revenue to COMPANY for any reporting period, then COMPANY shall be authorized,
at COMPANY's option, to debit FRANCHISE OWNER's account in an amount equal to
(a) the fees transferred from FRANCHISE OWNER's account for the last reporting
period for which a report of the Store's Royalty Base Revenue was provided to
COMPANY as required hereunder or (b) the amount due based on information
retrieved from the Computer System.
12. STORE IMAGE AND OPERATION.
-------------------------
12.A. CONDITION AND APPEARANCE OF THE STORE.
-------------------------------------
FRANCHISE OWNER agrees that:
(1) neither the Store nor the Site will be used for any purpose other
than the operation of a UNIT in full compliance with this Agreement; and
(2) FRANCHISE OWNER will maintain the condition and appearance of the
Store, its equipment, furnishings, fixtures, signs and vehicles in
accordance with the specifications and standards of COMPANY and consistent
with the image of a UNIT as a first-class, clean, sanitary, attractive and
efficiently operated food service business; and
(3) FRANCHISE OWNER will perform such maintenance (including, without
limitation, maintenance procedures and routines which COMPANY prescribes
from time to time) with respect to the decor, equipment, fixtures,
furnishings, vehicles, and signs of the Store and the Site, as may be
required or directed by COMPANY from time to time to maintain such
condition, appearance, and efficient operation, including, without
limitation:
(a) continuous and thorough cleaning and sanitation of the
interior and exterior of the Store; and
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(b) thorough repainting and redecorating of the interior and
exterior of the Store and/or the Site at reasonable intervals; and
(c) interior and exterior repair of the Store and/or the Site;
and
(d) repair or replacement of damaged, worn out or obsolete
furnishings, equipment, vehicles, fixtures and signs; and
(4) FRANCHISE OWNER will not make any material alterations to the
Site, or to the appearance of the Store as originally developed, without
the prior approval of COMPANY; and
(5) subject to approval by COMPANY of plans, layouts and designs,
FRANCHISE OWNER will remodel, expand, redecorate, re-equip and refurnish
the Site and the Store at reasonable intervals determined by COMPANY to
reflect changes in the appearance and operation of UNITS prescribed by
COMPANY and required of new UNIT franchise owners, provided that:
(a) COMPANY has initiated a program to begin such changes with
respect to other UNITS operated within the Marketing Area, to the
extent COMPANY has the contractual right to require any such UNITS to
do so; and
(b) FRANCHISE OWNER shall have a reasonable time period remaining
in the term of this Agreement (not less than five (5) years) to
amortize the costs of such improvements, or equipment (excluding the
Computer System, Licensed Program and/or Specified Software),
vehicles, fixtures and furnishings;
it being understood and agreed by FRANCHISE OWNER that the provision of
Delivery Service from the Store and/or Catering Service from a Catering
Facility, if authorized or required by COMPANY, may require FRANCHISE OWNER
to incur additional costs to obtain equipment, vehicles, fixtures,
furnishings and furniture and improve the Store to provide such services in
accordance with COMPANY's standards and specifications therefor; and
(6) FRANCHISE OWNER will place or display at the Store (interior and
exterior) only such signs, emblems, lettering, logos, and display and
advertising materials that are from time to time approved by COMPANY.
In addition to any other remedies available to COMPANY, if FRANCHISE OWNER
does not maintain the condition and appearance of the Store as herein required,
COMPANY may, upon not less than ten (10) days' written notice (or, in cases of
health or sanitation hazards or other public endangerment, as determined by
COMPANY, in its sole discretion, immediately on oral or written notice) to
FRANCHISE OWNER:
(i) arrange for the necessary cleaning or sanitation, repair,
remodeling, upgrading, painting or decorating; or
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(ii) replace, as necessary, fixtures, furnishings, equipment,
vehicles, or signs .
FRANCHISE OWNER shall pay the entire cost thereof on or before the fifth (5th)
day following the receipt of a bill for such work from COMPANY.
12.B. STORE MENU AND SERVICES.
-----------------------
FRANCHISE OWNER agrees that the Store shall (1) offer for sale all Products
and all promotional and related items (for example, T-shirts, cups, mugs, caps,
hats and similar items) as may be directed by COMPANY from time to time (and no
other products) and (2) provide only the following services (and no other
services): (a) the carry-out service and on-premises dining that COMPANY
authorizes and requires, (b) the Delivery Service that COMPANY, in its sole
discretion, may authorize and/or require from time to time for the Store
pursuant to a Delivery Rider and (c) the Catering Service that COMPANY in its
sole discretion may authorize and/or require from time to time to provide from
the Store (or a Catering Facility) pursuant to a Catering Rider, all in
accordance with COMPANY's specifications, standards and procedures. FRANCHISE
OWNER agrees that the Store shall not under any circumstances offer for sale or
sell any products or services at or from the Store which have not been approved
by COMPANY prior to such offer or sale. FRANCHISE OWNER also acknowledges and
agrees that the preparation and packaging of Products for purposes of carry-out
service, on-premises dining, Delivery Service and Catering Service is important
to the image of the System, and that, therefore, FRANCHISE OWNER shall not sell
any Products that have not been prepared and packaged in accordance with
COMPANY's specifications, standards and procedures prescribed in the Store
Manuals or otherwise in writing. FRANCHISE OWNER also acknowledges and agrees
that if COMPANY requires the Store to offer new or substitute products or
services not currently offered at UNITS, FRANCHISE OWNER agrees to offer such
services and/or products in compliance with COMPANY's specifications, standards
and procedures and to diligently pursue obtaining any permits and take such
actions (including, without limitation, constructing improvements and acquiring
fixtures, furnishings, equipment, supplies and materials) required to offer such
products and/or services. FRANCHISE OWNER acknowledges and understands that
such modifications to the services and/or products to be offered by the Store
may require FRANCHISE OWNER to incur additional costs and expenses to operate
the Store, including, without limitation, the purchase and/or lease of
additional or substitute furnishings, furniture, fixtures, vehicles or equipment
for Catering Service and/or Delivery Service, and FRANCHISE OWNER agrees to
incur such expenses in connection therewith.
FRANCHISE OWNER acknowledges that COMPANY may conduct quality, service,
cleanliness, and other inspections of the Store from time to time without notice
to FRANCHISE OWNER to determine compliance with this Agreement and the standards
and specifications applied by COMPANY from time to time and that performance
meeting COMPANY's standards in such inspections is required hereunder. COMPANY
also may designate an independent evaluation service to conduct a "mystery
shopper" quality control and evaluation program with respect to COMPANY-owned
and/or franchised UNITS. FRANCHISE OWNER agrees that the Store will participate
in such mystery shopper program, as prescribed and required by COMPANY, provided
that COMPANY-owned and franchised UNITS also will participate in such program to
the extent COMPANY has the right to require such participation.
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FRANCHISE OWNER agrees to timely pay the then-current charges imposed by such
evaluation service for the Store's participation in such program.
12.C. APPROVED PRODUCTS, DISTRIBUTORS AND SUPPLIERS.
---------------------------------------------
The reputation and goodwill of all UNITS are based upon, and can only be
maintained by, the sale of distinctive, high-quality Products, and the
presentation, packaging and service of Products in an efficient and appealing
manner. COMPANY has developed and shall continue to develop certain proprietary
food products which will be prepared by or for COMPANY according to COMPANY's
proprietary recipes and formulas. COMPANY also has developed and may continue
to develop standards and specifications for bagels and other food products,
ingredients, spreads, seasonings, spices, mixes, teas, coffees and other
beverages, materials and supplies incorporated in or used in the preparation,
freezing, baking, cooking, serving, packaging, catering and delivery of prepared
food products authorized for sale at or from UNITS.
COMPANY has approved and shall review and continue to approve suppliers and
distributors of the foregoing products, supplies and materials that meet its
standards and requirements including, without limitation, standards and
requirements relating to quality, quantity and portions, prices, volume
capability, frequency of delivery, distribution methods and locations, standards
of service, including prompt attention to complaints, consistency, reliability,
financial capability, labor and customer relations and other criteria.
FRANCHISE OWNER agrees that the Store shall:
(1) purchase those Products which are COMPANY's private label food
products, materials, supplies and proprietary food products developed by or
for COMPANY or its Affiliates whether or not pursuant to a special recipe
or formula or bearing the Marks (collectively "PROPRIETARY ITEMS") only
from COMPANY or designees required and licensed by COMPANY to manufacture,
prepare, distribute and/or sell such products;
(2) purchase only from distributors and suppliers approved or required
by COMPANY all other goods and items authorized to be sold in the Store,
and other materials and supplies used in the preparation, freezing, baking,
cooking, serving, packaging, delivery and catering of Products and
equipment, menus, forms, paper and plastic products, packaging or other
materials (collectively "SUPPLIES AND MATERIALS"); and
(3) purchase only from distributors and suppliers approved or required
by COMPANY all Products other than Proprietary Items ("NON-PROPRIETARY
PRODUCTS").
COMPANY may, in its sole discretion, designate which Products constitute
Proprietary Items, and which of such Proprietary Items: (a) are required to be
purchased from COMPANY or its designated suppliers; or (b) may be produced
and/or prepared at the Store. COMPANY may from time to time modify the list of
approved or required suppliers and distributors, and may designate itself or an
Affiliate as a required manufacturer, supplier and/or distributor of certain
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equipment, products, materials, supplies or other items. FRANCHISE OWNER shall
not, after receipt in writing of such modification, reorder any product from any
supplier or distributor that is no longer approved. COMPANY may approve or
require a single distributor or supplier for any products, materials or supplies
and may approve or require a distributor or supplier only as to certain
products, materials and supplies, and such approval may be temporary pending a
further evaluation of such distributor or supplier by COMPANY. COMPANY may
concentrate purchases with one or more distributors or suppliers to obtain lower
prices and/or advertising support and/or services for the benefit of the System
and/or UNITS. COMPANY may establish COMPANY or Affiliate-owned and operated food
commissaries and distribution facilities which COMPANY may designate as an
approved or required distributor or supplier.
FRANCHISE OWNER shall notify COMPANY and submit to COMPANY such
information, specifications and samples as COMPANY requests if the FRANCHISE
OWNER proposes to purchase any Products or Supplies and Materials from a
distributor or supplier whom COMPANY has disapproved or not previously approved.
COMPANY shall use its reasonable best efforts to notify FRANCHISE OWNER within
one hundred twenty (120) days after receipt of all requested information and
materials whether FRANCHISE OWNER is authorized to purchase such products from
such distributor or supplier. If FRANCHISE OWNER fails to receive a notice of
approval or disapproval within such one hundred twenty (120) day period,
FRANCHISE OWNER may not purchase such products from such distributor or
supplier. COMPANY may require FRANCHISE OWNER to reimburse COMPANY for its
reasonable costs incurred in connection with the evaluation, inspection and
supervision of such distributor or supplier.
FRANCHISE OWNER shall at all times maintain an adequate inventory of
approved food and paper products, beverages, ingredients and other products
sufficient in quality and variety to realize the full potential of the Store.
FRANCHISE OWNER acknowledges and agrees that COMPANY may, in its sole
discretion, collect and retain all allowances, benefits, credits, monies,
payments or rebates (collectively "PROMOTIONAL ALLOWANCES") offered to FRANCHISE
OWNER or COMPANY or its Affiliates by manufacturers, suppliers and distributors
for promotional or advertising purposes based upon FRANCHISE OWNER's purchases
of Proprietary Items, Supplies and Materials and Non-Proprietary Products.
FRANCHISE OWNER assigns to COMPANY or its designee all of FRANCHISE OWNER's
right, title and interest in and to any and all such Promotional Allowances and
authorizes COMPANY or its designee to collect any such Promotional Allowances
for remission to: (a) the Marketing Fund (defined below) to the extent based on
FRANCHISE OWNER's purchase of Non-Proprietary Products and Supplies and
Materials, except as provided in clause (b) following; and (b) the general
operating funds of COMPANY to the extent based on FRANCHISE OWNER's purchases of
Proprietary Items, regardless of where purchased, as well as Non-Proprietary
Products and Supplies and Materials purchased from COMPANY or its Affiliates.
FRANCHISE OWNER acknowledges and agrees that under no circumstances will COMPANY
or its Affiliates be required to contribute to the Marketing Fund any revenue
made or collected by COMPANY or its Affiliates from sales to or purchases by
FRANCHISE OWNER of any goods or services.
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12.D. SPECIFICATIONS, STANDARDS AND PROCEDURES.
----------------------------------------
FRANCHISE OWNER acknowledges that the operation of the Store in strict
compliance with COMPANY's high standards is important to COMPANY and other UNITS
and FRANCHISE OWNER agrees to maintain such high standards in the operation of
the Store. The Store and all Products used and offered for sale at the Store
shall at all times be maintained in a safe and sanitary condition. FRANCHISE
OWNER agrees to comply strictly with all of COMPANY's mandatory specifications,
standards and operating procedures relating to the appearance, function,
cleanliness, days and hours of operation (days and hours of operation may vary
somewhat among UNITS based on COMPANY's reasonable judgment of the requirements
of the Store's trade area and whether COMPANY has approved any special services
to be offered at or from a site), and operation of a UNIT, including, but not
limited to:
(1) type, brand, quality, taste, weight, dimensions, ingredients,
uniformity, manner of preparation, preservation and sale of all Products
and Supplies and Materials; and
(2) sales and marketing procedures and customer service; and
(3) advertising and promotional programs; and
(4) layout, decor and color scheme of the Store; and
(5) recruitment, selection, training, appearance and dress of
employees, including, without limitation, use of COMPANY's employee
selection and training materials; and
(6) safety, maintenance, appearance, cleanliness, sanitation,
standards of service and operation of the Store; and
(7) submission of requests for approval of brands of food and
packaging products, supplies and suppliers; and
(8) use and illumination of signs, posters, displays, standard formats
and similar items; and
(9) identification of FRANCHISE OWNER as the owner of the Store; and
(10) types of and use of fixtures, furnishings, equipment, computer
hardware and software, vehicles, and signs; and
(11) carry-out, on-premises dining and (if authorized by COMPANY and
agreed to by FRANCHISE OWNER) Delivery Service, Catering Service and
Special Distribution Arrangements; and
(12) required and approved menu items; and
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(13) general staffing levels for the Store and number, type and
qualifications of Store personnel; and
(14) participation in market research and test programs required or
approved by COMPANY concerning various aspects of the System, including,
without limitation, procedures, systems, techniques, furnishings, fixtures,
equipment, ingredients, signs, labels, trade dress, logos, packaging,
supplies, marketing materials and strategies, merchandising and new menu
items and services. FRANCHISE OWNER agrees, if requested by COMPANY, to
participate in COMPANY's customer surveys and market research programs.
FRANCHISE OWNER acknowledges and agrees that all mandatory specifications,
standards and operating and inspection procedures prescribed from time to time
by COMPANY in the Store Manuals or otherwise communicated to FRANCHISE OWNER in
writing, shall constitute binding obligations on the part of FRANCHISE OWNER as
if fully set forth herein, and any failure by FRANCHISE OWNER to adhere to such
mandatory specifications, standards and operating and inspection procedures or
to pass COMPANY's periodic quality control inspections shall constitute grounds
for termination of this Agreement by COMPANY, as provided for herein. All
references herein to this Agreement shall include all such mandatory
specifications, standards, and operating procedures.
12.E. COMPLIANCE WITH LAWS AND GOOD BUSINESS PRACTICES.
------------------------------------------------
FRANCHISE OWNER shall secure and maintain in force in its name all required
licenses, permits, and certificates relating to the conduct of its business
pursuant to this Agreement. FRANCHISE OWNER shall comply with all applicable
laws, ordinances and regulations, including, without limitation, laws and
governmental regulations relating to the preparation, purchase and handling of
food products, Delivery Service, Catering Service and Special Distribution
Arrangements (if applicable), occupational hazards, health, safety and
sanitation, worker's compensation insurance, unemployment insurance, and
withholding and payment of all taxes. All advertising by FRANCHISE OWNER shall
be approved by COMPANY and be completely factual, in good taste in the judgment
of COMPANY, and shall conform to high standards of ethical advertising.
FRANCHISE OWNER shall in all dealings with its customers, suppliers, COMPANY,
and public officials adhere to high standards of honesty, integrity, fair
dealing and ethical conduct. FRANCHISE OWNER agrees to refrain from any
business or advertising practice which may be injurious to the business of
COMPANY and the goodwill associated with the Marks and other UNITS. FRANCHISE
OWNER shall notify COMPANY in writing:
(1) within three (3) days after the commencement of any action, suit,
proceeding or issuance of any order, writ, injunction, award, or decree of
any court, agency, or other governmental instrumentality, which may
adversely affect the operation or financial condition of FRANCHISE OWNER or
the Store; or
(2) immediately upon the receipt of any notice of violation of any
law, ordinance or regulation relating to health, sanitation or the
operation of the Store.
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12.F. MANAGEMENT AND PERSONNEL OF THE STORE.
-------------------------------------
FRANCHISE OWNER (or the persons identified as supervising Owners in Exhibit
E hereto) shall supervise and oversee the operation of the Store. FRANCHISE
OWNER shall employ and maintain at all times during the term of this Agreement
at least one (1) Store Manager and one (1) Additional Manager at the Store. The
Store Manager shall be the full-time manager of the Store and the Additional
Manager shall perform on a full-time basis such other operations for FRANCHISE
OWNER as COMPANY may reasonably specify from time to time and both must
successfully complete to COMPANY's satisfaction a COMPANY certified initial
management training program for the operation of the Store. FRANCHISE OWNER
also shall employ the number of assistant managers and other personnel required
for adequate staffing of the Store, and shall at all times keep COMPANY advised
of the identities of the Store Manager, Additional Manager and assistant
managers. COMPANY shall have the right to deal with the Store Manager,
Additional Manager and assistant managers on matters pertaining to day-to-day
operations of, and reporting requirements for, the Store. The Store at all
times shall be under the direct, on-site supervision of the Store Manager,
Additional Manager or an assistant manager who has completed a training program
conducted by COMPANY or DEVELOPER (if applicable) and who has been certified
under the terms of the Development Agreement. FRANCHISE OWNER shall provide the
Store Manager with a compensation program reasonably acceptable to COMPANY
designed to provide an incentive to the Store Manager to use diligent efforts to
cause the Store to be operated in a profitable manner.
FRANCHISE OWNER shall hire all employees of the Store and shall be
exclusively responsible for the terms of their employment and compensation and
for the proper training of such employees in the operation of the Store.
12.G. INSURANCE.
---------
During the term of this Agreement, FRANCHISE OWNER shall maintain in force,
under policies of insurance issued by insurers rated "A-" or better by Alfred M.
Best & Company, Inc. and approved by COMPANY:
(1) such insurance as is necessary to comply with all legal
requirements concerning insurance coverage (including, without limitation,
workers' compensation requirements), and insurance coverage for persons
attending COMPANY training programs on behalf of FRANCHISE OWNER;
(2) commercial general liability insurance (including, but not limited
to, coverage for motor vehicles used in the development and operation of
the Store, whether or not owned by FRANCHISE OWNER), against claims for
bodily and personal injury, death and property damage caused by or
occurring in conjunction with the operation of the Store or otherwise in
conjunction with the conduct of business by FRANCHISE OWNER pursuant to
this Agreement, under one or more policies of insurance containing minimum
liability coverage prescribed by COMPANY from time to time; and
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(3) all risk property and casualty insurance for the replacement value
of the Store and its contents (including leasehold improvements,
furnishings, fixtures, equipment, the Computer System, signs, inventory,
supplies, and materials).
COMPANY may periodically increase the amounts of coverage required under
such insurance policies and require different or additional kinds of insurance
at any time, including excess liability insurance, to reflect inflation,
identification of new risks, changes in law or standards of liability, higher
damage awards, or other relevant changes in circumstances. Each insurance
policy shall name COMPANY as an additional named insured, shall contain a waiver
of all subrogation rights against COMPANY, its Affiliates, and their successors
and assigns, and shall provide for thirty (30) days' prior written notice to
COMPANY of any material modification, cancellation, or expiration of such
policy. The maintenance of insurance coverage that meets the minimum
requirements described in this Section and such additional coverages which
FRANCHISE OWNER determines are appropriate for its particular circumstances
shall be the responsibility of FRANCHISE OWNER.
Upon execution of this Agreement, FRANCHISE OWNER shall provide COMPANY
with evidence of the insurance required under this Agreement. Thereafter, prior
to the expiration of the term of each insurance policy, FRANCHISE OWNER shall
furnish COMPANY with a copy of each renewal or replacement insurance policy to
be maintained by FRANCHISE OWNER for the immediately following term and evidence
of the payment of the premium therefor. If FRANCHISE OWNER fails or refuses to
maintain required insurance coverage, or to furnish satisfactory evidence
thereof and the payment of the premiums therefor, COMPANY, at its option and in
addition to its other rights and remedies under this Agreement, may obtain such
insurance coverage on behalf of FRANCHISE OWNER and FRANCHISE OWNER shall fully
cooperate with COMPANY in its effort to obtain such insurance policies, promptly
execute all forms or instruments required to obtain or maintain any such
insurance, allow any inspections of the Store or vehicles which are required to
obtain or maintain such insurance, and pay to COMPANY, on demand, any costs and
premiums incurred by COMPANY.
FRANCHISE OWNER's obligations to maintain insurance coverage as herein
described shall not be affected in any manner by reason of any separate
insurance maintained by COMPANY, nor shall the maintenance of such insurance
relieve FRANCHISE OWNER of any indemnification obligations under this Agreement.
12.H. CREDIT CARDS AND OTHER METHODS OF PAYMENT.
-----------------------------------------
FRANCHISE OWNER shall at all times have arrangements in existence with a
full range of credit and debit card issuers or sponsors, check verification
services and electronic fund transfer systems as COMPANY designates in its sole
discretion from time to time in order that the Store may accept customers'
credit and debit cards, checks and other methods of payment. FRANCHISE OWNER
shall use only such methods of payment which COMPANY authorizes or approves.
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13. ADVERTISING.
-----------
13.A. MARKETING FUND.
--------------
Recognizing the value of advertising and marketing to the goodwill and
public image of UNITS, COMPANY has instituted and FRANCHISE OWNER agrees that
COMPANY or its designee shall maintain and administer a marketing fund (the
"MARKETING FUND") for such advertising, media placement, marketing and public
relations programs, research and related activities as COMPANY, in its sole
discretion, may deem necessary or appropriate to generally promote UNITS and/or
the System. FRANCHISE OWNER shall contribute to the Marketing Fund two percent
(2%) of the Store's Royalty Base Revenue (without credit for any Promotional
Allowances collected by COMPANY and contributed pursuant to Section 12.C.),
payable to COMPANY by separate check or transfer at the same time and in the
same manner as the Royalty Fees due hereunder. UNITS which are owned by COMPANY
or its Affiliates, to the extent COMPANY has the right to require such
Affiliates to do so, shall contribute to the Marketing Fund on the same basis as
FRANCHISE OWNER. COMPANY shall have the right to require FRANCHISE OWNER from
time to time to increase FRANCHISE OWNER'S Marketing Fund contributions up to
one fourth of one percent (0.25%) per year.
COMPANY shall direct all advertising, media placement, marketing and public
relations programs and activities financed by the Marketing Fund, with sole
discretion over the strategic direction, creative concepts, materials and
endorsements used therein, and the geographic, market, and media placement and
allocation thereof. FRANCHISE OWNER agrees that the Marketing Fund may be used
to pay various costs and expenses, including, by way of example and without
limitation: preparing and producing video, audio and written advertising
materials; interest on borrowed funds; sponsorship of sporting, charitable or
similar events; reasonable salaries and expenses of employees of COMPANY or its
Affiliates working for or on behalf of the Marketing Fund or on advertising,
marketing, public relations materials, programs, or activities or promotions for
the benefit of the Marketing Fund and administrative costs and overhead of
COMPANY or its Affiliates incurred in activities reasonably related to the
administration of the Marketing Fund; administering advertising programs,
including, without limitation, purchasing direct mail and other media
advertising and employing advertising agencies to assist therewith; and
supporting public relations, market and consumer research and other advertising,
promotional and marketing activities, including testing and test marketing
programs, fulfillment charges, and development, implementation and testing of
Trade Dress and design prototypes. FRANCHISE OWNER agrees to participate in all
advertising, marketing, promotions, research and public relations programs
instituted by the Marketing Fund. The Marketing Fund shall furnish FRANCHISE
OWNER with reasonable quantities of marketing, advertising and promotional
formats and sample materials at cost.
The Marketing Fund shall be accounted for separately, but shall not be
required to be segregated, from the other funds of COMPANY and shall not be used
to defray any of COMPANY's general operating expenses, except for such
reasonable salaries, administrative costs and overhead as COMPANY may incur in
activities reasonably related to the administration and activities of the
Marketing Fund and creation or conduct of its marketing programs including,
without limitation, conducting market research, preparing advertising and
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marketing materials and collecting and accounting for contributions to the
Marketing Fund. COMPANY may spend in a fiscal year an amount greater or less
than the aggregate contributions of all UNITS to the Marketing Fund in that
year. The Marketing Fund may borrow from COMPANY or other lenders at standard
commercial interest rates to cover deficits of the Marketing Fund or cause the
Marketing Fund to invest any surplus for future use by the Marketing Fund. All
interest earned on monies contributed to the Marketing Fund will be used to pay
costs of the Marketing Fund before other assets of the Marketing Fund are
expended. A summary statement of monies collected and costs incurred by the
Marketing Fund for COMPANY's immediately preceding fiscal year shall be made
available to FRANCHISE OWNER upon FRANCHISE OWNER's written request. COMPANY
will have the right to cause the Marketing Fund to be incorporated or operated
through an entity separate from COMPANY at such time as COMPANY deems
appropriate, and such successor entity shall have all rights and duties of
COMPANY pursuant to this Paragraph A.
Notwithstanding anything in this Agreement to the contrary, under no
circumstances will COMPANY or its Affiliates be required to contribute to the
Marketing Fund any revenue or profits (or an portion thereof) made or collected
by COMPANY or its Affiliates from sales to or purchases by FRANCHISE OWNER of
any goods or services.
FRANCHISE OWNER understands and acknowledges that the Marketing Fund is
intended to maximize recognition of the Marks and the System generally.
Although COMPANY will endeavor to utilize the Marketing Fund to develop
advertising and marketing materials and programs, and to place advertising in
order to benefit all UNITS, COMPANY undertakes no obligation to ensure that
expenditures by the Marketing Fund in or affecting any geographic area are
proportionate or equivalent to the contributions to the Marketing Fund by UNITS
operating in that geographic area or that any UNIT will benefit directly or in
proportion to its contribution to the Marketing Fund from the development of
advertising and marketing materials or the placement of advertising. COMPANY
may use the Marketing Fund to promote any type of UNIT in the System. FRANCHISE
OWNER acknowledges that its failure to derive any such benefit will not serve as
a basis for a reduction or elimination of its obligation to contribute to the
Marketing Fund. FRANCHISE OWNER further acknowledges and agrees that the
failure (whether with or without COMPANY's permission) of any other franchise
owner to make the appropriate amount of contributions to the Marketing Fund
shall not in any way release FRANCHISE OWNER from or reduce FRANCHISE OWNER's
obligations under this Paragraph A., such obligations being separate and
independent obligations of FRANCHISE OWNER under this Agreement. Except as
expressly provided in this Paragraph A., COMPANY assumes no direct or indirect
liability or obligation to FRANCHISE OWNER with respect to the maintenance,
direction, or administration of the Marketing Fund.
FRANCHISE OWNER understands and acknowledges that the monies it contributes
to the Marketing Fund shall be combined with contributions of other franchise
owners in the System, including those franchise owners in the System that may
operate their UNITs under different brand names or Marks, or with trade dress
and operations that differ from FRANCHISE OWNER'S. Contributions to the
Marketing Fund made by FRANCHISE OWNER may be used to promote UNITS and brands
that differ from type of UNIT FRANCHISE OWNER operates and the brands FRANCHISE
OWNER uses, and contributions
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to the Marketing Fund made by franchise owners in the System that use brands and
operate UNITS that differ from FRANCHISE OWNER'S brands and UNIT may be used to
promote the type of UNIT FRANCHISE OWNER operates. COMPANY undertakes no
obligation to insure that Marketing Fund monies will be spent to promote various
types of UNITS using various brands in proportion to the Marketing Fund
contributions made by franchise owners in the System of such types of UNITS or
using those brands.
COMPANY reserves the right, in its sole discretion, to suspend
contributions to and operations of the Marketing Fund for such periods that it
determines to be appropriate and to terminate the Marketing Fund upon written
notice to FRANCHISE OWNER. All unspent monies on the date of termination shall
be distributed to COMPANY and franchise owners in proportion to their respective
contributions to the Marketing Fund during the preceding twelve (12) month
period. COMPANY has the right to reinstate the Marketing Fund upon the same
terms and conditions set forth herein upon thirty (30) days' prior written
notice to FRANCHISE OWNER.
13.B. LOCAL ADVERTISING FUND.
----------------------
FRANCHISE OWNER agrees that, unless otherwise notified by COMPANY, in its
sole discretion, FRANCHISE OWNER shall participate in a local advertising fund
(a "LOCAL AD FUND") comprised of the UNIT(s) (including those owned by COMPANY
or its Affiliates, or other franchise owners, to the extent COMPANY has the
right to require any such Affiliate or franchise owner to do so) located in the
same Marketing Area (subject to the rights of other franchise owners under their
franchise agreements with COMPANY). COMPANY shall establish, maintain and
administer the Local Ad Fund for such advertising, media placement, marketing
and public relations programs and related activities as COMPANY, in its sole
discretion, may deem necessary or appropriate to promote UNITS in the Marketing
Area. FRANCHISE OWNER shall contribute to such Local Ad Fund up to four percent
(4%) of the Store's Royalty Base Revenue as determined by COMPANY from time to
time for each Accounting Period in which it participates in the Local Ad Fund.
COMPANY shall have the right to require FRANCHISE OWNER from time to time
to increase FRANCHISE OWNER's Local Ad Fund contributions above four percent
(4%) up to one fourth of one percent (0.25%) each year. Amounts paid to such
Local Ad Fund by FRANCHISE OWNER shall be payable to COMPANY by separate check
or transfer at the same time and in the same manner as the Royalty Fees and
Marketing Fund Contributions due under this Agreement. UNITS located in the
same Marketing Area which are owned by COMPANY or its Affiliates, to the extent
COMPANY has the right to require such Affiliates to do so, shall contribute to
such Local Ad Fund on the same basis as franchise owners who are members of such
Local Ad Fund. Notwithstanding the foregoing, FRANCHISE OWNER acknowledges and
agrees that it may be required from time to time to contribute to the Local Ad
Fund an amount greater than that provided for herein to enable the commencement
and combination of "REQUIRED TELEVISION ADVERTISING" (as defined in the
Development Agreement) as required pursuant to the Development Agreement.
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COMPANY or its designee shall direct all advertising, media placement,
marketing and public relations programs and activities of the Local Ad Fund,
with sole discretion over the strategic direction, creative concepts, materials
and endorsements used therein, and the geographic, market, and media placement
and allocation thereof within the Marketing Area. FRANCHISE OWNER may consult
with and advise COMPANY concerning activities of the Local Ad Fund. FRANCHISE
OWNER agrees that the Local Ad Fund may be used to pay the costs of: preparing,
adapting and producing video, audio and written advertising materials; interest
on borrowed funds; sponsorship of sporting, charitable or similar events;
reasonable salaries and expenses of employees of COMPANY or its Affiliates
working for or on behalf of the Local Ad Fund or on advertising, marketing,
public relations materials, programs, or activities or promotions for the
benefit of the Local Ad Fund and administrative costs and overhead of COMPANY or
its Affiliates incurred in activities reasonably related to the administration
or activities of the Local Ad Fund; administering advertising programs,
including, without limitation, purchasing direct mail and other media
advertising and employing advertising agencies to assist therewith; and
supporting public relations, market research and other advertising, promotional
and marketing activities, including testing and test marketing, fulfillment
charges and development, implementation, and testing of Trade Dress and design
prototypes. FRANCHISE OWNER agrees to participate in all advertising,
promotional events and public relations programs instituted by the Local Ad
Fund.
The Local Ad Fund shall be accounted for separately, but shall not be
required to be segregated, from the other funds of COMPANY and shall not be used
to defray any of COMPANY's general operating expenses, except for such
reasonable salaries, administrative costs and overhead as COMPANY may incur in
activities reasonably related to the administration or activities of the Local
Ad Fund and creation or conduct of its marketing programs (including, without
limitation, conducting marketing research, preparing advertising and marketing
materials and collecting and accounting for contributions to the Local Ad Fund).
COMPANY may spend in any fiscal year an amount greater or less than the
aggregate contributions of all UNITS to the Local Ad Fund in that year. The
Local Ad Fund may borrow from COMPANY or other lenders at standard commercial
interest rates to cover deficits of the Local Ad Fund or cause the Local Ad Fund
to invest any surplus for its future use. All interest earned on monies
contributed to the Local Ad Fund will be used to pay costs of the Local Ad Fund
before other assets are expended. A summary statement of monies collected and
costs incurred by the Local Ad Fund for COMPANY's immediately preceding fiscal
year shall be made available to FRANCHISE OWNER upon FRANCHISE OWNER's written
request. COMPANY will have the right to cause the Local Ad Fund to be
incorporated or operated through an entity separate from COMPANY at such time as
COMPANY deems appropriate, and such successor entity shall have all rights and
duties of COMPANY pursuant to this Paragraph B.
FRANCHISE OWNER understands and acknowledges that the Local Ad Fund is
intended to maximize recognition of the Marks and patronage of UNITS in the
Marketing Area. Although COMPANY will endeavor to utilize the Local Ad Fund to
develop advertising and marketing materials and programs, and to place
advertising in order to benefit all UNITS in the Marketing Area, COMPANY
undertakes no obligation to ensure that any UNIT in the Marketing Area will
benefit directly or in proportion to its contribution to the Local Ad Fund from
the development of advertising and marketing materials or the placement of
advertising by the Local
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Ad Fund. The COMPANY may use the Local Ad Fund to promote any type of UNIT in
the System. FRANCHISE OWNER acknowledges that its failure to derive any such
benefit will not serve as a basis for a reduction or elimination of its
obligation to contribute to the Local Ad Fund. FRANCHISE OWNER further
acknowledges and agrees that the failure (whether with or without COMPANY's
permission) of any other franchise owner to make the appropriate amount of
contributions to the Local Ad Fund shall not in any way release FRANCHISE OWNER
from or reduce FRANCHISE OWNER's obligations under this Paragraph B., such
obligations being separate and independent obligations of FRANCHISE OWNER under
this Agreement. Except as expressly provided in this Paragraph B., COMPANY
assumes no direct or indirect liability or obligation to FRANCHISE OWNER with
respect to the maintenance, direction, or administration of the Local Ad Fund.
COMPANY reserves the right, in its sole discretion, to suspend
contributions to and operations of the Local Ad Fund for such periods that it
determines to be appropriate and to terminate the Local Ad Fund upon written
notice to FRANCHISE OWNER. All unspent monies on the date of termination shall
be distributed to COMPANY and franchise owners in proportion to their respective
contributions to the Local Ad Fund during the preceding twelve (12) month
period. COMPANY has the right to reinstate the Local Ad Fund upon the same
terms and conditions set forth herein upon thirty (30) days' prior written
notice to FRANCHISE OWNER. In the event that COMPANY terminates or suspends
operation of the Local Ad Fund, FRANCHISE OWNER shall spend as Local
Expenditures (defined below) at least such percentage of the Royalty Base
Revenue of the Store as shall be equal to the percentage which could have been
required to be paid to the Local Ad Fund under this Paragraph B.
13.C. ADVERTISING BY FRANCHISE OWNER.
------------------------------
During each Accounting Period during the term of this Agreement in which
the Store does not participate in a Local Ad Fund during such Accounting Period,
FRANCHISE OWNER shall conduct local advertising and promotion for the Store.
Expenditures for such required advertising and promotion are referred to herein
as "LOCAL EXPENDITURES". FRANCHISE OWNER shall make Local Expenditures during
each Accounting Period during which the Store does not participate in the Local
Ad Fund of at least such percentage of the Store's Royalty Base Revenue as shall
be equal to the percentage which could have been required to be paid to the
Local Ad Fund under Paragraph B of this Section for such Accounting Period. The
following shall not count as Local Expenditures: (1) moneys spent on classified
telephone directory listings and advertisements, advertising and promotional
expenses required under the lease for the Store and discounts and the redemption
of coupons; and (2) the cost of goods or services supplied without charge.
Amounts spent for local advertising and promotion of the Store shall not be
credited toward FRANCHISE OWNER's Local Expenditures under this Agreement to the
extent that FRANCHISE OWNER is reimbursed for such expenditures by, or such
expenditures are made by, a supplier of the Store.
Prior to their use by FRANCHISE OWNER, samples of all advertising and
promotional materials not prepared or previously approved by COMPANY shall be
submitted to COMPANY for approval, in the form and manner prescribed by COMPANY
from time to time. If approval is not granted by COMPANY within fifteen (15)
days from the date of receipt by COMPANY
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of such materials, COMPANY shall be deemed to have disapproved the submitted
materials. FRANCHISE OWNER shall not use any advertising or promotional
materials that COMPANY has not approved, has disapproved or that do not include
the copyright registration notices and trademark registration notices designated
by COMPANY. COMPANY, in its sole discretion, may disapprove on a prospective
basis materials that it had previously approved.
In order to promote efficiency and coordination of advertising of UNITS,
FRANCHISE OWNER shall only utilize advertising agencies designated by COMPANY
for the placement of local advertising with the various media.
14. ACCOUNTING, REPORTS AND FINANCIAL STATEMENTS.
--------------------------------------------
FRANCHISE OWNER shall install and use at the Store the Computer System in
such form as is specified by COMPANY from time to time and transmit to or permit
the electronic collection of information by COMPANY through use of the Computer
System. FRANCHISE OWNER, at its own expense, shall establish and maintain at
the Store, (i) a telephone modem and dedicated line or other data transmission
medium specified by COMPANY from time to time that COMPANY may use to access the
Computer System, (ii) full, complete and accurate records and reports and, (iii)
if required by COMPANY, computer diskettes and databases in the form specified
by COMPANY pertaining to the operation of the Store, including, but not limited
to, site reports on the Store prepared by FRANCHISE OWNER and submitted to
COMPANY, the Site Agreement, supervisory reports relating to Store operations, a
bookkeeping, accounting, recordkeeping and records retention system conforming
to the requirements prescribed by COMPANY from time to time (including, without
limitation, requirements for a general ledger system which utilizes the standard
chart of accounts prescribed by COMPANY from time to time and for timely entry
of information into data bases of the Computer System and periodic printouts of
reports generated from the Computer System) and information relating to employee
turnover. Each transaction of the Store shall be processed on the Computer
System in the manner prescribed by COMPANY from time to time. COMPANY shall
have, at all times, the right to access and retrieve information from and data
processed on the Computer System with respect to the Store, and FRANCHISE OWNER
shall take such action as may be necessary to provide such access to COMPANY.
With respect to the operation and financial condition of the Store,
FRANCHISE OWNER shall adopt, until otherwise specified by COMPANY, a fiscal year
consisting of thirteen (13) four-week accounting periods which coincides with
COMPANY's then current fiscal year, as specified by COMPANY and furnish to
COMPANY in the form and format prescribed by COMPANY from time to time,
including, without limitation, via computer diskette and/or restated in
accordance with COMPANY's financial reporting periods consistent with COMPANY's
then-current financial reporting periods and accounting practices and
procedures:
(1) royalty reporting forms;
(2) weekly reports of the Store's sales and Royalty Base Revenue each
Monday (for the preceding Monday through Sunday period) and, if requested
by
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COMPANY, daily reports of Store's sales and Royalty Base Revenue and, by
facsimile or telephone no later than 10:00 a.m. Rocky Mountain time on the
following day; and
(3) upon request by COMPANY, such other data, reports, information,
and supporting records for such periods as COMPANY from time to time
requires (including, without limitation, daily and weekly reports of
Product and/or service sales by category by means of telephonic, facsimile
or other transmission system);
(4) within thirty (30) days after the end of each quarter of FRANCHISE
OWNER's fiscal year, FRANCHISE OWNER shall submit reports of those income
and expense items of the Store which COMPANY specifies from time to time
for use in any revenue, earnings, and/or cost summary it chooses to furnish
to prospective franchise owners, provided that COMPANY will not identify to
prospective franchise owners any specific financial results of the Store;
and
(5) within sixty (60) days after the end of FRANCHISE OWNER's fiscal
year, a fiscal year-end balance sheet, an income statement of the Store for
such fiscal year reflecting all year-end adjustments, and a statement of
changes in cash flow of FRANCHISE OWNER, prepared in accordance with
generally accepted accounting principles consistently applied and in the
format prescribed by COMPANY from time to time.
Each report and financial statement submitted by FRANCHISE OWNER to COMPANY
shall be signed by FRANCHISE OWNER and verified as correct in the manner
prescribed by COMPANY.
FRANCHISE OWNER agrees to maintain and to furnish to COMPANY upon request
complete copies of all income, sales, value added, use and service tax returns,
and employee withholding, worker's compensation, and similar reports filed by
FRANCHISE OWNER reflecting activities of the Store.
FRANCHISE OWNER shall immediately report to COMPANY any events or
developments which may have a materially adverse impact on the operation of the
Store, the performance of Franchise Owner under this Agreement, or the goodwill
associated with the Marks and UNITS.
15. INSPECTIONS AND AUDITS.
----------------------
15.A. COMPANY'S RIGHT TO INSPECT THE STORE.
------------------------------------
To determine whether FRANCHISE OWNER and the Store are complying with this
Agreement and with specifications, standards and operating procedures prescribed
by COMPANY for the operation of UNITS, COMPANY or its agents shall have the
right, at any reasonable time to: (1) inspect the Site, the Store, the Computer
System and other equipment, furnishings, fixtures, signs, vehicles, operating
materials and supplies of the Store; (2) observe, photograph and video tape the
operations of the Store for such consecutive or intermittent
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periods as COMPANY deems necessary; (3) remove samples of any Products and
Supplies and Materials for testing and analysis; (4) interview personnel of the
Store; (5) interview customers of the Store; and (6) inspect and copy any books,
records, reports, computer data bases and documents relating to the operation of
the Store. FRANCHISE OWNER agrees to cooperate fully with COMPANY in connection
with any such inspections, observations, photographing and video taping, product
removal and interviews. FRANCHISE OWNER shall present to its customers such
evaluation forms as are periodically prescribed by COMPANY and shall participate
and/or request its customers to participate in any surveys performed by or on
behalf of COMPANY. FRANCHISE OWNER agrees that COMPANY may inspect and monitor
electronically information concerning FRANCHISE OWNER's sales and the Store's
Royalty Base Revenue, and such other information as may be contained or stored
in the Computer System. COMPANY shall have telephone access to FRANCHISE
OWNER's Computer System as provided herein at such times and in such manner as
COMPANY shall from time to time specify.
15.B. COMPANY'S RIGHT TO AUDIT.
------------------------
COMPANY shall have the right at any time during business hours, and with
reasonable notice to FRANCHISE OWNER, to inspect and audit, or cause to be
inspected and audited, the business records, bookkeeping and accounting records,
computer data bases, value added, sales, use, service, payroll, employee
withholding, worker's compensation, and income tax records and returns, and
other records of the Store and FRANCHISE OWNER and the books and records of
FRANCHISE OWNER if a corporation or partnership. FRANCHISE OWNER shall fully
cooperate with representatives of COMPANY and independent accountants hired by
COMPANY to conduct any such inspection or audit. COMPANY's right to audit shall
also include COMPANY's right to access the Computer System by telephone as
provided in this Agreement. In the event any such inspection or audit shall
disclose an understatement of the Store's Royalty Base Revenue or an
underpayment of any fees due under this Agreement, COMPANY shall be authorized
to initiate immediately a debit to FRANCHISE OWNER's account for in the amount
due plus interest via electronic funds transfer, as described in Section 11.F.
Alternatively, at COMPANY's option, FRANCHISE OWNER shall pay to COMPANY, within
fifteen (15) days after receipt of the inspection or audit report, the fees due
on the amount of such understatement, plus interest (at the rate and on the
terms provided for herein) from the date originally due until the date of
payment. Further, in the event such inspection or audit is made necessary by
the failure of FRANCHISE OWNER to furnish reports, supporting records, other
information or financial statements, as herein required, or to furnish such
reports, records, information or financial statements on a timely basis, or if
an understatement of Royalty Base Revenue for the period of any audit is
determined by any such audit or inspection to be greater than two percent (2%),
FRANCHISE OWNER shall reimburse COMPANY for the cost of such inspection or
audit, including, without limitation, legal fees and accountants' fees, and the
travel expenses, room and board and applicable per diem charges for employees of
COMPANY. The foregoing remedies shall be in addition to all other remedies and
rights of COMPANY hereunder or under applicable law.
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16. TRANSFER.
--------
16.A. BY COMPANY.
----------
This Agreement is fully transferable by COMPANY and shall inure to the
benefit of any transferee or other legal successor to the interests of COMPANY
herein.
16.B. NONTRANSFERABILITY OF CERTAIN RIGHTS.
------------------------------------
FRANCHISE OWNER understands, acknowledges and agrees (and hereby represents
and warrants that its Owners understand and agree) that the rights and duties
created by this Agreement are personal to FRANCHISE OWNER and its Owners and
that a material cause for COMPANY's willingness to enter into this Agreement is
its reliance upon the individual or collective character, skill, aptitude,
business ability and financial capacity of FRANCHISE OWNER and its Owners.
Therefore, FRANCHISE OWNER agrees that:
(1) no Ownership Interest in FRANCHISE OWNER; and
(2) no obligations, rights or interest of FRANCHISE OWNER in (a) this
Agreement, (b) the lease for the premises of the Store, (c) the Franchise,
(d) the Store or (e) the assets of the Store
may be transferred without the prior written consent of COMPANY. This
restriction shall not apply to the sale of inventory in the ordinary course of
business. Any purported transfer in violation of this Section shall constitute
a breach of this Agreement and shall convey to the transferee no rights or
interests in the foregoing.
As used in this Agreement, the term "transfer" shall include, without
limitation, the following, whether voluntary or involuntary, conditional, direct
or indirect:
(1) an assignment, sale, gift or pledge; and
(2) the grant of a mortgage, charge, lien or security interest,
including, without limitation, the grant of a collateral assignment; and
(3) a merger, consolidation, share exchange, issuance of additional
Ownership Interests or securities representing or potentially representing
Ownership Interests, or redemption of Ownership Interests; and
(4) a sale or exchange of voting interests or securities convertible
to voting interests, or an agreement granting the right to exercise or
control the exercise of the voting rights of any holder of Ownership
Interests or to control the operations or affairs of FRANCHISE OWNER; and
(5) except where specifically approved by COMPANY, a management
agreement whereby FRANCHISE OWNER delegates (i) any of its obligations
under this
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Agreement; or (ii) any or all of the management functions with respect to a
Store or the business to be conducted by FRANCHISE OWNER pursuant to this
Agreement.
In addition to the foregoing, a transfer (as defined above) will require
the prior written consent of COMPANY where such transfer occurs by virtue of (a)
divorce; (b) insolvency; (c) dissolution of a corporation, partnership or
limited liability company; (d) will; (e) intestate succession; or (f)
declaration of or transfer in trust.
16.C. COMPANY'S RIGHT TO APPROVE TRANSFERS.
------------------------------------
If FRANCHISE OWNER or any Owner intends to make a transfer of any interests
which, under Paragraph B of this Section, requires COMPANY's prior written
consent, FRANCHISE OWNER shall deliver to COMPANY written notice of such
proposed transfer at least thirty (30) days prior to its intended effective
date. Such notice shall describe in detail the proposed transfer (including,
without limitation, the nature of the transfer, the nature and amount of the
interests being transferred, the reason for the transfer, the consideration to
be paid and the terms of payment of such consideration and the effective date)
and shall identify and provide all pertinent background information regarding
the proposed purchaser. COMPANY shall have 30 days from delivery of such notice
within which to evaluate the proposed transactions and to notify FRANCHISE OWNER
of its approval or disapproval (with reasons) of the proposed transfer. If
approved, the transfer must take place as described in the notice (as modified
by any conditions imposed by COMPANY in granting its approval) and within 30
days of the delivery of notice of COMPANY's approval.
FRANCHISE OWNER agrees that it would be reasonable for COMPANY to
disapprove any proposed transfer based on any and all reasonable factors
including, without limitation, in the event that:
(1) the proposed transfer is a transfer by a Principal Owner;
(2) the proposed transfer, by itself or in conjunction with other
transfers, would result in the transfer of a Controlling Interest in
FRANCHISE OWNER or of a change in the composition of the group holding a
Controlling Interest in FRANCHISE OWNER;
(3) the proposed transfer is to a Competitive Business or to a direct
or indirect owner of interests in a Competitive Business;
(4) FRANCHISE OWNER and its Owners are not in full compliance with
this Agreement;
(5) the proposed transferee and, if applicable, any of its owners (a)
are not of good moral character, (b) otherwise fail to meet COMPANY's then
applicable standards for franchise owners or owners of franchise owners or
(c) are not in full compliance with any other franchise agreements or
development agreements between COMPANY and them; or
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(6) the price and terms of the proposed transfer are so burdensome as
to adversely affect or have a potentially adverse affect on COMPANY's
rights and interests under this Agreement.
16.D. CONDITIONS FOR APPROVAL OF TRANSFERS.
------------------------------------
In granting its approval of a proposed transfer, COMPANY may also impose
certain reasonable conditions, including, without limitation, one or more of the
following:
(1) that FRANCHISE OWNER reimburse COMPANY for any costs and expenses
incurred by COMPANY in evaluating the proposed transfer;
(2) that FRANCHISE OWNER, the transferring Owner or the proposed
purchaser pay a transfer fee in the amount of $5,000;
(3) that, if any part of the sale price is financed by the transferor,
it agrees, in a manner satisfactory to COMPANY, that all obligations of the
purchaser under or pursuant to any promissory notes, agreements or security
interests reserved by the transferor be subordinate to any obligations of
the purchaser to pay amounts then or thereafter due COMPANY and its
Affiliates;
(4) that the purchaser and its owners execute any undertakings then
being required by COMPANY of other franchise owners or owners of franchise
owners of UNITS;
(5) that FRANCHISE OWNER, the transferring Owner and the purchaser (if
the purchaser is then the owner of interests in another developer or
franchise owner of UNITS) execute a general release and consent agreement,
in form satisfactory to COMPANY, of any and all claims against COMPANY and
its Affiliates and their respective shareholders, officers, directors,
employees and agents, for matters arising on or before the effective date
of the transfer;
(6) that the FRANCHISE OWNER or, if applicable, the transferring Owner
execute a noncompetition undertaking in favor of COMPANY and the
transferee, providing that the transferor shall not directly or indirectly
(through a member of the Immediate Family of the transferor or otherwise),
for a period of two years commencing on the effective date of such
transfer:
(a) have any direct or indirect interest as a disclosed or
beneficial owner in any Competitive Business located or operating:
(i) at the Site; or
(ii) within a five (5) mile radius of the Site; or
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(iii) within a five (5) mile radius of any other UNIT in
operation or under development on the effective date of the
transfer; or
(iv) within the Marketing Area; or
(b) perform services as a director, officer, manager, employee,
consultant, representative, agent, or otherwise for any Competitive
Business located or operating:
(i) at the Site; or
(ii) within a five (5) mile radius of the Site; or
(iii) within a five (5) mile radius of any other UNIT in
operation or under development on the effective date of the
transfer; or
(iv) within the Marketing Area; or
(c) divert or attempt to divert any business or any customers of
any UNIT to any Competitive Business; or
(d) employ or seek to employ, any person who is employed by
COMPANY, its Affiliates or any developer or franchise owner of
COMPANY, nor induce nor attempt to induce any such person to leave
said employment without the prior written consent of such person's
employer;
(7) FRANCHISE OWNER, the transferor and the transferee (if it is then
a developer or franchise owner of COMPANY) must pay such Royalty Fees,
Software License Fees, Software Support Fees, Marketing Contributions,
amounts owed for purchases by FRANCHISE OWNER or such transferee from
COMPANY and its Affiliates, and all other amounts owed to COMPANY or its
Affiliates, which are then due and unpaid; and
(8) the transferee must agree to cause its designated Store Manager
and Additional Manager to complete to COMPANY's satisfaction COMPANY's
initial management training program in the operation of a UNIT prior to the
transfer at the time specified by COMPANY and the transferee must have paid
COMPANY's then current standard training charges; and
(9) in the event of a transfer of the Agreement, the transferee and
its owners, at COMPANY's option, must agree, in a manner satisfactory to
COMPANY, to be bound by all terms and conditions of this Agreement for the
remainder of its term or execute COMPANY's then-current form of standard
franchise agreement and such ancillary documents (including guarantees) as
are then customarily used by COMPANY in the
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grant of franchises for UNITS, modified as necessary to provide for the
same Royalty Fees, Software License Fees, Software Support Fees, and
Marketing Contributions required hereunder and a term equal to the
remaining term of this Agreement;
(10) the transferee and its owners must execute COMPANY's then-current
form of secured loan agreement and accounting services agreement and such
ancillary documents as are then customarily used by COMPANY in the grant of
area development rights or franchises for UNITS containing such terms as
are then customarily used by COMPANY in the grant of area development
rights or franchises for UNITS; and
(11) that the transferee and FRANCHISE OWNER acknowledge and agree
that COMPANY's approval of the proposed transfer indicates only that the
transferee meets or that COMPANY has waived the criteria established by
COMPANY for franchise owners as of the time of such transfer and that
COMPANY's approval thereof does not constitute a warranty or guaranty by
COMPANY, express or implied, of the suitability of the terms of sale or of
the successful operation or profitability of the Store by the transferee;
(12) that the transfer be made in compliance with all applicable laws;
(13) that the transfer of the Store, the lease or the assets of the
Store (other than in connection with the financing of authorized equipment
for the Store, the sale of inventory or otherwise in the ordinary course of
business), be made only in conjunction with a transfer of this Agreement;
(14) that the FRANCHISE OWNER, the transferor and the transferee
execute a consent agreement, in form satisfactory to COMPANY, providing
for, among other things, an acknowledgment from the parties that COMPANY's
approval of the transfer does not constitute a warranty or guaranty by
COMPANY, express or implied, of the suitability of the terms of sale or of
the successful operation or profitability of the Store by the transferee.
A transfer of an Owner's interest shall not be required to meet the
conditions set forth in Subparagraphs (2), (6) or (9) if the Owner is not a
Principal Owner and the transfer does not itself, or together with prior or
concurrent transfers involve the transfer of a Controlling Interest in FRANCHISE
OWNER and COMPANY determines in its sole discretion that such transfer does not
result in the transfer or elimination of a Controlling Interest or a change in
the composition of any group of Owners who previously together possessed a
Controlling Interest. Subparagraph (2) above, shall not apply to transfers by
gift, bequest, or inheritance. FRANCHISE OWNER acknowledges and agrees that the
failure of any person or entity restricted pursuant to Subparagraph (6) to
comply with this Section 16, including, without limitation, the restrictions of
Subparagraph (6), shall constitute a breach of this Agreement. The restrictions
of Subparagraph (6)(a) shall not be applicable to the ownership of shares of a
class of securities listed on a stock exchange or traded on the over-the-counter
market and quoted by a national inter-dealer quotation system that represent
less than three percent (3%) of the number of shares of that class of securities
issued and outstanding nor shall they be construed to prohibit
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FRANCHISE OWNER, any Principal Owner of FRANCHISE OWNER, or any member of the
Immediate Family of FRANCHISE OWNER or any Principal Owner from having a direct
or indirect ownership interest in any UNIT, development agreement or franchise
agreement for the development or operation of any UNIT, or any entity owning,
controlling or operating a UNIT, or from providing services to a UNIT.
Furthermore, the restrictions of Subparagraph (6) shall not prohibit FRANCHISE
OWNER, any Principal Owner of FRANCHISE OWNER, or any member of the Immediate
Family of FRANCHISE OWNER or a Principal Owner of FRANCHISE OWNER (to the extent
any such person is an individual) from performing services for or having an
ownership interest in a Permitted Competitive Business, or from conducting
customary promotion and advertising of a Permitted Competitive Business.
The rights of FRANCHISE OWNER and its Owners to seek COMPANY's approval of
a transfer of interests, as provided in this Agreement, may be exercised only by
the FRANCHISE OWNER or its Owners and not by a receiver, trustee, liquidator or
other person acting in a comparable capacity with respect to the assets or
ownership of FRANCHISE OWNER.
16.E. DEATH OR INCAPACITY OF FRANCHISE OWNER.
--------------------------------------
Upon the death of FRANCHISE OWNER or the permanent incapacity of FRANCHISE
OWNER to conduct business affairs or, if FRANCHISE OWNER is a corporation,
limited liability company or partnership, upon the death or permanent incapacity
of a Principal Owner of FRANCHISE OWNER, all of such person's interest in this
Agreement, or such interest in FRANCHISE OWNER shall be transferred to a
transferee approved by COMPANY. Such disposition of this Agreement or such
interest in FRANCHISE OWNER (including, without limitation, transfer by bequest
or inheritance), shall be completed within a reasonable time, not to exceed nine
(9) months from the date of death or permanent disability and shall be subject
to all the terms and conditions applicable to transfers contained in this
Section. Failure to so transfer the interest in this Agreement or such interest
in FRANCHISE OWNER, within said period of time shall constitute a breach of this
Agreement.
16.F. PUBLIC OR PRIVATE OFFERING.
--------------------------
FRANCHISE OWNER acknowledges and agrees that it is the intent of both
COMPANY and FRANCHISE OWNER that FRANCHISE OWNER not be or become a public
company or "reporting company" (as defined in Sections 12(b), 12(g) or 15(d) of
the Securities Exchange Act of 1934, as amended, or otherwise) including,
without limitation, by way of an initial public offering or transfer to or
merger with an existing public company. Accordingly, FRANCHISE OWNER agrees
that securities of FRANCHISE OWNER or an entity owning a direct or indirect
equity interest in FRANCHISE OWNER, this Agreement, the Franchise or the Store
may not be offered pursuant to a public offering. FRANCHISE OWNER further
agrees that such securities will not be offered pursuant to a private placement
without the prior written consent of COMPANY. COMPANY hereby grants its consent
to a private placement of securities by FRANCHISE OWNER provided that FRANCHISE
OWNER ensures that:
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(1) such private placement complies with all applicable federal, state
and local laws governing offerings of securities and all applicable
agreements between FRANCHISE OWNER and COMPANY or its Affiliates;
(2) such private placement complies with each of the relevant transfer
procedures, requirements, and limitations contained herein;
(3) such private placement does not result in any change in operating
control of FRANCHISE OWNER or the Store or in the parties owning a
Controlling Interest in FRANCHISE OWNER or any Store or in the individual
or individuals controlling the management, policies or decision-making
power of FRANCHISE OWNER; and
(4) each such entity or individual receiving securities in such
private placement shall be an accredited investor, as defined by applicable
law, and shall have been identified and be reasonably acceptable to
COMPANY; provided, however, that FRANCHISE OWNER may allow unaccredited
investors to receive securities if FRANCHISE OWNER has complied with
applicable law with respect thereto;
(5) a draft of any offering memorandum or other information used in
connection with any such private placement is submitted to COMPANY for
review and comment a reasonable time prior to its use, that the reasonable
comments and suggestions of COMPANY thereon are given due consideration and
that a final version of such memorandum or information be provided to
COMPANY at least five (5) days prior to its distribution to prospective
investors;
(6) any offering memorandum or information used in connection with any
such private placement shall clearly identify that it is not an offering by
COMPANY and that COMPANY has not participated in its preparation and has
not supplied any financial information, projections, budgets, cost
estimates, or similar information contained therein, all of which shall be
the sole responsibility of FRANCHISE OWNER;
(7) each recipient of information relating to such private placement
shall agree to maintain it in confidence;
(8) the structure, timing, allocation and nature of such private
placement shall be reasonably acceptable to COMPANY;
(9) FRANCHISE OWNER shall not become a "Reporting Company" by virtue
of Sections 12(b), 12(g) or 15(d) of the Securities Exchange Act of 1934,
as amended; and
(10) each person who or entity which becomes an Owner or Principal
Owner as a result of such private placement agrees to become bound by any
provision of this Agreement pertaining to Owners or Principal Owners, as
applicable.
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FRANCHISE OWNER agrees to indemnify COMPANY and its Affiliates and their
respective officers, directors, agents and employees, for and hold them harmless
against any and all costs, expenses, claims, actions, judgments and liabilities
(including, but not limited to, costs and expenses related to legal defense)
arising from or relating to any private placement approved by COMPANY pursuant
to this Section. FRANCHISE OWNER also agrees to reimburse COMPANY for its
reasonable expenses incurred in connection with any such private placement
(including attorney's fees) and to comply with all requirements of COMPANY in
connection with such offering, including, without limitation, adding appropriate
disclaimers to the offering documents and execution of appropriate
indemnification agreements.
16.G. EFFECT OF CONSENT TO TRANSFER.
-----------------------------
COMPANY's consent to a transfer under this Section 16 shall not constitute
a waiver of any claims it may have against FRANCHISE OWNER (or its Owners), nor
shall it be deemed a waiver of COMPANY's right to demand full compliance with
any of the terms or conditions of this Agreement by FRANCHISE OWNER or the
transferee. COMPANY's consent to any such transfer shall not, unless expressly
provided in such consent, effect a release of FRANCHISE OWNER (or its Owners, as
the case may be) post-transfer.
16.H. COMPANY'S RIGHT OF FIRST REFUSAL.
--------------------------------
If FRANCHISE OWNER or any of its Owners shall at any time determine to sell
an interest in this Agreement, the Franchise, the Store, some or all of the
assets of the Store (other than in the ordinary course of business) or an
ownership interest in FRANCHISE OWNER, FRANCHISE OWNER or its Owner(s) shall
obtain a bona fide, arms length, executed purchase agreement (and any ancillary
agreements) in complete and definitive form and not subject to any financing
contingency or other material, substantive contingency and an earnest money
deposit (in the amount of ten percent (10%) or more of the purchase price) from
a qualified, responsible, bona fide and fully disclosed purchaser. A true and
complete copy of such purchase agreement (conditioned on COMPANY's right of
first refusal) and any proposed ancillary agreements shall immediately be
submitted to COMPANY by FRANCHISE OWNER, such Owner(s) or both. The purchase
agreement must apply only to an interest which is permitted to be transferred
under this Agreement and may not include the purchase of any other property or
rights of FRANCHISE OWNER (or such Owner(s)) and the price and terms of purchase
offered to FRANCHISE OWNER (or such Owner(s)) in the purchase agreement for the
aforementioned interests shall reflect the bona fide price offered therefor and
shall not reflect any value for any other property or rights. If the purchaser
proposes to buy any other property or rights from FRANCHISE OWNER (or such
Owner(s)) under a separate, contemporaneous purchase agreement, FRANCHISE OWNER
shall submit a true and complete copy of a bona fide, arms length executed
purchase agreement (and any proposed ancillary agreements) in complete and
definitive form and not subject to any financing or other material, substantive
contingency. COMPANY shall have the right, exercisable by written notice
delivered to FRANCHISE OWNER or such Owner(s) within thirty (30) days from the
date of receipt by COMPANY of an exact copy of such purchase agreement, together
with payment of any applicable transfer fee and a completed and executed
application for COMPANY's consent to transfer such interest for the price and on
the terms and conditions contained in such purchase
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agreement, provided that COMPANY may substitute cash, a cash equivalent, or
marketable securities of equivalent value for any form of payment proposed in
such purchase agreement, COMPANY's credit shall be deemed equal to the credit of
any proposed purchaser, and COMPANY shall have not less than sixty (60) days to
prepare for closing. Regardless of whether included in the purchase agreement,
COMPANY shall be entitled to all customary representations and warranties given
by the seller of a business, including, without limitation, representations and
warranties as to: (1) ownership, condition and title to the Ownership Interests
and/or assets being purchased; (2) liens and encumbrances relating to such
Ownership Interests and/or assets; and (3) validity of contracts and
liabilities, contingent or otherwise, of any legal entity whose Ownership
Interests are purchased. If COMPANY does not exercise its right of first
refusal, FRANCHISE OWNER or such Owner(s) may complete the sale to such
purchaser pursuant to and on the exact terms of such purchase agreement, subject
to COMPANY's approval of the transfer, as provided for in this Agreement,
provided that if the sale to such purchaser is not completed within one hundred
twenty (120) days after receipt of such purchase agreement by COMPANY, or if
there is a change in the terms of the sale, COMPANY shall have an additional
right of first refusal for thirty (30) days as set forth herein on the modified
or initial terms and conditions of sale.
16.I. OWNERSHIP STRUCTURE.
-------------------
FRANCHISE OWNER represents and warrants that its Owners are as set forth on
Exhibit E attached to this Agreement and covenants that it will not permit the
identity of such Owners, or their respective interests in FRANCHISE OWNER, to
change without complying with this Agreement.
16.J. DELEGATION BY COMPANY.
---------------------
FRANCHISE OWNER agrees that COMPANY shall have the right, from time to
time, to delegate the performance of any portion or all of its obligations and
duties under this Agreement to designees, whether the same are agents of COMPANY
or independent contractors with which COMPANY has contracted to provide such
services.
16.K. PERMITTED TRANSFERS.
-------------------
Notwithstanding anything to the contrary contained in this Agreement and
provided (a) FRANCHISE OWNER reimburses any costs incurred by COMPANY in
connection therewith, (b) FRANCHISE OWNER, its Owners and the transferees comply
with the provisions of the HSR Act, if applicable, prior to such a transfer, (c)
FRANCHISE OWNER, its Owners and the transferees comply with all other
restrictions of this Agreement applicable to Owners and Ownership interests
(including, without limitation those restricting an Owner's ownership of
interests in a Competitive Business), and (d) the transfer does not, by itself
or in conjunction with other transfers, result in the transfer of a Controlling
Interest in FRANCHISE OWNER or of a change in the composition of the group
holding a Controlling Interest in FRANCHISE OWNER, the provisions of this
Section 16 (including, without limitation, the requirement of the payment of
transfer fees under Section 16.D(2) and the right of first refusal granted to
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COMPANY in Section 16.H) shall not restrict or apply to any assignment, sale,
transfer of an Ownership Interest which:
(1) is pursuant and according to the terms of a written stock or
other equity interest option or stock or other equity interest
bonus plan which benefits employees of FRANCHISE OWNER and/or of
the Boston Chicken, Inc. franchise owner which provides
management services to FRANCHISE OWNER pursuant to a support
services agreement and has been approved by COMPANY; or
(2) is made for bona fide estate planning purposes (a) to a
corporation, trust, partnership, or other entity controlled by
the transferring Owner or (b) pursuant to an inter vivos or
testamentary document or the laws of descent and distribution.
17. GRANT OF SUCCESSOR FRANCHISES.
-----------------------------
17.A. FRANCHISE OWNER'S RIGHT TO A SUCCESSOR FRANCHISE.
------------------------------------------------
Subject to the provisions of Paragraphs B and C of this Section, upon
expiration of the initial term of this Agreement, if:
(1) FRANCHISE OWNER and its Owners have complied with this Agreement
during the initial term of this Agreement in all material respects; and
(2) FRANCHISE OWNER and its Owners are then in full compliance with
this Agreement; and
(3) (a) FRANCHISE OWNER maintains possession of the Site and agrees
to remodel and/or expand the Store, add or replace equipment,
furnishings, fixtures, and signs and otherwise modify the Store to
bring it into compliance with specifications and standards then
applicable under new or successor franchises for UNITS; or
(b) if FRANCHISE OWNER is unable to maintain possession of the
Site, or if, in the judgment of COMPANY, the Store should be relocated
within the Territory, FRANCHISE OWNER secures a substitute site within
the Territory approved by COMPANY and agrees to develop expeditiously
such substitute site in compliance with specifications and standards
then applicable under new or successor franchises for UNITS;
then FRANCHISE OWNER shall have the right to obtain a successor franchise to
operate a UNIT at the Site (a "SUCCESSOR FRANCHISE") for a term of five (5)
years. In consideration of the grant of the Successor Franchise, FRANCHISE
OWNER shall pay to COMPANY a fee in an amount equal to thirty-three and one-
third percent (33-1/3%) of the then-current initial franchise fee charged by
COMPANY in connection with the grant of a single UNIT franchise.
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If COMPANY is not, at that time, actively engaged in the sale of UNIT
franchises, the fee shall be equal to 33-1/3% of the higher of (a) the Initial
Franchise Fee due under this Agreement or (b) the Initial Franchise Fee charged
under the standard single UNIT franchise offered as set forth in the latest
offering version of COMPANY's Uniform Franchise Offering Circular. As
additional consideration for the grant of a Successor Franchise, FRANCHISE OWNER
agrees to execute a general release in form prescribed by COMPANY in accordance
with this Section. FRANCHISE OWNER shall have the right to obtain a second
Successor Franchise on the same terms and subject to the same conditions as the
initial Successor Franchise.
17.B. NOTICES.
-------
FRANCHISE OWNER shall give COMPANY written notice of its election to obtain
a Successor Franchise not more than twenty-four (24) months, and not less than
twelve (12) months, prior to the expiration of this Agreement. COMPANY agrees
to give FRANCHISE OWNER written notice, not more than ninety (90) days after
receipt of FRANCHISE OWNER's notice, of (a) COMPANY's determination whether or
not it will grant FRANCHISE OWNER a Successor Franchise pursuant to this Section
and/or (b) any deficiencies in FRANCHISE OWNER's operation of the Store (or any
other failure to comply with the terms of this Agreement) which could cause
COMPANY to refuse to grant a Successor Franchise. Such notice shall state what
actions FRANCHISE OWNER must take to correct the deficiencies and shall specify
the time period in which such deficiencies must be corrected. COMPANY shall
give FRANCHISE OWNER written notice of a decision not to grant a Successor
Franchise based upon FRANCHISE OWNER's failure to cure deficiencies not less
than ninety (90) days prior to the expiration of the initial term of this
Agreement. Such notice shall state the reasons for COMPANY's refusal to grant a
Successor Franchise. In the event COMPANY fails to give FRANCHISE OWNER (a)
notice of deficiencies in the Store, or in FRANCHISE OWNER's operation of the
Store, within ninety (90) days after receipt of FRANCHISE OWNER's timely
election to obtain a Successor Franchise, or (b) notice of COMPANY's decision
not to grant a Successor Franchise at least ninety (90) days prior to the
expiration of the term of this Agreement, COMPANY may extend the term of this
Agreement for such period of time as is necessary in order to provide FRANCHISE
OWNER reasonable time to cure deficiencies or to provide ninety (90) days'
notice of COMPANY's determination not to grant a Successor Franchise. The grant
of a Successor Franchise shall be conditioned upon FRANCHISE OWNER's continued
compliance with all the terms and conditions of this Agreement up to the date of
expiration.
17.C. SUCCESSOR FRANCHISE AGREEMENT/RELEASES.
--------------------------------------
To obtain a Successor Franchise, COMPANY, FRANCHISE OWNER and its Owners
shall execute the form of franchise agreement and any ancillary agreements then
customarily used by COMPANY in the grant of franchises for the operation of
UNITS (with appropriate modifications to the term, the successor franchise
provisions, and other appropriate provisions to reflect the fact that the
agreement relates to a Successor Franchise) which may provide for higher or
additional Royalty Fees and other fees, and FRANCHISE OWNER and its Owners shall
execute general releases, in form satisfactory to COMPANY, of any and all claims
against COMPANY and its Affiliates and their respective shareholders, officers,
directors, employees,
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agents, successors and assigns. The franchise agreement for a Successor
Franchise will not include any right to any further renewal, extension, or
successor franchise rights. Failure by FRANCHISE OWNER and its Owners to sign
and deliver to COMPANY, such agreements and releases within fifteen (15) days
after delivery thereof to FRANCHISE OWNER shall be deemed an election by
FRANCHISE OWNER not to obtain a Successor Franchise.
18. TERMINATION OF THE FRANCHISE.
----------------------------
18.A. BY FRANCHISE OWNER.
------------------
If FRANCHISE OWNER is in full compliance with this Agreement and COMPANY
materially breaches this Agreement, FRANCHISE OWNER may terminate this Agreement
effective thirty (30) days after COMPANY's receipt of written notice of
termination if FRANCHISE OWNER gives written notice of such breach to COMPANY
and COMPANY does not:
(1) correct such failure within thirty (30) days after COMPANY's
receipt of such notice of material breach; or
(2) if such breach cannot reasonably be cured within thirty (30) days
after COMPANY's receipt of such notice, undertake within thirty (30) days
after COMPANY'S receipt of such notice, and continue until completion,
reasonable efforts to cure such breach.
Any attempt to terminate this Agreement by FRANCHISE OWNER other than as
provided in this Paragraph A shall be a breach of this Agreement.
18.B. BY COMPANY.
----------
COMPANY may terminate this Agreement, effective upon delivery of notice of
termination to FRANCHISE OWNER, or, where expressly applicable, upon failure to
cure to COMPANY's satisfaction any breach by the expiration of any period of
time within which such breach may be cured in accordance with the provisions set
forth below, if:
(1) FRANCHISE OWNER fails to develop the Store in accordance with this
Agreement and commence operation of business within the time provided in
this Agreement; or
(2) FRANCHISE OWNER fails to operate, abandons, surrenders or
transfers control of the operation of the Store without prior written
approval of COMPANY; or
(3) FRANCHISE OWNER or any of its Principal Owners has made any
material misrepresentation or omission in the application for or
acquisition of the Franchise or in materials submitted relating to a
transfer; or
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(4) FRANCHISE OWNER or any of its Owners is convicted by a trial court
of, or pleads guilty or no contest to, a felony, or to another crime or
offense that may adversely affect the reputation of FRANCHISE OWNER or the
Store or the goodwill associated with the Marks or engages in any
misconduct which may adversely affect the reputation of any UNIT or the
goodwill associated with the Marks; or
(5) FRANCHISE OWNER or any of its Owners makes an assignment or
transfer in violation of this Agreement; or
(6) FRANCHISE OWNER (or any of its Owners or employees) makes any
unauthorized use or disclosure of or duplicates any copy of any
Confidential Information or of any of the Store Manuals, makes any
unauthorized use of the Marks or Copyrighted Works, or challenges or seeks
to challenge the validity of COMPANY's or its Affiliates' rights in and to
the Marks, the Copyrighted Works or the Confidential Information (unless
the foregoing prohibited act is inadvertent and does not have, or threaten
to have, an adverse effect upon COMPANY, its business concept, its business
operations, the business of any UNIT, any Mark, the Confidential
Information, any Store Manuals, or the Copyrighted Works, and FRANCHISE
OWNER ceases and desists any such prohibited act promptly upon notice and
reimburses COMPANY for all damages, losses, costs, and expenses incurred by
COMPANY in connection with such prohibited acts); or
(7) FRANCHISE OWNER loses the right to possession of the Site and does
not relocate the Store to another site in accordance with this Agreement;
or
(8) FRANCHISE OWNER fails to timely commence or provide:
(a) Delivery Service pursuant to a Delivery Rider executed by
COMPANY and FRANCHISE OWNER; or
(b) Catering Service pursuant to a Catering Rider executed by
COMPANY and FRANCHISE OWNER; or
(c) Special Distribution Arrangements if required pursuant to a
Special Distribution Agreement executed by COMPANY and FRANCHISE
OWNER,
in accordance with COMPANY's standards, specifications and procedures, and
does not correct such failure within 10 days after FRANCHISE OWNER's
receipt of COMPANY's written notice of such failure to comply; or, if such
failure cannot reasonably be corrected within the aforesaid 10-day period
but can be corrected within a reasonably short time (not to exceed an
additional 30 days), undertake within 10 days after FRANCHISE OWNER's
receipt of COMPANY's written notice, and continue until completion, best
efforts to correct such failure within such reasonably short time (not to
exceed an additional 30 days), and furnish proof acceptable to COMPANY,
upon its request, of such efforts and the date full compliance will be
achieved; or
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(9) FRANCHISE OWNER fails to operate a Commissary to service the
Store, at the time specified by COMPANY and at the location approved by
COMPANY, in accordance with COMPANY's standards, specifications and
procedures and does not correct such failure within ten (10) days after
written notice of such failure is delivered to FRANCHISE OWNER.
(10) FRANCHISE OWNER becomes insolvent in the sense that it is unable
to pay its bills as they become due; or
(11) FRANCHISE OWNER, its Principal Owners or members of their
Immediate Families (whether or not bound by individual noncompetition
undertakings) or other persons who have executed such individual
undertakings violate the restrictions in this Agreement with respect to
Competitive Businesses or Owners who have had access to the Confidential
Information violate the covenants concerning competition and
confidentiality contained in the form of Confidentiality and Non-
Competition Agreement attached hereto as Exhibit H (regardless of whether
any such party has executed this Agreement or a Confidentiality and Non-
Competition Agreement); or
(12) FRANCHISE OWNER fails to report accurately the Store's Royalty
Base Revenue or fails to make payments of any amounts due COMPANY for
Royalty Fees, Software Fees, Marketing Contributions, purchases from
COMPANY or its Affiliates, or any other amounts due to COMPANY or its
Affiliates, and does not correct such failure within ten (10) days after
written notice of such failure is delivered to FRANCHISE OWNER; or
(13) FRANCHISE OWNER causes or permits to exist a default under the
lease or sublease for the Site and fails to cure such default within the
applicable cure period set forth in the lease or sublease; or
(14) FRANCHISE OWNER or any of its Principal Owners fails on three or
more separate occasions within any period of 12 consecutive months to
comply with this Agreement in any material respect, whether or not such
failures to comply are corrected after notice of default is given, or fail
on two (2) or more separate occasions within any period of nine (9)
consecutive months to comply with the same requirement under this
Agreement, whether or not such failures to comply are corrected after
notice of default is given; or
(15) FRANCHISE OWNER or any of its Owners fail to comply with any
other provision of this Agreement or any mandatory specification, standard,
or operating or inspection procedure prescribed by COMPANY or to pass
COMPANY's quality control inspection and does not: (a) correct such
failure within thirty (30) days after FRANCHISE OWNER's receipt of
COMPANY's written notice of such failure to comply; or (b) if such failure
cannot reasonably be corrected within the aforesaid thirty (30) day period,
but can be corrected within a reasonably short time (not to exceed an
additional thirty (30) days), undertake within ten (10) days after
FRANCHISE OWNER's receipt of COMPANY's written notice, and continue until
completion within
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such reasonably short time (not to exceed an additional thirty (30) days),
best efforts to bring the Store into full compliance, and furnish proof
acceptable to COMPANY upon its request of such efforts and the date full
compliance will be achieved; or
(16) FRANCHISE OWNER or any of its Owners fail or refuse to follow or
comply with any mandatory specification, standard or operating procedure
prescribed by COMPANY relating to the cleanliness or sanitation of the
Store or receives a notice of violation from a governmental authority or
violates any health, safety or sanitation law, ordinance or regulation and
does not: (a) correct such failure or refusal within twenty-four (24)
hours after written notice thereof is delivered to FRANCHISE OWNER; or (b)
if such failure can be corrected within five (5) days but cannot reasonably
be corrected within twenty-four (24) hours after such written notice is
received by FRANCHISE OWNER, undertake corrective action within twenty-four
(24) hours and achieve full compliance within five (5) days after written
notice thereof; or
(17) The lesser of (a) three (3) or more, or (b) fifty percent (50%)
or more, of the Franchise Agreements granted to FRANCHISE OWNER and
DEVELOPER in accordance with the terms of the Development Agreement are
terminated by COMPANY in accordance with their terms, excluding the
permanent closing of any UNITS with the prior written approval of COMPANY;
or
(18) FRANCHISE OWNER has attempted to terminate a Franchise Agreement
with COMPANY without complying with Section 18.A. of this Agreement.
18.C. TERMINATION OF CERTAIN RIGHTS OF FRANCHISE OWNER.
------------------------------------------------
If COMPANY is entitled to terminate this Agreement in accordance with
Paragraph B. of this Section, COMPANY shall have the option to terminate any one
or more of the following instead of terminating this Agreement:
(1) FRANCHISE OWNER's option to purchase and develop UNITS at
Conversion Sites under Section 2.E. of this Agreement; and
(2) any Delivery Rider in effect between COMPANY and FRANCHISE OWNER;
and
(3) any Catering Rider in effect between COMPANY and FRANCHISE OWNER;
and
(4) any Special Distribution Agreement in effect between COMPANY and
FRANCHISE OWNER; and
(5) any exclusivity for the Territory granted under Section 2.B. of
this Agreement,
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effective ten (10) days after delivery of written notice thereof to FRANCHISE
OWNER. If any of such rights, options or arrangements are terminated in
accordance with this Paragraph C., such termination shall be without prejudice
to COMPANY's right to terminate this Agreement in accordance with Section 18.B
or to terminate any other rights, options or arrangements under this Agreement
at any time thereafter for the same default or as a result of any additional
defaults of the terms of this Agreement.
19. RIGHTS AND OBLIGATIONS OF COMPANY AND FRANCHISE
OWNER UPON TERMINATION OR EXPIRATION OF THE AGREEMENT.
-----------------------------------------------------
19.A. PAYMENT OF AMOUNTS OWED TO COMPANY.
----------------------------------
FRANCHISE OWNER shall immediately pay to COMPANY upon termination or
expiration of this Agreement such Royalty Fees, Software License Fees, Marketing
Contributions and amounts owed for purchases by FRANCHISE OWNER from COMPANY or
its Affiliates, interest due on any of the foregoing, and all other amounts owed
to COMPANY or its Affiliates which are then unpaid, whether or not attributable
to the Store.
19.B. MARKS, TRADE DRESS, AND COPYRIGHTED WORKS.
-----------------------------------------
Upon the termination or expiration of this Agreement, FRANCHISE OWNER
shall:
(1) immediately cease use of all the Marks and not thereafter directly
or indirectly at any time or in any manner identify itself or any business
as a current or former UNIT, or as a current or former franchise owner of
or as otherwise associated with COMPANY, or use any Mark, any colorable
imitation thereof or any mark substantially identical to or deceptively
similar to any Mark in any manner or for any purpose, or utilize for any
purpose any trade name, trademark or service mark, or other commercial
symbol or trade dress that suggests or indicates a connection or
association with COMPANY; and
(2) immediately remove from the Site all signs containing any Mark,
remove the Marks from all vehicles, fixtures, furnishings, decor items and
other objects displaying any Mark at the Site and return to COMPANY or
destroy all packaging materials and forms, advertising and promotional
materials, catalogs, invoices and other materials containing any Mark or
otherwise identifying or relating to a UNIT; and
(3) immediately take such action as may be required to cancel or, at
COMPANY's option, to transfer to COMPANY or its designee, all fictitious or
assumed name or equivalent registrations relating to its use of any Mark;
and
(4) immediately cease use of all Copyrighted Works which were
furnished and/or licensed to FRANCHISE OWNER by COMPANY pursuant to this
Agreement and return to COMPANY or destroy, at COMPANY's option, all forms,
advertising and promotional materials or other materials containing such
Copyrighted Works; and
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(5) immediately take all such actions as may be necessary to transfer
any telephone number and any telephone directory listings associated with
the Marks to COMPANY. FRANCHISE OWNER acknowledges that, as between
COMPANY and FRANCHISE OWNER, COMPANY has the sole right to and interest in
all telephone numbers and directory listings associated with the Marks.
FRANCHISE OWNER concurrently with the execution of this Agreement shall
execute COMPANY's form of collateral assignment of telephone numbers and
listings (the "TELEPHONE NUMBER ASSIGNMENT"), attached to this Agreement as
Exhibit J. FRANCHISE OWNER acknowledges and agrees that the telephone
company and all listing agencies may accept the Telephone Number Assignment
as conclusive evidence of the exclusive right of the COMPANY in such
telephone numbers and directory listings and its authority to direct their
transfer; and
(6) if COMPANY does not purchase the Store as provided in Section
19.F., at FRANCHISE OWNER's expense, immediately make such modifications
and alterations, including removal of all distinctive physical and
structural features associated with the Trade Dress of UNITS, as may be
necessary to distinguish the Site and the Store so clearly from its former
appearance and from other UNITS as to prevent any possibility that the
public will associate the Site with UNITS and to prevent confusion created
by such association. Such modifications and alterations shall include, but
not be limited to, removing all awnings and removing or covering the
distinctive decor and color scheme on all walls, signage, counters,
displays, equipment, vehicles, fixtures and furnishings, as well as the
exterior of the Store. If FRANCHISE OWNER fails to initiate immediately or
complete such modifications, alterations and/or removals within such time
as COMPANY deems appropriate, FRANCHISE OWNER agrees that COMPANY or its
designated agents may enter the Store and adjacent areas without prior
notice to make such modifications, alterations and/or removals, at
FRANCHISE OWNER's expense, without liability for trespass or damages.
FRANCHISE OWNER expressly acknowledges that its failure to make such
alterations will cause irreparable injury to COMPANY and consents to entry,
at FRANCHISE OWNER's expense, of an ex-parte order by any court of
competent jurisdiction authorizing COMPANY or its agents to take such
action, if COMPANY seeks such an order.
FRANCHISE OWNER shall furnish to COMPANY (i) within thirty (30) days after the
effective date of termination or expiration, evidence satisfactory to COMPANY of
FRANCHISE OWNER's compliance with Subparagraphs (1), (3) and (4) of the
foregoing obligations, and (ii) within thirty (30) days after the later of
expiration of COMPANY's option to purchase the Store, as provided in this
Section, or receipt of notice that COMPANY elects not to purchase the Store
pursuant to this Section, evidence satisfactory to COMPANY of FRANCHISE OWNER's
compliance with all of the foregoing obligations. If COMPANY exercises its
option to purchase the Store under this Section, COMPANY, in its sole
discretion, shall direct FRANCHISE OWNER regarding which, if any, of the above
requirements FRANCHISE OWNER shall observe.
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19.C. CONFIDENTIAL INFORMATION.
------------------------
FRANCHISE OWNER agrees that upon termination or expiration of the Franchise
(without grant of a Successor Franchise):
(1) it, and all of its affiliates, Owners, employees, agents or other
representatives, will immediately cease to use and will maintain the
absolute confidentiality of any Confidential Information of COMPANY
disclosed to or otherwise learned or acquired by FRANCHISE OWNER and will
refrain from using such Confidential Information in any business or
otherwise; and
(2) it will return to COMPANY all copies of the Store Manuals and any
other confidential materials which have been loaned or made available to it
by COMPANY.
19.D. COVENANT NOT TO COMPETE.
-----------------------
Upon expiration or termination of this Agreement by COMPANY or by FRANCHISE
OWNER, other than pursuant to Section 18.A., neither FRANCHISE OWNER nor any of
its Principal Owners shall directly or indirectly (through a member of the
Immediate Family of FRANCHISE OWNER or a Principal Owner or otherwise) for a
period of two (2) years commencing on the effective date of such termination or
expiration, or the date on which FRANCHISE OWNER ceases to operate the Store,
whichever is later:
(1) have any interest as a disclosed or beneficial owner in any
Competitive Business located or operating:
(a) at the Site; or
(b) within a five (5) mile radius of the Site; or
(c) within a five (5) mile radius of any other UNIT in operation
or under development on the effective date of termination or
expiration of this Agreement; or
(d) within the Marketing Area; or
(2) perform services as a director, officer, manager, employee,
consultant, representative, agent or otherwise for any Competitive Business
located or operating:
(a) at the Site; or
(b) within a five (5) mile radius of the Site; or
(c) within a five (5) mile radius of any other UNIT in operation
or under development on the effective date of termination or
expiration of this Agreement; or
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(d) within the Marketing Area; or
(3) divert or attempt to divert any business or any customers of any
UNIT to any Competitive Business; or
(4) employ or seek to employ, any person who is employed by COMPANY,
its Affiliates or any developer or franchise owner of COMPANY, nor induce
nor attempt to induce any such person to leave said employment without the
prior written consent of such person's employer.
The restrictions of Subparagraph (1) of this Paragraph D. will not be
applicable to the ownership of shares of a class of securities listed on a stock
exchange or traded on the over-the-counter market and quoted on a national
inter-dealer quotation system that represent less than three percent (3%) of the
number of shares of that class of securities issued and outstanding nor shall
they be construed to prohibit FRANCHISE OWNER, any Principal Owner of FRANCHISE
OWNER, or any member of the Immediate Family of FRANCHISE OWNER or any Principal
Owner from having a direct or indirect ownership interest in any UNIT,
development agreement or franchise agreement for the development or operation of
any UNIT, or any entity owning, controlling or operating a UNIT, or from
providing services to a UNIT. Furthermore, the restrictions of this Paragraph
D. shall not prohibit FRANCHISE OWNER, any Principal Owner of FRANCHISE OWNER,
or (to the extent any such person is an individual) any member of the Immediate
Family of FRANCHISE OWNER or a Principal Owner of FRANCHISE OWNER from
performing services for or having an ownership interest in a Permitted
Competitive Business, or from conducting customary promotion and advertising of
a Permitted Competitive Business.
19.E. CONTINUING OBLIGATIONS.
----------------------
All obligations of COMPANY and FRANCHISE OWNER which expressly or by their
nature survive or are intended to survive the expiration or termination of this
Agreement shall continue in full force and effect subsequent to and
notwithstanding its expiration or termination and until they are satisfied in
full or by their nature expire.
19.F. COMPANY'S RIGHT TO PURCHASE ASSETS OF THE STORE.
-----------------------------------------------
Upon termination of this Agreement by COMPANY in accordance with its terms
and conditions, upon termination of this Agreement by FRANCHISE OWNER without
complying with this Agreement, or upon expiration of this Agreement (without the
grant of a Successor Franchise), COMPANY or its assignee shall have the option,
exercisable by giving written notice thereof within sixty (60) days from the
date of such expiration or termination, to purchase from FRANCHISE OWNER all the
assets used in the Store. As used in this Paragraph, "ASSETS" shall mean and
include, without limitation, leasehold improvements, equipment, computer
hardware, vehicles, furnishings, fixtures, signs, inventory (non-perishable
products, materials and supplies) and the lease or sublease for the Site.
COMPANY shall have the unrestricted right to assign this option to purchase.
COMPANY or its assignee shall be entitled to all customary warranties and
representations given by the seller of a business including,
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without limitation, representations and warranties as to: (1) ownership,
condition and title to assets; (2) liens and encumbrances relating to the
assets; and (3) validity of contracts and liabilities, inuring to COMPANY or
affecting the assets, contingent or otherwise.
The purchase price for the assets of the Store shall be the tangible book
value, determined as of the date of termination or expiration of this Agreement
in a manner consistent with reasonable depreciation of leasehold improvements
owned by FRANCHISE OWNER and the equipment, computer hardware, vehicles,
furnishings, fixtures, signs and inventory of the Store, provided that the
purchase price shall take into account the termination or expiration of the
Franchise granted hereunder and this Agreement and shall not contain any factor
or increment for any trademark, service mark or other commercial symbol used in
connection with the operation of the Store or any goodwill or "going concern"
value for the Store and further provided that COMPANY may exclude from the
assets purchased hereunder any equipment, computer hardware, vehicles,
furnishings, fixtures, signs and inventory that are not approved as meeting
then-current quality standards for UNITS. The length of the remaining term of
the lease or sublease for the Site of the Store shall also be considered in
determining the fair market value hereunder.
The purchase price shall be paid in cash, a cash equivalent, or marketable
securities of equivalent value at the closing of the purchase, which shall take
place no later than ninety (90) days after receipt by FRANCHISE OWNER of notice
of exercise of this option to purchase, at which time FRANCHISE OWNER shall
deliver instruments transferring to COMPANY or its assignee: (i) good and
merchantable title to the assets purchased, free and clear of all liens and
encumbrances (other than liens and security interests acceptable to COMPANY or
its assignee), with all sales and other transfer taxes paid by FRANCHISE OWNER;
(ii) all licenses and permits of the Store which may be assigned or transferred;
and (iii) the lease or sublease for the Site. In the event that FRANCHISE OWNER
cannot deliver clear title to all of the purchased assets as aforesaid, or in
the event there shall be other unresolved issues, the closing of the sale shall
be accomplished through an escrow. Further, FRANCHISE OWNER and COMPANY shall,
prior to closing, comply with all applicable legal requirements, including the
bulk sales provisions of the Uniform Commercial Code of the state in which the
Store is located and the bulk sales provisions of any applicable tax laws and
regulations. FRANCHISE OWNER shall, prior to or simultaneously with the closing
of the purchase, pay all tax liabilities incurred in connection with the
operation of the Store. COMPANY shall have the right to set off against and
reduce the purchase price by any and all amounts owed by FRANCHISE OWNER to
COMPANY, and the amount of any encumbrances or liens against the assets or any
obligations assumed by COMPANY.
If COMPANY or its assignee exercises this option to purchase, pending the
closing of such purchase as hereinabove provided, COMPANY shall have the right
to appoint a manager to maintain the operation of the Store, in which case
FRANCHISE OWNER shall continue to operate the Store on the terms of this
Agreement until the closing of the purchase. Alternatively, COMPANY may require
FRANCHISE OWNER to close the Store during such time period without removing any
assets from the Store. FRANCHISE OWNER shall maintain in force all insurance
policies required pursuant to this Agreement, through the date of closing. If
the Site is leased, COMPANY agrees to use reasonable efforts to effect a
termination of the
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existing lease for the Site and enter into a new lease on reasonable terms with
the landlord. In the event COMPANY is unable to enter into a new lease and
FRANCHISE OWNER's rights under the lease for the Site are assigned to COMPANY or
COMPANY subleases the Site from FRANCHISE OWNER, COMPANY will indemnify and hold
harmless FRANCHISE OWNER from any ongoing liability under the lease from the
date COMPANY assumes possession of the Site.
20. RELATIONSHIP OF THE PARTIES/INDEMNIFICATION.
-------------------------------------------
20.A. INDEPENDENT CONTRACTORS.
-----------------------
It is understood and agreed by the parties hereto that this Agreement does
not create a fiduciary relationship between them, that COMPANY and FRANCHISE
OWNER are and shall be independent contractors, and that nothing in this
Agreement is intended to make either party a general or special agent, joint
venturer, partner, or employee of the other for any purpose. FRANCHISE OWNER
shall conspicuously identify itself in all dealings with customers, suppliers,
vendors, public officials, FRANCHISE OWNER personnel, and others as the owner of
the Store under a franchise granted by COMPANY and shall conspicuously and
prominently place such other notices of independent ownership on the Site and on
such forms, business cards, stationery, advertising, and such other materials as
COMPANY may require from time to time.
20.B. NO LIABILITY FOR ACTS OF OTHER PARTY.
------------------------------------
FRANCHISE OWNER shall not employ any of the Marks in signing any contract,
application for any license or permit, or in a manner that may result in
liability of COMPANY or its Affiliates for any indebtedness or obligation of
FRANCHISE OWNER, nor will FRANCHISE OWNER use the Marks in any way not expressly
authorized herein. Except as expressly authorized in writing, neither COMPANY
nor FRANCHISE OWNER shall make any express or implied agreements, warranties,
guarantees or representations, or incur any debt in the name of or on behalf of
the other, or represent that their relationship is other than franchisor and
franchise owner, and neither COMPANY nor FRANCHISE OWNER shall be obligated by
or have any liability under any agreements or representations made by the other
that are not expressly authorized in writing, nor shall COMPANY be obligated for
any damages to any person or property directly or indirectly arising out of the
operation of the Store or FRANCHISE OWNER's business authorized by or conducted
pursuant to this Agreement.
20.C. TAXES.
-----
COMPANY shall have no liability for any sales, value added, use, service,
occupation, excise, gross receipts, income, property, payroll, employee
withholding or other taxes, whether levied upon this Agreement, FRANCHISE OWNER,
the Store or FRANCHISE OWNER's property, or upon COMPANY, in connection with the
sales made or business conducted by FRANCHISE OWNER, except any taxes COMPANY is
required by law to collect from FRANCHISE OWNER with respect to purchases from
COMPANY. Payment of all such taxes shall be the responsibility of FRANCHISE
OWNER.
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20.D. INDEMNIFICATION.
---------------
FRANCHISE OWNER agrees to indemnify, defend and hold COMPANY, its
Affiliates, and their respective shareholders, directors, officers, employees,
agents, successors and assignees harmless against and to reimburse them for:
(1) any and all taxes described in Paragraph C of this Section; (2) any and all
claims against, and losses, obligations, damages and expenses incurred, by
COMPANY in connection with any and all claims, losses, damages and expenses of
customers and others directly or indirectly arising out of this Agreement, the
development or operation of the Store (including, without limitation, breach or
violation of any agreement, contract or commitment by FRANCHISE OWNER resulting
from FRANCHISE OWNER's execution and delivery of this Agreement or performance
of any of its obligations hereunder or liabilities asserted by owners or
employees, agents or other representatives of FRANCHISE OWNER arising in
connection with training provided by COMPANY or its Affiliates or designees or
otherwise), (3) the conduct of Catering Service or Delivery Service, (4) the
operation of Special Distribution Arrangements, (5) unauthorized activities
conducted in association with the Marks, or (6) the transfer of any interest in
this Agreement, the Franchise, the Store, some or all of the assets of the Store
(other than sales in the ordinary course of business) or FRANCHISE OWNER, in any
manner not in accordance with this Agreement to the extent that such claims,
obligations, damages, taxes, losses or liabilities do not arise solely from the
gross negligence or wrongful conduct of COMPANY. For purposes of this
indemnification, "CLAIMS" shall mean and include all obligations, actual,
consequential, special, and punitive damages, and costs incurred in the defense
or settlement of any claim, including, without limitation, reasonable
accountants', attorneys', attorney assistants', arbitrators' and expert witness
fees, costs of investigation and proof of facts, court costs, other litigation
expenses, and travel and living expenses. COMPANY shall have the right to
defend any such indemnified claim against it in such manner as COMPANY deems
appropriate or desirable in its sole discretion. This indemnity shall continue
in full force and effect subsequent to and notwithstanding the expiration or
termination of this Agreement.
21. ENFORCEMENT.
-----------
21.A. SEVERABILITY AND SUBSTITUTION OF VALID PROVISIONS.
-------------------------------------------------
If any provision of this Agreement relating to the in-term exclusive
dealing covenants is declared or made invalid or unenforceable by judicial
action, legislation or other government action, COMPANY may, if it believes in
its sole discretion that the continuation of this Agreement would not be in its
best interests, terminate this Agreement effective upon sixty (60) days' written
notice to FRANCHISE OWNER.
All other provisions of this Agreement are severable and this Agreement
shall be interpreted and enforced as if all completely invalid or unenforceable
provisions were not contained herein and partially valid and enforceable
provisions shall be enforced to the extent valid and enforceable. To the extent
the post-transfer restrictive covenants or post-termination/post-expiration
restrictive covenants contained herein are deemed unenforceable by virtue of
their scope in terms of geographic area, business activity prohibited and/or
length of time, but may be made enforceable by reductions or alterations of
either or any thereof,
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FRANCHISE OWNER and COMPANY agree that the same shall be enforced to the fullest
extent permissible under the laws and public policies applied in the
jurisdiction in which enforcement is sought. If any applicable and binding law
or rule of any jurisdiction requires a greater prior notice of the termination
of this Agreement or refusal to grant a Successor Franchise than is required
hereunder, or the taking of some other action not required hereunder, or if
under any applicable and binding law or rule of any jurisdiction, any provision
of this Agreement or any specification, standard or operating procedure
prescribed by COMPANY is invalid or unenforceable, the prior notice and/or other
action required by such law or rule shall be substituted for the comparable
provisions hereof, and COMPANY shall have the right, in its sole discretion, to
modify such invalid or unenforceable provision, specification, standard, or
operating procedure to the extent required to be valid and enforceable. Such
modifications to this Agreement shall be effective only in such jurisdiction and
this Agreement shall be enforced as originally made and entered into in all
other jurisdictions.
21.B. WAIVER OF OBLIGATIONS.
---------------------
COMPANY and FRANCHISE OWNER may by written instrument unilaterally waive or
reduce any obligation of or restriction upon the other under this Agreement,
effective upon delivery of written notice thereof to the other or such other
effective date stated in the notice of waiver. Whenever this Agreement requires
COMPANY's prior approval or consent, FRANCHISE OWNER shall make a timely written
request therefor and such approval shall be obtained in writing.
With respect to this Agreement, the relationship of the parties, the Store,
Catering Service, Delivery Service, Special Distribution Arrangements,
Commissaries or any other matter, COMPANY makes no representations, warranties
or guaranties upon which FRANCHISE OWNER may rely, and assumes no liability or
obligation to FRANCHISE OWNER, by granting any waiver, approval, or consent to
FRANCHISE OWNER or by reason of any neglect, delay, or denial of any request
therefor. Any waiver granted by COMPANY (1) shall be without prejudice to any
other rights COMPANY may have, (2) will be subject to continuing review by
COMPANY, and (3) as to continuing waivers, may be revoked prospectively, in
COMPANY's sole discretion, at any time and for any reason, effective upon
delivery to FRANCHISE OWNER of ten (10) days' prior written notice.
COMPANY and FRANCHISE OWNER shall not be deemed to have waived or impaired
any right, power, or option reserved by this Agreement (including, without
limitation, the right to demand full compliance with every term, condition, and
covenant in this Agreement, or to declare any breach thereof to be a default and
to terminate this Agreement prior to the expiration of its term), by virtue of
any:
(i) custom or practice of the parties at variance with the terms
hereof; or
(ii) any failure, refusal, or neglect of COMPANY or FRANCHISE OWNER to
exercise any right under this Agreement or to insist upon full compliance
by the other with its obligations hereunder, including, without limitation,
any mandatory specification, standard or operating procedure; or
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(iii) any waiver, forebearance, delay, failure, or omission by
COMPANY to exercise any right, power, or option, whether of the same,
similar or different nature, with respect to any other UNIT or any
development or franchise agreement therefor; or
(iv) the acceptance by COMPANY of any payments from FRANCHISE OWNER
after any breach by FRANCHISE OWNER of this Agreement.
Neither COMPANY nor FRANCHISE OWNER shall be liable for loss or damage or
deemed to be in breach of this Agreement if its failure to perform its
obligations results from any of the following and is not caused by the non-
performing party:
(v) acts of God; or
(vi) acts of war or insurrection; or
(viii) strikes, lockouts, boycotts, fires and other casualties.
Any delay resulting from any of said causes shall extend the time allowed for
performance or excuse performance, in whole or in part, as may be reasonable,
except that said causes shall not excuse payments of amounts owed at the time of
such occurrence or payment of Royalty Fees, Software License Fees, Marketing
Contributions or other fees thereafter and as soon as performance is possible
the non-performing party shall immediately resume performance and, in no event,
shall non-performance be excused for more than six (6) months.
21.C. INJUNCTIVE RELIEF.
-----------------
COMPANY shall have the right to seek specific performance of the provisions
of this Agreement and injunctive relief against threatened conduct that will
cause it loss or damages under customary equity rules, including applicable
rules for obtaining restraining orders and preliminary injunctions. FRANCHISE
OWNER agrees that COMPANY may obtain such injunctive relief in addition to such
further or other relief as may be available at law or in equity. FRANCHISE
OWNER agrees that COMPANY will not be required to post a bond to obtain any
injunctive relief and that FRANCHISE OWNER's only remedy if an injunction is
entered against FRANCHISE OWNER will be the dissolution of that injunction, if
warranted, upon due hearing (all claims for damages by reason of the wrongful
issuance of such injunction being expressly waived hereby). Any such action
shall be brought as provided in Paragraph G. of this Section.
21.D. RIGHTS OF PARTIES ARE CUMULATIVE.
--------------------------------
The rights of COMPANY and FRANCHISE OWNER hereunder are cumulative and no
exercise or enforcement by COMPANY or FRANCHISE OWNER of any right or remedy
hereunder shall preclude the exercise or enforcement by COMPANY or FRANCHISE
OWNER of any other right or remedy hereunder or to which COMPANY or FRANCHISE
OWNER is entitled by law.
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21.E. COSTS AND LEGAL FEES.
--------------------
If COMPANY engages legal counsel in connection with any failure by
FRANCHISE OWNER to comply with this Agreement, FRANCHISE OWNER shall reimburse
COMPANY for costs and expenses incurred by COMPANY, including, without
limitation, reasonable accountants, attorneys', attorneys assistants',
arbitrators' and expert witness fees, cost of investigation and proof of facts,
court costs, other litigation expenses and travel and living expenses, whether
incurred prior to, in preparation for, in contemplation of or in connection with
the filing of any judicial or arbitration proceeding to enforce this Agreement.
21.F. GOVERNING LAW.
-------------
EXCEPT TO THE EXTENT GOVERNED BY THE UNITED STATES TRADEMARK ACT OF 1946
(LANHAM ACT, 15 U.S.C. (S)(S) 1051 ET SEQ.), THIS AGREEMENT AND THE RELATIONSHIP
BETWEEN THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE INTERNAL LAWS OF THE STATE OF COLORADO, EXCEPT THAT SUCH STATE'S CHOICE OF
LAW AND CONFLICTS OF LAW RULES SHALL NOT APPLY AND ANY FRANCHISE REGISTRATION,
DISCLOSURE, RELATIONSHIP OR SIMILAR STATUTE WHICH MAY BE ADOPTED BY THE STATE OF
COLORADO SHALL NOT APPLY UNLESS ITS JURISDICTIONAL REQUIREMENTS ARE MET
INDEPENDENTLY WITHOUT REFERENCE TO THIS PARAGRAPH.
21.G. CONSENT TO JURISDICTION/CHOICE OF FORUM.
---------------------------------------
FRANCHISE OWNER AGREES THAT FRANCHISE OWNER SHALL, AND COMPANY MAY, AT ITS
OPTION, INSTITUTE ANY ACTION ARISING OUT OF OR RELATING TO THIS AGREEMENT IN ANY
STATE COURT OF GENERAL JURISDICTION IN JEFFERSON COUNTY, COLORADO OR THE UNITED
STATES FEDERAL DISTRICT COURT FOR THE DISTRICT OF COLORADO, OR THE STATE COURT
OF GENERAL JURISDICTION OR UNITED STATES FEDERAL DISTRICT COURT NEAREST TO
COMPANY'S EXECUTIVE OFFICE AT THE TIME SUCH ACTION IS FILED. FRANCHISE OWNER
IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY SUCH COURT AND WAIVES ANY
OBJECTION IT MAY HAVE TO EITHER THE JURISDICTION OR VENUE OF ANY SUCH COURT.
21.H. LIMITATIONS OF CLAIMS.
---------------------
EXCEPT FOR CLAIMS BROUGHT BY COMPANY WITH REGARD TO FRANCHISE OWNER'S
OBLIGATIONS TO MAKE PAYMENTS TO COMPANY PURSUANT TO THIS AGREEMENT AND TO
INDEMNIFY COMPANY PURSUANT TO SECTION 20.D., ANY AND ALL CLAIMS ARISING OUT OF
OR RELATING TO THIS AGREEMENT OR THE RELATIONSHIP OF FRANCHISE OWNER AND COMPANY
PURSUANT TO THIS AGREEMENT SHALL BE BARRED UNLESS AN ACTION IS COMMENCED WITHIN:
(1) TWO (2) YEARS FROM THE DATE ON WHICH THE ACT OR EVENT GIVING RISE TO THE
CLAIM OCCURRED OR (2) ONE (1) YEAR FROM THE DATE ON WHICH FRANCHISE OWNER OR
COMPANY KNEW OR
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SHOULD HAVE KNOWN, IN THE EXERCISE OF REASONABLE DILIGENCE, OF THE FACTS GIVING
RISE TO SUCH CLAIMS, WHICHEVER OCCURS FIRST.
21.I. WAIVER OF PUNITIVE DAMAGES.
--------------------------
COMPANY AND FRANCHISE OWNER HEREBY WAIVE TO THE FULLEST EXTENT PERMITTED BY
LAW, ANY RIGHT TO OR CLAIM FOR ANY PUNITIVE, EXEMPLARY, CONSEQUENTIAL OR
SPECULATIVE DAMAGES AGAINST THE OTHER AND AGREE THAT IN THE EVENT OF A DISPUTE
BETWEEN THEM, EXCEPT AS OTHERWISE PROVIDED HEREIN, EACH SHALL BE LIMITED TO THE
RECOVERY OF ACTUAL DAMAGES SUSTAINED BY IT.
21.J. WAIVER OF JURY TRIAL.
--------------------
COMPANY AND FRANCHISE OWNER HEREBY IRREVOCABLY WAIVE TRIAL BY JURY ON ANY
ACTION, PROCEEDING OR COUNTERCLAIM, WHETHER AT LAW OR IN EQUITY, BROUGHT BY
EITHER OF THEM.
21.K. BINDING EFFECT.
--------------
This Agreement is binding upon the parties hereto and their respective
executors, administrators, heirs, assigns, and successors in interest, and shall
not be modified, except by written agreement signed by both FRANCHISE OWNER and
COMPANY.
21.L. CONSTRUCTION.
------------
The preambles and exhibits are a part of this Agreement, this Agreement
constitutes the entire agreement of the parties, and there are no other oral or
written understandings or agreements between COMPANY and FRANCHISE OWNER
relating to the subject matter of this Agreement. Except as otherwise provided
herein, nothing in this Agreement is intended, nor shall be deemed, to confer
any rights or remedies upon any person or legal entity not a party hereto. The
headings of the several sections and paragraphs hereof are for convenience only
and do not define, limit, or construe the contents of such sections or
paragraphs. The term "FRANCHISE OWNER" as used in this Agreement is applicable
to one or more persons or entities as the case may be, and the singular usage
includes the plural and the masculine and neuter usages include each other and
the feminine.
If two or more persons are at any time FRANCHISE OWNER hereunder, whether
or not as partners or joint venturers, their obligations and liabilities to
COMPANY shall be joint and several. This Agreement shall be executed in
multiple copies, each of which shall be deemed an original.
21.M. REASONABLENESS; APPROVALS.
-------------------------
COMPANY and FRANCHISE OWNER agree to act reasonably in all dealings with
each other pursuant to this Agreement. Whenever the consent or approval of
either party is required or contemplated hereunder, such approval shall be in
writing, and the party whose consent or
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approval is required agrees not to unreasonably withhold the same, unless
expressly subject to such party's sole discretion pursuant to the terms of this
Agreement.
22. NOTICES AND PAYMENTS.
--------------------
All written notices and reports permitted or required to be delivered by
the provisions of this Agreement or of the Store Manuals shall be deemed so
delivered at the time delivered by hand, one (1) business day after transmission
by facsimile with proof of receipt, one (1) business day after being placed in
the hands of a commercial courier service for overnight delivery, or three (3)
business days after placement in the United States Mail by Registered or
Certified Mail, Return Receipt Requested, postage prepaid and properly
addressed. Unless otherwise notified in writing, all notices, reports or
payments to COMPANY shall be sent to COMPANY at 1526 Cole Boulevard, Suite 200,
Golden, Colorado 80401-4086, to the attention of the Vice President, Franchise
Development, with a copy to the Vice President and General Counsel or at its
most current principal business address of which FRANCHISE OWNER has been
notified. Notices to FRANCHISE OWNER shall be sent to FRANCHISE OWNER at the
address shown on the first page of this Agreement or to FRANCHISE OWNER's most
current principal business address of which COMPANY has been notified, as
applicable. All payments and reports required by this Agreement shall be
directed to COMPANY at the above address, or to such other persons and places as
COMPANY may direct from time to time. Any required payment or report not
actually received by COMPANY during regular business hours on the date due (or
postmarked by postal authorities at least two (2) days prior thereto) shall be
deemed delinquent.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement in multiple originals on the day and year first above written and
COMPANY has accepted this Agreement in Jefferson County, Colorado.
EINSTEIN/NOAH BAGEL CORP. _________________________________
FRANCHISE OWNER
By:_____________________________ By:______________________________
Title:_________________________ Title:_________________________
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EXHIBIT A
TO THE EINSTEIN/NOAH BAGEL CORP. FRANCHISE AGREEMENT
BY AND BETWEEN
BAGEL CORPORATION OF AMERICA
AND ________________________________________________
DATED _____________________________
CATERING RIDER
--------------
<PAGE>
CATERING RIDER
--------------
THIS RIDER is made as of this _________________ day of _____________,
19____ by and between EINSTEIN/NOAH BAGEL CORP., a Delaware corporation
("COMPANY"), and
________________________________________________________________________________
________________________, a ____________________________________________
("FRANCHISE OWNER"), and is attached to and incorporated into the Einstein/Noah
Bagel Corp. Franchise Agreement by and between COMPANY and FRANCHISE OWNER (the
"Agreement") dated as of
______________________________________________. All capitalized terms not
defined in this Rider shall have the respective meanings set forth in the
Agreement. To the extent that the terms of this Rider are inconsistent with any
of the terms of the Agreement, the terms of this Rider shall supersede and
govern.
1. CATERING SERVICE. FRANCHISE OWNER agrees that, within________________
_____________________ (____________) days after the execution date of this Rider
and thereafter during the remainder of the term of the Agreement, subject to
earlier termination by COMPANY as provided below in this Rider, FRANCHISE OWNER
will offer and provide Catering Service (defined below) from the Stores or, if
required by COMPANY in its sole discretion, from a catering facility ("CATERING
FACILITY") to customers located within the geographic area described in Schedule
A attached hereto ("CATERING AREA"). As used herein, "Catering Service" shall
mean the delivery of Products prepared at the Stores or a Catering Facility to
customers in the Catering Area, where (a) such Products are intended to serve
fifteen (15) or more persons, or (b) in addition to the delivery of Products,
FRANCHISE OWNER provides ancillary services to a customer at a location within
the Catering Area, including, by way of example and without limitation, setting
up for serving or other distribution of Products. The Stores or the Catering
Facility, whichever is used for the conduct of Catering Service by FRANCHISE
OWNER, shall be referred to herein as the "CATERING LOCATION" and shall be
identified in Schedule A attached hereto immediately after COMPANY approves such
Catering Facility in writing pursuant to the requirements of Paragraph 2 below.
FRANCHISE OWNER acknowledges and agrees that Catering Service shall not include
Delivery Service, as defined in the Agreement. FRANCHISE OWNER, at its sole
expense, shall take such actions (including, without limitation, constructing
such improvements and acquiring fixtures, equipment, vehicles, and other
materials and supplies) and obtain such permits as are required to commence
Catering Service from the Catering Location within the (___) day period
specified above.
2. CATERING SERVICE STANDARDS. FRANCHISE OWNER agrees to provide Catering
Service in accordance with the standards, specifications and procedures for
Catering Service which COMPANY prescribes, and may change from time to time in
its sole discretion, in the Manuals or otherwise in writing, including, without
limitation, requirements for catering vehicles (owned and non-owned), training
and conduct of personnel involved in Catering Service, design, layout,
equipment, fixtures, furniture, signage, product packaging, materials and
supplies, and COMPANY's prototype plans and layout for a Catering Location.
In particular, and without limiting the foregoing, FRANCHISE OWNER shall:
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a. require all catering drivers to strictly comply with all
regulations, laws and ordinances applicable to the operation of motor
vehicles and use due care, taking into consideration road conditions, when
performing catering services;
b. require all catering drivers to maintain adequate motor vehicle
liability insurance that complies with all applicable laws and regulations
and that extends to the operation of a motor vehicle for use for commercial
delivery;
c. maintain or cause drivers to maintain all catering vehicles in
good and safe operating condition in full compliance with all applicable
laws and regulations;
d. conduct initial and periodic (at least once every six months)
driving record checks on all catering drivers;
e. require all catering drivers to possess and maintain valid drivers
licenses and driving records free of disqualifying violations;
f. suspend, or where appropriate under COMPANY's specifications and
standards as in effect from time to time, terminate any catering driver who
does not conform to COMPANY's standards and specifications for Catering
Service; and
g. obtain and maintain all licenses, permits and other governmental
approvals necessary or advisable for the provision of Catering Services,
and the conduct of such Catering Service in a manner which complies with
all sanitary, safety and food preparation and holding period standards.
FRANCHISE OWNER shall maintain the condition and appearance of, and perform
maintenance with respect to, the Catering Location, catering vehicles,
furniture, fixtures and equipment used in connection with the provision of
Catering Service in accordance with COMPANY's standards, specifications and
procedures, and consistent with the image of UNITS and related facilities as
first class, clean, sanitary, attractive and efficiently operated food service
businesses.
3. COMPANY'S REVIEW AND APPROVAL OF THE CATERING FACILITY. FRANCHISE
OWNER shall comply with COMPANY's specifications and requirements regarding site
selection (if applicable), development and construction of the Catering
Facility. FRANCHISE OWNER shall promptly submit to COMPANY after the execution
date of this Rider a complete site evaluation report and feasibility analysis
(the "CATERING FACILITY SITE PACKAGE") on COMPANY's specified form (containing
such commercial and other information and photographs as COMPANY may require
from time to time) for the site at which FRANCHISE OWNER proposes and intends in
good faith to establish and operate the Catering Facility and which FRANCHISE
OWNER reasonably believes to conform to certain minimum site criteria for
catering facilities established by COMPANY from time to time in its sole
discretion. In approving or disapproving any proposed site for the Catering
Facility, COMPANY will consider such matters as it deems material, including,
without limitation, the effect Catering Service will have on the carry-out and
on-premises dining services and Delivery Service (if any) conducted at or from
the STORE, traffic patterns, parking, the predominant character of the
neighborhood,
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the nature of other businesses in proximity to the site, and other commercial
characteristics (including the purchase price or rental obligations and other
lease terms for the proposed site, if applicable) and the size, appearance, and
other physical characteristics of the proposed site.
COMPANY will approve or disapprove a proposed site for the Catering
Facility by delivery of written notice to FRANCHISE OWNER. COMPANY agrees to
exert its best efforts to deliver such notification to FRANCHISE OWNER within
twenty (20) days after receipt by COMPANY of a complete Catering Facility Site
Package and such other materials requested by COMPANY from time to time,
containing all information required by COMPANY. COMPANY shall have the right in
its sole discretion to approve or disapprove a proposed site for the Catering
Facility, and FRANCHISE OWNER acknowledges and agrees that COMPANY shall have no
liability therefor. Notwithstanding any other provision of this Rider,
COMPANY's failure to provide FRANCHISE OWNER with notice of its approval or
disapproval of one or more proposed sites shall in no event constitute a waiver
of COMPANY's right to approve or disapprove the site for the Catering Facility.
4. COMPANY'S RIGHT TO TERMINATE THE AGREEMENT OR CATERING SERVICE. If
FRANCHISE OWNER fails to provide Catering Service as required pursuant to this
Rider, FRANCHISE OWNER acknowledges and agrees COMPANY shall have the right to
(a) terminate the Agreement pursuant to and in accordance with the terms
specified in Section 3.C. of the Agreement, or (b) FRANCHISE OWNER's right to
provide Catering Service, among other rights, pursuant to and in accordance with
the terms specified in Section 18.B(8)(b) of the Agreement. If COMPANY
terminates FRANCHISE OWNER's right to perform Catering Service pursuant to this
Paragraph 4, COMPANY or its designee will have the right to offer Catering
Service within the Territory of the STORE from and after COMPANY's delivery of
written notice of such termination to FRANCHISE OWNER.
Notwithstanding the foregoing, COMPANY reserves the right, at any time and
in its sole discretion, with or without cause and regardless of the investment
made by FRANCHISE OWNER in establishing and conducting Catering Service or the
length of time FRANCHISE OWNER has offered Catering Service: (1) to reduce,
modify or expand the Catering Area, effective upon COMPANY's written notice to
FRANCHISE OWNER, provided, however, that if a reduction or modification of the
Catering Area amounts to a termination of substantially all of FRANCHISE OWNER's
rights to provide such services (except in the case of the exercise by COMPANY
of its remedies under Section 18.C of this Agreement), such reduction or
modification shall not be effective until 90 days after COMPANY's written notice
to FRANCHISE OWNER; or (2) to suspend or terminate FRANCHISE OWNER's right to
offer Catering Service, effective one hundred eighty (180) days after COMPANY's
written notice to FRANCHISE OWNER (in which case, FRANCHISE OWNER will not file
any orders for Catering Service after the expiration of such one hundred eighty
(180) day period). In the event of such suspension or termination, COMPANY
reserves the right to require FRANCHISE OWNER to reinstate Catering Service upon
fifteen (15) days' prior written notice to FRANCHISE OWNER.
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IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Rider in multiple originals as of the date of the Agreement.
EINSTEIN/NOAH BAGEL CORP. _________________________________
FRANCHISE OWNER
By:___________________________ _________________________________
Its:_________________________ _________________________________
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SCHEDULE A
TO THE EINSTEIN/NOAH BAGEL CORP.
FRANCHISE AGREEMENT
BY AND BETWEEN EINSTEIN/NOAH BAGEL CORP.
AND __________________________________________
DATED ________________________TO THE CATERING RIDER
CATERING AREA AND CATERING FACILITY
-----------------------------------
1. CATERING AREA. The Catering Area will be as follows:
, provided that COMPANY may, at any time and in its sole discretion, with or
without cause and regardless of the investment made by FRANCHISE OWNER in
establishing and conducting Catering Service or the length of time FRANCHISE
OWNER has offered Catering Service, reduce, modify or expand the Catering Area.
2. CATERING FACILITY. The Catering Facility will be located at the
following address:
_______________________________________________________________
_______________________________________________________________
EINSTEIN/NOAH BAGEL CORP. ______________________________
FRANCHISE OWNER
By:_____________________________ By:___________________________
Its:_______________________ Its:________________________
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EXHIBIT B
TO THE EINSTEIN/NOAH BAGEL CORP.
FRANCHISE AGREEMENT
BY AND BETWEEN EINSTEIN/NOAH BAGEL CORP.
AND __________________________________________
DATED ________________________
DELIVERY RIDER
--------------
<PAGE>
DELIVERY RIDER
--------------
THIS RIDER is made as of this _________________ day of _____________, 19___
by and between EINSTEIN/NOAH BAGEL CORP., a Delaware corporation ("COMPANY"),
and
________________________________________________________________________________
___________________, a _____________________________________________________
("FRANCHISE OWNER") and is attached to and incorporated into the Einstein/Noah
Bagel Corp. Franchise Agreement by and between COMPANY and FRANCHISE
OWNER (the "AGREEMENT") dated as of _________________________________. All
capitalized terms not defined in this Rider shall have the respective meanings
set forth in the Agreement. To the extent that the terms of this Rider are
inconsistent with any of the terms of the Agreement, the terms of this Rider
shall supersede and govern.
1. DELIVERY SERVICE. FRANCHISE OWNER agrees that, within
_____________________ (________________) days after the execution date of this
Rider and thereafter during the remainder of the term of the Agreement, subject
to earlier termination by COMPANY as provided below in this Rider, FRANCHISE
OWNER will offer and provide Delivery Service (defined below) from the Stores
or, if required by COMPANY its sole discretion, from a separate delivery
facility approved by COMPANY in writing ("DELIVERY FACILITY"), to customers
located within the geographic area described in Schedule A attached hereto
("DELIVERY AREA"). As used herein, "DELIVERY SERVICE" shall mean the delivery
of Products prepared at the Stores or a Delivery Facility to customers in the
Delivery Area, where (a) such Products are intended to serve fewer than fifteen
(15) persons, and (b) such service involves the provision of no services other
than the delivery of Products to a customer at a location within the Delivery
Area. FRANCHISE OWNER acknowledges and agrees that Delivery Service shall not
include Catering Service, as defined in the Agreement. FRANCHISE OWNER, at its
sole expense, shall take such actions (including, without limitation,
constructing such improvements and acquiring fixtures, equipment, delivery
vehicles, and other materials and supplies) and obtain such permits as required
to commence Delivery Service within the ______________________________
(_______________) day period specified above.
2. DELIVERY SERVICE STANDARDS. FRANCHISE OWNER agrees to provide Delivery
Service in accordance with the standards, specifications and procedures for
Delivery Service which COMPANY prescribes, and which COMPANY may change from
time to time in its sole discretion, in the Manuals or otherwise in writing,
including, without limitation, requirements for delivery drivers, delivery
vehicles (owned and non-owned), delivery response time, training of personnel
involved in Delivery Service, design, layout, equipment, fixtures, signage,
product packaging, materials and supplies, and COMPANY's prototype plans and
layout for a delivery staging area within a UNIT or for a Delivery Facility, if
any, approved by COMPANY.
In particular, and without limiting the foregoing, FRANCHISE OWNER shall:
a. require all delivery drivers to strictly comply with all
regulations, laws and ordinances applicable to the operation of motor
vehicles and use due care, taking into consideration road conditions, when
performing delivery services;
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b. require all delivery drivers to maintain adequate motor vehicle
liability insurance that complies with all applicable laws and regulations
and that extends to the operation of a motor vehicle for use for commercial
delivery;
c. maintain or cause drivers to maintain all delivery vehicles in
good and safe operating condition in full compliance with all applicable
laws and regulations;
d. conduct initial and periodic (at least once every six months)
driving record checks on all delivery drivers;
e. not guarantee to customers delivery within any specified time or
advertise or promote refunds or discounts for FRANCHISE OWNER's failure to
deliver within any specified time;
f. require all delivery drivers to possess and maintain valid drivers
licenses and driving records free of disqualifying violations; and
g. suspend, or where appropriate under COMPANY's specifications and
standards as in effect from time to time, terminate any delivery driver who
does not conform to COMPANY's standards and specifications for Delivery
Service.
FRANCHISE OWNER shall maintain the condition and appearance of, and perform
maintenance with respect to the delivery vehicles, facilities, fixtures and
equipment used in connection with the provision of Delivery Service in
accordance with COMPANY's standards, specifications and procedures, and
consistent with the image of UNITS as first class, clean, sanitary, attractive
and efficiently operated food service businesses.
3. COMPANY'S RIGHT TO TERMINATE THE AGREEMENT OR DELIVERY SERVICE. If
FRANCHISE OWNER fails to provide Delivery Service as required pursuant to this
Rider, FRANCHISE OWNER acknowledges and agrees COMPANY shall have the right to
terminate (a) the Agreement pursuant to and in accordance with Section
18.B(8)(a) of the Agreement, or (b) FRANCHISE OWNER's right to provide Delivery
Service, among other rights, pursuant to and in accordance with Section 3.B of
the Agreement. If COMPANY terminates FRANCHISE OWNER's right to perform
Delivery Service pursuant to this Paragraph 3, COMPANY or its designee will have
the right to offer Delivery Service within the Development Area from and after
COMPANY's delivery of written notice of such termination to FRANCHISE OWNER.
Notwithstanding the foregoing, COMPANY reserves the right, at any time and
in its sole discretion, with or without cause and regardless of the investment
made by FRANCHISE OWNER in establishing and conducting Delivery Service or the
length of time FRANCHISE OWNER has offered Delivery Service: (a) to reduce,
modify or expend the Delivery Area, effective upon COMPANY's written notice to
FRANCHISE OWNER, provided, however, that if a reduction or modification of the
Delivery Area amounts to a termination of substantially all of FRANCHISE OWNER's
rights to provide such services (except in the case of the exercise by COMPANY
of its remedies under Section 18.C of this Agreement), such reduction or
modification shall not be effective until 90 days after COMPANY's written notice
to FRANCHISE OWNER; or (b) to suspend or terminate FRANCHISE OWNER's right to
offer
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Delivery Service, effective one hundred eighty (180) days after COMPANY's
written notice to FRANCHISE OWNER. In the event of such suspension or
termination, COMPANY reserves the right to require FRANCHISE OWNER to reinstate
Delivery Service upon fifteen (15) days' prior written notice to FRANCHISE
OWNER.
4. DISPLAY OF MARKS. FRANCHISE OWNER is hereby granted a special,
limited license to display on delivery vehicles used in the performance of
delivery service pursuant to this Rider the Marks and logos in the form and
manner specified by COMPANY in the Manuals or otherwise. This license shall
expire automatically and without notice upon the expiration or termination of
FRANCHISE OWNER's right to provide delivery services pursuant to this Rider.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Rider in multiple originals as of the date of the Agreement.
EINSTEIN/NOAH BAGEL CORP. _____________________________________
(FRANCHISE OWNER)
By:____________________________ _____________________________________
Its:__________________________ _____________________________________
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<PAGE>
SCHEDULE A
TO THE DELIVERY RIDER
TO THE EINSTEIN/NOAH BAGEL CORP. FRANCHISE AGREEMENT
BY AND BETWEEN
EINSTEIN/NOAH BAGEL CORP.
AND __________________________________________
DATED ________________________
DELIVERY AREA
-------------
1. DELIVERY AREA. The Delivery Area of the STORE will be as follows:
, provided that COMPANY may, and FRANCHISE OWNER acknowledges and agrees that
COMPANY may, at any time and in its sole discretion with or without cause and
regardless of the investment made by FRANCHISE OWNER in establishing and
conducting Delivery Service or the length of time FRANCHISE OWNER has offered
Delivery Service, reduce, modify or expand the Delivery Area.
EINSTEIN/NOAH BAGEL CORP. _________________________________
FRANCHISE OWNER
By:________________________________ By:______________________________
Its:____________________________ Its: __________________________
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<PAGE>
EXHIBIT C
TO THE EINSTEIN/NOAH BAGEL CORP.
FRANCHISE AGREEMENT
BY AND BETWEEN EINSTEIN/NOAH BAGEL CORP.
AND __________________________________________
DATED ________________________
FRANCHISE OWNER ACKNOWLEDGEMENTS
AND REPRESENTATIONS STATEMENT
-----------------------------
<PAGE>
FRANCHISE OWNER ACKNOWLEDGEMENTS
AND REPRESENTATIONS STATEMENT
-----------------------------
1. FRANCHISE OWNER acknowledges that it has read the Franchise
Agreement (the "AGREEMENT") between Einstein/Noah Bagel Corp. ("COMPANY") and
FRANCHISE OWNER dated as of the same date hereof and COMPANY's Franchise
Offering Circular in their entirety and that it understands and accepts the
terms, conditions, and covenants contained in the Agreement as being reasonably
necessary to maintain COMPANY's high standards of quality and service and the
uniformity of those standards at all UNITS and to protect and preserve the
goodwill of the Marks and the System. (Capitalized terms not defined herein
shall have the respective meanings set forth in the Agreement.) FRANCHISE OWNER
acknowledges that: (1) COMPANY delivered and FRANCHISE OWNER received a copy of
COMPANY's Franchise Offering Circular at the earlier of (a) FRANCHISE OWNER's
first personal meeting with COMPANY or (b) ten business days prior to the
execution of the Agreement or the payment of any consideration by FRANCHISE
OWNER in connection with the transaction contemplated in the Agreement; and (2)
COMPANY delivered and FRANCHISE OWNER received the Agreement in form for
execution at least five (5) business days prior to the execution of the
Agreement.
2. FRANCHISE OWNER acknowledges that the food service business is a
highly competitive industry, with constantly changing market conditions.
FRANCHISE OWNER acknowledges that it has conducted an independent investigation
of the business venture contemplated by the Agreement and recognizes that, like
any other business, the nature of the business conducted by UNITS may change
over time, that an investment in a UNIT involves business risks and that the
success of the venture is largely dependent upon the business abilities and
efforts of FRANCHISE OWNER.
3. FRANCHISE OWNER acknowledges and agrees that some aspects of
COMPANY's franchise program and the System are still under development and that
COMPANY expects that there will be some significant variations in the System in
different regional markets which may exist for an initial or transitional
period, or on a permanent basis. COMPANY may, for example, allow FRANCHISE
OWNER to use one recipe for bagels, cream cheeses or other items while allowing
other developers and franchise owners to use different recipes. COMPANY may
also allow variations between developers and franchise owners in the areas of
trademarks, trade dress, operational items or other aspects of UNITS. FRANCHISE
OWNER acknowledges and agrees that only COMPANY may determine what variations
FRANCHISE OWNER may use and that FRANCHISE OWNER will in any event conform
strictly to the standards and specifications which COMPANY establishes for
FRANCHISE OWNER's Stores.
COMPANY intends to allow these variations in the System: (a) as part of
ongoing research and development for UNITS generally; and (b) to test whether
regional variations in UNITS may be advantageous. FRANCHISE OWNER understands
and accepts that, over time during the term of the Agreement COMPANY will
continue to develop and refine various aspects of the System and that as new
products, new operating procedures, new trade dress and other refinements are
introduced, COMPANY may, in its sole discretion, cease to allow some
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or all of the variations and may require local or regional variations or
national uniformity among UNITS as to aspects for which COMPANY had previously
allowed variations. FRANCHISE OWNER acknowledges and agrees that this may mean
that FRANCHISE OWNER may be required, for example, to change one or more of (a)
the recipes FRANCHISE OWNER uses for bagels, cream cheese or other items; (b)
the trademarks and/or service marks FRANCHISE OWNER uses; (c) the trade dress or
operational procedures FRANCHISE OWNER uses; or (d) other aspects of your UNITS.
Some or all of these changes may require FRANCHISE OWNER to make substantial
additional capital expenditures. FRANCHISE OWNER acknowledges and agrees that
COMPANY may discontinue any of the variations which it had previously allowed
FRANCHISE OWNER to utilize and that FRANCHISE OWNER will conform to all required
local, regional and/or national standards and specifications and other
requirements which COMPANY may establish from time to time even if it means
substantial additional expense for FRANCHISE OWNER Further, COMPANY
acknowledges and agrees that it shall provide to COMPANY the data COMPANY
requires concerning FRANCHISE OWNER'S operations in order to allow COMPANY to
assess the success of different variations in its retail store concept.
Furthermore, FRANCHISE OWNER acknowledges and agrees that COMPANY may
continue to operate and/or franchise others to operate UNITS in certain areas
under trademarks and service marks other than "EINSTEIN BROS.," including
without limitation "BAGEL & BAGEL," "BALTIMORE BAGELS," "NOAH'S NEW YORK BAGELS"
or "OFFERDAHL'S." COMPANY may allow the use of such other marks temporarily,
indefinitely or permanently and on a local, regional, national or international
basis. FRANCHISE OWNER further understands and agrees that COMPANY may, rather
than operating and franchising a national chain of bagel stores operating under
a single trademark or service mark, determine in its sole discretion to operate
and franchise a network of bagel shops operating under different names and in
different geographic areas.
4. FRANCHISE OWNER acknowledges that neither COMPANY nor any officer,
director, employee, agent, representative or Affiliate thereof has made any
representations or statements of actual, average, projected or forecasted sales,
profits, earnings, cash flow or costs with respect to any UNITS. Neither
COMPANY's sales personnel nor any employee, officer, director, agent,
representative or affiliate of the COMPANY is authorized to make any claims or
statements as to the sales, profits, earnings, cash flow, costs or prospects or
chances of success that any developer or franchise owner can expect or that
present or past franchise owners have had. COMPANY specifically instructs its
sales personnel, employees, officers, directors, agents, representatives and
affiliates that they are not permitted to make such claims or statements as to
the sales, profits, earnings, cash flow, costs or the prospects or chances of
success, nor are they authorized to represent or estimate amounts of sales,
profits, earnings, cash flow, costs or other measures as to any aspect of the
operation of UNITS. COMPANY recommends that applicants for UNIT franchises make
their own investigations and determine whether or not a UNIT is profitable.
COMPANY will not be bound by any unauthorized representations as to FRANCHISE
OWNER's sales, profits, earnings, cash flow, costs or prospects or chances of
success. COMPANY recommends that each applicant for a UNIT franchise consult
with an attorney of its choosing and further be represented by legal counsel at
the time of its closing. FRANCHISE OWNER acknowledges that it has had ample
opportunity to consult with legal counsel and other professional advisors.
FRANCHISE OWNER
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acknowledges that it has not received or relied on any representations about the
Franchise by COMPANY, or its sales personnel, employees, officers, directors,
agents, representatives or affiliates that are contrary to the statements made
in COMPANY's Franchise Offering Circular or to the terms of the Agreement.
5. FRANCHISE OWNER hereby acknowledges and agrees that COMPANY's
approval of the Site and Site Agreement for the Store does not constitute an
assurance, representation or warranty of any kind, express or implied, as to the
suitability of the Site or Site Agreement for a UNIT, or the successful
operation or profitability of a UNIT operated at the Site. COMPANY's approval
of the Site indicates only that COMPANY believes that the Site or Site Agreement
falls within acceptable minimum criteria established by COMPANY solely for
COMPANY's purposes at the time of the approval thereof. Both FRANCHISE OWNER
and COMPANY acknowledge that application of criteria that have been effective
with respect to other sites may not be predictive of potential for all sites and
that, subsequent to COMPANY's approval of the Site, demographic and/or economic
factors, such as competition from other similar businesses, included in or
excluded from COMPANY's criteria could change, thereby altering the potential of
the Site. Such factors are unpredictable and are beyond COMPANY's control.
COMPANY shall not be responsible for the failure of the Site approved by COMPANY
to meet FRANCHISE OWNER's expectations as to revenue or operational criteria.
FRANCHISE OWNER further acknowledges and agrees that its acceptance of a
Franchise for the operation of a UNIT at the Site is based on its own
independent investigation of the suitability of the Site.
6. FRANCHISE OWNER acknowledges that COMPANY's approval of a
financing plan for operation of the Store under the Agreement does not
constitute any assurance that such financing plan is adequate, favorable or not
unduly burdensome, or that the Store will be successful if the financing plan is
implemented by FRANCHISE OWNER. COMPANY's approval of the financing plan
indicates only that such financing plan meets or that COMPANY has waived
COMPANY's then-current minimum standards established by COMPANY solely for its
own purposes at the time of approval thereof.
7. FRANCHISE OWNER acknowledges that in all of COMPANY's dealings with
FRANCHISE OWNER, the officers, directors, employees, and agents of COMPANY act
only in a representative capacity and not in an individual capacity. FRANCHISE
OWNER further acknowledges that the Agreement, and all business dealings between
FRANCHISE OWNER and such individuals as a result of the Agreement, are solely
between FRANCHISE OWNER and COMPANY. Furthermore, FRANCHISE OWNER represents to
COMPANY, as an inducement to its entry into the Agreement, that neither
FRANCHISE OWNER nor its Owners have made any misrepresentations in obtaining the
Franchise.
8. If FRANCHISE OWNER is a legal entity, FRANCHISE OWNER:
(A) represents that it is duly organized and validly existing in good
standing under the laws of the jurisdiction of its organization, is
qualified to do business in all jurisdictions in which its business
activities or the nature of properties owned by FRANCHISE OWNER requires
such qualification, and has the authority to execute and
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deliver the Agreement and perform all FRANCHISE OWNER's obligations under
the Agreement; and
(B) agrees that all certificates representing Ownership Interests in
FRANCHISE OWNER now outstanding or hereafter issued will be endorsed with a
legend in form approved by COMPANY reciting that the transfer of Ownership
Interests in FRANCHISE OWNER is subject to restrictions contained in this
Agreement.
9. FRANCHISE OWNER, whether or not a legal entity, represents and
warrants that FRANCHISE OWNER is not subject to any restriction, agreement,
contract, commitment, law, judgment or decree which would prohibit or be
breached or violated by FRANCHISE OWNER's execution and delivery of the
Agreement or performance of its obligations thereunder. At COMPANY's request,
FRANCHISE OWNER shall furnish an opinion of counsel to COMPANY in form and
substance satisfactory to COMPANY, to the effect that the Agreement is a valid
and binding agreement of FRANCHISE OWNER, enforceable against FRANCHISE OWNER in
accordance with its terms, and that FRANCHISE OWNER is not subject to any
restriction, agreement, law, judgment or decree which would prohibit or be
violated by FRANCHISE OWNER's execution and delivery of the Agreement and
performance of its obligations thereunder.
10. FRANCHISE OWNER further represents and warrants that all Owners of
FRANCHISE OWNER and their interests therein are completely and accurately listed
in Exhibit E to the Agreement and covenants that FRANCHISE OWNER will make,
execute and deliver to COMPANY such revisions thereto as may be necessary during
the term of the Franchise to reflect any changes in the information contained
therein.
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11. FRANCHISE OWNER represents and warrants that its domicile is as set
forth below:
-------------------------------------------------
Address
-------------------------------------------------
City and State
__________________________________________
FRANCHISE OWNER
By:_______________________________________
Title:___________________________________
Date:_____________________________________
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EXHIBIT D
TO THE FRANCHISE AGREEMENT
BY AND BETWEEN EINSTEIN/NOAH BAGEL CORP.
AND
_________________________________________________________ ("FRANCHISE OWNER")
DATED ___________________
PERMITTED COMPETITIVE BUSINESSES,
IDENTITY OF DEVELOPER AND DATE OF DEVELOPMENT AGREEMENT
-------------------------------------------------------
<PAGE>
PERMITTED COMPETITIVE BUSINESSES,
IDENTITY OF DEVELOPER AND DATE OF DEVELOPMENT AGREEMENT
-------------------------------------------------------
1. APPLICABILITY. If this Agreement is not executed pursuant to a
Development Agreement, Section 2 of this Exhibit shall be completed by the
parties and Sections 2 and 3 of this Exhibit shall be incorporated into this
Agreement. If this Agreement is executed pursuant to a Development Agreement,
Section 4 of this Exhibit shall be completed by the parties and incorporated
into this Agreement.
2. OWNERS IN PERMITTED COMPETITIVE BUSINESSES. If applicable
pursuant to Section 1 of this Exhibit and as specified in Section 10 of this
Agreement, the following Owners currently perform services for or have an
ownership interest in a Permitted Competitive Business as of the date of this
Agreement.
NAME OF OWNER: NAME OF OWNER:
_________________________________ _________________________________
Name of Competitive Business: Name of Competitive Business:
_________________________________ _________________________________
Address of Competitive Business: Address of Competitive Business:
_________________________________ _________________________________
_________________________________ _________________________________
NAME OF OWNER: NAME OF OWNER:
_________________________________ _________________________________
Name of Competitive Business: Name of Competitive Business:
_________________________________ _________________________________
Address of Competitive Business: Address of Competitive Business:
_________________________________ _________________________________
_________________________________ _________________________________
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<PAGE>
FRANCHISE OWNER and its Owners represent and warrant that they have
previously provided to COMPANY a true, correct, complete and detailed
description of all Competitive Businesses in which they own, directly or
indirectly, interests and that all such Competitive Businesses are disclosed in
this Exhibit D. FRANCHISE OWNER and its Owners acknowledge that COMPANY has
relied on the aforementioned description of such Competitive Businesses in
entering into this Agreement with DEVELOPER.
3. DEVELOPMENT AGREEMENT. If applicable pursuant to Section 1 of this
Exhibit, FRANCHISE OWNER acknowledges that it has received, and it has reviewed
and understands, the form of Development Agreement contained in COMPANY's
Uniform Franchise Offering Circular in effect as of the date of this Agreement.
4. DATE OF DEVELOPMENT AGREEMENT AND IDENTITY OF DEVELOPER. If
applicable pursuant to Section 1 of this Exhibit, the date of the Development
Agreement and the identity of DEVELOPER under the Development Agreement is as
follows:
_______________________________________
DEVELOPER
_______________________________________
DATE
EINSTEIN/NOAH BAGEL CORP. _____________________________
FRANCHISE OWNER
By:_____________________________ By:__________________________
Title:_________________________ Title:_____________________
D-2
<PAGE>
EXHIBIT E
TO THE FRANCHISE AGREEMENT
BY AND BETWEEN EINSTEIN/NOAH BAGEL CORP.
AND
_________________________________________("FRANCHISE OWNER")
DATED ___________________________
PRINCIPAL OWNERS, OTHER OWNERS,
DESIGNATED PRINCIPAL OWNERS,
STORE MANAGER AND ADDITIONAL MANAGER,
SUPERVISING OWNERS AND INITIAL CAPITALIZATION
---------------------------------------------
<PAGE>
PRINCIPAL OWNERS, OTHER OWNERS,
DESIGNATED PRINCIPAL OWNERS,
STORE MANAGER AND ADDITIONAL MANAGER,
SUPERVISING OWNERS AND INITIAL CAPITALIZATION
---------------------------------------------
1. PRINCIPAL OWNERS: Listed below is the full name and mailing address of
each person or entity who is a Principal Owner of FRANCHISE OWNER and a
description of the nature and amount of such Principal Owner's direct or
indirect equity or voting interest in FRANCHISE OWNER:
________ (INITIAL HERE IF THE FOLLOWING STATEMENT IS APPLICABLE AND DO NOT
COMPLETE THE REST OF THIS SECTION 1.) The Principal Owners of FRANCHISE OWNER
and their respective equity and voting interests in FRANCHISE OWNER are the same
as indicated in the Development Agreement with respect to the Principal Owners
and their interests in DEVELOPER.
Name:____________________ Number of Interests Owned:____________________
Address:_________________ % of Total Interests:_________________________
_________________________ Number of Interests Owner is Entitled
_________________________ to Vote:______________________________________
_________________________ Other Interest (Describe):____________________
______________________________________________
Name:____________________ Number of Interests Owned:____________________
Address:_________________ % of Total Interests:_________________________
_________________________ Number of Interests Owner is Entitled
_________________________ to Vote:______________________________________
Other Interest (Describe):____________________
______________________________________________
Name:____________________ Number of Interests Owned:____________________
Address:_________________ % of Total Interests:_________________________
_________________________ Number of Interests Owner is Entitled
_________________________ to Vote:______________________________________
Other Interest (Describe):____________________
______________________________________________
Name:____________________ Number of Interests Owned:____________________
Address:_________________ % of Total Interests:_________________________
_________________________ Number of Interests Owner is Entitled
_________________________ to Vote:______________________________________
Other Interest (Describe):____________________
______________________________________________
E-1
<PAGE>
2. DESIGNATED PRINCIPAL OWNERS. The following individuals are
designated as Principal Owners based upon their business experience, financial
capacity or other personal attributes:
_________________________________ __________________________________
Name Name
_________________________________ __________________________________
Name Name
3. OTHER OWNERS. Listed below is the full name and mailing address of each
person or entity, other than the Principal Owners, who directly or indirectly
owns an equity voting interest in FRANCHISE OWNER and a description of the
nature and amount of the interest (attach additional sheets if necessary):
__________ (INITIAL HERE IF THE FOLLOWING STATEMENT IS APPLICABLE AND DO
NOT COMPLETE THE REST OF THIS SECTION 3.) The Owners of FRANCHISE OWNER and
their respective equity and voting interests in FRANCHISE OWNER are the same as
indicated in the Development Agreement with respect to the Owners and their
interests in DEVELOPER.
Name:________________________ Number of Interests Owned:____________________
Address:_____________________ % of Total Interests:_________________________
_____________________________ Number of Interests Owner is Entitled
_____________________________ to Vote:______________________________________
_____________________________ Other Interest (Describe):____________________
______________________________________________
Name:________________________ Number of Interests Owned:____________________
Address:_____________________ % of Total Interests:_________________________
_____________________________ Number of Interests Owner is Entitled
_____________________________ to Vote:______________________________________
Other Interest (Describe):____________________
______________________________________________
4. STORE MANAGER AND ADDITIONAL MANAGER: As required pursuant to this
Agreement, the following person shall attend the training program as the initial
Store Manager and the initial Additional Manager of the Store:
E-2
<PAGE>
Name:___________________________ Name:________________________________
(Store Manager) (Additional Manager)
5. SUPERVISING OWNERS: As required pursuant to this Agreement, the
following Principal Owners shall supervise the operation of the Store:
Name:__________________________ Name:________________________________
Name:__________________________ Name:________________________________
6. INITIAL CAPITALIZATION. FRANCHISE OWNER: (a) represents and warrants
that it has developed and previously provided to COMPANY a description of its
initial capital structure (the "INITIAL CAPITAL STRUCTURE") which is a true,
correct, complete and detailed description of FRANCHISE OWNER's capital
structure; (b) covenants that it will not deviate from the Initial Capital
Structure without COMPANY's prior written consent; and (c) acknowledges that
COMPANY has relied on the Initial Capital Structure in entering into this
Agreement.
EINSTEIN/NOAH BAGEL CORP. ____________________________________
FRANCHISE OWNER
By:____________________________ By:_________________________________
Title:_______________________ Title:____________________________
E-3
<PAGE>
EXHIBIT F
TO THE FRANCHISE AGREEMENT
BY AND BETWEEN EINSTEIN/NOAH BAGEL CORP.
AND
________________________________________________ ("FRANCHISE OWNER")
DATED ________________________
SITE AND TERRITORY
------------------
<PAGE>
SITE AND TERRITORY
------------------
1. SITE. The Site of the Store will be as follows:
----
2. TERRITORY. The Territory shall be as follows:
---------
EINSTEIN/NOAH BAGEL CORP. __________________________________
FRANCHISE OWNER
By:__________________________ By:_______________________________
Title:_____________________ Title:__________________________
F-1
<PAGE>
EXHIBIT G
TO THE FRANCHISE AGREEMENT
BY AND BETWEEN EINSTEIN/NOAH BAGEL CORP.
AND
_______________________________________________________ ("FRANCHISE OWNER")
DATED ___________________
GUARANTY AND ASSUMPTION OF FRANCHISE OWNER'S OBLIGATIONS
--------------------------------------------------------
<PAGE>
GUARANTY AND ASSUMPTION OF FRANCHISE OWNER'S OBLIGATIONS
--------------------------------------------------------
THIS GUARANTY AND ASSUMPTION OF FRANCHISE OWNER'S OBLIGATIONS is given this
_______ day of _______________, 19__, by the undersigned.
FRANCHISE OWNER:
-------------------------------
DATE OF FRANCHISE AGREEMENT:
___________________
In consideration of, and as an inducement to, the execution of the above
mentioned Einstein/Noah Bagel Corp. Franchise Agreement (the "FRANCHISE
AGREEMENT") by EINSTEIN/NOAH BAGEL CORP. ("COMPANY"), each of the undersigned
and any other parties who sign counterparts of this guaranty (referred to herein
individually as a "GUARANTOR" and collectively as "GUARANTORS") hereby
personally and unconditionally: (a) guarantees to COMPANY, and its successors
and assigns, for the term of the Franchise Agreement and thereafter as provided
in the Franchise Agreement, that FRANCHISE OWNER shall punctually pay and
perform each and every undertaking, agreement and covenant set forth in the
Franchise Agreement; and (b) agrees to be personally bound by, and personally
liable for the breach of, each and every provision in the Franchise Agreement,
both monetary obligations and other obligations, including, without limitation,
the obligation to pay costs and legal fees as provided in the Franchise
Agreement and the obligation to take or refrain from taking specific actions or
to engage or refrain from engaging in specific activities, including, without
limitation, the provisions of the Franchise Agreement relating to competitive
activities.
Each Guarantor waives:
(1) acceptance and notice of acceptance by COMPANY of the foregoing
undertakings; and
(2) notice of demand for payment of any indebtedness or nonperformance
of any obligations hereby guaranteed; and
(3) protest and notice of default to any party with respect to the
indebtedness or nonperformance of any obligations hereby guaranteed; and
(4) any right he may have to require that an action be brought against
FRANCHISE OWNER or any other person as a condition of liability; and
G-1
<PAGE>
(5) all rights to payments and claims for reimbursement or subrogation
which he may have against FRANCHISE OWNER arising as a result of his
execution and performance under this guaranty (including by way of
counterpart); and
(6) any and all other notices and legal or equitable defenses to which
he may be entitled.
Each Guarantor consents and agrees that :
(A) his direct and immediate liability under this guaranty shall be
joint and several not only with FRANCHISE OWNER, but also among the
Guarantors; and
(B) he shall render any payment or performance required under the
Franchise Agreement upon demand if FRANCHISE OWNER fails or refuses
punctually to do so; and
(C) such liability shall not be contingent or conditioned upon pursuit
by COMPANY of any remedies against FRANCHISE OWNER or any other person; and
(D) such liability shall not be diminished, relieved or otherwise
affected by any subsequent rider or amendment to the Franchise Agreement or
by any extension of time, credit or other indulgence which COMPANY may from
time to time grant to FRANCHISE OWNER or to any other person, including,
without limitation, the acceptance of any partial payment or performance,
or the compromise or release of any claims, none of which shall in any way
modify or amend this guaranty, which shall be continuing and irrevocable
throughout the term of the Franchise Agreement and for so long thereafter
as there are any monies or obligations owing by FRANCHISE OWNER to COMPANY
under the Franchise Agreement; and
(E) the written acknowledgment of FRANCHISE OWNER, accepted in writing
by COMPANY, or the judgement of any court or arbitration panel of competent
jurisdiction establishing the amount due from FRANCHISE OWNER shall be
conclusive and binding on the undersigned as guarantors.
If COMPANY is required to enforce this guaranty in a judicial or
arbitration proceeding, and prevails in such proceeding, it shall be entitled to
reimbursement of its costs and expenses, including, but not limited to,
reasonable accountants', attorneys', attorneys' assistants', arbitrators' and
expert witness fees, costs of investigation and proof of facts, court costs,
other litigation expenses and travel and living expenses, whether incurred prior
to, in preparation for or in contemplation of the filing of any such proceeding.
If COMPANY is required to engage legal counsel in connection with any failure by
the undersigned to comply with this guaranty, the Guarantors shall reimburse
COMPANY for any of the above-listed costs and expenses incurred by it.
G-2
<PAGE>
Each of the undersigned Guarantors represents and warrants that, if no
signature appears below for such Guarantor's spouse, such Guarantor is either
not married or, if married, is a resident of a state which does not require the
consent of both spouses to encumber the assets of the Guarantor's marital
estate.
IN WITNESS WHEREOF, each Guarantor has hereunto affixed his signature on
the same day and year as the Franchise Agreement was executed.
GUARANTOR(S):
- ------------
DEVELOPER (if any):
- ---------------------------------
Name of DEVELOPER
ATTEST:
- ---------------------------------
State of Organization
By:
------------------------------ ---------------------------------
Signature Name:
----------------------------
Title:
- --------------------------------- -------------------------
Name and Title
PRINCIPAL OWNERS OF DEVELOPER:
- ------------------------------
Spouse:
- --------------------------------- --------------------------
Name: Name:
Spouse:
- --------------------------------- --------------------------
Name: Name:
Spouse:
- --------------------------------- --------------------------
Name: Name:
PRINCIPAL OWNERS OF FRANCHISE OWNER:
- -----------------------------------
Spouse:
- --------------------------------- --------------------------
Name: Name:
G-3
<PAGE>
Spouse:
- --------------------------------- --------------------------
Name: Name:
Spouse:
- --------------------------------- --------------------------
Name: Name:
G-4
<PAGE>
EXHIBIT H
TO THE EINSTEIN/NOAH BAGEL CORP.
FRANCHISE AGREEMENT
BY AND BETWEEN
EINSTEIN/NOAH BAGEL CORP.
AND
------------------------------------
DATED ________________
CONFIDENTIALITY AND NON-COMPETE AGREEMENT
-----------------------------------------
<PAGE>
EXHIBIT H
CONFIDENTIALITY AND NON-COMPETE AGREEMENT
-----------------------------------------
H-1
<PAGE>
EINSTEIN/NOAH BAGEL CORP.
CONFIDENTIALITY AND NONCOMPETE AGREEMENT
----------------------------------------
WHEREAS, the undersigned (the "Undersigned") is a current or prospective
employee ("Employee"), owner ("Owner") of an interest in, or supplier, agent,
researcher, consultant, service provider, or vendor ("Vendor") of, Einstein/Noah
Bagel Corp. ("Company") and/or one or more of its affiliates, subsidiaries, area
developers, franchisees, or joint venturers (each a "Related Party");
WHEREAS, the Undersigned has been or may be given access to certain
confidential and proprietary information of Company and/or its Related Parties
previously not available to the Undersigned.
WHEREAS, the Company and/or the Related Party signatory hereto, as the case
may be, is only willing to commence or continue its relationship with
Undersigned in the event Undersigned enters into this Agreement; and
WHEREAS, the Company and/or the Related Party signatory hereto has entered
into this Agreement with the Undersigned in order to ensure the confidentiality
of Proprietary Information in accordance with the terms of this Agreement, to
ensure that the Undersigned does not utilize such information to compete with
the Company or unfairly disadvantage the Company, and/or to protect the
investment made by the Company and/or the Related Party signatory hereto in the
training and instruction of its Employees and/or in negotiation with and
education of Owners and Vendors, as the case may be.
NOW, THEREFORE, the Undersigned hereby agrees as follows:
1. RECITALS. The recitals set forth above are incorporated herein by this
reference and shall be part of this Agreement.
2. PROPRIETARY INFORMATION. As used in this Agreement, the term
"Proprietary Information" shall mean the business concepts, recipes, food
preparation methods, equipment, operating techniques, marketing methods,
financial information, demographic and trade area information, prospective site
locations, market penetration techniques, plans, or schedules, customer
profiles, preferences, or statistics, menu breakdowns, itemized costs,
franchisee composition, territories, and development plans, and all related
trade secrets or confidential or proprietary information treated as such by the
Company and/or the Related Party signatory hereto, as the case may be, whether
by course of conduct, by letter or report, or by the use of any appropriate
proprietary stamp or legend designating such information or item to be
confidential or proprietary, by any communication to such effect made prior to
or at the time any such Proprietary Information is disclosed to the Undersigned,
or otherwise.
H-2
<PAGE>
3. USE AND DISCLOSURE OF PROPRIETARY INFORMATION. The Undersigned shall
hold all Proprietary Information in strict confidence, shall use such
Proprietary Information only for the benefit of the Company and/or the Related
Party and shall disclose such Proprietary Information only to the Undersigned's
employees and agents who have a need to know such Proprietary Information in
order to assist the Undersigned, provided such employees and agents each have
individually entered into this Agreement or a Confidentiality and Noncompete
Agreement substantially identical hereto or are otherwise obligated by a written
agreement with the Undersigned to maintain the confidence of the Proprietary
Information, which agreement the Undersigned hereby agrees may be directly
enforced by Company and/or the Related Party signatory hereto, as the case may
be. The Undersigned shall not disclose Proprietary Information to any other
person or entity. The obligations hereunder to maintain the confidentiality of
Proprietary Information shall not expire.
4. LIMITATIONS ON OBLIGATIONS. The obligations of the Undersigned specified
in Section 3 shall not apply to any Proprietary Information which is received
from the Company and/or the Related Party signatory hereto, as the case may be,
which (a) is disclosed in a printed publication available to the public, or is
otherwise in the public domain through no act of the Undersigned or its
employees, agents or other person or entity which has received such Proprietary
Information from or through the Undersigned, (b) is approved for release by
written authorization of an officer of the Company and/or the Related Party
signatory hereto, as the case may be, or (c) is required to be disclosed by
proper order of a court of applicable jurisdiction after adequate notice to the
Company and/or the Related Party signatory hereto, as the case may be,
sufficient to permit them to seek a protective order therefor, the imposition of
which protective order the Undersigned agrees to approve and support.
5. RETURN OF DOCUMENTS. The Undersigned (and each employee, agent, or other
person or entity which has received such Proprietary Information from or through
the Undersigned) shall, upon the request of the Company and/or the Related Party
signatory hereto, as the case may be, return all documents and other tangible
manifestations of Proprietary Information received form the Company and/or the
Related Party signatory hereto, as the case may be, including all copies and
reproductions thereof.
6. NONCOMPETE. During the Applicable Term (as defined in Section 10 hereof)
and for two years after the later of (i) the end of the Applicable Term or (ii)
the date on which Undersigned returns any Proprietary Information pursuant to
Section 5 hereof, Undersigned (x) agrees (1) if Undersigned is an Employee or
Vendor, not to compete against the Company and/or the Related Party signatory
hereto, as the case may be, by directly or indirectly owning, managing,
operating, controlling, being employed by, participating in, or being connected
in any manner with the ownership, management, operation, or control of (A) any
food service establishment that prepares, serves, or sells and derives more than
5% of its revenues from, bagels and/or bagel related products (including but not
limited to cream cheese and other spreads, bagel sandwiches and bagel chips), or
(B) any food service establishment, at least 15% of the revenue of which is
derived from coffee or any other product which accounts for at least 15% of the
revenue of any food service establishment owned or operated by the Company
and/or the Related Party signatory hereto, as the case may be, at the time
Undersigned commences or significantly increases its ownership, management, or
other participation therein, which food service establishment described in
either (A) or (B), above, is located within five miles of any
H-3
<PAGE>
store owned or operated by the Company and/or the Related Party signatory
hereto, as the case may be, or within any standard metropolitan statistical
area, trade area or "area of dominant influence" (as defined by Arbitron Ratings
Company) in which the Company and/or the Related Party signatory hereto, as the
case may be, engage, or have developed specific plans to engage, in business or
(2) if Undersigned is an Owner, to comply with the confidentiality and
noncompete provisions in any applicable Area Development Agreement as if Owner
were Developer or to comply with the confidentiality and noncompete provisions
in any applicable Franchise Agreement as if Owner were Franchise Owner, in each
case within the geographic area therein specified, and (y) agrees not to solicit
employees from the Company and/or the Related Party signatory hereto, as the
case may be, it being understood that this Section 6 shall not prevent the
Undersigned from participating as an investor, officer, or director in any
restaurant venture not covered by the foregoing applicable restrictions, and
does not prevent the Undersigned from investing so as to hold less than 2% of
the outstanding shares of any company which is a "reporting company" under the
Securities Exchange Act of 1934, as amended. It is the intention of the parties
that this Section 6 be interpreted so as to be valid under applicable law and,
if required for validity, any court or applicable tribunal may reduce or alter
the geographic scope and duration of this Section 6, by substitution of words or
otherwise, so as to create the broadest permissible protection to the Company
and/or the Related Party signatory hereto, as the case may be.
7. NO WAIVER. No delays or omissions by the Company and/or the Related
Party signatory hereto, as the case may be, in exercising any right under this
Agreement will operate as a waiver of that or any other right. A waiver or
consent given by the Company and/or the Related Party signatory hereto, as the
case may be, on any one occasion is effective only in that instance and will not
be construed as a bar to or waiver of any right on any other occasion.
8. NOTICES. Any notice, request, information, or other document to be given
hereunder to any of the parties by any other party shall be in writing and
delivered personally, sent by facsimile transmission or registered or certified
mail, postage prepaid, or overnight delivery service, as follows:
If to the Company, addressed to:
Einstein/Noah Bagel Corp.
1526 Cole Boulevard
Suite 200
Golden, Colorado 80401
Attention: General Counsel
Facsimile: (303) 202-3490
If to the Related Party signatory hereto, addressed to:
--------------------------------
--------------------------------
--------------------------------
--------------------------------
H-4
<PAGE>
If to the Undersigned, address to:
(Name)
-------------------------------- ------
(Address)
-------------------------------- ---------
(City, State, Zip)
-------------------------------- ------------------
(Attention)
-------------------------------- -----------
(Phone Number)
-------------------------------- --------------
(Facsimile)
-------------------------------- -----------
Any party hereto may change the place at which notices are to be received
by it by the giving of notice of such change in the manner set forth above.
9. Equitable Relief. Undersigned acknowledges that Company and/or the
Related Party signatory hereto, as the case may be, will be irreparably harmed
by any breach hereof, that monetary damages would be inadequate and that Company
and/or the Related Party signatory hereto, as the case may be, shall have the
right to have an injunction or other equitable remedies imposed in relief of, or
to prevent or restrain, such breach. The Undersigned agrees that Company and/or
the Related Party signatory hereto, as the case may be, shall also be entitled
to any and all other relief available under law or equity for such breach.
10. APPLICABLE TERM. The Applicable Term of Section 6 of this Agreement
shall be (i) the term of employment in the event Undersigned is an Employee, it
being understood and acknowledged that Employee is employed at will and may be
terminated at any time by Company and/or the Related Party signatory hereto, as
the case may be, (ii) the term of the applicable Area Development Agreement or
Franchise Agreement in the event Undersigned is an Owner, or (iii) three years
in the event the Undersigned is a Vendor, provided that in the case of this
clause (iii), the Applicable Term shall automatically be extended one year on
each anniversary of the date of execution hereof, unless either party has given
written notice to the other not more than 90 days prior thereto stating that
such extensions shall not occur.
11. MISCELLANEOUS.
-------------
a. This Agreement shall not be construed to grant to the Undersigned
any patents, licenses, or similar rights to Proprietary Information
disclosed to the Undersigned hereunder, all of which rights and interests
shall be deemed to reside or be vested in the Company.
b. This Agreement, does not supersede, but rather is in addition to
and cumulative with, all prior agreements, written or oral, between the
parties relating to the subject matter of this Agreement. This Agreement
may not be modified, changed or discharged, in whole or in part, except by
an agreement in writing signed by the parties.
c. This Agreement will be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns.
d. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
H-5
<PAGE>
e. This Agreement shall be construed and interpreted in accordance
with the laws of the State of Colorado.
EXECUTED as of the ______ day of ____________________, 199____.
EINSTEIN/NOAH BAGEL CORP. UNDERSIGNED
--------------------------------
(Entity Name, if any)
By:
-----------------------------
Title: By:
------------------------- ----------------------------------
Print Name:
-------------------------
Print Title:
-------------------------
RELATED PARTY
- --------------------------------
(Name)
By:
----------------------------
Title:
-------------------------
H-6
<PAGE>
EXHIBIT I
TO THE FRANCHISE AGREEMENT
BY AND BETWEEN EINSTEIN/NOAH BAGEL CORP.
AND
_______________________________________________________ ("FRANCHISE OWNER")
DATED _________________________
AUTHORIZATION AGREEMENT FOR PREARRANGED PAYMENTS
(DIRECT DEBITS)
-------------
<PAGE>
AUTHORIZATION AGREEMENT FOR PREARRANGED PAYMENTS
(DIRECT DEBITS)
-------------
Name of DEPOSITOR:
-----------------------------------------------------------
DEPOSITOR Identification Number:
---------------------------------------------
The undersigned depositor ("DEPOSITOR") hereby authorizes Einstein/Noah Bagel
Corp. ("COMPANY") to initiate debit entries and/or credit correction entries to
the undersigned's checking and/or savings account(s) indicated below and the
depository designated below ("DEPOSITORY") to debit such account pursuant to
COMPANY's instructions.
- -------------------------------------- --------------------------------------
DEPOSITORY Branch
- -------------------------------------- --------------------------------------
Address City, State and Zip Code
- -------------------------------------- --------------------------------------
Bank Transit/ABA Number Account Number
This authority is to remain in full and force and effect until DEPOSITORY has
received joint written notification from COMPANY and DEPOSITOR of the
DEPOSITOR's termination of such authority in such time and in such manner as to
afford DEPOSITORY a reasonable opportunity to act on it. If an erroneous debit
entry is initiated to DEPOSITOR's account, DEPOSITOR shall have the right to
have the amount of such entry credited to such account by DEPOSITORY, if (a)
within fifteen (15) calendar days following the date on which DEPOSITORY sent to
DEPOSITOR a statement of account or a written notice pertaining to such entry or
(b) forty-five (45) days after posting, whichever occurs first, DEPOSITOR shall
have sent to DEPOSITORY a written notice identifying such entry, stating that
such entry was in error and requesting DEPOSITORY to credit the amount thereof
to such account. These rights are in addition to any rights DEPOSITOR may have
under federal and state banking laws.
- -------------------------------------- -----------------------------------
DEPOSITOR DEPOSITORY
By: By:
----------------------------------- ----------------------------
Title: Title:
------------------------------ ------------------------
Date: Date:
--------------------------------- ---------------------------
<PAGE>
EXHIBIT J
TO THE FRANCHISE AGREEMENT
BY AND BETWEEN EINSTEIN/NOAH BAGEL CORP.
AND
__________________________________________________ ("FRANCHISE OWNER")
DATED___________________________
COLLATERAL ASSIGNMENT OF TELEPHONE NUMBERS AND LISTINGS
-------------------------------------------------------
<PAGE>
COLLATERAL ASSIGNMENT OF TELEPHONE NUMBERS AND LISTINGS
-------------------------------------------------------
THIS ASSIGNMENT is entered into this ___ day of _____________, 19__, in
accordance with the terms of that certain Einstein/Noah Bagel Corp. Franchise
Agreement (the "FRANCHISE AGREEMENT") between
________________________________________________ ("FRANCHISE OWNER") and
Einstein/Noah Bagel Corp., a Delaware corporation ("COMPANY"), executed
concurrently with this Assignment, under which COMPANY granted FRANCHISE OWNER
the right to own and operate a UNIT located at
________________________________________________________________________________
___________ (the "STORE").
FOR VALUE RECEIVED, FRANCHISE OWNER hereby assigns to COMPANY, all of
FRANCHISE OWNER's right, title and interest in and to those certain telephone
numbers and regular, classified or other telephone directory listings
(collectively, the "TELEPHONE NUMBERS AND LISTINGS") associated with COMPANY's
trade and service marks and used from time to time in connection with the
operation of the Store at the address provided above. This Assignment is for
collateral purposes only and, except as specified herein, COMPANY shall have no
liability or obligation of any kind whatsoever arising from or in connection
with this Assignment, unless COMPANY shall notify the telephone company and/or
the listing agencies with which FRANCHISE OWNER has placed telephone directory
listings (all such entities are collectively referred to herein as the
"TELEPHONE COMPANY") to effectuate the assignment pursuant to the terms hereof.
Upon termination or expiration of the Franchise Agreement (without renewal
or extension), COMPANY shall have the right and is hereby empowered to
effectuate the assignment of the Telephone Numbers and Listings, and, in such
event, FRANCHISE OWNER shall have no further right, title or interest in the
Telephone Numbers and Listings and shall remain liable to the Telephone Company
for all past due fees owing to the Telephone Company on or before the effective
date of the assignment hereunder.
FRANCHISE OWNER agrees and acknowledges that as between COMPANY and
FRANCHISE OWNER, upon termination or expiration of the Franchise Agreement,
COMPANY shall have the sole right to and interest in the Telephone Numbers and
Listings, and FRANCHISEE appoints COMPANY as FRANCHISE OWNER's true and lawful
attorney-in-fact to direct the Telephone Company to assign same to COMPANY, and
execute such documents and take such actions as may be necessary to effectuate
the assignment. Upon such event, FRANCHISE OWNER shall immediately notify the
Telephone Company to assign the Telephone Numbers and Listings to COMPANY. If
FRANCHISE OWNER fails to promptly direct the Telephone Company to assign the
Telephone Numbers and Listings to COMPANY, COMPANY shall direct the Telephone
Company to effectuate the assignment contemplated hereunder to COMPANY. The
parties agree that the Telephone Company may accept COMPANY's written direction,
the Franchise Agreement or this Assignment as conclusive proof of COMPANY's
exclusive rights in and to the Telephone Numbers and Listings upon such
termination or expiration and that such assignment shall be made automatically
and effective immediately upon Telephone Company's receipt of such notice from
COMPANY or FRANCHISE OWNER. The parties further agree that if the Telephone
Company requires that the parties execute the Telephone Company's assignment
forms or other documentation at the time of termination or
J-1
<PAGE>
expiration of the Franchise Agreement, COMPANY's execution of such forms or
documentation on behalf of FRANCHISE OWNER shall effectuate FRANCHISE OWNER's
consent and agreement to the assignment. The parties agree that at any time
after the date hereof, they will perform such acts and execute and deliver such
documents as may be necessary to assist in or accomplish the assignment
described herein upon termination or expiration of the Franchise Agreement.
ASSIGNEE: ASSIGNOR:
- -------- --------
EINSTEIN/NOAH BAGEL CORP. ------------------------------
(FRANCHISE OWNER)
By: By:
------------------------------- --------------------------------
Its: Its:
------------------------------- -------------------------------
ACCEPTED AND AGREED TO BY:
- -------------------------------
(Telephone Company Authorized
Representative)
- -------------------------------
(Name of Telephone Company)
J-2
<PAGE>
EXHIBIT K
TO THE FRANCHISE AGREEMENT
BY AND BETWEEN EINSTEIN/NOAH BAGEL CORP.
AND
__________________________________________________ ("FRANCHISE OWNER")
DATED___________________________
PRINCIPAL MARKS TO BE USED BY FRANCHISE OWNER
---------------------------------------------
The UNIT to be developed pursuant to this Agreement shall be identified by
the following principal Marks (subject to the rights of COMPANY to discontinue
or modify such Marks pursuant to Section 6 of this Agreement) and shall be
operated in accordance with COMPANY'S requirements associated with such Marks as
in effect from time to time
<PAGE>
EXHIBIT D
---------
EINSTEIN/NOAH BAGEL CORP.
ADDENDUM TO LEASE
-----------------
D-1
<PAGE>
EXHIBIT D
---------
LOCATION:
------------------------------
------------------------------
STORE NO.:
------------------------------
ADDENDUM TO LEASE/1/
-----------------
THIS ADDENDUM TO LEASE (this "Addendum"), is to the Lease (the "Lease"),
dated as of _______________ 19___, by and between ____________________ a
("Landlord") and ______________________ a ("Tenant") as of the date of final
execution of the Lease and this Addendum (the "Effective Date").
The following shall amend and be incorporated into the Lease. In the event
of any conflict, inconsistency or ambiguity between the terms of the Lease and
the terms of this Addendum, then the terms of this Addendum shall control. Any
terms that are capitalized in this Addendum but not defined in the Addendum that
are capitalized and defined in the Lease shall have the respective meanings set
forth in the Lease.
1. DESCRIPTION OF LEASED PREMISES. In addition to the Leased Premises,
Landlord hereby leases and grants to Tenant, as an appurtenance to the Leased
Premises (a) all rights, easements and appurtenances belonging or appertaining
to the Leased Premises [or the Shopping Center], (b) all right, title and
interest of Landlord in and to any and all roads, streets, alleys and ways
bounding the Leased Premises [or the Shopping Center], [(c) all common ways and
areas within the Shopping Center, (d) a nonexclusive easement for vehicular
parking and vehicular and pedestrian ingress and egress to and from the Leased
Premises over, upon and across the parking areas, driveways, exits and entrances
of the Shopping Center, and (e) all such areas of the Shopping Center which
Tenant requires for (i) installation, maintenance and operation of sewer, water,
gas, power and other utility lines and for heating, ventilation and air
condition equipment, (ii) adequate trash receptacle, trash compactor and
delivery areas adjacent to the Leased Premises, and (iii) loading and unloading
its supplies. The Leased Premises and the Shopping Center may hereinafter
collectively referred to alternatively as the "Property" or
- ----------------------
/1/ To be used in event Landlord insists on using its form lease. Can be used
for in-line and freestanding sites. Should not be used for ground lease sites.
Make sure definitions are consistent with definitions used in Landlord's form
lease. Bolded areas should be revised and/or deleted as appropriate, depending
upon whether Leased Premises are part of a Shopping Center. Provisions may be
deleted in their entirety in the event they are materially consistent with the
terms contained in the Landlord's lease.
<PAGE>
the "Shopping Center". The parking areas, driveways, exits and entrances of the
Shopping Center which are crosshatched on Exhibit ___ may not be modified,
reduced and/or relocated without the consent of Tenant.]
2. PERCENTAGE RENT.
---------------
(a) Tenant shall also pay to Landlord, at the time and in the manner set
forth herein, a sum (the "Percentage Rent") equivalent to the amount, if any, of
_____ percent [3 %, but never to exceed 6%] of Gross Sales (hereafter defined)
in excess of Base Gross Sales (hereafter defined) for each of Tenant's Fiscal
Years (hereafter defined) during the Term of this Lease. The term "Gross Sales"
as used in this Lease shall mean the entire gross receipts of every kind and
nature from rental or sales of merchandise and services made in, upon, or from
the Leased Premises, and all other receipts of business conducted in or from the
Leased Premises and all mail or telephone orders received at the Leased
Premises, whether for credit or cash, in every department operating in the
Leased Premises, whether operated by the Tenant or by any subtenant,
concessionaire or licensee or any other person, excepting: (1) the selling price
of all merchandise refused by customers and accepted for full credit or the
amount of discounts and allowances made thereon; (2) goods refused to sources,
or produced on the Leased Premises and transferred to another store or warehouse
owned by or affiliated with Tenant for sale or storage at such store or
warehouse; (3) sums and credits received in the settlement of claims for loss of
or damage to merchandise, to the extent previously reported as Gross Sales; (4)
the price allowed on all merchandise traded in by customers for credit or the
amount of credit for discounts and allowances made in lieu of acceptance
thereof, (5) cash refunds made to customers in the ordinary course of business,
but this exclusion shall not include any amount paid or payable for what are
commonly referred to as trading stamps; (6) receipts from public telephones,
stamp machines, public toilet locks, or vending machines installed solely for
the use of Tenant's employees; and (7) sales taxes, luxury taxes, consumer's
excise taxes, gross receipts taxes, and other similar taxes now or hereafter
imposed upon the sale of merchandise or services. The term "Base Gross Sales" as
used in this Lease shall mean the amount determined by dividing the total annual
Rent for the Fiscal Year in question by _____ percent [3%, but never to exceed
6%].
(b) Within ninety (90) days after the end of each of Tenant's four (4) 13-
week fiscal periods (a "Fiscal Year"), Tenant shall furnish to Landlord a
written report ("Annual Gross Sales Report"), certified by Tenant to be correct,
setting forth the Gross Sales made in, upon or from the Leased Premises during
the preceding Fiscal Year. Each annual Gross Sales Report shall be accompanied
by a payment of all Percentage Rent owed to Landlord under the terms of this
Lease .
(c) Tenant shall keep accurate accounts of its Gross Sales. Landlord shall
have the right, upon prior written notice and during Tenant's regular business
hours, to examine and inspect any of Tenant's sales tax reports for the Leased
Premises for the purpose of investigating and veri@g the accuracy of the Annual
Gross Sales Report. If, subsequent to Landlord's
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<PAGE>
inspection, the Annual Gross Sales Report shall be found to have understated
Tenant's Gross Sales by three percent (3%) or more, then Tenant shall pay to
Landlord, on demand, the amount equal to such understatement, together with
interest thereon at the Prime Rate (hereafter defined). Tenant shall maintain
all records related to the calculation of Gross Sales for a period of three (3)
years after the expiration of any Fiscal Year.
3. OTHER AGREEMENTS. Landlord agrees upon request of Tenant to execute,
and record in recordable form, a written (a) memorandum of lease, (b) term
commencement agreement, and (c) each Non-Disturbance and Attornment Agreement
required in Section ___ hereof. Tenant shall bear the cost of any such
recording.
4. TENANT'S USES [EXCLUSIVE USE]. Tenant may use the Leased Premises
[and the Property] for (i) the operation of a bagel bakery and restaurant
("Tenant's Use") or (ii) any other lawful use, provided Tenant receives the
consent of Landlord which consent shall not be unreasonably withheld,
conditioned or delayed. Landlord acknowledges that Tenant's Use shall include
but not be limited to the preparation and sale of bagels, baked goods, specially
and gourmet coffees and teas, soft drinks, dessert items, deli and other
sandwiches and sideorder items, for in-store service and consumption, delivery
and take-out service, and for catering services provided for off-premises
preparation or consumption by customers and other establishments. If permitted
by local ordinance, Tenant may, at its discretion, operate a drivethrough from
the Leased Premises, and Landlord shall cooperate with Tenant's application for
any permits required in connection therewith, and shall make available any
portion of the common areas that will facilitate such use. [Landlord agrees that
during the Term and any Extension, Tenant shall have the exclusive right to sell
bagels and bagel-related products and gourmet coffee for on or off-premises
consumption at the Shopping Center. Landlord agrees to enforce this covenant
against other tenants in the Shopping Center using all reasonable legal means.]
Landlord acknowledges that odors and smoke are emitted during the operation of
Tenant's Use and shall not be deemed noxious or offensive.
5. RIGHTS OF OTHER TENANTS. Landlord represents and warrants that there
are no tenants or any other parties in the Shopping Center who have leases or
agreements which prohibit, restrict or interfere with Tenant's Use.]
6. INSPECTION. Landlord shall provide to Tenant plans and specifications
of the Leased Premises including, but not limited to, the floor plan and the
floor bearing capacity of the Leased Premises within five (5) days after the
Effective Date. Also within such five (5) day period, Landlord shall deliver to
Tenant an existing title policy on the [Shopping Center or] Leased Premises and
all appurtenant easements, including legible copies of all documents affecting
the [Property or] Leased Premises. At any tune after the Effective Date,
Landlord shall permit Tenant to enter upon the [Property or] Leased Premises to
make a topographic and boundary survey, determine the location of utilities,
performing engineering studies and/or environmental audits ("Inspections") to
determine the Leased Premises' suitability for Tenant's
3
<PAGE>
Use. Landlord agrees to remove, at its sole cost and expense, any asbestos or
asbestos containing materials located on the Leased Premises. Tenant shall be
permitted to make adequate openings in walls, floors and ceilings during
Inspections. If the Inspections indicate conditions not satisfactory to Tenant
for Tenant's Use, Tenant may terminate this I-ease and the parties shall be
released from further liability. If Tenant shall terminate this Lease pursuant
to this Section, it shall as soon as reasonably possible repair any openings in
the walls, floors or ceilings it made during Inspections. Tenant shall indemnity
and hold Landlord harmless from and against any and all liability arising out of
any negligence in the performance of the Inspections.
7. CONSTRUCTION OF LEASED PREMISES; ALLOWANCE.
------------------------------------------
(a) This Lease is contingent on Tenant's ability to secure all required
licenses, permits and approvals from applicable governmental authorities
necessary for it to operate its business, including, without limitation, Tenant
obtaining all licenses, permits and approvals necessary for Tenant to conduct
table-seated dining on the Leased Premises; otherwise, Tenant may elect to
terminate this Lease immediately upon written notice to Landlord. On or before
______________, 19___, Landlord agrees, at Landlord's expense, to perform all
work with respect to the Leased Premises as required by Tenant in accordance
with the terms of Exhibit ___ attached hereto and made a part hereof. Within
sixty (60) days from the substantial completion of Landlord's work and delivery
of possession of the Leased Premises to Tenant, Tenant shall commence and
complete all work on the Leased Premises other than those "punch list" items
remaining to be performed by Landlord. Each party's respective work obligations
shall be commenced and completed in a good, workmanlike and lien free manner, in
accordance with all applicable laws, including the Americans with Disabilities
Act of 1990, as amended (the within the time periods provided herein and in such
work letter.
(b) Landlord agrees to provide Tenant with a cash allowance (the
"Allowance") of $______ per square foot (or $_______ in total) for the purpose
of Tenant constructing its leasehold improvements. Landlord agrees that the
Allowance shall be due and payable within ten (10) days following (i) receipt of
a copy of Tenant's certificate of occupancy, (ii) Tenant's opening for business,
and (iii) Tenant's furnishing Landlord with all properly executed lien waiver
forms. Landlord and Tenant hereby agree that the Allowance shall be amortized
over a period of ten (10) years and shall bear interest at the Prime Rate
(hereafter defined). For purposes of this Lease, the term "Prime Rate" shall
mean the rate per annum from time to term determined by ____________ as its
Prime Rate of interest, as reflected in the Bank's Prime Rate history book
maintained at its principal office in ________________, as the Prime Rate may
change from time to time. Landlord hereby agrees that Tenant shall have the
right to repay the Allowance to Landlord at any tune and any such repayment
shall reduce the Rent payable hereunder.
8. UTILITIES. Landlord shall furnish to the Leased Premises at all times
sufficient (i) sewer, gas, water and electric service lines in sufficient
capacity as is required by Tenant and
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<PAGE>
(ii) sufficient heat, hot and cold water and air conditioning as required from
time to time by Tenant for all purposes, except during the making of necessary
repairs which repairs shall be completed as promptly as possible without
disruption to Tenant's business. Landlord hereby represents and warrants to
Tenant that all utilities and any HVAC system servicing the Leased Premises are
in good working order, condition and repair as of the Effective Date.
9. [In-Line: MAINTENANCES PAYMENT. Landlord covenants and agrees to
maintain in good condition and repair the Property (including structural
elements), the cannon areas, parking areas, walkways, access drives, driveways,
utility lines and foundations within the Property, throughout the Term and any
Extensions. In the event Landlord fails to promptly perform such necessary
maintenance and/or repairs, Tenant may perform such maintenance and/or repairs
and any costs expended by Tenant shall be deducted the Rent. Landlord shall keep
the parking area free of all ice, snow, debris and refuse so as to keep the
Shopping Center in a neat, clean and orderly condition. Landlord shall also
maintain adequate lighting for the parking area and driveways.
Tenant shall, within thirty (30) days upon receipt from Landlord of a
report certified by an authorized officer of Landlord, of the actual and
reasonable common area maintenance expenses incurred for the Property for the
previous calendar year, reimburse Landlord for payment of Tenant's proportionate
share of such expenses. Tenant shall have the right to audit and inspect the
books and records of Landlord with respect to any costs or item which is passed
through to Tenant upon ten (10) days written notice by Tenant to Landlord. If
the results of the audit show an overcharge to Tenant of more than two percent
(2%) of the actual amount owed by Tenant, Landlord shall pay the reasonable cost
of such audit and Landlord shall credit or refund to Tenant any overcharge of
such item as discovered by the audit within thirty (30) days of the completion
of such audit. In the event such audit discloses an undercharge of such items as
billed to Tenant, Tenant shall pay to Landlord the amount of such undercharge
within thirty (30) days of completion of such audit. Tenant's proportionate
share ("Proportionate Share") shall be a fraction, the numerator of which shall
be the Leased Premises Floor Area and the denominator of which shall be the
gross leaseable floor area in the Property (whether or not constructed, rented
or occupied). Notwithstanding anything to the contrary provided herein, Tenant
shall not be required to pay any expenses which, in accordance with generally
accepted accounting principles, are not fully chargeable as a current expense in
the year the expenditure is incurred.]
Freestanding: MAINTENANCE; PAYMENT. Tenant covenants and agrees, at its
expense, to maintain in good condition and repair the Leased Premises (including
structural elements), the common areas, parking areas, walkways, access drives,
driveways, utility lines and foundations within the Leased Premises, throughout
the Term and any Extensions. In the event Tenant fails to promptly perform such
necessary maintenance and/or repairs, Landlord may perform such maintenance
and/or repairs and any costs expended by Landlord shall be added to the Rent.
Tenant shall keep the parking area free of all ice, snow, debris and refuse so
as to keep the I-
5
<PAGE>
eased Premises in a neat, clean and orderly condition. Tenant shall also
maintain adequate lighting for the parking area and driveways.
10. MAJOR TENANTS. If one or more of the following tenants cease to
operate a business under its present trade name within the Shopping Center for a
period in excess of 90 days, and another tenant of substantially the same size,
quality and reputation in the business community, shall not have commenced
operation within such time, then Tenant reserves the right to terminate this
Lease or to reduce its Rent and other charges payable by Tenant in proportion to
the reduction in value of the Leased Premises, as reasonably determined by
Tenant: _______________________________.]
11. PROPERTY USE. Tenant has entered into this Lease in reliance upon
representations by Landlord that no part of the Shopping Center shall be used as
a massage parlor or spa, blood bank, abortion clinic, or an adult book or adult
video tape store (which are defined as stores in which any portion of the
inventory is not available for sale or rental to children under 18 years old
because such inventory explicitly deals with or depicts human sexuality).]
12. NON-DISTURBANCE AND ATTORNMENT. Landlord, within thirty (30) days
after Effective Date, but in any event, prior to the Commencement Date, will
obtain from every senior landlord, mortgagee and holder of a deed of trust upon
the [Property or] Leased Premises (collectively, the "Senior Interest Holders"),
an agreement in recordable form acceptable to Tenant wherein the Senior Interest
Holders agree not to disturb Tenant's possession of the Leased Premises or
deprive Tenant of any rights or increase any of its obligations under this Lease
(the "Non-Disturbance and Attornment Agreement").
13. OPTION TO TERMINATE. Tenant shall have the right to terminate the
Lease at any time after the second anniversary of the Commencement Date by
giving Landlord three (3) months written notice of its intention to do so. In
the event Tenant shall exercise this right of termination, Tenant shall pay as
consideration to Landlord on the date of termination a sum equal to three (3)
months' Rent.
14. In-Line: REAL ESTATE TAXES. Landlord shall pay before they become
delinquent real estate taxes imposed during the Term and any Extensions upon or
against the Property ("Real Estate Taxes"). Landlord shall be solely responsible
for payment of any and penalties imposed for any late payment. Tenant shall,
within thirty (30) days upon receipt from Landlord of a copy of the paid tax
bill and an invoice, reimburse Landlord for payment of Tenant's Proportionate
Share of Real Estate Taxes.
Real Estate Taxes for the year in which the Term shall begin and the year
in which the Lease shall terminate shall be prorated so that Tenant shall pay
only those portions thereof which correspond with the portion of said years as
are within the Term or the current Extension. Nothing herein contained shall
require Tenant to pay (a) corporation, franchise, income, estate,
6
<PAGE>
gift and inheritance taxes or charges imposed on Rent or other similar taxes,
charges or impositions which may be levied or assessed against Landlord, fee
owner, or their successor in title or (b) Real Estate Taxes on easement
parcels.]
15. Freestanding: REAL ESTATE TAXES. Tenant shall pay before they become
delinquent real estate taxes imposed during the Term and any Extensions upon or
against the Leased Premises ("REAL ESTATE TAXES"). Real Estate Taxes for the
year in which the Term shall begin and the year in which the Lease shall
terminate shall be prorated so that Tenant shall pay only those portions thereof
which correspond with the portion of said years as are within the Term or the
current Extension. Nothing herein contained shall require Tenant to pay (a)
corporation, franchise, income, estate, gift and inheritance taxes or charges
unposed on Rent or other similar taxes, charges or impositions which may be
levied or assessed against Landlord, fee owner, or their successor in title or
(b) Real Estate Taxes on easement parcels.
16. SIDEWALKS. Tenant shall be permitted to use the sidewalks and/or
courtyards adjacent to the Leased Premises as an outdoor cafe free of any
additional charge. Landlord shall not cause or permit the street, sidewalks or
courtyards adjacent to the Leased Premises to be obstructed or blocked.]
[17. In-Line: INSURANCE.
(a) LANDLORD. From the Effective Date and continuing throughout the Term
and any Extensions, Tenant shall maintain the following insurance naming
Landlord as an additional insured: (i) commercial general liability and property
damage insurance in the amount of not less than $1,000,000.00 for bodily injury
or death or property damage of any one person and $1,000,000.00 for any one
occurrence, and (ii) fire and extended coverage insurance in an amount equal to
the full replacement cost of any improvements located on the Leased Premises,
established by agreed amount endorsement by Tenant, Landlord and the insurer.
Upon notice from Landlord, Tenant shall deliver to Landlord a certificate from
its insurer declaring such insurance to be in full force and effect.
(b) TENANT. From the Effective Date and continuing throughout the Term and
any Extensions, Tenant shall maintain commercial general liability insurance
naming Landlord as an additional insured in the amount of not less than
$1,000,000.00 for bodily injury or death or property damage of any one person
and $1,000,000.00 for any one occurrence. Upon notice from Landlord, Tenant
shall deliver to Landlord a certificate from its insurer declaring such
insurance to be in full force and effect.
(c) WAIVER OF SUBROGATION. Landlord and Tenant and all parties claiming by
or through them mutually release and discharge each other from all claims and
liabilities arising from or caused by any casualty or hazard, covered or
required hereunder to be covered in whole or in part by insurance on the Leased
Premises or in connection with property on or activities
7
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conducted on the Leased Premises, and waive any right of subrogation which might
otherwise exist in or accrue to any person on account thereof.]
18. Freestanding: INSURANCE.
(a) LANDLORD. From the Effective Date and continuing throughout the Term
and any Extensions, Tenant shall maintain the following insurance naming Tenant
as an additional insured: (i) commercial general liability and property damage
insurance in the amount of not less than $500,000.00 for bodily injury or death
or property damage of any one person and $1,000,000.00 for any one occurrence,
(ii) fire and extended coverage insurance in an amount equal to the full
replacement cost of any improvements located on the Leased Premises, established
by agreed amount endorsement by Tenant, Landlord and the insurer, (iii) workers'
compensation insurance in statutory amounts, and (iv) contractual liability
insurance. Upon notice from Tenant, Landlord, its agents and contractors shall
deliver to Tenant a certificate from its insurer declaring such insurance to be
in full force and effect.
(b) WAIVER OF SUBROGATION. Landlord and Tenant and all parties claiming by
or through them mutually release and discharge each other from all claims and
liabilities arising from or caused by any casualty or hazard, covered or
required hereunder to be covered in whole or in part by insurance on the
Property or in connection with property on or activities conducted on the
Property, and waive any right of subrogation which might otherwise exist in or
accrue to any person on account thereof.
19. LANDLORD'S TITLE AND QUIET ENJOYMENT. Landlord represents and
warrants that Landlord is seized in fee simple title to the [Property or] Leased
Premises, free, clear and unencumbered except as otherwise disclosed herein.
Landlord covenants that so long as Tenant fulfills the conditions and covenants
required of it to be performed, Tenant will have peaceful and quiet possession
thereof. Landlord further represents and warrants that it has good right, full
power and lawful authority to enter into the Lease for the Term and any
Extensions.
20. IMPROVEMENTS AND ALTERATIONS. Tenant shall have the right to (i)
alter, renovate, add, remodel, modify, and/or change the Leased Premises and/or
other improvements upon the Leased Premises as Tenant may deem desirable, and
(ii) install pylon signage on any [Shopping Center] pylon [on the Leased
Premises] or may install a freestanding pylon or affix fascia signs, canopies,
awnings and/or flags on the exterior walls of the Leased Premises if permitted
by local ordinance. landlord hereby grants to Tenant and its agents and
contractors, at Tenant's sole cost and expense, the right to install, maintain
and operate a mast mounted satellite dish antenna (the "Dish") and related
equipment, including cables from the exterior of the roof directly above the
Leased Premises to equipment inside the Leased Premises, necessary to the
operation of the Dish, as part of Tenant's integrated satellite business
network. Tenant may locate the Dish at or relocate the Dish to some other
location on or about the roof of the [Shopping Center or] Leased Premises for
purposes of adequate reception, subject to appropriate law, codes and
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<PAGE>
regulations. Any improvements constructed upon the [Property or Leased Premises
by Tenant shall be and remain the property of Tenant during the Term and any
Extensions. Tenant shall not be required to remove the improvements upon the
[Property or] Leased Premises and Tenant's failure to do so after the expiration
of such period shall be deemed to be an abandonment thereof, whereby title shall
become vested in the Landlord.
21. In-Line: DAMAGE OR DESTRUCTION. If the Leased Premises and/or the
Property shall be damaged or destroyed by fire or other casualty, Landlord shall
continence to repair or rebuild the Leased Premises and/or the Property to their
condition immediately prior to such damage or destruction and shall complete
same within a reasonable time thereafter. In the event Landlord has not
commenced to so repair or rebuild the Leased Premises and/or the Property,
Tenant may at any time thereafter and without further notice to Landlord
commence to repair or rebuild the Leased Premises, or Tenant may terminate the
Lease and the parties shall be released from further liability. In the event
Tenant elects to repair or rebuild the Leased Premises, Landlord shall make
available to Tenant all insurance proceeds or such portion thereof necessary for
this purpose. In the event the insurance proceeds are insufficient to cover the
costs of the repairs or rebuilding, the excess costs shall be borne by Landlord,
which costs shall be deducted from the Rent. In the event the repair or
rebuilding of the Leased Premises has not been completed within a period of
ninety (90) days from the date of the damage or destruction, or if the casualty
occurs within the last year of the Term or any Extension regardless of the time
necessary to complete the repair or rebuilding, Tenant may, at its option,
terminate the Lease and the parties shall be released from further liability. In
such event, Tenant shall be entitled to all proceeds of insurance and rights of
recovery against insurers on policies covering such damage or destruction for
any improvements constructed upon the Property by Tenant. During any period that
the damage or destruction is such as to render the use of the Leased Premises
impractical or impossible, as determined by Tenant, the Rent and other charges
payable by Tenant shall abate.]
22. Freestanding: DAMAGE OR DESTRUCTION. If the Leased Premises shall be
damaged or destroyed by fire or other casualty, Tenant may, at its option, (i)
commence to repair or rebuild the Leased Premises to its condition immediately
prior to such damage or destruction and shall complete same within a reasonable
time thereafter, or (ii) terminate the Lease and the parties shall be released
from further liability. In the event Tenant elects to repair or rebuild the
Leased Premises, Landlord shall make available to Tenant all insurance proceeds
or such portion thereof necessary for this purpose. If the casualty occurs
within the last year of the Term or any Extension regardless of the time
necessary to complete the repair or rebuilding, Tenant may, at its option,
terminate the Lease and the parties shall be released from further liability. In
such event, Tenant shall be entitled to all proceeds of insurance and rights of
recovery against insurers on policies covering such damage or destruction for
any improvements constructed upon the Leased Premises by Tenant. During any
period that the damage or destruction is such as to render the use of the Leased
Premises impractical or impossible, as determined by Tenant, the Rent and other
charges payable by Tenant shall abate.]
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23. LIENS. Landlord and Tenant covenant each with the other not to permit
any judgment, attachment and/or lien (an "Encumbrance") to be filed against the
Leased Premises. Should any judgment, attachment and/or lien of any nature be
filed against the Leased Premises, the party from whose fault or alleged debt
such lien arises shall within thirty (30) days cause such Encumbrance to be
removed by substitution of collateral or otherwise.
24. WAIVER OF LANDLORD'S LIEN. In the event Tenant, its subtenants or
assigns acquires and/or leases personal property to be installed and used upon
the Leased Premises subject to a conditional sales contract, chattel mortgage or
other security agreement or lease, Landlord agrees to execute and deliver to any
such secured creditor and/or lessor a waiver of any lien Landlord may have upon
such personal property. Such waiver will be on a form provided by Tenant
authorizing the secured creditor and/or lessor to enter upon the Leased Premises
and remove such personal property in the event of default under the terms of the
conditional sales contract, chattel mortgage, security agreement and/or lease.
This Section shall not be interpreted as creating a lien in favor of Landlord.
25. DEFAULT. In the event Tenant shall fail to pay the Rent when due or
shall fail to perform any of its other obligations under the Lease, after notice
of such default shall have been given as provided below, Landlord may as its
sole and exclusive remedy elect either: (a) to re-enter the Leased Premises by
summary or similar proceedings and re-let the Leased Premises, using reasonable
efforts therefor, and receiving the Rent therefrom, applying the same first to
the payment of Rent accruing hereunder, the balance, if any, to be paid to
Tenant; but, Tenant shall remain liable for the equivalent of the amount of all
Rent reserved herein less the receipts of reletting, if any, and such amount
shall be due and payable to Landlord as damages or rent, as the case may be, on
the successive Rent days provided above, and Landlord may recover such amount
periodically on such successive days; or (b) to terminate the Lease and to
resume possession of the Leased Premises wholly discharged from the Lease.
Such election shall be made by written notice to Tenant at any time on or
before the doing of any act or the commencement of any proceedings to recover
possession of the Leased Premises and shall be final. If Landlord shall elect to
terminate the Lease, all rights and obligations of Tenant relating to the
unexpired portion of the Lease shall cease. Within ten (10) days after receipt
by Tenant of notice of election by Landlord to terminate the Lease, the parties
shall by an instrument in writing in recordable form, terminate the Lease and
Tenant shall surrender and deliver to Landlord the Leased Premises, except that
Tenant may remove its trade fixtures, signs, equipment and other personal
property from and de-identify the Leased Premises.
Neither bankruptcy, insolvency, nor the appointment of a receiver or
trustee shall affect the Lease so long as the obligations of Tenant are
performed by Tenant, its successors or assigns.
10
<PAGE>
No default hereunder shall be deemed to have occurred on the part of Tenant
until ten (10) days after written notice of any monetary default and thirty (30)
days after written notice of any non-monetary default shall have been given to
Tenant, and Tenant at such time shall have failed to remedy such default. If
any default by Tenant, except payment of the rent, cannot reasonably be cured
within thirty (30) days after notice then Tenant shall have additional time as
may be reasonably necessary to cure such default.
26. CONDEMNATION. If any portion of or interest in the [Property or]
Leased Premises shall be permanently or temporarily taken under any right of
eminent domain or any transfer in lieu thereof, and such taking renders the
Leased Premises [or the Property] unsuitable in the reasonable judgment of
Tenant for Tenant's Use, Tenant may terminate this Lease by notice to Landlord
within thirty (30) days after such taking deprives Tenant of possession of any
portion of the Leased Premises or of any other rights of Tenant under this
Lease. Nothing contained herein shall prevent Landlord and Tenant from
prosecuting claims in any condemnation proceedings for the values of their
respective interests. Tenant shall have the exclusive right to claim any
proceeds for the taking of Tenant's trade fixtures, equipment or personal
property and for relocation expenses. Landlord acknowledges and agrees that any
remediation of Hazardous Substances (hereinafter defined) that interferes with
Tenant's Use shall be deemed to be a taking for purposes of this Section.
Landlord represents and warrants that, at the Effective Date, it has no
actual or constructive knowledge of any proposed condemnation or road or access
changes or impairment to the visibility of the [Property or] Leased Premises
including, but not limited to, restrictions, barriers or medians, overpasses,
underpasses or bypasses, that would affect the [Property or] Leased Premises or
Tenant's Use of any part of the [Property or] Leased Premises. In the event
that, prior to the Commencement Date, any of the foregoing actions is proposed
by any governmental or private authority, Tenant shall be under no obligation to
commence or continue construction of its work on the Leased Premises, and Tenant
shall have the option to (i) recover all rights, damages and awards pursuant to
the appropriate provisions of this Section, or (ii) terminate this Lease with a
reservation of its rights and remedies hereunder.
27. ASSIGNMENT OF TRANSFER.
(a) LANDLORD. No assignment or transfer of the Lease by Landlord shall be
binding on Tenant unless the assignee or transferee shall assume and agree to be
bound by the terms of the Lease.
(b) TENANT. Tenant shall have the (i) right to assign, sublet, license or
transfer any or all of its rights and privileges under the Lease provided that
no such assignment, sublease, license or transfer shall operate to relieve
Tenant of its obligations under the Lease, including the payment of Rent and
other charges and (ii) unrestricted right to execute and deliver a mortgage,
deed of trust, pledge and/or collateral assignment of the Lease as security for
any
11
<PAGE>
indebtedness in any form whatsoever. Landlord hereby consents to such collateral
assignment and agrees to execute any document required by Tenant's mortgagee to
effect such transaction.
28. TENANT. Tenant's customers shall have the exclusive right to park on
the portion of the parking area as crosshatched on Exhibit A during Tenant's
regular business hours. Tenant shall have the right to place signs reading
"Reserved Parking Tenant's Customers Only from 6:00 a.m. to 7:00 p.m." on such
parking spaces if and when Tenant, exercising reasonable judgment, shall
determine that other tenant's customers or employees are utilizing such spaces
to the detriment of Tenant's business. Tenant shall have the right to enforce
its exclusive parking rights under this paragraph by the ticketing and towing of
cars.]
29. REPRESENTATIONS AND WARRANTIES. Landlord represents and warrants:
(a) HAZARDOUS SUBSTANCES. The [Property or] Leased Premises does not
presently contain and is free from all hazardous substances and/or wastes, toxic
and nontoxic pollutants and contaminants including, but not limited to,
petroleum products and asbestos (collectively, "Hazardous Substances"). Landlord
has not received any notification from any federal, state, county or city agency
or authority relating to Hazardous Substances, in or near the [Property or]
Leased Premises. Neither party shall cause or permit any Hazardous Substances to
be brought upon, kept or used in or about the [Property or] Leased Premises by
such party, its agents, employees, contractors, invitees, tenants, subtenants or
licensees without the prior written consent of the other party. Neither party
shall unreasonably withhold its consent thereto as long as such party
demonstrates to the other party's reasonable satisfaction that each such
Hazardous Substance is necessary or useful to its business or to the business of
its agents, employees, contractors, invitees, tenants, subtenants or licensees,
and will be used, kept and stored in a manner that complies with all applicable
federal, state and local environmental laws. If consented to, the requesting
party shall promptly deliver to the other party true and complete copies of all
notices received by such party from any governmental authority with respect to
the generation, storage or disposal of such Hazardous Substances.
(b) LITIGATION. There are no claims, causes of action or other litigation
or proceedings pending or, to the best of Landlord's knowledge, threatened in
respect to the ownership, operation or environmental condition of the [Property
or] Leased Premises or any part thereof, except for claims which are fully
insured and as to which the insurer has accepted defense without reservation.
(c) VIOLATION. There are no violations of any health, safety, pollution,
zoning or other laws, ordinances, rules or regulations with respect to any
portion of the [Shopping Center or] Leased Premises which have not been
heretofore entirely corrected. In the event Landlord has knowledge of any such
violations, Landlord shall cure such violations prior to the Effective Date.
12
<PAGE>
(d) ZONING. The Shopping Center is currently zoned to allow the use of the
Leased Premises for Tenant's Use.
30. Freestanding: RIGHT OF FIRST LEASE; RIGHT OF FIRST REFUSAL.
(a) If Landlord desires to accept a bona fide offer ("Lease Offer") to
lease the Leased Premises or any portion thereof for a term commencing on or
after the expiration of this Lease or to lease any portion of the premises
adjacent to the Leased Premises, Landlord shall notify Tenant and Tenant shall
have a right of first lease to lease the Leased Premises and/or the adjacent
premises upon the terms and conditions of the Lease Offer.
(b) Tenant shall have the right to purchase the Leased Premises on the same
terms and conditions as those of any bona fide offer received by and acceptable
to Landlord. Prior to making any sale or any agreement to sale, Landlord shall
notify Tenant in writing of the terms and conditions of such offer and Tenant,
within 30 days after receipt of such notice, may exercise this right by written
notice to Landlord.
[31. In-Line: RIGHT OF FIRST LEASE. If Landlord desires to accept a bona
fide offer ("Lease Offer") to lease the Leased Premises or any portion thereof
for a term commencing on or after the expiration of this Lease or to lease any
portion of the premises adjacent to the Leased Premises, Landlord shall notify
Tenant and Tenant shall have a right of first lease to lease the Leased Premises
and/or the adjacent premises upon the terms and conditions of the Lease Offer.]
32. INDEMNIFICATION.
(a) Landlord hereby indemnities and holds Tenant, Tenant's nominees,
officers, directors, agents, employees, successors and assigns harmless from and
against any and all claims, demands, liabilities, and expenses, including
attorneys' fees and litigation expenses, arising from (i) the negligence or
wilful acts of Landlord or its agents, employees, or contractors occurring on
[the Leased Premises or] the Property or (ii) the presence of hazardous
substances or materials on [the Leased Premises or] the Property, except to the
extent caused by Tenant's negligence or wilful misconduct. In the event any
action or proceeding shall be brought against Tenant by reason of any such
claim, Landlord shall defend the same at Landlord's expense by counsel selected
by Tenant.
(b) Tenant hereby indemnities and holds Landlord, Landlord's nominees,
officers, directors, agents, employees, successors and assigns harmless from and
against any and all claims, demands, liabilities, and expenses, including
attorneys' fees and litigation expenses, arising from the negligence or wilful
acts of Tenant or its agents, employees, or contractors occurring on [the Leased
Premises or] the Property, except to the extent caused by Landlord's negligence
or wilful misconduct. In the event any action or proceeding shall be brought
against
13
<PAGE>
Landlord by reason of any such claim, Tenant shall defend the same at Tenant's
expense by counsel selected by Landlord.
33. MISCELLANEOUS.
(a) If either party is delayed or prevented from performing any of its
obligations under this Lease by reason of strike, lockouts, labor troubles,
failure of power, riots, insurrection, war, acts of God or any other cause
beyond such party's control, the period of such event or such prevention shall
be deemed added to the time period herein provided for the performance of any
such obligation by the applicable party.
(b) This Lease contains the entire agreement between the parties. No
modification, alteration or amendment of the Lease shall be binding unless in
writing and executed by the parties.
(c) The representations, warranties and indemnities contained in this Lease
shall survive the termination or expiration of this Lease.
(d) Landlord acknowledges that any plans or specifications of Tenant and
Tenant's trademarks and service marks, including, without limitation are the
sole property of Tenant, and Landlord shall not have any rights to same.
(e) Each party hereto has reviewed and revised (or requested revisions of)
this Lease, and therefore any usual rules of construction requiring that
ambiguities are to be resolved against a particular party shall not be
applicable in the construction and interpretation of this Lease or any Exhibits
hereto.
(f) Time is of the essence of this Lease and each provision; provided,
however, if the final (but not any interim) date of any period set forth herein
falls on a Saturday, Sunday or legal holiday under the laws of the United States
of America, the final date of such period shall be extended to the next business
day.
(g) Landlord agrees to pay all commissions due in connection with the
execution of this Lease.
(h) his Lease shall be governed by and construed and interpreted in
accordance with the laws of the state in which the Shopping Center is located.
(i) This Lease is contingent upon Tenant obtaining the requisite senior
management and Board of Director approval of this Lease and the Leased Premises
for Tenant's Use.
(j) Landlord and its agents, representatives, employees, partners, officers
and directors will not disclose the subject matter or terms of the transaction
contemplated by this
14
<PAGE>
Lease unless prior written consent to such disclosure is obtained from Tenant,
which consent may be withheld at Tenant's sole discretion.
(k) Landlord agrees that upon its execution of this Lease, neither it nor
its agents or employees shall (i) initiate, encourage the initiation by others
of discussions or negotiations with third parties or respond to solicitation by
third parties relating to the Leased Premises or any part thereof, (ii) fail to
immediately notify Tenant if any third party attempts to initiate any such
solicitation, discussion, or negotiation with Landlord and (iii) enter into any
agreement with any third party with respect to the Leased Premises or any part
thereof.
(l) The offer to lease set forth in this Lease must be accepted by
Landlord by the delivery of fully executed duplicate originals of this Lease
to Tenant by no later than _____________, ___.m., on _________________, ___,
19___; otherwise, this offer may, at Tenant's sole option, be terminated and be
of no further force or effect.
IN WITNESS WHEREOF, Landlord has caused this Addendum to Lease to be
executed and sealed this ___ day of______________, 199___.
WITNESSES: LANDLORD
- -------------------------- --------------------------
By:
- -------------------------- -----------------------
Name:
Title:
IN WITNESS WHEREOF, Tenant has caused this Addendum to Lease to be
executed and sealed this ___ day of ________________, 199___.
WITNESSES: LANDLORD
- -------------------------- --------------------------
By:
- -------------------------- -----------------------
Name:
Title:
15
<PAGE>
EXHIBIT A
---------
SITE PLAN AND LEGAL DESCRIPTION OF THE
LEASED PREMISES [OR SHOPPING CENTER]
------------------------------------
16
<PAGE>
EXHIBIT B
---------
LEASE PLAN OF THE LEASED PREMISES
---------------------------------
17
<PAGE>
EXHIBIT C
---------
LANDLORD WORK
-------------
The Landlord shall, at its sole cost and expense, deliver the Leased
Premises in standard "vanilla shell" condition and shall complete the following
in a workmanlike manner, conforming with the Tenant's plans and specifications
and all local, state, national codes and UL and NFPA requirements, where
applicable:
Electrical Service - 120/208 volts, 3-Phase, 4 wire; 200 amp service
installed at location as specified by Tenant.
Water Service - 1" domestic water line from local main to Leased Premises;
meter and backflow device located as specified by Tenant.
Gas Service - install adequate gas line and meter at rear of building
supplying not less than 700 CFH; meter location as specified by Tenant.
Building Sanity Sewer - 4" sanitary sewer line from the Leased Premises to
the authorized main sewer; sewer stub at location specified by Tenant.
Fire Sprinkler - provide and install NFPA, UL and code approved fire
protection system.
Telephone Conduit - provide and install 2" telephone conduit, stubbed at
Tenant's specified location.
HVAC System - provide and install a minimum of 1 ton per 150 s.f. or
provide allowance of $1500 per ton for same.
Drywall and Ceiling System - provide and install standard 2' x 4' exposed
ceiling grid with standard grade lay-in ceiling tile. Provide and standard 5/8"
drywall at demising walls and vinyl-coated drywall in service and kitchen area.
Restrooms - provide functional handicap bathrooms as required by local
codes and ADA requirements; include janitor's closet or mop sink.
18
<PAGE>
EXHIBIT E
---------
EINSTEIN/NOAH BAGEL CORP.
FINANCIAL STATEMENTS
--------------------
E-1
<PAGE>
EXHIBIT F
---------
FORM OF OPINION OF COUNSEL
--------------------------
<PAGE>
[FORM OF OPINION OF COUNSEL]
[Date]
Bagel Corporation of America
1526 Cole Blvd., Suite 200
Golden, CO 80401
Re:
Ladies and Gentlemen:
We have acted as counsel for _________________________________________
______________, a Delaware limited liability company (the "Company") in
connection with the preparation, execution, and delivery of the Documents (as
hereinafter defined). This opinion is furnished to you pursuant to Section 7.1
of the Agreement (as hereinafter defined). As used herein, the term "State"
means the State of [opining jurisdiction] and the term "UCC" means the Uniform
Commercial Code as in effect in the State on the date hereof. Other capitalized
terms used herein and not otherwise defined herein have the meanings provided in
the Agreement.
The documents we have examined in rendering this opinion are the following:
(i) The following, collectively called the "Documents":
(a) the Secured Loan Agreement (the "Agreement"), of even date
herewith, between the Company and Bagel Corporation of America
("BCA");
(b) the Convertible Secured Note of the Company, of even date
herewith and delivered pursuant to the Agreement (the "Note");
(c) the Unit Pledge Agreement (the "Pledge Agreement");
(d) the Subsidiary Security Agreement, dated of even date
herewith between _____________________________________________ and BCA
pursuant to the Agreement (the "Subsidiary Security Agreement"); and]
(e) The Development Agreement, of even date herewith, by and
between the Company and BCA, as amended by [as applicable] (the
"Development Agreement")
(f) [other documents as applicable]
F-1
<PAGE>
(ii) A certificate of the Secretary of the Company certifying as to
(A) the certificate of formation and LLC Agreement of the Company and (B)
evidence of authorization of the transactions contemplated by the
Documents;
(iii) Copies of those indentures, loan or credit agreements, leases,
guarantees, mortgages, security agreements, bonds, notes and other
agreements or instruments, and orders, writs, judgments, awards,
injunctions and decrees, which have been certified by the Secretary of the
Company as those documents which affect or purport to affect the Company's
right to borrow money under, or right to undertake and perform its
obligations under, the Documents (collectively, the "Other Agreements and
Court Orders"), a copy of which certificate is attached hereto as Exhibit
A; and
(iv) A certificate of the Secretary of State of the State of Delaware,
dated ___________________________________, attesting to the continued
existence and good standing of the Company in that state.
We have also examined such other documents and records, and other
certificates, opinions and instruments and have conducted such investigation as
we have deemed necessary as a basis for the opinions expressed below. As to
factual matters relevant to our opinions expressed below, we have, without
independent investigation, relied upon all of the foregoing, upon the factual
representations made by the Company in Article VI of the Agreement, upon
certificates of the officers of the Company and of public officials, and upon
public records.
Based upon and subject to the matters stated herein and upon such
investigation as we have deemed necessary, we are of the opinion that:
1. The Company is a limited liability company duly organized, validly
existing, and in good standing under the laws of the state of its formation,
with corporate power and authority to enter into the Agreement and to issue the
Note and incur the indebtedness to be evidenced thereby.
[2. The Subsidiary is a corporation duly organized, validly existing, and
in good standing under the laws of the state of its incorporation, with
corporate power and authority to enter into the Documents to which it is a
party.]
3. Each of the Documents to which the Company is a party has been duly
authorized by all required action on the part of the Company, and each of them
has been duly executed and delivered by the Company, and constitutes the legal,
valid, and binding obligation of the Company, enforceable against the Company in
accordance with its terms.
[4. Each of the Documents to which the Subsidiary is a party has been duly
authorized by all required corporate action on the part of the Subsidiary, and
each of them has
F-2
<PAGE>
been duly executed and delivered by the Subsidiary, and constitutes the legal,
valid, and binding obligation of the Subsidiary, enforceable against the
Subsidiary in accordance with its terms.]
5. The execution and delivery of the Documents and the performance by the
Company of its obligations thereunder, will not conflict with or result in any
breach of any of the provisions of, or constitute a default under, or result in
the creation or imposition of any lien or encumbrance upon any of the properties
of the Company pursuant to the provisions of (a) its certificate of formation or
LLC Agreement, (b) any of the Other Agreements and Court Orders, or (c) any law,
rule, or regulation including without limitation Regulation G, T, U or X of the
Board of Governors of the Federal Reserve.
[6. The execution and delivery of the Documents and the performance by the
Subsidiary of its obligations thereunder, will not conflict with or result in
any breach of any of the provisions of, or constitute a default under, or result
in the creation or imposition of any lien or encumbrance upon any of the
properties of the Subsidiary pursuant to the provisions of (a) its Certificate
of Incorporation or bylaws, (b) any of the Other Agreements and Court Orders, or
(c) any law, rule, or regulation including without limitation Regulation G, T, U
or X of the Board of Governors of the Federal Reserve.]
7. To the best of our knowledge, no consent, authorization, appraisal, or
other action by, and no notice to or filing with, any governmental authority or
regulatory body or any other person, which has not been obtained or taken, is
required for the execution and delivery of, or the performance by the Company
[or the Subsidiary] of their respective obligations under, each of the
Documents.
8. Under applicable law, the Company's certificate of formation or LLC
Agreement, and all contract s, agreements, or restrictions known by us to bind
the Company, the vote of the holders of a majority of the Voting Units is
sufficient to elect the manager or managers of the Company, approve the merger,
consolidation, or sale of substantially all of the assets of the Company, or
take any other action whatsoever.
9. The Company is not an "investment company" or a company "controlled"
by an "investment company" within the meaning of the Investment Company Act of
1940, as amended.
10. The Company is not a "holding company", or a "subsidiary company" of a
"holding company", or an "affiliate" of a "holding company" or of a "subsidiary
company" of a "holding company" within the meaning of the Public Utility Holding
Company Act of 1935, as amended.
11. The Agreement creates a valid security interest in your favor as
security for the payment of the obligations of the Company under the Agreement
and the Note in all of the Company's right, title, and interest in and to all
personal property (the "Code Collateral") included within the definition of the
term Collateral (as defined in the Agreement) in which a
F-3
<PAGE>
security interest can be granted under the UCC and Non-[opining jurisdiction]
Codes. By rendering the opinions set forth in paragraph 8 we do not intend to
indicate that we are experts on, or qualified to render opinions on, the laws of
the Non-[opining jurisdiction] Jurisdictions. Accordingly, we caution you that
the opinions in paragraph 8 could be materially affected by local custom, other
provisions of the Non-[opining jurisdiction] Codes, other statutes, laws, or
regulations of the Non-[opining jurisdiction] Jurisdictions or judicial
decisions of courts construing or interpreting the laws of the Non-[opining
jurisdiction] Jurisdictions, including the Non-[opining jurisdiction] Codes.
This opinion is furnished to you solely in connection with the transactions
described above and may not be relied upon by you (and to the extent indicated
in the previous sentence, your counsel) for any other purpose or by any other
person in any manner or for any purpose.
Very truly yours,
F-4
<PAGE>
ANNEX 1
-------
UCC-1 Financing Statement filings to perfect a security interest in collateral
not constituting fixtures:
STATE FILING OFFICE REPORTING PUBLICATION
- ----- ------------- ---------------------
Ann-1
<PAGE>
EXHIBIT A
---------
CERTIFICATE
-----------
The undersigned hereby certifies that he is the duly elected Secretary of
___________________, a Delaware limited liability company (the "Company"), and
further certifies that the following documents are the only documents to which
the Company is a party that affect or purport to affect the Company's right to
borrow money under, or the Company's right to undertake and perform its
obligations under, the Documents (as defined in the Secured Loan Agreement,
dated _______________, between the Company and Bagel Corporation of America)
Date: __________________
_________________________________________
SECRETARY
A-1
<PAGE>
EXHIBIT F
---------
FINANCED AREA DEVELOPER
PROGRAM LOAN AGREEMENT
----------------------
F-1
<PAGE>
SECURED LOAN AGREEMENT
----------------------
THIS SECURED LOAN AGREEMENT (the "Agreement") is made and entered into as
of the ________ day of _________________________, 1996 between Einstein/Noah
Bagel Corp., a Delaware corporation (the "Company"), and______________________
_____________________________________________, a Delaware limited liability
company ("DEVELOPER").
R E C I T A L S:
---------------
The Company and DEVELOPER have entered into an area development agreement
(as amended from time to time, the "Development Agreement") pursuant to which
DEVELOPER is required to establish and operate up to ________ bagel stores (the
"Stores") in the area specified in the Development Agreement (the "Development
Area") in compliance with a development schedule set forth therein and to enter
into individual franchise agreements (each a "Franchise Agreement") for such
specific Stores. In order to facilitate the development of the Stores, DEVELOPER
desires to borrow up to $_______________ from the Company, and the Company
desires to make such loan to DEVELOPER, upon the terms and subject to the
conditions set forth herein.
COVENANTS
---------
In consideration of the mutual representations, warranties, and covenants
set forth herein, and in consideration of any advances made hereunder to or for
the benefit of DEVELOPER by Company, the parties hereto agree as follows:
ARTICLE I
---------
THE LOAN
--------
1.1 THE LOAN. The Company agrees, on the terms and subject to the
conditions hereinafter set forth,including without limitation the conditions to
loan advances set forth in Article III hereof, to advance at any time and from
time to time during the period commencing on the date hereof and ending on the
last day of the _______________ Retail Period (as defined in Section 1.7 below)
in the Company's fiscal year 199______ (the "Draw Loan Termination Date"),
amounts requested by DEVELOPER in an aggregate principal amount not to exceed
$_______________ (the "Loan"). Each advance of the Loan shall be in a minimum
amount of $100,000 and shall be made by wire transfer of Company to the account
of DEVELOPER or by regular check of Company payable to DEVELOPER and forwarded
to DEVELOPER by overnight air express to its address as set forth herein for
delivery on the next regular business day. The Loan shall be evidenced by a
promissory note (the "Note") of even date herewith in the form attached hereto
as Exhibit A.
<PAGE>
1.2 PURPOSES OF THE LOAN. Proceeds of the Loan shall be used by DEVELOPER
to pay fees and make payments to the Company, to fund Store operating costs, to
fund general corporate overhead, to pay fees to________________________________
_____________________________________________ pursuant to the Support Services
Agreement (as each such term is defined in Section 6.3 hereof), to provide
general working capital for DEVELOPER, and to finance the purchase, design,
construction and equipment of Stores in the Development Area pursuant to and in
accordance with the Development Agreement.
1.3 MAXIMUM PRINCIPAL BALANCE, ADDITIONAL LOAN AMOUNT.
(a) The aggregate outstanding principal balance of the Loan shall at no
time exceed $_______________, less the principal amount of conversions under
Section 1.9 and option exercises under Section 1.10 (the "Maximum Principal
Balance").
(b) In the event that Einstein Bros. Equity Funding, L.L.C. (the "Fund")
exercises all or a portion of either or both of the options ("Additional Unit
Options") to purchase up to an additional _______________ Units of
DEVELOPER in the aggregate as provided in the unit purchase agreement
as of even date herewith by and between DEVELOPER and the Fund ("Unit Purchase
Agreement"), the Maximum Principal Balance may be increased by the Company at
the Company's option by an amount to be determined by the Company in its sole
discretion not to exceed four times the total proceeds received by DEVELOPER
upon any exercise by the Fund of all or a portion of either or both of the
Additional Unit Options ("Additional Loan Amount").
(c) In the event and each time that the Company increases the Maximum
Principal Balance as provided in Section 1.3(b) above, DEVELOPER shall execute a
new promissory note, substantially in the form of the Note, reflecting the
Maximum Principal Balance under Section 1.3(b) plus the Additional Loan Amount
("New Note"). Such New Note shall provide that the Conversion Price (as defined
in the Note) for purposes of converting the Additional Loan Amount pursuant to
Section 1.9 hereof or exercising the Option for the Additional Loan Amount
pursuant to Section 1.10 hereof shall be $1.12 per Voting Unit, and all
references in this Agreement, the Pledge Agreements (as defined in Section 2.2
hereof) and Security Instruments (as defined in Section 2.4 hereof) to the Note
shall thereafter be references to the New Note.
(d) As used in all other sections of this Agreement (including in Sections
1.10 and 5.9 hereof), the term "Maximum Principal Balance" shall mean
$_______________ plus, in the event that all or any portion of either or both of
the Additional Unit Options has been exercised, the Additional Loan Amount less
the dollar amount of all previous conversions under Section 1.9 hereof and
exercises of the Option under Section 1.10 hereof.
2
<PAGE>
1.4 THE LOAN ACCOUNT. The Company shall maintain a loan account on its
books in which shall be recorded all advances under the Loan (collectively,
"Advances") made by Company to DEVELOPER pursuant to this Agreement, and all
payments made by DEVELOPER with respect to the Loan; provided, however, that
failure to maintain such account or record any advances therein shall not
relieve DEVELOPER of its obligations to repay the outstanding principal amount
of the Loan, all accrued interest thereon, and any amount payable with respect
thereto in accordance with the terms of this Agreement and the Note.
1.5 INTEREST RATE.
(a) Interest shall accrue daily on the aggregate outstanding principal
balance of the Loan, for the period commencing on the date the Loan is made
until the Loan is paid in full, at a per annum rate equal to the rate designated
and announced by Bank of America Illinois or its successor in interest (the
"Bank") from time to time as its "reference rate" in effect at its principal
office in Chicago, Illinois, plus 1%. The interest rate shall be adjusted, from
time to time, on the same day on which the Bank adjusts its "reference rate."
Interest on the outstanding principal amount of the Loan shall be payable in
arrears on the dates set forth herein and at maturity (whether at stated
maturity, by acceleration or otherwise).
(b) Interest shall be computed on the basis of a 360-day year and the
actual number of days elapsed.
(c) Any principal payment due under the Note not paid when due, whether at
stated maturity, by notice of repayment, by acceleration or otherwise, shall, to
the extent permitted by applicable law, thereafter bear interest (compounded
monthly and payable upon demand) at a rate which is 2% per annum in excess of
the rate of interest otherwise payable under this Agreement in respect of such
principal amount until such unpaid amount has been paid in full (whether before
or after judgment).
1.6 PAYMENT OF INTEREST. During the Interest Payment Period (as defined
below) DEVELOPER shall pay to the Company interest only on the outstanding
principal balance of the Loan on the first day of each Retail Period. The
"Interest Payment Period" shall mean the period commencing on the first day of
the Retail Period immediately following the first Retail Period in which
DEVELOPER initially draws on the Loan under this Agreement and continuing
through and including the Draw Loan Termination Date. Thereafter DEVELOPER
shall pay principal and interest as provided in Section 1.7 hereof.
1.7 REPAYMENT OF THE LOAN. If not earlier paid, or if not accelerated for
payment, the outstanding principal amount of the Loan shall, at the close of
business on the Draw Loan Termination Date, thereafter become an amortized term
loan payable as follows: the principal balance of the Loan shall be payable to
the Company in 65 substantially equal periodic installments of principal (the
amount of which periodic installments of principal shall be
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determined at the close of business on the Draw Loan Termination Date based on a
schedule amortizing such outstanding principal balance of the Loan as of such
date in 130 substantially equal periodic installments of principal), plus
accrued but unpaid interest, on the first day of each of the Company's 13
consecutive four-week accounting periods used for accounting purposes (each a
"Retail Period"), commencing on the first day of the _______________ Retail
Period in the Company's fiscal year 19______ and continuing until the first day
of the _______________ Retail Period in the Company's fiscal year 20______, when
the entire remaining principal balance of the Loan and all interest accrued
thereon shall be due and payable.
1.8 TERM OF THIS AGREEMENT. This Agreement and all covenants and
agreements of the Company hereunder shall be effective ______________________
_________________________, 1996 ("Closing Date") and shall continue in effect
until the last to occur of (i) the exercise, expiration, or other termination of
all remaining option rights granted in Section 1.10 hereof, (ii) the exercise,
expiration, or other termination of all of the remaining conversion rights
granted in Section 1.9 hereof, (iii) the date on which there is no amount
(principal or interest) remaining outstanding under the Note and (iv) the date
on which the Company no longer has an obligation to make any Advances hereunder
if DEVELOPER were to make a valid request for an Advance pursuant to and in
accordance with Article III hereof.
1.9 CONVERTIBILITY.
(a) On the terms and subject to the conditions set forth in the Note, any
portion of the outstanding principal balance of the Loan is convertible at the
election of the holder of the Note into Voting Units (as defined in the
DEVELOPER'S limited liability company agreement dated _______________, 199_, as
amended and as it may be further amended from time to time (the "LLC
Agreement")) of DEVELOPER at any time and from time to time after both of the
following have occurred: (i) the second anniversary of the Closing Date, and
(ii) such time as DEVELOPER has completed not less than 80% of the Development
Schedule set forth in the Development Agreement, and up to the later of (x) the
date on which DEVELOPER has properly repaid the outstanding principal balance of
the Loan and all accrued interest thereon in full or (y) the first day of the
_______________ Retail Period in the Company's fiscal year 20______; provided,
however, that nothing herein shall impair, restrict or prohibit the exercise of
remedies, including exercise of the conversion right, under Section 8.2 hereof
upon the occurrence of a Default. Upon such conversion, that portion of
principal so converted shall be deemed to be paid in full. Conversion of any
portion of the principal balance of the Loan shall not relieve DEVELOPER of its
obligation to pay any accrued but unpaid interest to the date of conversion on
the portion of the principal balance of the Loan so converted. In no event shall
interest be convertible into Voting Units in DEVELOPER.
(b) Upon any conversion under this Section 1.9, the Company's obligation to
make additional Advances to DEVELOPER under this Agreement shall be reduced by
an amount equal to the amount of the principal balance of the Loan so converted.
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1.10 OPTION.
(a) The Company shall have the option, at any time and from time to time
after both of the following have occurred: (i) the second anniversary of the
Closing Date, and (ii) such time as DEVELOPER has completed not less than 80% of
the Development Schedule set forth in the Development Agreement, and up to the
later of (x) the date on which DEVELOPER has properly repaid the outstanding
principal balance of the Loan and all accrued interest thereon in full or (y)
the first day of the _______________ Retail Period in the Company's fiscal year
20______, to purchase at the Conversion Price (as defined in the Note) up to
that number of Voting Units equal to (A) the Option Amount, divided by (B) the
Conversion Price (the "Option"); provided, however, that nothing herein shall
impair, restrict or prohibit the exercise of remedies, including exercise of the
option, under Section 8.2 hereof upon the occurrence of a Default. For purposes
of this Section 1.10, the Option Amount shall mean the Maximum Principal Balance
less the dollar amount of the outstanding principal balance of the Loan (whether
such amount is the result of a reduction in principal due to the repayment of
the Loan or the failure by DEVELOPER to request Advances hereunder or otherwise)
on the date the Company notifies DEVELOPER of its intention to exercise the
Option.
(b) Upon exercise of any portion of the Option under this Section 1.10, the
Company's obligations to make additional Advances to DEVELOPER under this
Agreement shall be reduced by an aggregate amount equal to the amount paid upon
such option exercise.
(c) In case of any reclassification or change of outstanding Units (as
defined in the LLC Agreement), or in case of any consolidation or merger of
DEVELOPER with or into any partnership, corporation, or other entity (other than
a merger in which DEVELOPER is the surviving entity and which does not result in
any reclassification or change of outstanding Units, other than a change in
number of Units issuable upon exercise of the Option) or in case of any sale or
conveyance to any partnership, corporation, or other entity of the property of
DEVELOPER as an entirety or substantially as an entirety, then the holder of the
Note shall have the right thereafter to exercise the Option for the kind and
amount of units and other securities and property receivable upon such
reclassification, change, consolidation, merger, sale, or conveyance by a holder
of the number of Voting Units of DEVELOPER issuable upon exercise of the Option
immediately prior to such reclassification, change, consolidation, merger, sale,
or conveyance, subject to adjustments which shall be as nearly equivalent as may
be practicable to the adjustments provided for herein.
1.11 ONE OBLIGATION. All Advances made hereunder, and all interest
accrued thereon, shall constitute one obligation of DEVELOPER secured by the
security interests granted by this Agreement and by all other security
interests, liens, claims, and encumbrances from time to time hereafter granted
to the Company by DEVELOPER.
1.12 CREDIT RESOURCES. DEVELOPER acknowledges that the Company has
informed it that the Company does not currently and may not from time to time in
the future have cash, cash equivalents, and credit resources sufficient to
permit the Company to necessarily make all requested Advances under this
Agreement and all other similar agreements with its financed area
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developers and franchisees while maintaining sufficient working capital for the
Company's operating needs. DEVELOPER agrees that in the event the Company shall
fail to fund the Loan as and to the extent required hereby solely as a result of
the unavailability to the Company of cash and/or credit resources to fund the
Loan and not as a result of any failure of DEVELOPER to satisfy the conditions
precedent to Advances or of the occurrence of a Default or Event of Default
hereunder (a "Funding Default"), such Funding Default shall not (a) constitute
fraud (by any person or entity, including the Company and its successors and
assignees) or (b) give rise to any liability of any person or entity (other than
the Company and its successors and assignees) in any other tort, and DEVELOPER
further agrees that it shall be limited to its remedies in contract and in a
non-fraud tort action against the Company. The Company and DEVELOPER agree that
this Section 1.12 shall not diminish or otherwise affect in any way the amount
of damages for which the Company may be liable to DEVELOPER in a contract or
non-fraud tort action for a Funding Default.
1.13 PAYMENT METHOD: AUTHORIZATION TO ADVANCE FOR LIMITED PURPOSES.
(a) All payments to be made by DEVELOPER hereunder shall be made in lawful
money of the United States, in immediately available funds, without set off,
counterclaims, deduction or withholding of any type.
(b) So long as funds are still available to be drawn by DEVELOPER
hereunder, and DEVELOPER is not in Default under this Agreement, DEVELOPER
hereby authorizes the Company (i) to make daily Advances on behalf of DEVELOPER
under this Agreement in accordance with the Company's customary practices and
procedures solely to provide funds to DEVELOPER to cover payables, intercompany
charges and other charges previously approved by DEVELOPER regardless of whether
the DEVELOPER has specifically requested such Advance and without waiver of any
of the Company's rights hereunder, and (ii) to make Advances under the Loan from
time to time solely to pay interest on the Loan if and only if DEVELOPER does
not pay interest when due hereunder. In the event that the Company makes any
such daily Advances, DEVELOPER agrees to deliver to the Company, every two
calendar weeks, a certificate of DEVELOPER in the form attached hereto as
Exhibit B, which shall be signed by a duly authorized officer of the manager of
DEVELOPER.
ARTICLE II
----------
SECURITY AND COLLATERAL
-----------------------
2.1 SECURITY INTEREST. To secure payment and performance of DEVELOPER's
obligations hereunder and under the Note, and any and all other indebtedness,
obligations or liabilities of any kind of DEVELOPER to the Company, whether now
existing or hereafter arising, direct or indirect, absolute or contingent, joint
and/or several, arising by operation of
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law or otherwise, DEVELOPER hereby grants to the Company a continuing security
interest in and to the following property and interests in property, whether now
owned or hereafter acquired by DEVELOPER and wheresoever located:
(a) all of DEVELOPER's real estate, accounts, equipment (including,
but not limited to machinery, furniture, fixtures, tools, vehicles, and
other tangible property), inventory, leasehold improvements, contract
rights (including its rights as lessee under all leases of real property),
general intangibles, deposit accounts, tax refunds, chattel paper,
instruments, notes, letters of credit, documents, and documents of title,
capital stock or other ownership interests of all Subsidiaries (as defined
in Section 6.11 hereof) and all shares of common stock of the Company owned
by DEVELOPER;
(b) all insurance proceeds of or relating to any of the foregoing;
(c) all of DEVELOPER's books, records, and computer programs and data
relating to any of the foregoing; and
(d) all accessories and additions to, substitutions for, and
replacements, products, and proceeds of, any of the foregoing (all of the
foregoing, and all of the security described in Sections 2.2 and 2.3, being
referred to collectively as the "Collateral").
2.2 PLEDGE OF UNITS. In addition to the security interest in the
Collateral, DEVELOPER's obligations hereunder and under the Note and all other
obligations of DEVELOPER to Company shall be secured by the security interest
created pursuant to a unit pledge agreement between the Company and all of the
members of DEVELOPER holding Voting Units, other than the Fund (the "Members"),
substantially in the form attached hereto as Exhibit C (the "Unit Pledge
Agreement").
2.3 SUBSIDIARY SECURITY DOCUMENTS. DEVELOPER shall cause each person or
entity becoming a Subsidiary of DEVELOPER from time to time to execute and
deliver to the Company, within five days after such person or entity becomes a
Subsidiary, a security agreement substantially in the form attached hereto as
Exhibit D, together with all financing statements and other related documents
(including real estate mortgages) as the Company may request and such closing
documents with respect to such Subsidiary of the type described in Article VII
as the Company may request, sufficient to grant to the Company liens and
security interests in all assets of each Subsidiary of the type described in
Section 2.1. DEVELOPER shall from time to time execute and deliver to the
Company, within five days after a person or entity becomes a Subsidiary of
DEVELOPER, a pledge agreement substantially in the form of Exhibit C, pursuant
to which DEVELOPER shall grant a security interest in favor of the Company in
and to all shares of capital stock (or other equity interests) of such
Subsidiary, together with the stock certificates evidencing such stock ownership
(or other evidence of ownership) and accompanied by a stock power (or equity
assignment) executed in blank. Any
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such pledge agreements executed by DEVELOPER and security agreements and other
documents executed by a Subsidiary of DEVELOPER from time to time shall be
included in the term "Security Instruments" used herein and the stock and assets
of such Subsidiary covered by such Security Instruments shall be included in the
term "Collateral" used herein.
2.4 PRESERVATION OF COLLATERAL AND PERFECTION OF SECURITY INTERESTS
THEREIN.
(a) DEVELOPER shall execute and deliver to the Company, concurrently with
the execution of this Agreement, and shall execute and deliver or cause any
Subsidiary of DEVELOPER to execute and deliver to the Company at any time or
times hereafter at the request of the Company or the Agent (as defined in
Section 2.5 below), all financing statements or other documents, including
mortgages on real estate owned by DEVELOPER or its Subsidiaries and Subsidiary
security agreements (the "Security Instruments") (and pay the cost of filing or
recording the same in all public offices deemed necessary by the Company), as
the Company or the Agent may request, in forms satisfactory to the Company, and
take all further action that the Company or the Agent may request, or which may
be reasonably necessary or desirable, to perfect and keep perfected the security
interest in the Collateral granted by DEVELOPER to the Company, to create and
perfect the security interests in the assets of any Subsidiaries of DEVELOPER
provided in Section 2.3 hereof, or otherwise to protect and preserve the
Collateral and the Company's security interest therein. Should DEVELOPER fail
to do so, the Company is authorized to sign any such Security Instruments as
DEVELOPER's agent.
(b) DEVELOPER will furnish to the Company from time to time statements and
schedules further identifying and describing the Collateral and such other
reports in connection with the Collateral as the Company may reasonably request,
all in reasonable detail.
(c) DEVELOPER shall notify the Company, within five days after the
occurrence thereof, of the acquisition of any property by DEVELOPER that is not
subject to the existing liens and security interests, in favor of the Company,
of any person or entity's becoming a Subsidiary, and of any other event or
condition that may require additional action of any nature in order to create,
preserve, or perfect the liens and security interests of the Company.
(d) DEVELOPER shall, and shall cause each Subsidiary to, cause all tangible
Collateral to be maintained and preserved in the same condition, repair and
working order as when new, ordinary wear and tear excepted, and in accordance
with any manufacturer's manual.
2.5 ALTERNATE SECURITY AND UNIT PLEDGE AGREEMENTS. If requested by the
Company in order for the transactions contemplated by this Agreement to comply
with the limitations and restrictions of any applicable agreement between the
Company and its lender or between its lender and its lender's banks and any bank
designated as agent for its lender's banks ("Agent"), as amended from time to
time, or to obtain a waiver therefrom, DEVELOPER hereby agrees that a security
interest as referred to in Section 2.1 hereof, a pledge of Units as referred to
in Section 2.2 hereof, and the additional security interests described in
Sections 2.3 and 2.4 hereof
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may be granted directly to the Company's lender or to the Agent in lieu of or in
addition to such grants to the Company, in which event appropriate alterations
may be made to this Article II and to the forms of the other Security
Agreements, and references herein to such security, pledges, and deliveries
thereof to the Company may be deemed to refer to the Agent, as appropriate.
ARTICLE III
-----------
CONDITIONS TO ADVANCES
----------------------
Notwithstanding any other provisions contained in this Agreement, the
Company's obligations to make any Advance (including an initial Advance)
provided for in Section 1.1 shall be conditioned upon the following:
3.1 NO MATERIAL ADVERSE CHANGE. No material adverse change, as determined
by the Company in its sole discretion, in the financial condition, results of
operations, assets, or business of DEVELOPER, shall have occurred at any time or
times subsequent to the date thereof.
3.2 NO DEFAULT. Neither a Default (as that term is defined in Article
VIII hereof) nor any event which, through the passage of time or the service of
notice or both, would mature into a Default (an "Event of Default") shall have
occurred and be continuing.
3.3 REPRESENTATIONS AND WARRANTIES. The representations and warranties
contained in Article IV hereof and in the Unit Pledge Agreement and the other
Security Instruments shall be true and correct on and as of the date such
Advance is made.
3.4 SUPPORT SERVICES AGREEMENT; DEVELOPMENT SCHEDULE. DEVELOPER shall be
in compliance with the terms of the Support Services Agreement and with the
Development Schedule (as defined in the Development Agreement).
3.5 OTHER REQUIREMENTS. The Company shall have received, in form and
substance satisfactory to it, all certificates, consents, affidavits, schedules,
instruments, and other documents which DEVELOPER is obligated to provide to the
Company hereunder or which the Company may at any time reasonably request.
3.6 ADVANCE REQUEST. Other than the initial Advance, the Company shall
have received, at least five business days prior to the day an Advance is to be
made hereunder, (i) a certificate of DEVELOPER in the form attached hereto as
Exhibit E, which shall be signed by the chief operating officer, chief financial
officer or other officer of the manager of DEVELOPER that the Company deems
appropriate, and (ii) copies of all other documents required to be delivered to
Company under Section 5.1 below or otherwise reasonably requested.
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ARTICLE IV
----------
REPRESENTATIONS AND WARRANTIES
------------------------------
DEVELOPER represents and warrants that:
4.1 FINANCIAL STATEMENTS. The financial statements to be furnished to the
Company or the Agent in accordance with Section 5.1 below will be prepared in
conformity with generally accepted accounting principles consistently applied
throughout the periods involved, and will fairly present the financial condition
of DEVELOPER and its Subsidiaries at the dates thereof and its results of
operations for the periods indicated (subject, in the case of financial
statements covering less than one full fiscal year, to normal recurring year-end
adjustments).
4.2 MEMBER UNITS. DEVELOPER has previously furnished to the Company a
true and correct copy of the certificate of formation of DEVELOPER and the LLC
Agreement, including in each case all amendments thereto through the date of
this Agreement. The holders of record (and beneficial owners, if any) of Units
in DEVELOPER, and the number of Units owned of record by each such holder and
beneficially owned by each such beneficial owner, are set forth on Exhibit A to
the LLC Agreement, and the number of Units set forth on such Exhibit A
constitute 100% of the issued and outstanding ownership interests in DEVELOPER.
Except for the Additional Unit Options and except for options granted under
DEVELOPER's 1996 Unit Option Plan and except as otherwise provided herein and in
the Note, there are no outstanding options, warrants, rights, contracts or
agreements of any kind for the issuance or sale of any Units or for the issuance
or sale of any other member interests or obligations of DEVELOPER or for the
purchase of any of its member interests.
4.3 NO MATERIAL ADVERSE CHANGE. Since the date hereof, there has been no
material adverse change in the financial condition, results of operations,
assets, or business of DEVELOPER and its Subsidiaries, taken as a whole.
4.4 NO PENDING MATERIAL LITIGATION OR PROCEEDINGS. There are no actions,
suits, investigations or proceedings pending or, to the knowledge of DEVELOPER
or its Subsidiaries, threatened against or affecting DEVELOPER or its
Subsidiaries or the business or properties of DEVELOPER or its Subsidiaries, in
any court or before or by any governmental department, commission, board, agency
or instrumentality, or any arbitrator. Neither DEVELOPER nor any of its
Subsidiaries is in default with respect to any order, writ, injunction, or
decree of any court or arbitrator or governmental agency.
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4.5 VALID ORGANIZATION; DUE AUTHORIZATION; VALID AND BINDING AGREEMENT.
(a) DEVELOPER is a limited liability company duly organized, validly
existing, and in good standing under the laws of the State of Delaware, with
power and authority to enter into and perform this Agreement and to issue the
Note and incur the indebtedness to be evidenced thereby. DEVELOPER is qualified
to do business and is in good standing in the States of ________________________
_______________________________________________________ and in each additional
jurisdiction in which failure to so qualify could have a material adverse affect
on its property, business, operations, or prospects.
(b) This Agreement, the Note and the Accounting and Administration Services
Agreement in the form attached hereto as Exhibit G have each been duly
authorized by all required action on the part of DEVELOPER, and each of this
Agreement, the Note and the Accounting and Administration Services Agreement has
been duly executed and delivered by DEVELOPER and constitutes the legal, valid,
and binding obligation of DEVELOPER enforceable in accordance with its terms.
(c) The execution and delivery of this Agreement and the Note and the
performance by DEVELOPER of its obligations hereunder and thereunder are not in
contravention of any law, rule or regulation, including without limitation
Regulation G, T, U, or X of the Board of Governors of the Federal Reserve
System, and will not conflict with or result in any breach of any of the
provisions, or constitute a default under or result in the creation or
imposition of any lien or encumbrance (except as expressly provided herein) upon
any of the property of DEVELOPER pursuant to any of the provisions of the
certificate of formation of DEVELOPER or the LLC Agreement or any agreement or
instrument to which DEVELOPER is a party or by which it or its assets is bound.
(d) No consent, authorization, approval, or other action by, and no notice
to or filing with, any governmental authority or regulatory body or any other
person, which has not been obtained or taken, is required for the execution and
delivery of, or the performance by DEVELOPER of its obligations under, this
Agreement or the Note.
4.6 CONDUCT OF BUSINESS. Since their inception, DEVELOPER and each
Subsidiary has conducted its business and operations in a manner consistent with
that of a franchisee of Company and has not engaged in any business other than
the business of establishing, opening, and operating Stores.
4.7 ABSENCE OF MATERIAL LIABILITIES. Neither DEVELOPER nor any Subsidiary
has any material liabilities or obligations, either accrued, absolute,
contingent, or otherwise, except (a) as set forth in its most recent unaudited
balance sheet, (b) normal liabilities and obligations incurred in the ordinary
course of business since the date of its most recent unaudited balance sheet,
(c) those assumed from the Company in and pursuant to that certain Asset
Purchase
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Agreement of even date herewith, and (d) obligations under contracts and
agreements entered into in the ordinary course of business.
4.8 TAX MATTERS.
(a) DEVELOPER and its Subsidiaries have filed all federal, state, and local
tax returns which are required to be filed, except for extensions duly obtained,
and has paid, or made provisions for the payment of, all taxes which have become
due pursuant to such returns or pursuant to any assessment received by DEVELOPER
or any Subsidiary, except such taxes, if any, as are being contested in good
faith and as to which adequate reserves have been provided.
(b) DEVELOPER will be classified for tax purposes as a partnership within
the meaning of Section 7701(a)(2) of the Internal Revenue Code of 1986, as
amended ("Code"), and DEVELOPER is not a "publicly traded partnership" within
the meaning of Section 7704 of the Code.
4.9 OWNERSHIP OF COLLATERAL; SECURITY INTEREST PRIORITY. At the time any
Collateral becomes subject to a security interest of the Company hereunder,
unless the Company shall otherwise consent, (a) DEVELOPER or a Subsidiary shall
be the lawful owner of such Collateral and have the right and authority to
subject the same to the security interest of the Company, (b) none of the
Collateral shall be subject to any lien or encumbrance other than that in favor
of the Company (and other than federal and state securities law restrictions on
shares of the Company's common stock), and (c) there shall be no effective
financing statement covering any of the Collateral on file in any public office,
other than in favor of the Company. This Agreement creates in favor of the
Company a valid and perfected first-priority security interest in the Collateral
enforceable against DEVELOPER or its Subsidiary, as the case may be, and all
third parties and secures the payment of DEVELOPER's obligations hereunder and
under the Note, and all other obligations of DEVELOPER to the Company, whether
now existing or hereafter arising, and all filings and other actions necessary
or desirable to create, preserve, or perfect such security interest have been
duly taken. Notwithstanding the foregoing provisions of this Section 4.9,
clause (b) and (c) and the immediately preceding sentence of this Section 4.9
shall not be inaccurate by reason of any purchase money security interest
(including pursuant to a financing lease) in any equipment for DEVELOPER's
Stores.
4.10 LOCATION OF OFFICES, RECORDS, AND FACILITIES. DEVELOPER's chief
executive office and chief place of business and the office where DEVELOPER
keeps its records concerning its accounts, contract rights, chattel papers,
instruments, general intangibles, and other obligations arising out of or in
connection with the operation of its business or otherwise ("Receivables"), and
all originals of all leases and other chattel paper which evidence Receivables,
are located in the State of ___________________________________, at the address
of DEVELOPER set forth in Section 9.4 hereof (as such address may be changed
from time to time
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in accordance therewith). The federal tax identification number of DEVELOPER is
_______________. The name of DEVELOPER is "_______________________________"
and DEVELOPER operates under no other names other than the name Einstein Bros.
Bagels on its Stores pursuant to and in accordance with any applicable Franchise
Agreement with the Company.
4.11 LOCATION OF INVENTORY, FIXTURES, MACHINERY, AND EQUIPMENT.
(a) All Collateral consisting of inventory, fixtures, machinery, or
equipment is located within the Development Area and at no other locations
without the prior written consent of the Company.
(b) If the Collateral described in clause (a) is kept at leased locations,
DEVELOPER has used its best efforts to obtain appropriate landlord lien waivers
or subordination satisfactory to the Company, unless such has been waived in
writing by the Company for the particular instance.
(c) If the Collateral described in clause (a) is warehoused, DEVELOPER has
sent appropriate warehousemen's notices, each reasonably satisfactory to the
Company, unless such has been waived by the Company for the particular instance.
4.12 INVESTMENT COMPANY ACT. DEVELOPER is not an "investment company", or
a company "controlled" by an "investment company", within the meaning of the
Investment Company Act of 1940, as amended.
4.13 PUBLIC UTILITY HOLDING COMPANY ACT. DEVELOPER is not a "holding
company", or an "affiliate" of a "holding company" or a "subsidiary company" of
a "holding company", within the meaning of the Public Utility Holding Company
Act of 1935, as amended.
4.14 SUBSIDIARIES. DEVELOPER has no Subsidiaries as of the date of this
Agreement.
ARTICLE V
---------
AFFIRMATIVE COVENANTS
---------------------
DEVELOPER covenants and agrees that so long as this Agreement remains in
effect:
5.1 FINANCIAL STATEMENTS.
(a) DEVELOPER shall cause to be furnished to the Company and, at the
Company's request, to the Company's lender or to the Agent: (i) as soon as
practicable and in any event
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within 20 days after the end of each interim fiscal quarter, statements of
income and cash flows of DEVELOPER and its Subsidiaries for such period and for
the period from the beginning of the then current fiscal year to the end of such
quarter and a balance sheet of DEVELOPER and its Subsidiaries as of the end of
such quarter, setting forth in each case, in comparative form, figures for the
corresponding periods in the preceding fiscal year, certified as accurate by the
chief financial officer or treasurer of the manager of DEVELOPER, subject to
changes resulting from normal, recurring year-end adjustments; (ii) as soon as
practicable and in any event within 60 days after the end of each fiscal year,
statements of income and cash flows of DEVELOPER and its Subsidiaries for such
year, and a balance sheet of DEVELOPER and its Subsidiaries as of the end of
such year, setting forth in each case, in comparative form, corresponding
figures for the preceding fiscal year and as of the end of the preceding fiscal
year, audited by independent certified public accountants selected by the
Company and reasonably satisfactory to DEVELOPER; and (iii) as soon as
practicable (but in any event not more than five business days after the
president or chief financial officer of the manager of DEVELOPER obtains
knowledge of the occurrence of an event or the existence of a circumstance
giving rise to an Event of Default or a Default), notice of any and all Events
of Default or Defaults hereunder.
(b) All financial statements delivered to the Company, and if applicable,
the Company's lender or the Agent pursuant to the requirements of Section 5.1(a)
shall be prepared in accordance with generally accepted accounting principles
consistently applied. Together with each delivery of financial statements
required by Section 5.1(a), DEVELOPER shall deliver to the Company an officer's
certificate stating that there exists no Default or Event of Default, or, if any
Default or Event of Default exists, specifying the nature thereof, the period of
existence thereof and what action DEVELOPER proposes to take or has taken with
respect thereto. Together with each delivery of financial statements required by
Section 5.1(a)(ii) above, DEVELOPER shall deliver to the Company a certificate
of the accountants who performed the audit in connection with such statements
stating that in making the audit necessary to the issuance of a report on such
financial statements, they have obtained no knowledge of any Default or Event of
Default, or, if such accountants have obtained knowledge of a Default or Event
of Default, specifying the nature and period of existence thereof. Such
accountants shall not be liable by reason of any failure to obtain knowledge of
any Default or Event of Default which would not be disclosed in the ordinary
course of an audit. DEVELOPER authorizes the Company to discuss the financial
condition of DEVELOPER with DEVELOPER's independent public accountants and
agrees that such discussion or communication shall be without liability to
either the Company or DEVELOPER's independent public accountants.
5.2 INSPECTION. The Company, or any person designated from time to time
by the Company, shall have the right, from time to time hereafter, to call at
DEVELOPER's or its Subsidiaries' place or places of business during ordinary
business hours, and, without hindrance or delay, (a) to inspect, audit, check,
and make copies of and extracts from DEVELOPER's and its Subsidiaries' books,
records, journals, orders, receipts, and any correspondence and other data
relating to the business of DEVELOPER or its Subsidiaries or to any transactions
between
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the parties hereto, and (b) to discuss the affairs, finances, and business of
DEVELOPER and its Subsidiaries with the officers of DEVELOPER and its
Subsidiaries.
5.3 CONDUCT OF BUSINESS.
(a) DEVELOPER shall, and shall cause each Subsidiary to (i) maintain its
existence and qualification to do business in good standing in each jurisdiction
where the failure to be so qualified would have a material adverse effect on the
financial condition of DEVELOPER or its Subsidiaries, (ii) maintain in full
force and effect all licenses, bonds, franchises, leases, patents, contracts,
and other rights necessary to the conduct of its business, and (iii) comply with
all applicable laws and regulations of any federal, state, or local governmental
authority, including those relating to environmental matters, labor and
employment laws and employee benefit matters.
(b) DEVELOPER shall, and shall cause its Subsidiaries to, duly pay and
discharge (i) all lawful claims, whether for labor, materials, supplies,
services, or anything else, which might or could, if unpaid, become a lien or
charge upon its property or assets, unless and to the extent only that the
validity thereof is being contested in good faith and by such appropriate
proceedings, (ii) all of its trade bills when due in accordance with customary
practice, and (iii) all taxes, unless and to the extent that the validity
thereof is being contested by DEVELOPER in good faith and by appropriate
proceedings.
(c) DEVELOPER shall, and shall cause each Subsidiary to, conduct its
business and operations in a manner consistent with that of a multi-unit food
service establishment, and shall not, and shall not permit any Subsidiary to,
engage in any business other than the business of establishing, opening, and
operating Stores in the Development Area.
5.4 INSURANCE.
(a) DEVELOPER shall keep and maintain, and shall cause its Subsidiaries to
keep and maintain, at their sole cost and expense, (i) insurance on their assets
for at least 80% of the full replacement value (or the full insurable value)
thereof against loss or damage by fire, theft, explosion, and all other hazards
and risks ordinarily insured against by other owners or users of such properties
in similar businesses similarly situated; and (ii) public liability insurance
relating to DEVELOPER's and its Subsidiaries' ownership and use of their assets.
(b) All such policies of insurance shall be in such form and in such
amounts as is customary in the case of other owners or users of like properties
in similar businesses, with insurers as shall be reasonably satisfactory to the
Company. Upon demand, DEVELOPER shall deliver to the Company the original (or
certified) copy of each policy of insurance, and evidence of payment of all
premiums for each such policy. Such policies of insurance (except those of
public liability) shall contain an endorsement in form and substance acceptable
to the Company, showing the Company as an additional insured. Such endorsement,
or an independent instrument
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furnished to the Company, shall provide that all insurance companies will give
the Company at least 30 days prior written notice before any such policy or
policies of insurance shall be altered or canceled. DEVELOPER and each
Subsidiary hereby directs all insurers under such policies of insurance (except
those of public liability) to pay all proceeds payable thereunder for claims in
excess of the aggregate amount of $50,000 directly to the Company, and DEVELOPER
irrevocably appoints the Company (and all officers, employees, or agents
designated by the Company), as DEVELOPER's and the Subsidiaries' true and lawful
agent (and attorney-in-fact) for the purpose of endorsing the name of DEVELOPER
or such Subsidiary on any check, draft, instrument, or other item of payment for
such proceeds. Any proceeds received by the Company shall be applied to
DEVELOPER's obligations hereunder, and any overage shall be paid to DEVELOPER.
DEVELOPER and each Subsidiary irrevocably appoints the Company, from and after a
Default or an Event of Default, as DEVELOPER's and each Subsidiary's true and
lawful agent (and attorney-in-fact) for the purpose of making, settling, and
adjusting claims under such policies of insurance and for making all
determinations and decisions with respect to such policies of insurance. In the
event DEVELOPER or any Subsidiary at any time or times hereafter shall fail to
obtain or maintain any of the policies of insurance required above or to pay any
premium in whole or in part relating thereto, then the Company, without waiving
or releasing any Default or Event of Default hereunder, may at any time or times
thereafter (but shall be under no obligation to do so) obtain and maintain such
policies of insurance and pay such premium and take any other action with
respect thereto which the Company deems advisable. All sums so disbursed by the
Company, including reasonable attorneys' fees, court costs, expenses, and other
charges relating thereto, shall be part of DEVELOPER's obligations hereunder,
payable by DEVELOPER to the Company on demand.
5.5 NOTICE OF SUIT OR ADVERSE CHANGE IN BUSINESS. DEVELOPER shall give
written notice to the Company (a) as soon as possible, and in any event within
five business days after DEVELOPER receives actual notice (written or oral) of
any material proceeding(s) being instituted or threatened to be instituted by or
against DEVELOPER or any Subsidiary in any federal, state, or local court or
before any commission or other regulatory body (federal, state, or local), and
(b) as soon as possible, and in any event within five business days after
DEVELOPER learns of any material adverse change in the financial condition,
results of operations, business, or assets of DEVELOPER or any Subsidiary.
5.6 USE OF PROCEEDS. Except as otherwise authorized in writing by the
Company, DEVELOPER shall use the proceeds of the Loan solely for the purposes
set forth in Article I hereof. DEVELOPER will not, directly or indirectly, use
any part of such proceeds for the purpose of purchasing or carrying any margin
stock within the meaning of Regulation U of the Board of Governors of the
Federal Reserve System or to extend credit to any person for the purpose of
purchasing or carrying any such margin stock.
5.7 REGISTRATION OF UNITS. DEVELOPER covenants that if any units to be
issued upon conversion of the Note or exercise of the Option require
registration with or approval of
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any governmental authority under any Federal or state law before such units may
be issued upon such conversion of exercise, DEVELOPER will, at its expense and
as expeditiously as possible, cause such units to be duly registered or
approved, as the case may be.
5.8 ADDITIONAL MEMBERS. DEVELOPER agrees to cause each person (other than
the Company) becoming a Member holding Voting Units from time to time after the
date of the Unit Pledge Agreement to execute and deliver to the Company within
five days after such person becomes a Member a copy of the Unit Pledge
Agreement.
5.9 RIGHTS REGARDING FUTURE FINANCINGS. Except for the exercise of the
Additional Unit Options, if, at any time after the Closing Date through the
later of the date on which the outstanding principal balance of the Loan and all
accrued interest thereon is paid in full or the expiration of the term of the
Option in accordance with the provisions of Section 1.10 hereof, advances of
debt and purchases of equity by the Company under this Agreement aggregate at
least 75% of the Maximum Principal Balance, and DEVELOPER determines that it
requires additional financing (whether debt or equity) (including, but not
limited to, all capital-type transactions and sale/leaseback transactions), it
agrees (a) to negotiate in good faith with the Company for a period of 60 days
with regard to any portion or the entire amount (at the option of the Company)
of such financing prior to negotiating with any other entity with regard
thereto, (b) in the event DEVELOPER has engaged in good faith negotiations under
clause (a) of this Section 5.9 and such negotiations have been unsuccessful, to
notify the Company of the existence of any other financing arrangement it
proposes to consummate and the terms and conditions thereof and grant to the
Company a right of first refusal with respect to such financing on the same
terms and subject to the same conditions contained therein and upon receipt of
such notice (setting forth in detail all relevant terms and conditions of such
financing), in which event the Company shall have 30 days thereafter in which to
agree to assume all of the financing on the same terms and conditions, and (c)
with respect to any financing other than a pure debt financing in which the debt
instrument to be offered has no equity-type features, to grant to the Company a
right to participate therein on a fully diluted basis for a period of 60 days,
which right may be satisfied, at the Company's option, by increasing the Maximum
Principal Balance available to be borrowed by DEVELOPER hereunder (with
corresponding increases in the Company's conversion and Option rights) rather
than purchasing or otherwise participating in the instrument or security to be
offered by DEVELOPER. As used herein "a right to participate therein on a fully
diluted basis" shall mean the Company's right to maintain the same percentage
equity interest in DEVELOPER (calculated by including as outstanding the units
subject to all outstanding options and warrants, including units which the
Company then has a right to purchase hereunder either through conversion
pursuant to Section 1.9 or the exercise of its Option pursuant to Section 1.10
hereof) after such financing is completed as it had prior to such financing.
The Company acknowledges that the right of first negotiation as set forth in
clause (a) above does not preclude DEVELOPER from making inquiries in the
relevant marketplace to obtain information regarding the terms of a financing
solely for purposes of comparison. The failure by the Company to exercise its
rights under any provision of this
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Section 5.9 within the time period specified shall be deemed to constitute a
waiver of its rights under such provision.
5.10 COMPANY LOAN COMPLIANCE. DEVELOPER agrees that, at the time that it
becomes a subsidiary of the Company, if ever, it will not incur any indebtedness
or create any lien which would cause the Company to be in default of any lending
arrangement or credit agreement to which the Company or its parent company, if
any, is a party.
5.11 COMPANY LOAN AGREEMENT REPRESENTATIONS. DEVELOPER agrees that, at the
time that it becomes a subsidiary of the Company, if ever, it will conduct its
business and take such action (or refrain from taking such action) as to cause
to be true and correct at all relevant times the representations or warranties
applicable to a subsidiary contained in any lending arrangements or credit
agreements to which the Company and/or its parent company, if any, is a party.
5.12 COMPANY SUBSIDIARIES. Each corporation or other entity becoming a
Subsidiary of DEVELOPER after the date hereof will be duly organized, validly
existing, and in good standing under the laws of its jurisdiction of
organization and will be duly qualified to do business in each additional
jurisdiction where the failure to be so qualified would have a material adverse
effect on such Subsidiary. Each Subsidiary of DEVELOPER will have all requisite
power to own or lease the properties used in its business and to carry on its
business as now being conducted and as proposed to be conducted. All
outstanding shares of capital stock or other units of ownership interest of each
class of each Subsidiary of DEVELOPER will be validly issued and will be fully
paid and nonassessable and will be owned, beneficially and of record, by
DEVELOPER or another Subsidiary of DEVELOPER free and clear of any liens.
5.13 PLACE OF BUSINESS. DEVELOPER will provide the Company with 60 days'
prior written notice of any proposed change in the location of its chief
executive office. DEVELOPER shall not change its name without the prior written
consent of the Company.
5.14 LOCATION OF INVENTORY, FIXTURES, MACHINERY, AND EQUIPMENT.
(a) All Collateral consisting of inventory, fixtures, machinery, and
equipment, shall at all times be located within the Development Area, and at no
other locations without the prior written consent of the Company.
(b) If the Collateral described in clause (a) is at any time kept at leased
locations, DEVELOPER shall use its best efforts to obtain appropriate landlord
lien waivers or subordination satisfactory to the Company, unless such has been
waived in writing by the Company for a particular instance.
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(c) If the Collateral described in clause (a) is at any time warehoused,
DEVELOPER shall send appropriate warehousemen's notices, each satisfactory to
the Company, unless such has been waived by the Company for the particular
instance.
5.15 HSR ACT COMPLIANCE. In the event the Company determines that any
filing is required under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act") in connection with any exercise of the
conversion rights pursuant to Section 1.9 hereof or of the Option pursuant to
Section 1.10 hereof, DEVELOPER agrees to prepare and file with the Federal Trade
Commission and the United States Department of Justice within 15 business days
from the date of notice from the Company any notification required to be filed
under the HSR Act or any rules or regulations promulgated thereunder. The
Company shall pay any filing fees required under the HSR Act in connection with
such filing. Any information about DEVELOPER or its Subsidiaries contained in
such filing shall be true and accurate in all material respects and responsive
to the requirements of the HSR Act and any such rules and regulations. Each of
DEVELOPER and the Company shall make available to the other party such
information as may be required for the preparation of any such notification or
related reports.
5.16 PARTNERSHIP STATUS FOR TAX PURPOSES. DEVELOPER will maintain at all
times its status for tax purposes as a "partnership" within the meaning of
Section 7701(a)(2) of the Code, and DEVELOPER will not take any action or omit
to take any action that would cause DEVELOPER to become a "publicly traded
partnership" within the meaning of Section 7704 of the Code.
5.17 DEVELOPER'S FISCAL YEAR. DEVELOPER shall adopt a fiscal year for tax
and financial reporting purposes consistent with the fiscal year adopted by the
Company from time to time. As of the date of this Agreement, DEVELOPER
acknowledges that the Company's fiscal year is the 52/53-week period ending on
the last Sunday in December and consists of 13 four-week period.
ARTICLE VI
----------
NEGATIVE COVENANTS
------------------
DEVELOPER covenants and agrees that, so long as this Agreement remains in
effect (unless the Company shall give its prior written consent thereto):
6.1 GUARANTEES; LOANS; ETC. DEVELOPER shall not, and shall not permit any
Subsidiary to (a) guarantee, endorse or otherwise in any way become or be
responsible for obligations of any other person, whether by agreement to
purchase the indebtedness of any other person or through the purchase of goods,
supplies, or services, or by agreement to maintain net
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worth, working capital, or other balance sheet covenants or conditions, or by
way of stock purchase, capital contribution, advance, or loan for the purpose of
paying or discharging any indebtedness or obligation of such other person or
otherwise, except endorsements of negotiable instruments for collection in the
ordinary course of business and (b) make loans or advances to any person, other
than the loans evidenced by the Member Notes (as defined in Section 7.7 hereof).
6.2 DISPOSAL OF PROPERTY. DEVELOPER shall not, and shall not permit any
Subsidiary to, sell, lease, transfer, or otherwise dispose of any of its
properties, assets, and rights (or agree to sell, lease, transfer, or otherwise
dispose of any of its properties, assets, and rights) (including the Collateral)
to any party except in the ordinary course of business and except that DEVELOPER
may grant stock options on no more than _________________________ shares of
common stock of the Company owned by it pursuant to and in accordance with
DEVELOPER's 1996 Stock Option Plan.
6.3 COMPENSATION TO MEMBERS AND OTHERS. Other than (a) reasonable
salaries and other normal benefits (including options granted pursuant to a 1996
Unit Option Plan and 1996 Stock Option Plan to be adopted by DEVELOPER with the
consent of the Company (together, the "Plans")) to be paid to Members of
DEVELOPER employed by DEVELOPER or the Manager, which salaries and benefits must
be approved by the Company, (b) the Member Notes (as defined in Section 7.7
hereof), and (c) management fees to be paid to ______________________________
_____________________________________________________________________________
("___________________________________") under the Support Services Agreement of
even date herewith by and between _____________________________________________
and DEVELOPER ("Support Services Agreement"), DEVELOPER shall not make any loans
to, or pay any compensation, bonuses, fees, options, or other amounts to any
equity holder or to any of the affiliates or immediate family members of any
such equity holder. DEVELOPER shall not, without the prior written consent of
the Company, amend or modify the Plans or amend, modify or waive any default
under the Member Notes, the Support Services Agreement or any employment
arrangement or agreement with any equity holder or any affiliate or immediate
family member of any equity holder previously approved by the Company.
6.4 DISTRIBUTIONS AND REDEMPTIONS.
(a) DEVELOPER shall not, directly or indirectly, (i) redeem, purchase, or
otherwise retire any of its Units, (ii) make any distributions (in cash or
securities) in any fiscal year or (iii) return capital of DEVELOPER to its
members.
(b) Notwithstanding anything to the contrary contained herein, DEVELOPER
shall make cash distributions to its members to the maximum extent permitted
under the laws of the state of its organization, (i) after (A) satisfactory
completion of the Development Schedule under each Development Agreement between
DEVELOPER and the Company, as each such Development Agreement may be amended
from time to time, and (B) establishment of
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reasonably adequate reserves for working capital and foreseeable contingencies,
in each case so long as DEVELOPER is in compliance with the terms and provisions
of this Agreement and maintains at all times Cash Flow during each fiscal
quarter which is at least equal to the Prospective Fixed Charges for the next
succeeding fiscal quarter and (ii) pursuant to and in accordance with Section
6.2 of the LLC Agreement.
(c) For purposes of this Section 6.4, the term "Cash Flow" for any fiscal
quarter shall mean the sum of Net Earnings during such fiscal quarter plus all
charges made by DEVELOPER during such quarter for depreciation and amortization
in respect of its fixed assets and interest on the Loan, and any other long-term
indebtedness, all as determined in accordance with generally accepted accounting
principles consistently applied. The term "Net Earnings" shall mean the net
income of DEVELOPER during such period as computed in accordance with generally
accepted accounting principles consistently applied, and, without limiting the
foregoing, after deduction from gross income of all charges and reserves,
including charges and reserves for all taxes on or measured by income, but
excluding any profits or losses on the sale or other disposition not in the
ordinary course of business or fixed or capital assets or on the acquisition,
retirement, sale, or other disposition of securities of DEVELOPER, and also
excluding any taxes on such profits and any tax deductions or credits on account
of any such losses. The term "Prospective Fixed Charges" shall mean for any
fiscal quarter the same are to be determined one-fourth of the sum of (x) any
principal payments on the Loan and on any other long term indebtedness
(determined in accordance with generally accepted accounting principles
consistently applied) scheduled to become due within such fiscal quarter and the
succeeding three fiscal quarters and (y) interest to be paid during such period
on the Loan and on any other long-term indebtedness. In the event any interest
required by this Section 6.4 to be included in the calculation of Prospective
Fixed Charges is charged on a floating-rate basis which cannot be determined as
to the future, then such interest shall be calculated for such period at the
rate then in effect.
6.5 ADDITIONAL INDEBTEDNESS. Except as provided in Section 5.9 hereof,
and except for trade payables and real estate lease obligations for Stores, in
each case entered into in the ordinary course of business, DEVELOPER shall not,
and shall not permit any Subsidiary to, incur additional indebtedness in excess
of $5,000 as to any one item and $50,000 in the aggregate without the consent of
the Company.
6.6 MERGERS, CONSOLIDATIONS, ACQUISITIONS, ETC. DEVELOPER shall not, and
shall not permit any Subsidiary (a) to be a party to any consolidation,
reorganization, or merger; (b) sell or otherwise transfer any part of its assets
(except in the ordinary course of business and except as part of a financing as
to which the Company has waived its rights pursuant to and in accordance with
Section 5.9 hereof); (c) except as provided in Section 5.9 hereof, to effect any
change in its capital structure or in any of its business objectives, purposes,
and operations; (d) to acquire any capital in or equity ownership of another
limited liability company, corporation, partnership, or other business
organization; (e) to engage in any business other than
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the operation of Stores; or (f) to liquidate or dissolve or take any action with
a view toward liquidation or dissolution.
6.7 CERTIFICATE OF FORMATION AND LLC AGREEMENT. DEVELOPER shall not make
any changes in or amendments to its certificate of formation or the LLC
Agreement as they are in effect as of the date hereof; except that DEVELOPER may
amend its LLC Agreement solely to the extent necessary to consummate any
financing as to which the Company has waived its rights pursuant to and in
accordance with Section 5.9 hereof.
6.8 ISSUANCE OF UNITS; GRANT OF OPTIONS. Except for (i) Voting Units
which may be issued upon (A) exercise of options granted under DEVELOPER's 1996
Unit Option Plan, (B) exercise of the Option, (C) conversion of any portion of
the outstanding principal balance of the Loan as provided in the Note, and (D)
consummation of any financing as to which the Company has waived its rights
pursuant to and in accordance with Section 5.9 hereof, (ii) exercise of the
Additional Unit Options, (iii) options granted under the DEVELOPER's 1996 Unit
Option Plan which are approved by the Company, in its sole discretion, and (iv)
any increase in the Maximum Principal Balance as provided herein, DEVELOPER will
not issue any additional units of membership interests or grant any option,
warrant, or similar right to acquire units of membership interests.
6.9 LIENS. DEVELOPER shall not, and shall not permit any Subsidiary to,
create, incur, or suffer to exist any lien on any of the assets, rights,
revenues or property, real, personal, or mixed, tangible or intangible, whether
now owned or hereafter acquired, of DEVELOPER or any Subsidiary, other than
liens in favor of the Company and liens otherwise permitted under Section 4.9
hereof.
6.10 TRANSACTIONS WITH AFFILIATES. DEVELOPER shall not, and shall not
permit any Subsidiary to, become a party to, or become liable in respect of, any
contract or undertaking with any Affiliate (as defined in Section 9.2 hereof)
except in the ordinary course of business and on terms not less favorable to
DEVELOPER or such Subsidiary than those which could be obtained if such contract
or undertaking was an arms length transaction with a person other than an
affiliate. The parties hereto acknowledge that the Support Services Agreement
has been negotiated at arms' length.
6.11 SUBSIDIARIES. DEVELOPER shall not, and shall not permit any
Subsidiary to, create or otherwise invest in any corporation, partnership, or
other entity unless DEVELOPER or such Subsidiary owns directly 100% of the
issued and outstanding equity interests therein (such 100% owned entity to be
referred to herein as a "Subsidiary").
6.12 MANAGER. DEVELOPER shall not remove, or otherwise diminish the
responsibilities of, the manager of DEVELOPER, for any reason whatsoever, nor
shall any
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interest in the manager of DEVELOPER be sold, transferred or otherwise assigned,
in each case without the Company's prior written consent.
ARTICLE VII
-----------
CONDITIONS OF CLOSING
---------------------
The Company's obligations hereunder shall be subject to (a) the performance
by DEVELOPER prior to or on the Closing Date of all of its covenants theretofore
to be performed under this Agreement, (b) the accuracy of DEVELOPER's
representations and warranties contained in this Agreement on the Closing Date,
and (c) the satisfaction, prior to or on the Closing Date, of the following
further conditions:
7.1 OPINIONS OF COUNSEL.
(a) The Company shall have received on the Closing Date from
_______________________________________________________ an opinion, dated the
Closing Date, in the form attached hereto as Exhibit F with all blanks
appropriately completed.
(b) The Company shall have received on the Closing Date from
_______________________________________________________ an opinion, dated the
Closing Date, that DEVELOPER will be taxed as a partnership within the meaning
of Section 7701(a)(2) of the Code and that DEVELOPER will not be a "publicly
traded partnership" within the meaning of Section 7704 of the Code.
7.2 PROCEEDINGS AND DOCUMENTS. All proceedings to be taken in connection
with the transaction contemplated by this Agreement and all documents incident
to such transaction shall be satisfactory in form and substance to the Company
and its counsel, and the Company shall have received all documents or other
evidence which it and its counsel may reasonably have requested in connection
with such transaction, including copies of records of all proceedings in
connection with such transaction and compliance with the conditions set forth in
this Article VII, in form and substance satisfactory to the Company and its
counsel.
7.3 EXECUTED DOCUMENTS. DEVELOPER and its Subsidiaries, and to the extent
applicable, the members and their respective spouses, shall have each duly
executed the following documents to which they are parties, and shall have
delivered to the Company the following:
(a) this Agreement;
(b) the Note;
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(c) the Accounting and Administration Services Agreement in
substantially the form of Exhibit G hereto;
(d) the Investor Representation Letter set forth as Exhibit H hereto
signed by each investor in the DEVELOPER;
(e) the Unit Pledge Agreement;
(f) the Subsidiary Security Agreement, where applicable;
(g) the Support Services Agreement;
(h) Collateral Assignments of Tenant's Interest in Lease for each
lease of real property to which DEVELOPER is a party (other than real
property subleased to DEVELOPER by the Company);
(i) certificates for all shares of common stock of the Company owned
by DEVELOPER in form available for transfer and multiple stock powers
executed in blank; and
(j) such financing statements or other documents for filing with
public officials with respect to the Security Instruments as the Company
may reasonably request, including without limitation financing statements
executed by each Member holding Voting Units.
7.4 NO DEFAULTS. There shall exist no Event of Default or Default.
7.5 ADDITIONAL DELIVERIES. The Company shall have received, in form and
substance satisfactory to it, copies of the following documents:
(a) DEVELOPER's certificate of formation, certified as true and
correct by the Secretary of State of Delaware, dated within ten days prior
to the Closing Date, and certified as true and correct as of the Closing
Date by a duly authorized officer of the manager of DEVELOPER;
(b) the LLC Agreement, as it is in force and effect on the Closing
Date, certified as true and correct by the Secretary or Assistant Secretary
of the manager of the DEVELOPER;
(c) certificate of good standing of the DEVELOPER from the Secretary
of State of each of the States included within the Development Area dated
within ten days prior to the Closing Date; and
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(d) evidence satisfactory in form and substance to the Company of all
required action taken by DEVELOPER to authorize, among other things, the
execution, delivery, and performance by DEVELOPER of this Agreement, the
Note, the Accounting and Administration Services Agreement, and the
Security Instruments and the consummation of the transactions contemplated
hereby, including authorization to enter into the Area Development
Agreement and any Franchise Agreement pursuant thereto and to issue Voting
Units upon the conversion of the Loan and the exercise of the Option,
certified as true and correct as of the Closing Date by a duly authorized
officer of the manager of DEVELOPER.
7.6 OPINION OF AUDITORS. The Company shall have received on the Closing
Date from the Company's independent public accountants an opinion, dated the
Closing Date, in form and substance satisfactory to the Company, to the effect
that the Note and the obligations incurred hereunder are deemed to be debt, and
not equity, in accordance with generally accepted accounting principles.
7.7 MEMBERS' EQUITY. The Company shall have received evidence
satisfactory to it that DEVELOPER has, on the Closing Date, cash or cash
equivalents of at least $_______________ and promissory notes, each dated
_________________________, 1996, from ________________________________,
___________________________________ and ___________________________________, in
each case payable to DEVELOPER in the principal amounts of $_______________,
$_______________ and $_______________, respectively (the "Member Notes"), and
members' equity of at least $_______________. On the Closing Date DEVELOPER
shall assign, endorse and deliver to the Company the original executed Member
Notes.
7.8 COMPLIANCE WITH COMPANY CREDIT AGREEMENTS. The Company shall (a)
determine in good faith that this Agreement complies with applicable
restrictions or limitations under any lending arrangements or credit agreements
to which Company is a party, (b) obtain a written waiver of noncompliance of the
transactions contemplated hereby with such agreements, or (c) deliver to its
lender or the Agent from DEVELOPER such pledges, collateral, and other
documentation as may be required to evidence compliance with such lending
arrangements or credit agreements of the transactions contemplated hereby.
ARTICLE VIII
------------
DEFAULT, RIGHTS AND REMEDIES OF THE COMPANY
-------------------------------------------
8.1 DEFAULT. The occurrence of any of the following events or acts shall
constitute a default ("Default"):
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(a) Default in the payment when due of any portion of the principal on
the Note and the continuance of such default for a period of three days;
(b) Default in the payment when due of any portion of the interest on
the outstanding principal of the Note and the continuance of such default
for a period of 10 days;
(c) any representation or warranty now or hereafter made in this
Agreement, the Accounting and Administration Services Agreement, the Unit
Pledge Agreement, the Subsidiary Security Agreement, the Note, any other
Security Instrument, or any certificate hereunder or thereunder shall not
be true, or any certificate, statement, report, financial data, or notice
furnished at any time by DEVELOPER to the Company shall be materially
inaccurate;
(d) any breach of, or failure to perform or observe, any covenant,
condition, or agreement contained in the Unit Pledge Agreement, the
Subsidiary Security Agreement or in any other Security Instrument, which in
each case shall continue unremedied for a period of 10 calendar days
following notice thereof from the Company, provided that such grace period
shall not apply, and DEVELOPER shall be in Default immediately upon such
breach, if, in the Company's judgment, such breach may not be reasonably
cured by DEVELOPER during such cure period;
(e) the breach of, or failure to perform or observe, any covenant,
condition, or agreement contained in Sections 5.6, 5.16, 5.17, 6.1, 6.2,
6.4, 6.6, 6.7, 6.8, 6.10 or 6.11 of this Agreement;
(f) any breach of, or failure to perform or observe, any other
covenant, condition, or agreement contained in this Agreement or the Note
which shall continue unremedied for a period of 10 calendar days following
notice thereof from the Company, provided that such grace period shall not
apply, and DEVELOPER shall be in Default immediately upon such breach, if,
in the Company's judgment, such breach may not reasonably be cured by
DEVELOPER during such cure period;
(g) DEVELOPER or any Subsidiary shall (i) generally not, or shall be
unable to, or shall admit in writing its inability to pay its debts as such
debts become due, (ii) make an assignment for the benefit of creditors,
petition or apply to any tribunal for the appointment of a custodian,
receiver, or trustee for it or a substantial part of its assets, (iii)
commence any proceeding under any bankruptcy, reorganization, arrangements,
readjustment of debt, dissolution, or liquidation law or statute of any
jurisdiction, whether now or hereafter in effect, (iv) have any such
petition or application filed or any such proceeding commenced against it
in which an order for relief is entered or adjudication or appointment is
made and which remains undismissed for a period of 60 days or more, (v) by
any act or omission, indicate its consent to,
26
<PAGE>
approval of, or knowing acquiescence in any such petition, application, or
proceeding, or order for relief, or the appointment of a custodian,
receiver, or trustee for all or any substantial part of its properties, or
(vi) suffer any such custodianship, receivership, or trusteeship to
continue undischarged for a period of 60 days or more;
(h) the Support Services Agreement is terminated for any reason
whatsoever and DEVELOPER does not replace ___________________________
_____________________________________________ within 90 days thereafter
with an entity that is capable of performing similar services which is
acceptable to the Company in its sole discretion;
(i) DEVELOPER's default under, or breach of any provision of, the
Development Agreement (other than a default which constitutes a default
under Section 8.1(p) hereof);
(j) termination of the lesser of (i) 50% or (ii) three, of the
Franchise Agreements to which DEVELOPER and the Company are parties;
(k) dissolution or liquidation of the Company;
(l) there occurs a material adverse change in the financial condition,
results of operations, assets, or business of DEVELOPER and its
Subsidiaries taken as a whole;
(m) DEVELOPER or any Subsidiary shall (a) fail to pay any indebtedness
for borrowed money (other than the Note) of DEVELOPER or such Subsidiary,
or any interest or premium thereon, when due (whether by scheduled
maturity, required prepayment, acceleration, demand, or otherwise) and any
applicable grace periods shall have expired, or (b) fail to perform or
observe any term, covenant, or condition on its part to be performed or
observed under any agreement or instrument relating to any such
indebtedness, when required to be performed or observed, if the effect of
such failure to perform or observe is to accelerate, or to permit the
acceleration, after the giving of notice, of the maturity of such
indebtedness, or (c) default in the performance or observance of any
obligations under leases of real property if the effect of such default is
to permit the termination of such lease and any applicable cure period
therein has expired;
(n) one or more judgments, decrees or orders for the payment of money
in excess of $100,000 in the aggregate and not otherwise fully covered by
insurance shall be rendered against DEVELOPER or any of its Subsidiaries,
and such judgments, decrees, or orders shall continue unsatisfied and in
effect for a period of 20 consecutive days without being vacated,
discharged, satisfied, escorted, stayed, or bonded pending appeal;
27
<PAGE>
(o) the Unit Pledge Agreement, the Subsidiary Security Agreement, any
other Security Instrument, or the security interests created under this
Agreement shall be terminated, invalidated, or set aside or be declared
ineffective or inoperative or in any way cease to give or provide to the
Company the benefits purported to be created thereby; or
(p) DEVELOPER fails to satisfy its development obligations for the
Development Area or any Sub-Area (as defined in the Development Agreement)
as set forth in Paragraph 3.C of the Development Agreement, so long as
there has been no Funding Default during the 180-day period immediately
preceding the event giving rise to the default under this Section 8.1(p),
both (i) there has been no Funding Default by the Company hereunder, and
(ii) DEVELOPER has had (A) access to capital, either equity or debt, either
directly or through sources provided by the Company, on commercially
reasonable terms for a similarly situated restaurant business, or (B)
income from operations, sufficient in either case to complete its
development obligations.
8.2 DEFAULT; REMEDIES.
(a) In the event a Default shall exist or occur the Company may:
(i) terminate its obligations under this Agreement and cease to make
any further advances under Section 1.1, and shall have the right to declare
the Note due and payable in full, without demand, presentment, or notice of
any kind;
(ii) in its sole and absolute discretion, exercise any one or more of
the rights and remedies accruing to a secured party under the Uniform
Commercial Code with respect to the Collateral and any other applicable law
upon default by a debtor;
(iii) exercise its rights under the Unit Pledge Agreement and/or the
other Security Instruments;
(iv) convert any portion of the outstanding principal balance of the
Loan into Voting Units as provided in the Note;
(v) exercise all or a portion of the Option;
provided, however, that in the case of any event or condition described in
Section 8.1(g) with respect to DEVELOPER or any Subsidiary, the Company's
obligations under this Agreement shall automatically terminate forthwith and all
amounts owed by DEVELOPER hereunder and under the Note shall automatically
become immediately due and payable without notice, demand, presentment, protest,
diligence, notice of dishonor, or other formality, all of which are hereby
expressly waived, and provided further that, in the case of any event described
in Section 8.1(p), the Company's sole and exclusive remedies shall be the
remedies described in subparagraphs (iv) and (v) above.
(b) In connection with the exercise of the Company's rights and remedies
provided in Section 8.2(a)(ii), DEVELOPER hereby agrees to assemble the
Collateral and make it
28
<PAGE>
available to the Company at a place to be designated by the Company which is
reasonably convenient to both parties, authorizes the Company to take possession
of the Collateral with or without demand and with or without process of law and
to sell and dispose of the same at public or private sale and to apply the
proceeds of such sale to the costs and expenses thereof (including reasonable
attorneys' fees and disbursements incurred by the Company) and then to the
payment and satisfaction of the Loan. Any requirement of reasonable notice
shall be met if the Company sends such notice to DEVELOPER, by registered or
certified mail, at least five days prior to the date of sale, disposition, or
other event giving rise to a required notice. The Company may be the purchaser
at any such sale. DEVELOPER expressly authorizes such sale or sales of the
Collateral in advance of and to the exclusion of any sale or sales of or other
realization upon any other collateral securing the Loan. The Company shall have
no obligation to preserve rights against prior parties. DEVELOPER hereby waives
as to the Company any right of subrogation or marshaling of such Collateral and
any other collateral for the Loan. To this end, DEVELOPER hereby expressly
agrees that any such collateral or other security of DEVELOPER or any other
party which the Company may hold, or which may come to any of them or any of
their possession, may be dealt with in all respects and particulars as though
this Agreement were not in existence. The parties hereto further agree that
public sale of the Collateral by auction conducted in any county in which any
Collateral is located or in which the Company or DEVELOPER does business after
advertisement of the time and place thereof shall, among other manners of public
and private sale, be deemed to be a commercially reasonable disposition of the
Collateral. DEVELOPER shall be liable for any deficiency remaining after
disposition of the Collateral.
(c) All of the Company's rights and remedies under this Agreement are
cumulative and nonexclusive. Any conversion of, or exercise of the Option with
respect to, less than all of the principal balance outstanding under the Note
shall not affect the Company's rights and remedies with respect to any portion
not so converted or exercised.
8.3 NO WAIVER. The Company's failure, at any time or times hereafter, to
require DEVELOPER's strict compliance with or performance of any provision of
this Agreement shall not waive, affect, or diminish any right of the Company
thereafter to demand such strict compliance or performance therewith. Any
suspension or waiver by the Company of a Default or an Event of Default by the
Company under this Agreement or the Note shall not suspend, waive, or affect any
other Default or Event of Default by DEVELOPER under this Agreement or the Note,
whether the same is prior or subsequent thereto and whether of the same or of a
different kind or character. None of the undertakings, agreements, warranties,
covenants, and representations of DEVELOPER contained in this Agreement or the
Note and no Default or Event of Default by DEVELOPER under this Agreement or the
Note shall be deemed to have been suspended or waived by the Company unless such
suspension or waiver is in writing signed by an officer of the Company.
29
<PAGE>
ARTICLE IX
----------
MISCELLANEOUS
-------------
9.1 NO ORAL CHANGE. This Agreement may not be changed orally, but only by
an agreement in writing and signed by the party against whom enforcement of any
waiver, change, modification, or discharge is sought.
9.2 ASSIGNMENT. DEVELOPER may not assign any of its rights or delegate any
of its obligations under this Agreement without the Company's written consent,
which consent may be withheld in the Company's sole discretion. The Company may
assign any of its rights or delegate any of its obligations under this Agreement
(including assignment of this Agreement, the Note, the Unit Pledge Agreement and
the Security Instruments), (a) without notice to DEVELOPER, (i) to any Affiliate
of the Company (except DEVELOPER) or (ii) in connection with any pledge of its
assets under the Company's credit agreements and (b) with notice, but without
any requirement of consent or approval, to any other person entity (except
DEVELOPER). Any such assignment shall vest in the assignee all of the benefits
under the documents so assigned. For purposes of this Agreement, the term
"Affiliate" of a specified person shall mean any person or entity which
directly, or indirectly through one or more intermediaries, controls or is
controlled by, or is under common control with, the person specified.
9.3 COSTS AND ATTORNEYS' FEES.
(a) Except as provided in Section 2.4 hereof and subsection (b) or (c) of
this Section 9.3, each of the parties hereto shall pay its own expenses
(including accounting fees) incident to the negotiation and execution of this
Agreement and to the consummation of the transactions contemplated hereby.
(b) DEVELOPER shall pay all reasonable attorneys' fees and any costs and
charges relating to or arising out of (i) the negotiation and drafting of this
Agreement and all related documents and (ii) the enforcement by the Company of
its rights to collect any portion of the Loan.
(c) In any action not founded solely on grounds covered by subsection (b)
of this Section 9.3, the party to the action who does not prevail shall pay to
the prevailing party the court costs and reasonable attorneys' fees and other
expenses (including, but not limited to, fees and expenses of expert witnesses
or consulting experts) incurred directly or indirectly by the prevailing party
in connection with its prosecution or defense of the action, as the case may be.
9.4 COMMUNICATIONS AND NOTICES. All communications and notices provided for
in this Agreement or under the Note shall be in writing and shall be deemed to
have been duly
30
<PAGE>
given if delivered personally to the party to whose attention the notice is
directed or sent by overnight express, facsimile transmission, express mail
delivery service, or registered or certified mail, return receipt requested,
postage prepaid, and properly addressed as follows:
If to DEVELOPER: ________________________________________
________________________________________
________________________________________
________________________________________
Attention: Manager
Facsimile:______________________________
with a copy to: ________________________________________
________________________________________
________________________________________
________________________________________
Attention:______________________________
Facsimile:______________________________
If to the Company: Einstein/Noah Bagel Corp.
1526 Cole Blvd., Suite 200
Golden, CO 80401
Attention: Vice President, Franchise
Development
Facsimile: (303) 202-3490
with a copy to: Einstein/Noah Bagel Corp.
1526 Cole Blvd., Suite 200
Golden, CO 80401
Attention: General Counsel
Facsimile: (303) 202-3490
Any party may change the address to which notices hereunder are to be sent to it
by giving written notice of such change of address in the manner herein provided
for giving notice. Any notice delivered personally shall be deemed to have been
given when so delivered. Any notice delivered by facsimile transmission shall
be deemed to have been given on the earlier of the date it is actually received
or one day after such transmission. Any notice delivered by overnight express
courier will be deemed to have been given on the next succeeding business day
after the day it is sent to the intended recipient at the address set forth
above, and any notice delivered by registered or certified mail or express mail
delivery service shall be deemed to have been duly given on the earlier of the
date it is actually received or three business days after it is sent to the
intended recipient at the address set forth above.
31
<PAGE>
9.5 GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH
AND GOVERNED BY THE LAWS OF THE STATE OF COLORADO APPLICABLE TO CONTRACTS MADE
AND TO BE PERFORMED THEREIN WITHOUT REGARD TO THE CONFLICTS OF LAW PROVISIONS
THEREOF.
9.6 HEADINGS. The headings of the sections of this Agreement are inserted
for convenience only and shall not be deemed to constitute a part of this
Agreement.
9.7 SEVERABILITY. If any provision of this Agreement or the application
thereof to any person or circumstance is held invalid or unenforceable, the
remainder of this Agreement and the application of such provision to other
persons or circumstances shall not be affected thereby, and the provisions of
this Agreement shall be severable in any such instance.
9.8 AVOIDANCE. To the extent that the Company receives any payment on
account of DEVELOPER's obligations hereunder, and any such payment(s) and/or
proceeds or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside, subordinated, and/or required to be
repaid to a trustee, receiver, or any other party under any bankruptcy law,
state or federal law, common law, or equitable cause, then, to the extent of
such payment(s) or proceeds received, DEVELOPER's obligations hereunder, or part
thereof intended to be satisfied, shall be revived and continue in full force
and effect, as if such payment(s) and/or proceeds had not been received by the
Company.
9.9 COUNTERPARTS. This Agreement may be executed in counterparts, each of
which shall be deemed an original, but all of which together shall constitute
but one and the same instrument.
9.10 ENTIRE AGREEMENT. This Agreement, the Note, the Unit Pledge
Agreement, the Security Instruments and the exhibits to each of the foregoing
contain the entire agreement of the parties hereto with respect to the
transactions contemplated herein, and collectively supersede all prior
understandings and agreements of the parties with respect to the subject matter
hereof.
9.11 GENERAL INDEMNITY. In addition to the payments pursuant to Section
9.3, DEVELOPER agrees to indemnify, pay, and hold the Company and any holder of
the Note, and the officers, directors, employees, agents, and Affiliates of the
Company and any such holder (collectively, the "Indemnitees"), harmless from and
against any and all other liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, claims, costs, expenses, and disbursements of any
kind or nature whatsoever (including, without limitation, the reasonable fees
and disbursements of counsel for any of such Indemnitees in connection with any
investigative, administrative, or judicial proceeding commenced or threatened,
whether or not any of such Indemnitees shall be designated a party thereto) that
may be imposed on, incurred by, or asserted against any Indemnitee, in any
manner relating to or arising out of this
32
<PAGE>
Agreement, the Note, the Unit Pledge Agreement, the Subsidiary Security
Agreement, the Security Instruments and the exhibits or any other agreements or
document executed and delivered by DEVELOPER in connection therewith,
DEVELOPER's use and operation of the Stores, including any damage to public or
worker health and safety or the environment, the Company's agreement to make the
Loan hereunder, or the use or intended use of the proceeds of the Loan (the
"indemnified liabilities"); provided that DEVELOPER shall have no obligation to
an Indemnitee hereunder with respect to indemnified liabilities arising from the
gross negligence or willful misconduct of such Indemnitee. To the extent that
the undertaking to indemnify, pay, and hold harmless set forth in the preceding
sentence may be unenforceable because it violates any law or public policy,
DEVELOPER shall contribute the maximum portion that it is permitted to pay under
applicable law to the payment and satisfaction of all indemnified liabilities
incurred by the Indemnitees or any of them. The provisions of the undertakings
and indemnification set out in this Section 9.11 shall survive satisfaction and
payment of DEVELOPER's obligations hereunder and termination of this Agreement.
9.12 LIMITATION ON DAMAGES. Notwithstanding anything to the contrary
herein no party hereto shall be liable for consequential, indirect, incidental,
special, speculative, or punitive damages (including, but not limited to, loss
of revenue or profit) whether such claim alleges breach of contract, tortious
conduct including, but not limited to, negligence, or any other theory, provided
that nothing herein shall limit or otherwise restrict DEVELOPER's obligation to
pay fees under the Accounting and Administration Services Agreement or
royalties, advertising fund contributions, fees and all other payments that may
become due under the Development Agreement or any Franchise Agreement entered
into pursuant thereto.
9.13 SUBMISSION TO JURISDICTION. DEVELOPER agrees that any legal action or
proceeding with respect to this Agreement, the Note, the Unit Pledge Agreement,
the Subsidiary Security Agreement, the Accounting and Administration Services
Agreement or any Security Instrument or the transactions contemplated hereby may
be brought in any court of the State of Colorado, or in any court of the United
States of America sitting in Colorado, and DEVELOPER hereby submits to and
accepts generally and unconditionally the jurisdiction of those courts with
respect to their respective person and property, and irrevocably consents to the
service of process in connection with any such action or proceeding by personal
delivery to DEVELOPER or by the mailing thereof by registered or certified mail,
postage prepaid to DEVELOPER at the address for DEVELOPER set forth in Section
9.4. Nothing in this paragraph shall affect the right of the Company to serve
process in any other manner permitted by law or limit the rights of the Company
to bring any such action or proceeding against DEVELOPER or property in the
courts of any other jurisdiction. DEVELOPER hereby irrevocably waives any
objection to the laying of venue of any such suit or proceeding in the above
described courts.
9.14 WAIVER OF JURY TRIAL. No party to this instrument, which includes any
assignee, successor, heir or personal representative of a party, shall seek a
jury trial in any lawsuit,
33
<PAGE>
proceeding, counterclaim, or any other litigation procedure based upon, or
arising out of this Agreement, the Note, the Unit Pledge Agreement, the
Subsidiary Security Agreement, the Accounting and Administration Services
Agreement, any Security Instrument, any related instrument, or the dealings or
the relationship between the parties. No party will seek to consolidate any
such action, in which a jury has been waived, with any other action in which a
jury trial cannot or has not been waived.
THE PROVISIONS OF THIS SECTION 9.14 HAVE BEEN FULLY DISCUSSED BY THE
PARTIES HERETO, AND THESE PROVISIONS SHALL BE SUBJECT TO NO EXCEPTIONS. NO
PARTY HAS IN ANY WAY AGREED WITH OR REPRESENTED TO ANY OTHER PARTY THAT THE
PROVISIONS OF THIS PARAGRAPH WILL NOT BE FULLY ENFORCED IN ALL INSTANCES. THIS
PROVISION IS A MATERIAL INDUCEMENT FOR THE COMPANY IN ENTERING INTO THIS
AGREEMENT.
IN WITNESS WHEREOF, the parties have executed this Agreement to be
effective as of the date and year first above written.
EINSTEIN/NOAH BAGEL CORP.
By:___________________________________
Title:______________________________
______________________________________
By:___________________________________
its Manager
By:________________________________
Title: President
34
<PAGE>
EXHIBITS
--------
Exhibit A Convertible Secured Note
Exhibit B Borrowing Certificate
Exhibit C Unit Pledge Agreement
Exhibit D Subsidiary Security Agreement
Exhibit E Advance Certificate
Exhibit F Opinion of Counsel for DEVELOPER
Exhibit G Accounting and Administration Services Agreement
Exhibit H Investor Representation Letter
<PAGE>
EXHIBIT A
---------
CONVERTIBLE SECURED NOTE
------------------------
<PAGE>
CONVERTIBLE SECURED NOTE
------------------------
$_______________ Golden, Colorado
_______________, 1996
FOR VALUE RECEIVED, _____________________________________________ a
Delaware limited liability company (the "DEVELOPER"), promises to pay to the
order of Einstein/Noah Bagel Corp., a Delaware corporation (the "Company"),
pursuant to the Loan Agreement (as hereinafter defined) at such place as the
Company may from time to time designate in writing, in lawful money of the
United States of America and in immediately available funds, the principal sum
of _____________________________________________ million dollars
($_______________) and any interest thereon, or, if less, the aggregate unpaid
amount of the Loan made pursuant to Section 1.1 of the Loan Agreement and any
interest thereon.
This Note evidences the Loan made under, and is referred to in and is
executed and delivered pursuant to, a Secured Loan Agreement as of even date
herewith between the DEVELOPER and the Company (the "Loan Agreement"), to which
reference is hereby made for a statement of the terms and conditions under which
this Note may be repaid and accelerated and for a description of the collateral
and security securing this Note. Capitalized terms not otherwise defined herein
shall have the meanings ascribed to them in the Loan Agreement.
Interest shall accrue daily on the aggregate outstanding principal
balance of the Loan for the period commencing on the date the Loan is made until
the Loan is paid in full, at a per annum rate equal to the rate designated and
announced by Bank of America Illinois or its successor in interest (the "Bank")
from time to time as its "reference rate" in effect at its principal office in
Chicago, Illinois, plus 1%. The interest rate shall be adjusted, from time to
time, on the same day on which the Bank adjusts its "reference rate." Interest
only on the outstanding principal amount of the Loan shall be payable in arrears
on the first day of each Retail Period during the Interest Payment Period.
Interest on the outstanding principal amount of the Loan shall also be payable
as otherwise provided herein in connection with principal payments and at
maturity (whether by acceleration or otherwise).
Interest shall be computed on the basis of a 360-day year and the actual
number of days elapsed.
Any principal payment due under this Note not paid when due, whether at
stated maturity, by notice of repayment, by acceleration or otherwise, shall, to
the extent permitted by applicable law, thereafter bear interest (compounded
monthly and payable upon demand) at a rate which is 2% per annum in excess of
the rate of interest otherwise payable under this Note in respect of such
principal amount until such unpaid amount has been paid in full (whether before
or after judgment).
A-1
<PAGE>
Except as otherwise provided in the Loan Agreement, unless accelerated, the
outstanding principal amount of the Loan shall be payable to the Company in 65
substantially equal periodic installments of principal (the amount of which
periodic installments of principal shall be determined at the close of business
on the Draw Loan Termination Date based on a schedule amortizing such
outstanding principal balance of the Loan as of such date in 130 substantially
equal periodic installments of principal), plus accrued but unpaid interest, on
the first day of each Retail Period, commencing on the first day of the
_______________ Retail Period in the Company's fiscal year 19______ and
continuing until the first day of the _______________ Retail Period in the
Company's fiscal year 20______, when the entire principal balance of the Loan
and all interest accrued thereon shall be due and payable.
This Note may be prepaid at any time without payment of penalty or premium.
All payments made hereunder shall be applied first to interest and then to
outstanding principal.
If payment hereunder becomes due and payable on a Saturday, Sunday, or
legal holiday, under the laws of the State of Colorado, the due date thereof
shall be extended to the next succeeding business day.
Demand, presentment, protest, diligence, notice of dishonor, and any other
formality are hereby expressly waived by the DEVELOPER and any endorser or
guarantor.
ARTICLE I
---------
CONVERSION OF NOTE
------------------
1.1 The holder of this Note shall have the right, at such holder's option,
to convert, subject to the terms, conditions and provisions of this Article I,
the outstanding principal balance of this Note or any portion thereof into
Voting Units at the price of $1.12 per Voting Unit, or, in the event an
adjustment of such price has occurred pursuant to the provisions of Section 1.3,
then at the price as last adjusted (referred to herein as the "Conversion
Price"), at any time after both of the following have occurred: (i) the second
anniversary of the Closing Date, and (ii) such time as DEVELOPER has completed
not less than 80% of the Development Schedule set forth in the Development
Agreement, and up to the later of (y) the date on which the DEVELOPER has
properly repaid the outstanding principal balance of the Loan and all accrued
interest thereon in full or (x) the first day of the ______ Retail Period in the
Company's fiscal year 20__; provided, however, that nothing herein shall impair,
restrict or prohibit the exercise of remedies, including exercise of the
conversion right, under Section 8.2 of the Loan Agreement upon the occurrence of
a Default. In the event the outstanding principal balance of this Note is to be
converted, the holder shall surrender this Note to the DEVELOPER at any time
during usual business hours together with written notice (hereinafter referred
to as "Conversion Notice") that the holder elects to convert this Note into
Voting Units in accordance with the provisions of this Article I, and specifying
the name or names in which the certificate or certificates, if any, evidencing
the Voting Units issuable upon such conversion shall be registered, together
with the addresses of the persons so named. In the event this Note is to be
converted in part only, the DEVELOPER shall, upon surrender of this Note,
execute and deliver to the holder thereof, at the expense of the DEVELOPER, a
new Note in principal amount equal
A-2
<PAGE>
to the unconverted portion of this Note. In no event shall accrued interest be
convertible into Voting Units.
1.2 As promptly as practicable after the surrender, as herein provided, of
this Note for conversion and the receipt of the Conversion Notice relating
thereto, the DEVELOPER shall deliver to or upon the written order of the holder
of this Note a certificate or certificates, or other evidence of ownership if
Voting Units are uncertificated, representing the number of Voting Units of the
DEVELOPER into which this Note may be converted in accordance with the
provisions of this Article I and a new Note for any unconverted portion of the
principal amount hereof. Subject to the following provisions of this Section
1.2, such conversion shall be deemed to have been made immediately before the
close of business on the date that this Note shall have been surrendered for
conversion together with the Conversion Notice, so that the rights of the holder
of this Note as a Noteholder shall cease at such time and the person or persons
entitled to receive the Voting Units upon conversion of this Note shall be
treated for all purposes as having become the record holder or holders of such
Voting Units at such time, and such conversion shall be at the Conversion Price
in effect at such time. If the last day for the exercise of the conversion right
shall not be a business day, then such conversion right may be exercised on the
next succeeding business day.
1.3 (a) In case of any reclassification or change of outstanding Units, or
in case of any consolidation or merger of the DEVELOPER with or into any
partnership, corporation, or other entity (other than a merger in which the
DEVELOPER is the surviving entity and which does not result in any
reclassification or change of outstanding Units, other than a change in number
of Units issuable upon conversion of this Note) or in case of any sale or
conveyance to any partnership, corporation, or other entity of the property of
the DEVELOPER as an entirety or substantially as an entirety, then the holder of
this Note shall have the right thereafter to convert this Note into the kind and
amount of units and other securities and property receivable upon such
reclassification, change, consolidation, merger, sale, or conveyance by a holder
of the number of Voting Units of the DEVELOPER issuable upon conversion of this
Note immediately prior to such reclassification, change, consolidation, merger,
sale, or conveyance, subject to adjustments which shall be as nearly equivalent
as may be practicable to the adjustments provided for herein.
(b) The Conversion Price shall be adjusted in the event the DEVELOPER shall
at any time (i) make a subdivision of or combine Units outstanding or (ii) make
a distribution in cash, in kind, or in securities of any kind (including, but
not limited to, any Unit split, other than cash distributions permitted pursuant
to the provisions of Section 6.4 of the Loan Agreement ("Permitted
Distributions")). In the event the DEVELOPER makes a subdivision of Units or
makes a distribution in cash, in kind, or in securities of any kind (other than
Permitted Distributions), the Conversion Price in effect immediately prior to
such action shall be appropriately decreased, and in the event the DEVELOPER
shall at any time combine Units outstanding, the Conversion Price in effect
immediately prior to such combination shall be appropriately increased. An
adjustment made pursuant to this Section 1.3(b) shall, in the event
A-3
<PAGE>
of a subdivision or combination, become effective retroactively immediately
after the effective date thereof, and shall, in the event of a distribution,
become effective retroactively immediately after the record date for the
determination of members entitled thereto. Whenever the Conversion Price is
adjusted, pursuant to this Section 1.3(b), the DEVELOPER shall promptly cause a
notice to be given to such holder of this Note which will state the adjusted
Conversion Price.
(c) The DEVELOPER covenants that if any Units to be issued upon conversion
of this Note require registration with or approval of any governmental authority
under any federal or state law before such Units may be issued upon conversion,
the DEVELOPER will, at its expense and as expeditiously as possible, cause such
Units to be duly registered or approved, as the case may be.
(d) Any issuance of certificates, or other evidence of ownership if Voting
Units are uncertificated, for Voting Units upon the conversion of this Note
shall be made without charge to the converting Noteholder for any tax in respect
of the issuance of such certificates or other evidence of ownership, and such
certificates or other evidence of ownership shall be issued in the respective
names of, or in such names as may be directed by, the holder of this Note;
provided, however, that the DEVELOPER shall not be required to pay any tax which
may be payable in respect of any transfer involved in the issuance and delivery
of any such certificate or other evidence of ownership in a name other than that
of the holder of this Note, and the DEVELOPER shall not be required to issue or
deliver such certificates or other evidence of ownership unless and until the
person or persons requesting the issuance thereof shall have paid to the
DEVELOPER the amount of such tax or shall have established to the reasonable
satisfaction of the DEVELOPER that such tax has been paid.
(e) Conversion of any portion of the principal balance of this Note shall
not relieve the DEVELOPER of its obligation to pay any accrued but unpaid
interest as of the date of conversion on the portion of the principal balance of
this Note so converted.
(f) To the extent that any portion of this Note is not converted into
Voting Units, such portion shall remain a secured debt of the DEVELOPER payable
in accordance with the terms of the Loan Agreement.
ARTICLE II
----------
ADVANCES
--------
2.1 Loan advances may be made from time to time by the Company to the
DEVELOPER in the manner and on the terms and subject to the conditions set forth
in the Loan Agreement. Upon granting each loan advance, the Company shall record
the making and amount of such advance on its books in a separate loan account,
and shall also record in the loan
A-4
<PAGE>
account all payments made by the DEVELOPER with respect to the Loan. The
aggregate amount of all Advances, less the amounts of payment of principal made
by the DEVELOPER, shall be the principal amount outstanding under this Note.
The loan account shall be prima facie evidence of the unpaid amount of principal
outstanding under this Note; provided, however, that failure to maintain such
account or record any advances therein shall not relieve the DEVELOPER of its
obligations to repay the outstanding principal amount of the Loan, all accrued
interest thereon, and any amount payable with respect thereto in accordance with
the terms of this Note.
ARTICLE III
-----------
DEFAULT, RIGHTS AND REMEDIES OF HOLDER
--------------------------------------
3.1 The occurrence of a Default shall be a default under this Note. Upon
any default under this Note, the holder of this Note may declare this Note due
and payable in full and exercise such other rights and remedies as are available
to the holder under the Loan Agreement or applicable law.
3.2 If there is any default under this Note, and this Note is placed in
the hands of an attorney for collection, or is collected through any court,
including any bankruptcy court, the DEVELOPER promises to pay to the order of
the holder hereof such holder's reasonable attorneys' fees and court costs
incurred in collecting or attempting to collect or securing or attempting to
secure this Note or enforcing the holder's rights with respect to the
Collateral, to the extent allowed by the laws of the State of Colorado or any
state in which any Collateral is situated.
ARTICLE IV
----------
MISCELLANEOUS
-------------
4.1 THIS NOTE HAS BEEN DELIVERED IN, AND SHALL BE CONSTRUED IN ACCORDANCE
WITH AND GOVERNED BY THE LAWS OF, THE STATE OF COLORADO APPLICABLE TO CONTRACTS
MADE AND TO BE PERFORMED THEREIN WITHOUT REGARD TO THE CONFLICTS OF LAW
PROVISIONS THEREOF.
4.2 The holder of this Note may, with or without notice to any party, and
without affecting the obligations of any maker, surety, guarantor, endorser,
accommodation party, or any other party to this Note (i) extend the time for
payment of either principal or interest from time to time, (ii) release or
discharge any one or more parties liable on this Note, (iii) suspend
A-5
<PAGE>
the right to enforce this Note with respect to any persons, (iv) change,
exchange, or release any property in which the holder has any interest securing
this Note, (v) justifiably or otherwise, impair any of the Collateral or suspend
the right to enforce against any such Collateral, and (vi) at any time it deems
it necessary or proper, call for and, should it be made available, accept, as
additional security, the signature or signatures of additional parties or a
security interest in property of any kind or description or both.
4.3 Any provision herein, or in the Loan Agreement, or any other document
executed or delivered in connection herewith or therewith, or in any other
agreement or commitment, whether written or oral, expressed or implied, to the
contrary notwithstanding, neither the Company nor any holder hereof shall in any
event be entitled to receive or collect, nor shall any amounts received
hereunder be credited, so that the Company or any holder hereof shall be paid,
as interest, a sum greater than the maximum amount permitted by applicable law
to be charged to the person primarily obligated to pay this Note at the time in
question. If any construction of this Note or the Loan Agreement, or any and all
other papers, agreements or commitments, indicate a different right given to the
Company or any holder hereof to ask for, demand, or receive any larger sum as
interest, such is a mistake in calculation or wording which this clause shall
override and control, it being the intention of the parties that this Note, the
Loan Agreement, and all other documents executed or delivered in connection
herewith shall in all ways comply with applicable law and proper adjustments
shall automatically be made accordingly. In the event that the Company or any
holder hereof ever receives, collects, or applies as interest, any sum in excess
of the maximum amount permitted by applicable law, if any, such excess amount
shall be applied to the reduction of the unpaid principal balance of this Note,
and if this Note is paid in full, any remaining excess shall be paid to the
DEVELOPER. In determining whether or not the interest paid or payable, under any
specific contingency, exceeds the maximum amount permitted by applicable law, if
any, the DEVELOPER and any holder hereof shall, to the maximum extent permitted
under applicable law: (a) characterize any non-principal payment as an expense
or fee rather than as interest, and (b) "spread" the total amount of interest
throughout the entire term of this Note.
IN WITNESS WHEREOF, the DEVELOPER has caused this Note to be executed in
its corporate name by the undersigned officer, thereunto duly authorized.
_________________________________________
By: _____________________________________
its Manager
By:__________________________________
Title:____________________________
A-6
<PAGE>
EXHIBIT B
---------
BORROWING CERTIFICATE
---------------------
<PAGE>
BORROWING CERTIFICATE
---------------------
The undersigned, the _____________________________________________ of
_______________________________________________________, Inc., the manager of
_______________________________________________________ (the "DEVELOPER"),
borrower under that certain Secured Loan Agreement dated
______________________________, 1996 (the "Loan Agreement") between the
DEVELOPER and Einstein/Noah Bagel Corp. (the "Company"), hereby certifies to
the Company as follows:
1. Loan proceeds in the aggregate amount of $_______________ were
disbursed by the Company for the benefit of DEVELOPER under the Loan Agreement
during the two-week borrowing period ended ______________________________,
199______ (the "Borrowing Period"). DEVELOPER confirms that (a) the Company was
authorized to disburse such amount on behalf of DEVELOPER, and (b) such amount
was required and used by DEVELOPER for the purposes permitted under the Loan
Agreement and for no other purpose.
2. As of 1996, the outstanding principal balance of the Loan is
$_______________.
3. The representations and warranties contained in Article IV of the Loan
Agreement and in the Security Instruments delivered in connection therewith were
true and correct at all times during the Borrowing Period, are true and correct
on and as of the date hereof, and will be true and correct at all times during
the next succeeding two-week borrowing period.
4. No Default or Event of Default has occurred and is continuing.
5. DEVELOPER is in compliance with the Development Schedule (as defined in
the Development Agreement).
The Company is entitled to rely on this Certificate and the representations
contained herein when disbursing loan proceeds during the next succeeding two-
week borrowing period.
Capitalized terms used but not defined herein have the meanings ascribed
thereto in the Loan Agreement.
____________________________________
B-1
<PAGE>
EXHIBIT C
---------
UNIT PLEDGE AGREEMENT
---------------------
<PAGE>
UNIT PLEDGE AGREEMENT
---------------------
THIS UNIT PLEDGE AGREEMENT ("Pledge Agreement"), dated
______________________________, 1996, is made and entered into by and between
Einstein/Noah Bagel Corp., a Delaware corporation (the "Company"), and all of
the holders (other than the Company and Einstein Bros. Equity Funding, L.L.C.)
of Voting Units in _______________________________________________, a Delaware
limited liability company (the "DEVELOPER"), and their spouses listed on the
signature pages hereof and any other persons who, after the date of this Pledge
Agreement, become holders of Voting Units in the DEVELOPER and their spouses
(collectively, the "Members").
R E C I T A L S
---------------
1. The Members own 100% of the issued and outstanding Voting Units in the
DEVELOPER, in the amounts set forth on Schedule A hereto.
2. The DEVELOPER has entered into a Secured Loan Agreement of even date
herewith (the "Loan Agreement") with the Company pursuant to which the Company
has agreed on the terms and subject to the conditions therein, to make the Loan
(as defined in the Loan Agreement) to the DEVELOPER, which Loan is evidenced by
a promissory note of even date herewith from the DEVELOPER to the Company (the
"Note").
3. Certain of the Members have executed promissory notes of even date
herewith to DEVELOPER pursuant to which DEVELOPER has loaned such Members the
money necessary for such Members to purchase certain of the Voting Units owned
by them (each, a "Member Note"). To secure his obligation under his Member Note,
each such Member has granted to DEVELOPER a security interest in and to the
Voting Units (the "Second Pledge Agreement").
4. As an inducement to the Company to enter into the Loan Agreement and as
a condition to the effectiveness of the Company's obligations under the Loan
Agreement, the Members have agreed, among other things, to pledge to the
Company, and grant a first-priority security interest to the Company, in and to,
100% of the issued and outstanding Voting Units in the DEVELOPER, and DEVELOPER
has agreed that the pledge to it of, and its security interest in and to, the
Voting Units will be junior to the pledge of and security interest in and to the
Voting Units granted to the Company as provided herein.
NOW, THEREFORE, the Company and the Members have agreed as follows:
1. CERTAIN DEFINITIONS. The capitalized terms and phrases not
otherwise defined herein, shall have the meanings given them in the Loan
Agreement, and the following terms or phrases shall have the following meanings:
C-1
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"Affiliate" shall mean, with respect to a specified person, any other
person that directly, or indirectly through one or more intermediaries,
controls or is controlled by, or is under common control with, the person
specified.
"Collateral" shall mean the Pledged Units and any other property in
which the Company acquires a security interest pursuant to this Pledge
Agreement to secure any indebtedness or other obligation of the DEVELOPER
to the Company.
"Default" shall have the meaning given it in Section 10 of this Pledge
Agreement.
"Pledged Units" shall mean all the issued and outstanding Voting Units
in the DEVELOPER now or hereafter owned by the Members.
"Secured Obligations" shall mean the obligations secured by this
Pledge Agreement described in Section 3 of this Pledge Agreement.
"Voting Units" shall have the meaning ascribed thereto in the limited
liability company agreement of DEVELOPER dated
______________________________, 1996, as amended.
2. GRANT OF SECURITY INTEREST.
(a) The Members hereby grant to the Company a security interest in all of
their respective right, title, and interest in and to the Pledged Units whether
now owned or hereafter acquired. The Members further grant to the Company a
security interest in any rights to subscribe, liquidating distributions,
distributions paid in units of ownership interest, new securities, or any other
property to which the Members are or may hereafter become entitled to receive
whether on account of the Pledged Units or otherwise other than cash
distributions permitted pursuant to the provisions of Section 6.4 of the Loan
Agreement. If the Members receive additional property of such nature, they
shall immediately deliver such property to the Company to be held by the Company
in the same manner as the property held pursuant to this Pledge Agreement.
(b) The Members grant a further security interest to the Company in the
proceeds or products of any sale or other disposition of the Pledged Units.
3. OBLIGATIONS SECURED. The security interest created hereby secures
payment and performance of (a) the indebtedness evidenced by the Note, and all
obligations contained in the Note, (b) all of the other obligations, agreements,
covenants, and representations of the DEVELOPER under the Loan Agreement whether
or not, either on the date of this Pledge Agreement or thereafter, evidenced by
any note, instrument, or other writing, and (c) any and all other indebtedness,
obligation, or liability of the DEVELOPER to the Company, however evidenced,
whether existing on the date of this Pledge Agreement or arising thereafter,
direct or indirect, absolute or contingent, joint and/or several.
C-2
<PAGE>
4. REPRESENTATIONS AND WARRANTIES. To induce the Company to enter into
this Pledge Agreement, each of the Members represents and warrants for himself
as follows:
(a) The Member has full right, power, and capacity to enter into and
perform this Pledge Agreement; and this Pledge Agreement has been duly
authorized, executed and delivered and constitutes a legal, valid, and
binding obligation of the Member enforceable in accordance with its terms.
(b) The Member has good and marketable title to the Pledged Units
owned by him, and such Pledged Units are not subject to any lien, charge,
pledge, encumbrance, claim, or security interest other than a second
priority lien on the Pledged Units (the "Second Lien") in favor of
DEVELOPER pursuant to the Second Pledge Agreement, if applicable, and the
security interest created by this Pledge Agreement.
(c) The Pledged Units owned by him constitute one hundred percent
(100%) of the issued and outstanding equity interest of the DEVELOPER owned
by him.
(d) The Pledged Units owned by him are fully paid and nonassessable.
(e) Other than the LLC Agreement, the Member has not entered into any
restriction or purchase agreement with respect to the Pledged Units, which
would in any way restrict the sale, pledge, or other transfer of the
Pledged Units or of any interest in or to the Pledged Units.
5. DURATION OF SECURITY INTEREST. The Company, its successors and
assigns, shall hold the Pledged Units and security interest created hereby upon
the terms of this Pledge Agreement, and this security interest shall continue
until all the Secured Obligations have been paid in full.
6. MAINTAINING FREEDOM FROM LIENS. The Members shall keep the Pledged
Units and other Collateral free and clear of liens, other than the lien granted
hereunder and, if applicable, the Second Lien, and shall pay all amounts,
including taxes, assessments, or charges, which might result in a lien against
the Pledged Units or other Collateral if left unpaid. If any such lien,
assessment, claim, or charge shall nevertheless exist, and the Members fail to
pay such amounts promptly, the Company may, but is not obligated to, pay such
amounts, and such payment shall be conclusive evidence of the legality or
validity thereof. The Members shall promptly reimburse the Company for any such
payments, and until reimbursement, such payments shall be a part of the Secured
Obligations.
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<PAGE>
7. CERTAIN RIGHTS RESPECTING PLEDGED UNITS.
(a) The Members shall continue to be the owner of the Pledged Units and
other Collateral so long as no Default has occurred and is continuing and may
collect and retain all cash distributions now or hereafter payable on or on
account of the Pledged Units and other Collateral which are permitted under the
Loan Agreement, and, so long as no Default has occurred, may exercise voting
rights with respect to the Pledged Units and other Collateral.
(b) The Members shall not sell, transfer, or attempt to sell or transfer
the Pledged Units or other Collateral, or any part thereof or interest therein,
without the prior express written consent of the Company. Any such consent of
the Company shall not constitute the release by the Company of its interest in
the Pledged Units or other Collateral, and any such sale or transfer consented
to shall transfer the Pledged Units or other Collateral subject to the security
interest of the Company. Any such transfer shall be subject to the transferee
member's agreement to be bound by the terms and subject to the conditions of
this Pledge Agreement, such agreement to be evidenced by the transferee member's
execution of this Pledge Agreement. The parties agree that a sale or transfer
of Pledged Units or other Collateral pursuant to and in accordance with the
terms and provisions of each Development Agreement and Franchise Agreement
relating thereto between the DEVELOPER and the Company shall be deemed to be a
sale or transfer of such Pledged Units or Collateral with the Company's prior
express written consent hereunder, provided that any such transferee agrees to
and does pledge to the Company such Pledged Units or Collateral as provided
herein.
(c) The Company, at its option upon any Default, may exercise all voting
rights and privileges whatsoever with respect to the Pledged Units and other
Collateral, including, without limitation, the right to receive distributions,
and to that end the Members hereby constitute any officer of the Company as
their proxy and attorney-in-fact for all purposes of voting the Pledged Units
and other Collateral after any Default at any annual regular or special meeting
of the DEVELOPER, and this appointment shall be deemed coupled with an interest
and is and shall be irrevocable until all of the Secured Obligations have been
fully paid and terminated, and all persons whatsoever shall be conclusively
entitled to rely upon any oral or written certification of the Company that it
is entitled to vote the Pledged Units and other Collateral hereunder. The
Members shall execute and deliver to the Company any additional proxies and
powers of attorney that the Company may desire in its own name in order to
exercise the rights expressly granted to the Company under this Section 7(c).
In addition to any other voting rights, the Company may, upon any Default, vote
the Pledged Units and other Collateral to remove the managers of the DEVELOPER,
or any of them, and to elect new managers of the DEVELOPER, who may thereafter
manage the affairs of the DEVELOPER, operate its properties and carry on its
business and otherwise take any action with respect thereto as it shall deem
necessary and appropriate, and may also liquidate its business, and may
authorize the borrowing of money in the name of the DEVELOPER, and the pledge of
its assets to secure such borrowing.
C-4
<PAGE>
8. ISSUANCE OR ACQUISITION OF NEW UNITS; MERGERS, SALES AND OTHER
DISPOSITION OF ASSETS. The Members shall not permit the DEVELOPER to (a) issue
new units of ownership interest in DEVELOPER, or any options, subscription
rights, or warrants with respect thereto (except as contemplated in and
permitted by the Loan Agreement), (b) merge into or with or consolidate with any
other entity, (c) sell or otherwise transfer any part of its assets (except in
the ordinary course of business) or (d) liquidate or dissolve or take any action
with a view toward liquidation or dissolution, in each case without the
Company's prior written consent.
9. DELIVERY OF CERTIFICATES AND TRANSFER DOCUMENTS; PLEDGE OF ADDITIONAL
UNITS. If the Pledged Units are at any time represented by certificates, the
Members shall deliver to the Company such certificates in form suitable for
transfer together with executed blank assignment or transfer documents, and the
Company shall hold the certificates as bailee for DEVELOPER. If for any reason
any of the Members acquires any interest in any additional membership units of
the DEVELOPER (voting and nonvoting) such Member shall immediately deliver
certificates representing those units in form suitable for transfer and blank
assignment or transfer documents to the Company to be held by the Company in the
same manner as the Pledged Units, and such units shall be pledged under this
Pledge Agreement and constitute a part of the Collateral. With respect to any
additional Voting Units acquired by any of the Members, the Company will hold
certificates representing those Voting Units as bailee for DEVELOPER.
10. DEFAULT. At the option of the Company, the occurrence of any Default
(as defined in the Loan Agreement) under the Loan Agreement shall constitute a
default under this Pledge Agreement.
11. REMEDIES.
(a) Upon the occurrence of any Default, the Company shall have all of the
rights and remedies provided by law and/or by this Pledge Agreement, including
but not limited to all of the rights and remedies of a secured party under the
Uniform Commercial Code, and the Members hereby authorize the Company to hold
such Pledged Units or to sell all or any part of the Pledged Units at public or
private sale and to apply the proceeds of such sale to the costs and expenses
thereof (including the reasonable attorneys' fees and disbursements incurred by
the Company) and then to the payment of the other Secured Obligations. The
Company may be the purchaser at any such sale. The Members expressly authorize
such sale or sales of the Pledged Units in advance of and to the exclusion of
any sale or sales of or other realization upon any other collateral securing
indebtedness or other obligations owed to the Company. The Company shall be
under no obligation to preserve rights against prior parties.
(b) The Members agree and acknowledge that because there may be no public
market for the Pledged Units and because of applicable securities laws, a public
sale of the Pledged Units may not be possible or advisable and sales at a
private sale may be on terms less favorable than if such Pledged Units were sold
at a public sale and may be at a price less favorable than
C-5
<PAGE>
a public sale. The Members agree that all such private sales made under the
foregoing circumstances shall be deemed to have been made in a commercially
reasonable manner.
12. EXERCISE OF REMEDIES. The rights and remedies of the Company shall be
deemed to be cumulative, and any exercise of any right or remedy shall not be
deemed to be an election of that right or remedy to the exclusion of any other
right or remedy. Notwithstanding the foregoing, the Company shall be entitled
to recover by the cumulative exercise of all remedies no more than the sum of
(a) the Secured Obligations remaining outstanding at the time of the exercise of
remedies, plus (b) the costs, fees, and expenses the Company is otherwise
entitled to recover.
13. RETURN OF COLLATERAL. If certificates representing the Pledged Units
shall at any time have been delivered to the Company hereunder, the Company may
at any time deliver the Pledged Units or other Collateral, or any part thereof,
to the Members. The receipt by the Members of the Pledged Units or other
Collateral, or any part thereof, shall be a complete and full discharge of the
Company, and the Company shall be discharged from any liability or
responsibility with respect thereto.
14. COMMUNICATIONS AND NOTICES.
(a) Any requirement of the Uniform Commercial Code of reasonable notice
shall be met if such notice is given at least five business days before the time
of sale, disposition, or other event or thing giving rise to the requirement of
notice.
(b) All communications and notices shall be in writing and shall be deemed
to have been duly given if delivered personally to the party to whose attention
the notice is directed or sent by overnight express, facsimile transmission,
express mail delivery service, or registered or certified mail, return receipt
requested, postage prepaid, and properly addressed as follows:
If to the Members: the addresses shown on the signature pages
If to the Company: Einstein/Noah Bagel Corp.
1526 Cole Blvd., Suite 200
Golden, CO 80401
Attention: Vice President,
Franchise Development
Facsimile: (303) 202-3490
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<PAGE>
with a copy to: Einstein/Noah Bagel Corp.
1526 Cole Blvd., Suite 200
Golden, CO 80401
Attention: General Counsel
Facsimile: (303) 202-3490
Any party may change the address to which notices hereunder are to be sent to it
by giving written notice of such change of address in the manner herein provided
for giving notice. Any notice delivered personally shall be deemed to have been
given when so delivered. Any notice delivered by facsimile transmission shall
be deemed to have been given on the earlier of the date it is actually received
or one day after such transmission. Any notice delivered by overnight express
courier will be deemed to have been given on the next succeeding business day
after the day it is sent to the intended recipient at the address set forth
above, and any notice delivered by registered or certified mail or express mail
delivery service shall be deemed to have been duly given on the earlier of the
date it is actually received or three business days after it is sent to the
intended recipient at the address set forth above.
15. FURTHER ASSURANCES. The Members shall sign any such other documents or
instruments, including UCC financing statements, and take such other action, as
the Company may request to more fully create and maintain, or to verify, ratify,
or perfect the security interest intended to be created by this Pledge
Agreement.
16. MULTIPLE COUNTERPARTS. This Pledge Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, and it shall not
be necessary in making proof of this Pledge Agreement or the terms thereof to
produce or account for more than one such counterpart.
17. MISCELLANEOUS.
(a) Failure by the Company to exercise any right shall not be deemed a
waiver of that right, and any single or partial exercise of any right shall not
preclude the further exercise of that right. Every right of the Company shall
continue in full force and effect until such right is specifically waived in
writing signed by the Company.
(b) If any provision of this Pledge Agreement or the application thereof to
any person or circumstance is held invalid or unenforceable, the remainder of
the Pledge Agreement and the application of such provision to other persons or
circumstances shall not be affected thereby, and the provisions of this Pledge
Agreement shall be severable in any such instance.
(c) The headings of the sections of this Pledge Agreement are inserted for
convenience only and shall not be deemed to constitute a part of this Pledge
Agreement.
C-7
<PAGE>
(d) This Pledge Agreement shall benefit the Company, its successors and
assigns, and all obligations of the Members shall bind their successors and
assigns. The Members acknowledge that the Company may assign or otherwise
transfer (in whole or in part) the Note, the Loan Agreement, or this Pledge
Agreement to any other person, and such other person shall thereupon become
vested with all of the benefits in respect thereof granted to the Company
thereunder (including the benefits under this Pledge Agreement).
(e) THIS PLEDGE AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND
GOVERNED BY THE LAWS OF THE STATE OF COLORADO APPLICABLE TO CONTRACTS MADE AND
TO BE PERFORMED THEREIN WITHOUT REGARD TO THE CONFLICTS OF LAWS PROVISIONS
THEREOF.
(f) This Pledge Agreement and the Loan Agreement constitute the entire
agreement of the parties with respect to the subject matter hereof and supersede
all prior understandings with respect to the subject matter hereof. No change,
modification, addition, or termination of this Pledge Agreement shall be
enforceable unless in writing and signed by the party against whom enforcement
is sought.
(g) To the extent any spouse of a Member is deemed, under applicable law
or otherwise, to have an interest in the Collateral, such spouse hereby waives,
relinquishes, and forever releases such interest in such Collateral and agrees
that such Collateral is subject to all of the terms and provisions of this
Pledge Agreement, especially, without limitation, Sections 10 and 11 hereof, and
further agrees to be bound by the terms and provisions hereof and to execute,
acknowledge, and deliver such further assignments, transfers, conveyances,
powers of attorney, and assurances as may be required to sell the Pledged Units
as provided in Section 11 hereof, and as may be otherwise appropriate to carry
out the transactions contemplated by this Pledge Agreement.
(h) Each of the Members agrees that any legal action or proceeding with
respect to this Pledge Agreement or the transactions contemplated hereby may be
brought in any court of the State of Colorado, or in any court of the United
States of America sitting in Colorado, and each of the Members hereby submits to
and accepts generally and unconditionally the jurisdiction of those courts with
respect to its person and property, and irrevocably consents to the service of
process in connection with any such action or proceeding by personal delivery to
each of the Members or by the mailing thereof by registered or certified mail,
postage prepaid addressed to each of the Members at the address for notices as
provided in Section 14 hereof. Nothing in this paragraph shall affect the right
of the Company to serve process in any other manner permitted by law or limit
the right of the Company to bring any such action or proceeding against the
Members or property in the courts of any other jurisdiction. Each of the Members
hereby irrevocably waives any objection to the laying of venue of any such suit
or proceeding in the above described courts.
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<PAGE>
18. WAIVER OF JURY TRIAL. No party to this instrument, which includes any
assignee, successor, heir or personal representative of a party, shall seek a
jury trial in any lawsuit, proceeding, counterclaim, or any other litigation
procedure based upon, or arising out of this Agreement, any related instrument,
or the dealings or the relationship between the parties. If the subject matter
of any such litigation is one in which the waiver of a jury trial is prohibited,
if at all, under the controlling law of the applicable jurisdiction, by
constitutional or statutory provision, no party hereto will present as a defense
or counterclaim in such litigation any claim which would reduce or offset any
amount or right claimed under the provisions of this Pledge Agreement. No party
will seek to consolidate any such action, in which a jury has been waived, with
any other action in which a jury trial cannot or has not been waived.
THE PROVISIONS OF THIS SECTION 18 HAVE BEEN FULLY DISCUSSED BY THE PARTIES
HERETO, AND THESE PROVISIONS SHALL BE SUBJECT TO NO EXCEPTIONS. NO PARTY HAS IN
ANY WAY AGREED WITH OR REPRESENTED TO ANY OTHER PARTY THAT THE PROVISIONS OF
THIS PARAGRAPH WILL NOT BE FULLY ENFORCED IN ALL INSTANCES. THIS PROVISION IS A
MATERIAL INDUCEMENT FOR THE COMPANY IN ENTERING INTO THIS AGREEMENT.
IN WITNESS WHEREOF, the parties hereto executed this Pledge Agreement to be
effective as of the date and year first above written.
EINSTEIN/NOAH BAGEL CORP.
By:______________________________________
Its:___________________________________
MEMBERS
Signature pages attached
DEVELOPER hereby executes this Pledge Agreement for purposes of acknowledging
and consenting to its execution by DEVELOPER's members and agrees that its
security interest in
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<PAGE>
and to the Pledged Units is junior to the security interest in and to the
Pledged Units granted to the Company hereunder.
_____________________________________
By:__________________________________
its Manager
By:_______________________________
Title:________________________
C-10
<PAGE>
SCHEDULE A
TO
PLEDGE AGREEMENT
----------------
PLEDGED UNITS AT _______________________, 1996
NO. OF UNITS ISSUED TO
------------ ---------
C-11
<PAGE>
EXHIBIT D
---------
SUBSIDIARY SECURITY AGREEMENT
-----------------------------
<PAGE>
SUBSIDIARY SECURITY AGREEMENT
-----------------------------
THIS SECURITY AGREEMENT, dated as of _________________________, 199______
(this "Security Agreement"), is made by_____________________________________
__________________, a ___________________________________ corporation (the
"Subsidiary"), in favor of Einstein/Noah Bagel Corp., a Delaware corporation
(the "Company").
W I T N E S S E T H:
-------------------
WHEREAS, _______________________________________________________, a
Delaware limited liability company (the "Borrower"), has entered into a Secured
Loan Agreement dated ______________________________, 1996 (the "Loan
Agreement"), with the Company pursuant to which the Company has agreed on the
terms and conditions therein, to make the Loan (as defined in the Loan
Agreement) to the Borrower; and
WHEREAS, the Subsidiary is a wholly-owned subsidiary of the Borrower;
WHEREAS, as a condition to the effectiveness of the Company's obligations
under the Loan Agreement, the Subsidiary has agreed, among other things, to
grant to the Company a first-priority security interest in and to the Collateral
hereinafter described;
NOW, THEREFORE, to secure (a) the payment of the principal sum of
_______________________________________________________ Dollars
($_______________), together with interest thereon, in accordance with the terms
of a promissory note dated ______________________________, 19______, issued by
the Borrower pursuant to the Loan Agreement (the "Note"), (b) the performance of
the covenants herein contained and any monies expended by the Company in
connection therewith, (c) the payment of all obligations and performance of all
covenants of the Borrower under the Loan Agreement, the Unit Pledge Agreements
and all other Security Instruments (as defined in the Loan Agreement) and any
other documents, agreements or instruments between the Borrower or the
Subsidiary and the Company given in connection therewith, and (d) any and all
other indebtedness, obligations and liabilities of any kind of the Borrower
and/or the Subsidiary to the Company now or hereafter existing, direct or
indirect, absolute or contingent, joint and/or several, secured or unsecured,
arising by operation of law or otherwise, and whether incurred by the Subsidiary
as principal, surety, endorser, guarantor, accommodation party or otherwise (all
of the aforesaid indebtedness, obligations and liabilities of the Borrower
and/or the Subsidiary being herein called the "Secured Obligations", and all of
the documents, agreements and instruments between the Subsidiary and the Company
evidencing or securing the repayment of, or otherwise pertaining to the Secured
Obligations being herein collectively called the "Operative Documents"), for
value received and pursuant to the Loan Agreement, the Subsidiary hereby grants,
assigns and transfers to the Company a security interest in and to the following
D-1
<PAGE>
described property whether now owned or existing or hereafter acquired or
arising and wherever located (all of which is herein collectively called the
"Collateral"):
(a) all of the Subsidiary's real estate, accounts, equipment
(including, but not limited to machinery, furniture, fixtures, tools,
vehicles, and other tangible property), inventory, leasehold improvements,
contract rights (including its rights as lessee under all leases of real
property), general intangibles, deposit accounts, tax refunds, chattel
paper, instruments, notes, letters of credit, documents, and documents of
title;
(b) all insurance proceeds of or relating to any of the foregoing;
(c) all of the Subsidiary's books, records, and computer programs and
data relating to any of the foregoing; and
(d) all accessories and additions to, and substitutions for, and
replacements, products and proceeds of, any of the foregoing.
1. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS. The Subsidiary
further represents, warrants, covenants, and agrees with the Company as follows:
(a) OWNERSHIP OF COLLATERAL; SECURITY INTEREST PRIORITY. At the time
any Collateral becomes subject to a security interest of the Company
hereunder, unless the Company shall otherwise consent, the Subsidiary shall
be deemed to have represented and warranted that (i) the Subsidiary is the
lawful owner of such Collateral and has the right and authority to subject
the same to the security interest of the Company; (ii) none of the
Collateral is subject to any lien other than that in favor of the Company
and there is no effective financing statement covering any of the
Collateral on file in any public office, other than in favor of the
Company. This Security Agreement creates in favor of the Company a valid
and perfected first-priority security interest in the Collateral
enforceable against the Subsidiary and all third parties and securing the
payment of the Secured Obligations and all filings and other actions
necessary or desirable to create, preserve or perfect such security
interests have been duly taken.
(b) LOCATION OF OFFICES, RECORDS AND FACILITIES. The Subsidiary's
chief executive office and chief place of business and the office where the
Subsidiary keeps its records concerning its accounts, contract rights,
chattel papers, instruments, general intangibles and other obligations
arising out of or in connection with the sale or lease of goods or the
rendering of services or otherwise ("Receivables"), and all originals of
all leases and other chattel paper which evidence Receivables, are located
in the State of ________________________________________, County of
________________________________________ at ______________________________
___________________. The Subsidiary will provide the Company with prior
written notice of any proposed change in the location of its chief
executive office and will
D-2
<PAGE>
not change the location of its chief executive office without the prior
written consent of the Company. The federal tax identification number of
the Subsidiary is _______________. The name of the Subsidiary is
_____________________________________________, and the Subsidiary operates
under no other names [except for "_______________________________________
______"]. The Subsidiary shall not change its name without the prior
written consent of the Company.
(c) LOCATION OF INVENTORY, FIXTURES, MACHINERY AND EQUIPMENT. All
Collateral consisting of inventory, fixtures, machinery or equipment is,
and will be, located within the Development Area, and at no other locations
without the prior written consent of the Company. If the Collateral
described in this paragraph l(c) is kept at leased locations or warehoused,
the Subsidiary has obtained appropriate landlord's lien waivers or
appropriate warehousemen's notices have been sent, each satisfactory to the
Company, unless waived by the Company.
(d) LIENS, ETC. The Subsidiary will keep the Collateral free at all
times from any and all liens, security interests or encumbrances other than
those described in paragraph 1(a)(ii) hereof and those consented to in
writing by the Company. The Subsidiary will not, without the prior written
consent of the Company, sell or lease, or permit or suffer to be sold or
leased, any of the Collateral except inventory which is sold or, subject to
the Company's security interest therein, is leased in the ordinary course
of the Subsidiary's business, and tangible Collateral which is disposed of
in the ordinary course of the Subsidiary's business as being obsolete. The
Company or its attorneys may at any and all reasonable times inspect the
Collateral and for such purpose may enter upon any and all premises where
the Collateral is or might be kept or located.
(e) INSURANCE. The Subsidiary shall keep the tangible Collateral
insured at all times against loss by theft, fire and other casualties and
shall otherwise comply with the insurance provisions set forth in Section
5.4 of the Loan Agreement.
(f) TAXES, ETC. The Subsidiary will pay promptly, and within the time
that they can be paid without interest or penalty, any taxes, assessments
and similar imposts and charges, not being contested in good faith, which
are now or hereafter may become a lien, charge or encumbrance upon any of
the Collateral. If the Subsidiary fails to pay any such taxes, assessments
or other imposts or charges in accordance with this Section, the Company
shall have the option to do so and the Subsidiary agrees to repay forthwith
all amounts so expended by the Company with interest at the default rate
set forth in the Loan Agreement.
(g) FURTHER ASSURANCES. The Subsidiary will do all acts and things
and will execute all financing statements and writings requested by the
Company to establish, maintain and continue a perfected and valid security
interest of the Company in the Collateral, and will promptly on demand pay
all reasonable costs and expenses of filing
D-3
<PAGE>
and recording all instruments, including the costs of any searches deemed
necessary by the Company to establish and determine the validity and the
priority of the Company's security interests. A carbon, photographic or
other reproduction of this Security Agreement or any financing statement
covering the Collateral shall be sufficient as a financing statement.
(h) MAINTENANCE OF TANGIBLE COLLATERAL. The Subsidiary will cause the
tangible Collateral to be maintained and preserved in the same condition,
repair and working order as when new, ordinary wear and tear excepted, and
in accordance with any manufacturer's manual, and shall forthwith, or, in
the case of any loss or damage to any of the tangible Collateral as quickly
as practicable after the occurrence thereof, make or cause to be made all
repairs, replacements, and other improvements made in connection therewith
which are necessary or desirable to such end. The Subsidiary shall promptly
furnish to the Company a statement respecting any loss or damage to any of
the tangible Collateral.
(i) MAINTENANCE OF INTANGIBLE COLLATERAL. The Subsidiary shall
preserve and maintain all rights of the Subsidiary and the Company in the
intangible Collateral, including without limitation the payment of all
maintenance fees and the taking of appropriate action at the Subsidiary's
expense to halt the infringement of any of the intangible Collateral.
(j) SPECIAL RIGHTS REGARDING ACCOUNTS RECEIVABLE. The Company or any
of its agents may, at any time and from time to time in its sole discretion
and irrespective of the existence of any event of default under this
Security Agreement, verify directly with the Subsidiary's account debtors
the accounts pledged hereunder in any manner. The Company or any of its
agents may, at any time from time to time in its sole discretion, notify
the Subsidiary's account debtors of the security interest of the Company in
the Collateral and/or direct such account debtors that all payments in
connection with such obligations and the Collateral be made directly to the
Company in the Company's name. If the Company or any of its agents shall
collect such obligations directly from the Subsidiary's account debtors,
the Company or any of its agents shall have the right to resolve any
disputes relating to returned goods directly with the Subsidiary's account
debtors in such manner and on such terms as the Company or any of its
agents shall deem appropriate. The Subsidiary directs and authorizes any
and all of its present and future account debtors to comply with requests
for information from the Company, the Company's designees and agents and/or
auditors, relating to any and all business transactions between the
Subsidiary and the Subsidiary's account debtors. The Subsidiary further
directs and authorizes all of its account debtors upon receiving a notice
or request sent by the Company or the Company's agents or designees to pay
directly to the Company any and all sums of money or proceeds now or
hereafter owing by the Subsidiary's account debtors to the Subsidiary, and
any such payment shall act as a
D-4
<PAGE>
discharge of any debt of such account debtor to the Subsidiary in the same
manner as if such payment had been made directly to the Subsidiary. The
Subsidiary agrees to take any and all action as the Company may request to
assist the Company in exercising the rights described in this Section.
2. EVENTS OF DEFAULT. The occurrence of any Event of Default specified
in the Loan Agreement shall be deemed an event of default under this Security
Agreement.
3. REMEDIES. Upon the occurrence of any such event of default, the
Company shall have and may exercise any one or more of the rights and remedies
provided to it under this Security Agreement or any of the other Operative
Documents or provided by law, including but not limited to all of the rights and
remedies of a secured party under the Uniform Commercial Code, and the
Subsidiary hereby agrees to assemble the Collateral and make it available to the
Company at a place to be designated by the Company which is reasonably
convenient to both parties, authorizes the Company to take possession of the
Collateral with or without demand and with or without process of law and to sell
and dispose of the same at public or private sale and to apply the proceeds of
such sale to the costs and expenses thereof (including reasonable attorneys'
fees and disbursements, incurred by the Company) and then to the payment of the
indebtedness and satisfaction of other Secured Obligations. Any requirement of
reasonable notice shall be met if the Company sends such notice to the
Subsidiary, by registered or certified mail, at least five days prior to the
date of sale, disposition or other event giving rise to a required notice. The
Company may be the purchaser at any such sale. The Subsidiary expressly
authorizes such sale or sales of the Collateral in advance of and to the
exclusion of any sale or sales of or other realization upon any other collateral
securing the Secured Obligations. The Company shall have no obligation to
preserve rights against prior parties. The Subsidiary hereby waives as to the
Company any right of subrogation or marshaling of such Collateral and any other
collateral for the Secured Obligations. To this end, the Subsidiary hereby
expressly agrees that any such collateral or other security of the Subsidiary or
any other party which the Company may hold, or which may come to any of them or
any of their possession, may be dealt with in all respects and particulars as
though this Security Agreement were not in existence. The parties hereto further
agree that public sale of the Collateral by auction conducted in any county in
which any Collateral is located or in which the Company or the Subsidiary does
business after advertisement of the time and place thereof shall, among other
manners of public and private sale, be deemed to be a commercially reasonable
disposition of the Collateral. The Subsidiary shall be liable for any deficiency
remaining after disposition of the Collateral.
4. REMEDIES CUMULATIVE. No right or remedy conferred upon or reserved to
the Company under any Operative Document is intended to be exclusive of any
other right or remedy, and every right and remedy shall be cumulative in
addition to every other right or remedy given hereunder or now or hereafter
existing under any applicable law. Every right and remedy of the Company under
any Operative Document or under applicable law may be exercised from time to
time and as is often as may be deemed expedient by the Company. To
D-5
<PAGE>
the extent that it lawfully may, the Subsidiary agrees that it will not at any
time insist upon, plead, or in any manner whatever claim or take any benefit or
advantage of any applicable present or future stay, extension or moratorium law,
which may effect observance or performance of any provisions of any Operative
Document; nor will it claim, take or insist upon any benefit or advantage of any
present or future law providing for the valuation or appraisal of any security
for its obligations under any Operative Document prior to any sale or sales
thereof which may be made under or by virtue of any instrument governing the
same; nor will it, after any such sale or sales, claim or exercise any right,
under any applicable law to redeem any portion of such security so sold.
5. CONDUCT NO WAIVER. No waiver of default shall be effective unless in
writing executed by the Company and waiver of any default or forbearance on the
part of the Company in enforcing any of its rights under this Security Agreement
shall not operate as a waiver of any other default or of the same default on a
future occasion or of such right.
6. GOVERNING LAW; DEFINITIONS. This Security Agreement is a contract
made under, and the rights and obligations of the parties hereunder shall be
governed by and construed in accordance with, the laws of the State of Colorado
applicable to contracts made and to be performed entirely within such State.
Terms used but not defined herein shall have the respective meaning ascribed
thereto in the Loan Agreement. Unless otherwise defined herein or in the Loan
Agreement, terms used in Article 9 of the Uniform Commercial Code in the State
of Colorado are used herein as therein defined on the date hereof. The headings
of the various subdivisions hereof are for convenience of reference only and
shall in no way modify any of the terms or provisions hereof.
7. NOTICES. All notices, demands, requests, consents and other
communications hereunder shall be delivered and shall be effective in the manner
specified in Section 9.4 of the Loan Agreement.
8. RIGHTS NOT CONSTRUED AS DUTIES. The Company neither assumes nor shall
it have any duty of performance or other responsibility under any contracts in
which the Company has or obtains a security interest hereunder. If the
Subsidiary fails to perform any agreement contained herein, the Company may but
is in no way obligated to itself perform, or cause performance of, such
agreement, and the expenses of the Company incurred in connection therewith
shall be payable by the Subsidiary under paragraph 11.
9. AMENDMENTS. None of the terms and provisions of this Security
Agreement may be modified or amended in any way except by an instrument in
writing executed by each of the parties hereto.
10. SEVERABILITY. If any one or more provisions of this Security
Agreement should be invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the
D-6
<PAGE>
remaining provisions contained herein shall not in any way be affected, impaired
or prejudiced thereby.
11. EXPENSES. The Subsidiary agrees to indemnify the Company from and
against any and all claims, losses and liabilities growing out of or resulting
from this Security Agreement (including, without limitation, enforcement of this
Security Agreement), except claims, losses or liabilities resulting from the
Company's gross negligence or willful misconduct.
12. SUCCESSORS AND ASSIGNS; TERMINATION. This Security Agreement shall
create a continuing security interest in the Collateral and shall (a) remain in
full force and effect until full payment and performance of the Secured
Obligations (b) be binding upon the Subsidiary, its successors and assigns and
(c) inure, together with the rights and remedies of the Company hereunder, to
the benefit of the Company and its successors, transferees and assigns. Upon the
full payment and performance of the Secured Obligations the security interests
granted hereby shall terminate and all rights to the Collateral shall revert to
the Subsidiary. Upon any such termination, the Company will, at the Subsidiary's
expense, execute and deliver to the Subsidiary such documents as the Subsidiary
shall reasonably request to evidence such termination.
13. SUBMISSION TO JURISDICTION. The Subsidiary agrees that any legal
action or proceeding with respect to this Security Agreement or the transactions
contemplated hereby may be brought in any court of the State of Colorado, or in
any court of the United States of America sitting in Colorado, and the
Subsidiary hereby submits to and accepts generally and unconditionally the
jurisdiction of those courts with respect to their respective person and
property, and irrevocably consents to the service of process in connection with
any such action or proceeding by personal delivery to the Subsidiary or by the
mailing thereof by registered or certified mail, postage prepaid addressed to
the Subsidiary at the address for notices as provided in Section 7 hereof.
Nothing in this paragraph shall affect the right of the Company to serve process
in any other manner permitted by law or limit the right of the Company to bring
any such action or proceeding against the Subsidiary or property in the courts
of any other jurisdiction. The Subsidiary hereby irrevocably waives any
objection to the laying of venue of any such suit or proceeding in the above
described courts.
14. WAIVER OF JURY TRIAL. No party to this instrument, which includes any
assignee, successor, heir or personal representative of a party, shall seek a
jury trial in any lawsuit, proceeding, counterclaim, or any other litigation
procedure based upon, or arising out of this Agreement, any related instrument,
or the dealings or the relationship between the parties. If the subject matter
of any such litigation is one in which the waiver of a jury trial is prohibited,
if at all, under the controlling law of the applicable jurisdiction, by
constitutional or statutory provision, no party hereto will present as a defense
or counterclaim in such litigation any claim which would reduce or offset any
amount or right claimed under the provisions of this
D-7
<PAGE>
Agreement. No party will seek to consolidate any such action, in which a jury
has been waived, with any other action in which a jury trial cannot or has not
been waived.
THE PROVISIONS OF THIS SECTION 14 HAVE BEEN FULLY DISCUSSED BY THE PARTIES
HERETO, AND THESE PROVISIONS SHALL BE SUBJECT TO NO EXCEPTIONS. NO PARTY HAS IN
ANY WAY AGREED WITH OR REPRESENTED TO ANY OTHER PARTY THAT THE PROVISIONS OF
THIS PARAGRAPH WILL NOT BE FULLY ENFORCED IN ALL INSTANCES. THIS PROVISION IS A
MATERIAL INDUCEMENT FOR THE COMPANY IN ENTERING INTO THIS AGREEMENT.
IN WITNESS WHEREOF, the Subsidiary has caused this Security Agreement to be
duly executed as of the day and year first set forth above.
[NAME OF SUBSIDIARY]
By:
-----------------------------------
Its:
--------------------------------
D-8
<PAGE>
EXHIBIT E
---------
FORM OF CERTIFICATE TO ACCOMPANY ADVANCES
-----------------------------------------
<PAGE>
CERTIFICATE FOR ADVANCES
------------------------
The undersigned, the _____________________________________________ of
_______________________________________________________, Inc., the manager of
_______________________________________________________ (the "DEVELOPER"),
borrower under that certain Secured Loan Agreement dated _____________________
_________, 1996 (the "Loan Agreement") between the DEVELOPER and Einstein/Noah
Bagel Corp. (the "Company"), hereby requests a Loan Advance in the amount of
$_______________ to be made on ______________________________, 19______.
In support of this request, the DEVELOPER hereby represents and warrants to
the Company as follows:
1. The amount of the Advance is required and will be used by the DEVELOPER
for the purposes permitted under Section 1.2 of the Loan Agreement and for no
other purposes.
2. The representations and warranties contained in Article IV of the Loan
Agreement and in the Security Instruments delivered in connection therewith are
true and correct on and as of the date hereof, and will be true and correct on
the date such Advances are made.
3. No Default or Event of Default has occurred or is continuing.
4. All of the conditions to Advances set forth in Article III of the Loan
Agreement have been satisfied.
5. DEVELOPER has expended at least 75% of its equity capital (other than
equity represented by the Member Notes) for the purposes set forth in the Loan
Agreement and for no other purposes.
6. DEVELOPER is in compliance with the Development Schedule.
7. The amount of the requested Advance is the amount DEVELOPER reasonably
expects (and which DEVELOPER reasonably believes is necessary) to expend within
the 60-day period immediately following the receipt of the Advance to purchase,
design, construct and equip Stores in accordance with Section 1.2 of the Loan
Agreement that are scheduled to open within 6 months of the Advance date.
E-1
<PAGE>
Capitalized terms used but not defined herein have the meanings ascribed
thereto in the Loan Agreement.
Date: ___________________, 199___
E-2
<PAGE>
EXHIBIT F
---------
FORM OF OPINION OF COUNSEL
--------------------------
F-1
<PAGE>
[Form of Opinion of Counsel]
[Date]
Einstein/Noah Bagel Corp.
1526 Cole Blvd., Suite 200
Golden, CO 80401
Re:
Ladies and Gentlemen:
We have acted as counsel for ______________________________, a Delaware
limited liability company (the "Company") in connection with the preparation,
execution, and delivery of the Documents (as hereinafter defined). This opinion
is furnished to you pursuant to Section 7.1 of the Agreement (as hereinafter
defined). As used herein, the term "State" means the State of [opining
jurisdiction] and the term "UCC" means the Uniform Commercial Code as in effect
in the State on the date hereof. Other capitalized terms used herein and not
otherwise defined herein have the meanings provided in the Agreement.
The documents we have examined in rendering this opinion are the following:
(i) The following, collectively called the "Documents":
(a) the Secured Loan Agreement (the "Agreement"), of even date
herewith, between the Company and Einstein/Noah Bagel Corp. ("ENBC");
(b) the Convertible Secured Note of the Company, of even date
herewith and delivered pursuant to the Agreement (the " Note");
(c) the Unit Pledge Agreement (the "Pledge Agreement");
[(d) the Subsidiary Security Agreement, dated of even date
herewith between ____________________ and ENBC pursuant to the
Agreement (the "Subsidiary Security Agreement"); and]
(e) The Development Agreement, of even date herewith, by and
between the Company and ENBC, as amended by [as applicable] (the
"Development Agreement")
(f) [other documents as applicable]
F-2
<PAGE>
(ii) A certificate of the Secretary of the Company certifying as to
(A) the certificate of formation and LLC Agreement of the Company and (B)
evidence of authorization of the transactions contemplated by the
Documents;
(iii) Copies of those indentures, loan or credit agreements, leases,
guarantees, mortgages, security agreements, bonds, notes and other
agreements or instruments, and orders, writs, judgments, awards,
injunctions and decrees, which have been certified by the Secretary of the
Company as those documents which affect or purport to affect the Company's
right to borrow money under, or right to undertake and perform its
obligations under, the Documents (collectively, the "Other Agreements and
Court Orders"), a copy of which certificate is attached hereto as Exhibit
A; and
(iv) A certificate of the Secretary of State of the State of Delaware,
dated ________________, attesting to the continued existence and good
standing of the Company in that state.
We have also examined such other documents and records, and other
certificates, opinions and instruments and have conducted such investigation as
we have deemed necessary as a basis for the opinions expressed below. As to
factual matters relevant to our opinions expressed below, we have, without
independent investigation, relied upon all of the foregoing, upon the factual
representations made by the Company in Article VI of the Agreement, upon
certificates of the officers of the Company and of public officials, and upon
public records.
Based upon and subject to the matters stated herein and upon such
investigation as we have deemed necessary, we are of the opinion that:
1. The Company is a limited liability company duly organized, validly
existing, and in good standing under the laws of the state of its
formation, with corporate power and authority to enter into the Agreement
and to issue the Note and incur the indebtedness to be evidenced thereby.
[2. The Subsidiary is a corporation duly organized, validly existing,
and in good standing under the laws of the state of its incorporation, with
corporate power and authority to enter into the Documents to which it is a
party.]
3. Each of the Documents to which the Company is a party has been
duly authorized by all required action on the part of the Company, and each
of them has been duly executed and delivered by the Company, and
constitutes the legal, valid, and binding obligation of the Company,
enforceable against the Company in accordance with its terms.
[4. Each of the Documents to which the Subsidiary is a party has been
duly authorized by all required corporate action on the part of the
Subsidiary, and each of
F-3
<PAGE>
them has been duly executed and delivered by the Subsidiary, and
constitutes the legal, valid, and binding obligation of the Subsidiary,
enforceable against the Subsidiary in accordance with its terms.]
5. The execution and delivery of the Documents and the performance by
the Company of its obligations thereunder, will not conflict with or result
in any breach of any of the provisions of, or constitute a default under,
or result in the creation or imposition of any lien or encumbrance upon any
of the properties of the Company pursuant to the provisions of (a) its
certificate of formation or LLC Agreement, (b) any of the Other Agreements
and Court Orders, or (c) any law, rule, or regulation including without
limitation Regulation G, T, U or X of the Board of Governors of the Federal
Reserve.
[6. The execution and delivery of the Documents and the performance
by the Subsidiary of its obligations thereunder, will not conflict with or
result in any breach of any of the provisions of, or constitute a default
under, or result in the creation or imposition of any lien or encumbrance
upon any of the properties of the Subsidiary pursuant to the provisions of
(a) its Certificate of Incorporation or bylaws, (b) any of the Other
Agreements and Court Orders, or (c) any law, rule, or regulation including
without limitation Regulation G, T, U or X of the Board of Governors of the
Federal Reserve.]
7. To the best of our knowledge, no consent, authorization,
appraisal, or other action by, and no notice to or filing with, any
governmental authority or regulatory body or any other person, which has
not been obtained or taken, is required for the execution and delivery of,
or the performance by the Company [or the Subsidiary] of their respective
obligations under, each of the Documents.
8. Under applicable law, the Company's certificate of formation or
LLC Agreement, and all contracts, agreements, or restrictions known by us
to bind the Company, the vote of the holders of a majority of the Voting
Units is sufficient to elect the manager or managers of the Company,
approve the merger, consolidation, or sale of substantially all of the
assets of the Company, or take any other action whatsoever.
9. The Company is not an "investment company" or a company
"controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
10. The Company is not a "holding company", or a "subsidiary company"
of a "holding company", or an "affiliate" of a "holding company" or of a
"subsidiary company" of a "holding company" within the meaning of the
Public Utility Holding Company Act of 1935, as amended.
F-4
<PAGE>
11. The Agreement creates a valid security interest in your favor as
security for the payment of the obligations of the Company under the
Agreement and the Note in all of the Company's right, title, and interest
in and to all personal property (the "Code Collateral") included within the
definition of the term Collateral (as defined in the Agreement) in which a
security interest can be granted under the UCC and Non-[opining
jurisdiction] Codes (as such term is hereinafter defined)./1/ We have
examined the financing statements (the "Financing Statements") to be filed
in the filing offices listed on Annex I attached hereto (the "Filing
Offices") with respect to the security interests granted to ENBC pursuant
to the Agreement, and upon the filing of such Financing Statements in the
Filing Offices, and assuming that the representations made in the Agreement
with respect to the location of the Code Collateral and the chief executive
office of the Company are and remain true and correct: (a) all filings,
registrations and recordings necessary to perfect the security interest
granted to you under such Agreement in respect of all Code Collateral in
which a security interest may be perfected by filing a financing statement
in the Filing Offices will have been accomplished; and (b) the security
interests granted to you pursuant to such Agreement in and to such Code
Collateral will be perfected to the extent that such security interests may
be perfected by filing financing statements in the Filing Offices under the
UCC and the Non-[opining jurisdiction] Codes.
[12. The Subsidiary Security Agreement creates a valid security
interest in your favor as security for the payment of the obligations of
the Company under the Agreement and the Note in all of the Subsidiary's
right, title, and interest in and to all personal property (the "Code
Collateral") included within the definition of the term Collateral (as
defined in the Agreement) in which a security interest can be granted under
the UCC and Non-[opining jurisdiction] Codes (as such term is hereinafter
defined)./2/ We have examined the financing statements (the "Financing
Statements") to be filed in the filing offices listed on Annex I attached
hereto (the "Filing Offices") with respect to the security interests
granted to ENBC pursuant to the Subsidiary Security Agreement, and upon the
filing of such Financing Statements in the Filing Offices, and assuming
that the representations made in the Subsidiary Security Agreement with
respect to the location of the Code Collateral and the chief executive
office of the Subsidiary are and remain true and correct: (a) all filings,
registrations and recordings necessary to perfect the security interest
granted to you under such Subsidiary Security Agreement in respect of all
Code Collateral in which a security interest may be perfected by filing a
financing
- ----------------
/1/* Opinion with respect to the perfection of security interests in Non-Opining
Jurisdictions is only required when the Company has code Collateral or its chief
executive office outside of the Non-Opining Jurisdiction.
/2/* Opinion with respect to the perfection of security interests in Non-Opining
Jurisdictions is only required when the Company has code Collateral or its chief
executive office outside of the Non-Opining Jurisdiction.
F-5
<PAGE>
statement in the Filing Offices will have been accomplished; and (b) the
security interests granted to you pursuant to such Subsidiary Security
Agreement in and to such Code Collateral will be perfected to the extent
that such security interests may be perfected by filing financing
statements in the Filing Offices under the UCC and the Non-[opining
jurisdiction] Codes.]
13. The Pledge Agreement create a valid security interest in your
favor as security for payment of the Secured Obligations in the Collateral
(as such terms are defined in the Pledge Agreement). The security interests
created in your favor under the Pledge Agreement with respect to such
Pledged Units constitute perfected security interests in such Pledged
Units.
In addition to any assumptions, qualifications and other matters set forth
elsewhere herein, the opinions set forth above are subject to the following:
(a) For the purposes of this opinion, we have assumed that the Code
Collateral exists and the Company and the Subsidiary have rights or title
to each item thereof, that all natural persons have legal capacity, that
all items submitted to us as originals are authentic and all signatures
thereon are genuine, that all items submitted to us as copies conform to
the originals and each such original or copy is complete and has been duly
executed and delivered by each party (other than the Company and the
Subsidiary) pursuant to due authorization as such party's legal, valid, and
binding obligation, enforceable against such party in accordance with its
respective terms.
(b) Our opinion with respect to the legality, validity, binding
effect, and enforceability of any document or agreement is subject to the
effect of any applicable bankruptcy, insolvency, reorganization, fraudulent
conveyance, moratorium, or similar law affecting creditors' rights
generally and to the effect of general principles of equity, including
(without limitation) concepts of materiality, reasonableness, good faith,
and fair dealing (regardless of whether considered in a proceeding in
equity or at law).
(c) We call your attention to the following matters (as well as those
matters set out in paragraph (d) below) as to which we express no opinion:
(i) the Company's agreement in the Agreement to indemnify you
against costs, expenses, or liability notwithstanding your acts of
gross negligence or willful misconduct;
(ii) the Company's agreements in the Agreement for payment or
reimbursement of costs, fees, and expenses or indemnification for
claims, losses, or liabilities to the extent any such provision may be
determined by a court or other tribunal to be in an unreasonable
amount, to constitute a penalty, or to be contrary to public policy;
F-6
<PAGE>
(iii) any of the waivers or remedies contained in the Documents,
whether or not any Document deems any such waiver or remedy
commercially reasonable, if such waivers or remedies are determined
(1) not to be commercially reasonable within the meaning of the UCC,
(2) to conflict with mandatory provisions under the UCC or other
applicable law, or (3) to be taken in a manner determined to be
unreasonable or not performed in good faith or with fair dealing or
with honesty in-fact;
(iv) certain other provisions contained in the Documents which
may be limited or rendered ineffective by applicable laws or judicial
decisions governing such provisions or holding their enforcement to be
unreasonable under the then-existing circumstances, but such laws and
judicial decisions do not, in our opinion, render the Documents
invalid as a whole or leave you without remedies; or
(v) the priority or continued perfection of any security interest
or lien granted by the Company to you under any of the Documents.
(d) Our opinions set forth in paragraph 8 above are subject to the
following further qualifications, exclusions and assumptions:
(i) Our opinions are qualified by and subject to:
(A) in the case of proceeds, continuation of perfection of
your security interest therein is limited to the extent set forth
in Section 9-306 of the UCC;
(B) in the case of property which becomes collateral after
the date hereof, Section 547 of the United States Bankruptcy Code
(the "Bankruptcy Code") provides that a transfer is not made
until the debtor has rights in the property transferred, so a
security interest in after-acquired property which is security
for other than a contemporaneous advance may be treated as a
voidable preference under the conditions (and subject to the
exceptions) provided by Section 547;
(C) Section 552 of the Bankruptcy Code limits the extent to
which property acquired by a debtor after the commencement of the
case under the Bankruptcy Code may be subject to a security
interest arising from a security agreement entered into by the
debtor before the commencement of such case; and
F-7
<PAGE>
(D) Section 364 of the Bankruptcy Code provides that the
extension of secured credit after the commencement of a case
under the Bankruptcy Code requires court approval.
(ii) We express no opinion as to:
(A) the creation or perfection of any security interest in
any fixtures or property excluded from the provisions of the UCC
pursuant to 9-104; and
(B) the perfection of any security interest in accounts that
are an obligation of the Federal government or any agency or
political subdivision thereof to the extent that any applicable
laws require any actions in addition to filing of the Financing
Statements.
(iii) We have assumed with your permission that:
(A) the Company has right, title, and interest in and to the
collateral pledged by it;
(B) all items of collateral (including, without limitation,
money, Units, or additional instruments) pledged under the Pledge
Agreement, of which possession must be obtained and retained by a
secured party in order to perfect its security interest pursuant
to Section 9-103 and 9-304 of the UCC, are in your actual or
constructive possession and not in the possession of the Company
or any of its subsidiaries, affiliates, or agents;
(C) all items of collateral constitute items which are
mobile in nature and, if installed on any property, do not
constitute fixtures; and
(D) none of the collateral consists of consumer goods, farm
products, crops, timber, minerals, or the like (including oil and
gas), or accounts resulting from the sale thereof, receivables
due from any government or agency or department thereof,
beneficial interests in a trust or a decedent's estate, letters
of credit, inventory which is subject of any negotiable documents
of title, such as a negotiable bill of lading or warehouse
receipt held by anyone other than you or on your behalf, or items
which are subject to a requirement of any jurisdiction, including
the State, which provides for a registration or certificate of
title or a filing other than under the UCC.
Whenever our opinion with respect to the existence or absence of facts is
indicated to be based on our knowledge or awareness, we are referring solely to
the actual knowledge of the
F-8
<PAGE>
particular [firm name] attorneys who have represented the Company in connection
with the Documents. Except as expressly set forth herein, we have not undertaken
any independent investigation to determine the existence or absence of such
facts and no inference as to our knowledge concerning such facts should be drawn
from the fact that such representation has been undertaken by us.
Our opinions expressed herein are limited to the laws of the State of
[opining jurisdiction], [the general corporation law of the state of the
Company's and Subsidiary's incorporation if different than the opining
jurisdiction] and the federal laws of the United States, and we do not express
any opinion herein concerning any other law except as expressly set forth in
paragraph 8 above. With respect to our opinions in paragraph 8, to the extent
our opinions are not governed by federal or [opining jurisdiction] law, our
opinions are based solely and exclusively on a review of Subsections 9-103(3),
9-203(1) and (2), 9-302(1), 9-303, 9-401(1) and 9-402(1) and (3) of the Uniform
Commercial Codes as reported by [Commerce Clearing House, Inc. in the Secured
Transactions Guide for the states listed on Annex I] (collectively, the states
listed on Annex I are sometimes referred to herein as the "Non-[opining
jurisdiction] Jurisdictions" and the Uniform Commercial Codes as adopted and in
effect in such Non-[opining jurisdiction] Jurisdictions are sometimes called the
"Non-[opining jurisdiction] Codes"). We have not reviewed, and we express no
opinion on, local custom with respect to, and any other sections of, the Non-
[opining jurisdiction] Codes, including any provisions that are referred to in
the sections that we have reviewed which are noted above, nor have we reviewed
any other statutes of the Non-[opining jurisdiction] Jurisdictions or judicial
decisions construing or interpreting the laws of the Non-[opining jurisdiction]
Jurisdictions, including the Non-[opining jurisdiction] Codes. By rendering the
opinions set forth in paragraph 8 we do not intend to indicate that we are
experts on, or qualified to render opinions on, the laws of the Non-[opining
jurisdiction] Jurisdictions. Accordingly, we caution you that the opinions in
paragraph 8 could be materially affected by local custom, other provisions of
the Non-[opining jurisdiction] Codes, other statutes, laws, or regulations of
the Non-[opining jurisdiction] Jurisdictions or judicial decisions of courts
construing or interpreting the laws of the Non-[opining jurisdiction]
Jurisdictions, including the Non-[opining jurisdiction] Codes.
This opinion is furnished to you solely in connection with the transactions
described above and may not be relied upon by you (and to the extent indicated
in the previous sentence, your counsel) for any other purpose or by any other
person in any manner or for any purpose.
Very truly yours,
F-9
<PAGE>
Annex 1
UCC-1 Financing Statement filings to perfect a security interest in collateral
not constituting fixtures:
STATE FILING OFFICE REPORTING PUBLICATION
- ----- ------------- ---------------------
F-10
<PAGE>
EXHIBIT A
---------
CERTIFICATE
-----------
The undersigned hereby certifies that he is the duly elected Secretary of
___________________________, a Delaware limited liability company (the
"Company"), and further certifies that the following documents are the only
documents to which the Company is a party that affect or purport to affect the
Company's right to borrow money under, or the Company's right to undertake and
perform its obligations under, the Documents (as defined in the Secured Loan
Agreement, dated _______________, between the Company and Einstein/Noah Bagel
Corp.)
Date:________________________
_____________________________________
Secretary
F-11
<PAGE>
EXHIBIT G
ACCOUNTING AND ADMINISTRATION SERVICES AGREEMENT
G-1
<PAGE>
ACCOUNTING AND ADMINISTRATION SERVICES AGREEMENT
------------------------------------------------
This Accounting and Administration Services Agreement ("Agreement") is
made this _____ day of __________, _____, by and between __________, a Delaware
limited liability company ("DEVELOPER"), and Einstein/Noah Bagel Corp., a
Delaware corporation ("Company").
RECITALS
--------
1. Company and DEVELOPER have entered into an Area Development Agreement
dated __________, 1996, as amended (the "ADA"), and have entered into or
propose to enter into one or more franchise agreements (each a "Franchise
Agreement" and, collectively, the "Franchise Agreements"), each providing for
the franchise by the Company to DEVELOPER of the right to operate an
einste!n Bros. store.
2. Pursuant to the ADA and/or the Franchise Agreements, DEVELOPER is
required to maintain certain accounting records and provide to Company certain
periodic financial reports and other data.
3. DEVELOPER has requested and Company has offered that Company assist
DEVELOPER in maintaining certain accounting records and preparing certain
financial reports required under the ADA and/or the Franchise Agreements.
4. DEVELOPER desires to enter into an agreement pursuant to which Company
would perform such services for DEVELOPER upon the terms and subject to the
conditions hereinafter provided.
AGREEMENTS
----------
NOW, THEREFORE, in consideration of the premises and the mutual agreements
contained herein, as well as other good and valuable consideration, the
sufficiency and receipt of which are hereby acknowledged, the parties hereby
agree as follows:
1. ACCOUNTING SERVICES.
-------------------
1.1 Upon the terms and subject to the conditions set forth in this
Agreement, Company shall provide to DEVELOPER for each einste!n Bros. store and
for each bagel store to be converted into an einste!n Bros. store operated by
DEVELOPER pursuant to the ADA (each a "Unit") the following accounting services
(the "Services"):
G-2
<PAGE>
(a) per-Unit calculation of revenue and expenses by accounting
category per Company's standard chart of accounts and calculation of
Royalty Based Revenue and Royalty Fees (as each term is defined in the
Franchise Agreements);
(b) administration and maintenance of corporate payroll, and
administration of the processing of payroll and calculation of applicable
tax and other withholdings relating to the Units through Company's
designated payroll service bureau;
(c) administration of accounts payable (including check generation);
(d) administration of recurring cash transfers between DEVELOPER's
applicable Unit and corporate bank accounts;
(e) administration and maintenance of a DEVELOPER general ledger trial
balance, balance sheet, income statement and certain other corporate and
Unit reports by accounting category per Company's standard chart of
accounts and consistent with periodic reports Company customarily prepares
in the normal course of business to manage its financial affairs, and
periodic distribution of such reports to DEVELOPER using Company's Report
Distribution System;
(f) maintenance of all accounting records supporting DEVELOPER's
financial statements (consistent with Company's record retention program)
in reasonable fashion separate and discrete from the accounting records of
Company; and
(g) preparation of period end reconciliations and associated period
end journal entries for all DEVELOPER balance sheet accounts.
1.2 The Services shall not include any of the following, each of which is
the sole responsibility of DEVELOPER:
(a) selection of accounting policies to be applied to DEVELOPER's
books and records; however, Company will consistently apply the appropriate
policies selected by DEVELOPER;
(b) negotiation of terms and conditions between DEVELOPER and its
suppliers, vendors, and others, such as remittance due dates and discounts;
(c) quarterly review and edit of DEVELOPER's vendor masterfile for
current and accurate data; however, Company will appropriately apply
updates to the vendor masterfile as directed by DEVELOPER;
(d) signature and final release of trade accounts payable disbursement
checks in excess of $200,000;
G-3
<PAGE>
(e) final review and approval of annual financial statements;
(f) cash investment activities; however, Company will initiate and
manage repetitive and/or fixed cash management activities as directed in
writing by DEVELOPER;
(g) approval and coding of invoices for disbursement;
(h) preparation of budgets (except that Company will develop a budget
process and calendar to facilitate the preparation of annual budgets by
DEVELOPER, which DEVELOPER agrees to adopt and adhere to); and
(i) preparation, filing, or signing of any tax returns required to be
filed by DEVELOPER, with the exception of sales and use tax returns which
will be prepared, but not, however, filed or signed by Company.
1.3 DEVELOPER agrees to effectively apply locally the policies and
procedures defined in Company's Accounting Manual (and in particular Accounting
Policy and Procedures Bulletin 93-13), as the same may be modified and updated
from time to time, on a timely basis, which actions and compliance shall be a
condition to Company's obligations hereunder.
1.4 DEVELOPER agrees to utilize Company's designated auditors and tax
consultants for annual audit and tax return preparation activities.
1.5 DEVELOPER agrees to utilize Company's designated bankers (except for
Unit bank accounts) and credit card processors for all corporate cash management
activities.
1.6 DEVELOPER agrees to supply Company all information, materials, data,
and documents necessary or advisable to properly perform the Services in such
form, format, or media as Company may reasonably request, to make available the
officers of DEVELOPER to answer any inquiries in connection therewith, and to
cooperate with Company in the performance of its duties.
2. FEES FOR SERVICES AND EXPENSE REIMBURSEMENT.
2.1 In consideration of the Services, DEVELOPER agrees to pay to Company,
separate and apart from any fee otherwise payable under the ADA or any Franchise
Agreement, an accounting services fee, as follows:
(a) a base fee for services to DEVELOPER payable by DEVELOPER for each
four-week accounting period of Company ("Accounting Period") of $4,500 (the
"Base Fee"); and
G-4
<PAGE>
(b) a unit fee for each Unit open and operating during all or any
portion of such Accounting Period, which unit fee shall depend on the
number of Units directly owned and operated by DEVELOPER pursuant to the
ADA, and shall be equal to:
(i) $850 per Accounting Period for each such Unit open and
operating during all or any portion of such Accounting Period, until
DEVELOPER opens and operates 12 or more Units;
(ii) $750 per Accounting Period after DEVELOPER opens its 12th
Unit and prior to the opening of the 30th Unit open and operating
during all or any portion of such Accounting Period;
(iii) $650 per Accounting Period after DEVELOPER opens its 30th
Unit and prior to the opening of the 50th Unit open and operating
during all or any portion of such Accounting Period;
(iv) $550 per Accounting Period after DEVELOPER opens its 50th
Unit and prior to the opening of the 100th Unit open and operating
during all or any portion of such Accounting Period;
(v) $450 per Accounting Period after DEVELOPER opens its 100th
Unit and prior to the opening of the 200th Unit open and operating
during all or any portion of such Accounting Period; and
(vi) $350 per Accounting Period after DEVELOPER opens its 200th
Unit and for all Units opened thereafter during all or any portion of
such Accounting Period.
In the event that DEVELOPER and the Units meet certain reporting requirements,
administrative procedure compliance requirements, and timeliness deadlines as
Company may establish and announce from time to time in its sole discretion, the
unit fees set forth in (i) through (vi), above shall be reduced for DEVELOPER to
$700, $600, $500, $400, $300, and $250, respectively.
DEVELOPER agrees that the foregoing fees (base fee and unit fees) may be
increased cumulatively by not more than 10% per fiscal year at the sole
discretion of Company effective upon written notice thereof.
2.2 In addition to the payment of fees as specified in Section 2.1 of this
Agreement, DEVELOPER shall reimburse Company for all non-ordinary, out-of-pocket
expenses incurred by Company or its affiliates in connection with the Services
rendered by them hereunder, including, but not limited to, travel expenses,
legal fees, fees of experts, audit fees, tax fees, payroll service fees, etc.
All non-ordinary, out-of-pocket expenses, however, must be approved by DEVELOPER
prior to incurring such expense. Expenses payable under this Section 2.2 shall
be paid promptly in the manner specified in Section 4.1 of this Agreement. These
expenses will
G-5
<PAGE>
not include any expenses associated with computer system enhancements at the
Company's Support Center, except as otherwise agreed to by the parties.
3. TERM OF SERVICES.
3.1 The term of this Agreement shall be for one year from the effective
date hereof unless the parties mutually agree to extend such term; provided that
either party hereto may terminate this Agreement during the term upon 180 days'
prior written notice to the other party; and provided further that Company may
terminate this Agreement without notice and cease rendering the Services, also
without notice, upon any non-payment by DEVELOPER of the fees and expenses
provided for herein when such fees and expenses are due and payable.
3.2 Termination of this Agreement shall terminate Company's obligations to
provide the Services. Upon termination of this Agreement, DEVELOPER shall pay to
Company the fees due Company in accordance with Section 2.1 hereof for the
Services rendered by Company through the date of termination and reimburse
Company in accordance with Section 2.2 hereof for expenses incurred by Company
in connection with the Services rendered by Company through the date of
termination.
4. PAYMENT OF AMOUNTS DUE HEREUNDER; LIABILITY.
4.1 Company will calculate and DEVELOPER hereby authorizes Company to
collect through electronic funds transfer, at the end of each Accounting Period,
the total dollar amount of all fees and expenses due to Company hereunder.
4.2 Company shall not be liable for any cost, damage, expense, or loss of
DEVELOPER or its owners, partners, shareholders, officers, members, directors,
employees, suppliers, or vendors, or any other person or entity arising or
resulting, directly or indirectly, from (i) the failure of Company to perform
any of the Services for DEVELOPER or the misperformance of any such Services,
except to the extent such failure to perform or such misperformance is the
result of Company's willful misconduct or gross negligence, in which event
Company's liability shall not exceed its fee for such hereunder for the
Accounting Period in question, or (ii) reliance by DEVELOPER, its owners,
partners, shareholders, officers, members, directors, employees, suppliers, or
vendors, or any other person or entity on any data or advice Company may provide
pursuant to this Agreement. In no event will Company be liable for indirect,
incidental, consequential, special, speculative, exemplary, or punitive damages
(including, but not limited to, loss of revenue or profit).
4.3 COMPANY MAKES NO WARRANTY OR REPRESENTATION, EITHER EXPRESS OR
IMPLIED, WITH RESPECT TO THE SERVICES PROVIDED HEREUNDER, INCLUDING, BUT NOT
LIMITED TO, THEIR ADEQUACY, QUALITY, PERFORMANCE, MERCHANTABILITY, OR FITNESS
FOR A PARTICULAR PURPOSE.
G-6
<PAGE>
5. MISCELLANEOUS.
-------------
5.1 In performing the Services set forth in this Agreement, Company
will have neither express nor implied power to execute agreements on behalf of
DEVELOPER or in any manner bind DEVELOPER as to any matter not within the scope
of this Agreement.
5.2 All notices provided for in this Agreement shall be in writing
and shall be deemed to have been duly given if delivered personally or sent by
overnight express or facsimile transmission or registered or certified mail,
return receipt requested, postage prepaid, and properly addressed as follows:
If to DEVELOPER: ___________________________________________
___________________________________________
___________________________________________
Attn: ____________________________________
Facsimile: ________________________________
If to Company: Einstein/Noah Bagel Corp.
1526 Cole Blvd., Suite 200
Golden, CO 80401
Attention: Chief Financial Officer
Facsimile: (303) 202-3360
with a copy to: Einstein/Noah Bagel Corp.
1526 Cole Blvd., Suite 200
Golden, CO 80401
Attention: General Counsel
Facsimile: (303) 202-3490
Any party may change the address to which notices hereunder are to be sent to it
by giving written notice of such change of address in the manner herein provided
for giving notice. Any notice delivered personally or by overnight express
courier or facsimile transmission shall be deemed to have been given on the date
it is so delivered, and any notice delivered by registered or certified mail
delivery service shall be deemed to have been duly given three business days
after it is sent to the intended recipient at the address set forth above.
5.3 THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY
THE LAWS OF THE STATE OF COLORADO APPLICABLE TO CONTRACTS MADE AND TO BE
PERFORMED THEREIN WITHOUT REGARD TO THE CONFLICT OF LAW PROVISIONS THEREOF.
5.4 A failure of any party to insist in any instance upon the strict and
punctual performance of any provision of this Agreement shall not constitute a
continuing waiver of such
G-7
<PAGE>
provision. No party shall be deemed to have waived any rights, power, or
privilege under this Agreement or any provisions hereof unless such waiver shall
have been in writing and duly executed by the party to be charged with such
waiver, and such waiver shall be a waiver only with respect to the specific
instance involved and shall in no way impair the rights of the waiving party or
the obligations of the other party or parties in any other respect or at any
other time. If any provision of this Agreement shall be waived, or be invalid,
illegal, or unenforceable, the remaining provisions of this Agreement shall be
unaffected thereby and shall remain binding and in full force and effect.
5.5 This Agreement may be amended or modified only by a written instrument
signed by each of the parties hereto.
5.6 This Agreement constitutes the entire agreement between the parties
hereto with respect to the subject matter hereof, and supersedes all prior
agreements and understandings, either or oral or written, with respect thereto.
5.7 Nothing contained in this Agreement is intended, nor shall it be
construed, to create any rights in any person not a party to this Agreement.
5.8 This Agreement may not be assigned by DEVELOPER without the prior
written consent of Company.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
EINSTEIN/NOAH BAGEL CORP.
By:_____________________________________
Title:________________________________
________________________________________
By:______________________________, Inc.,
its Manager
By:__________________________________
Title:____________________________
G-8
<PAGE>
EXHIBIT H
INVESTOR REPRESENTATION LETTER
H-1
<PAGE>
LETTERHEAD OF INVESTOR GROUP
Einstein/Noah Bagel Corp.
1526 Cole Boulevard, Suite 200
Golden, Colorado 80401
Ladies and Gentlemen:
The undersigned hereby makes the following representations to Einstein/Noah
Bagel Corp. (the "Company") in connection with and as an inducement to and of
the consummation of certain transactions with ____________________, a Delaware
limited liability company (the "Developer").
The undersigned has conducted an investigation of the Developer, including
the management and current and proposed operations of the Developer, and of the
locations, characteristics and demographics of (i) the sites for einste!n Bros.
stores in the Development Area (as defined in the Development Agreement by and
between the Company and the Developer of even date herewith) subject to executed
leases or purchase contracts (the "Leased and Contracted Sites"), and (ii) the
potential sites for einste!n Bros. stores being negotiated in the Development
Area (the "Sites in Progress"), in each case to be purchased by the Developer
from the Company. The undersigned has reviewed all of the documents, records,
reports and other available materials relating to the Developer's operations,
the Leased and Contracted Sites and the Sites in Progress, and is familiar with
their content. The undersigned acknowledges that it has been given access to and
has visited and examined the Developer's operations and the Leased and
Contracted Sites and the Sites in Progress, and is satisfied with the condition
thereof and that all inquiries have been answered to its satisfaction. For
purposes of conducting these investigations, the undersigned has employed the
services of its own agents, representatives, experts and consultants. In all
matters affecting the undersigned's decision to invest in the Developer, the
undersigned is relying upon the advice and opinions of its own agents,
representatives, experts and consultants and not upon any information or
statement, oral or written, of or provided by the Company or its officers,
directors, agents, representatives or attorneys.
Very truly yours,
H-2
<PAGE>
ITEM 23
-------
RECEIPT
THIS OFFERING CIRCULAR SUMMARIZES PROVISIONS OF THE FRANCHISE AGREEMENT AND
OTHER INFORMATION IN PLAIN LANGUAGE. READ THIS OFFERING CIRCULAR AND ALL
AGREEMENTS CAREFULLY.
IF ENBC OFFERS YOU A FRANCHISE, IT MUST PROVIDE THIS OFFERING CIRCULAR TO YOU BY
THE EARLIEST OF:
A. THE FIRST PERSONAL MEETING TO DISCUSS ENBC's FRANCHISE; OR
B. TEN BUSINESS DAYS BEFORE SIGNING OF A BINDING AGREEMENT; OR
C. TEN BUSINESS DAYS BEFORE ANY PAYMENT TO ENBC.
YOU MUST ALSO RECEIVE A FRANCHISE AGREEMENT CONTAINING ALL MATERIAL TERMS AT
LEAST FIVE BUSINESS DAYS BEFORE YOU SIGN ANY FRANCHISE AGREEMENT.
IF ENBC DOES NOT DELIVER THIS OFFERING CIRCULAR ON TIME OR IF IT CONTAINS A
FALSE OR MISLEADING STATEMENT, OR A MATERIAL OMISSION, A VIOLATION OF FEDERAL
AND STATE LAW MAY HAVE OCCURRED AND SHOULD BE REPORTED TO THE FEDERAL TRADE
COMMISSION, WASHINGTON, D.C. 20580 AND THE APPROPRIATE STATE AGENCY IDENTIFIED
ON EXHIBIT A.
ENBC authorizes the respective state agencies identified on Exhibit A to receive
service of process for Einstein/Noah Bagel Corp. in the particular state.
I have received a Uniform Franchise Offering Circular dated September 15, 1995,
as amended May 31, 1996. This offering circular included the following Exhibits:
A. State Agencies/Agents for Service of Process/Effective Dates
B. Development Agreement
C. Franchise Agreement
D. Addendum to Lease
E. Financial Statements
F. Financed Area Developer Loan Agreement
_____________________________________ ______________________________
Date Franchisee
<PAGE>
RECEIPT
THIS OFFERING CIRCULAR SUMMARIZES PROVISIONS OF THE FRANCHISE AGREEMENT AND
OTHER INFORMATION IN PLAIN LANGUAGE. READ THIS OFFERING CIRCULAR AND ALL
AGREEMENTS CAREFULLY.
IF ENBC OFFERS YOU A FRANCHISE, IT MUST PROVIDE THIS OFFERING CIRCULAR TO YOU BY
THE EARLIEST OF:
A. THE FIRST PERSONAL MEETING TO DISCUSS ENBC's FRANCHISE; OR
B. TEN BUSINESS DAYS BEFORE SIGNING OF A BINDING AGREEMENT; OR
C. TEN BUSINESS DAYS BEFORE ANY PAYMENT TO ENBC.
YOU MUST ALSO RECEIVE A FRANCHISE AGREEMENT CONTAINING ALL MATERIAL TERMS AT
LEAST FIVE BUSINESS DAYS BEFORE YOU SIGN ANY FRANCHISE AGREEMENT.
IF ENBC DOES NOT DELIVER THIS OFFERING CIRCULAR ON TIME OR IF IT CONTAINS A
FALSE OR MISLEADING STATEMENT, OR A MATERIAL OMISSION, A VIOLATION OF FEDERAL
AND STATE LAW MAY HAVE OCCURRED AND SHOULD BE REPORTED TO THE FEDERAL TRADE
COMMISSION, WASHINGTON, D.C. 20580 AND THE APPROPRIATE STATE AGENCY IDENTIFIED
ON EXHIBIT A.
ENBC authorizes the respective state agencies identified on Exhibit A to receive
service of process for Einstein/Noah Bagel Corp. in the particular state.
I have received a Uniform Franchise Offering Circular dated September 15, 1995,
as amended May 31, 1996. This offering circular included the following Exhibits:
A. State Agencies/Agents for Service of Process/Effective Dates
B. Development Agreement
C. Franchise Agreement
D. Addendum to Lease
E. Financial Statements
F. Financed Area Developer Loan Agreement
________________________________ ____________________________
Date Franchisee
