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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): November 21, 1997
EINSTEIN/NOAH BAGEL CORP.
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(Exact name of registrant as specified in its charter)
Delaware 0-21097 84-1294908
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(State or other (Commission (IRS Employer
jurisdiction of File No.) Identification No.)
incorporation)
14123 Denver West Parkway, P.O. Box 4086, Golden, Colorado 80401
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(Address of principal executive offices)
(303) 215-9300
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(Registrant's telephone number, including area code)
Not applicable
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(Former name or former address, if changes since last report)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On December 5, 1997, Einstein/Noah Bagel Corp. (the "Company")
acquired an approximately 77% interest in Einstein/Noah Bagel Partners, L.P.
("Bagel Partners"), formerly Noah's Pacific, L.L.C. ("Noah's"), the surviving
entity of the merger consummated on such date (the "Area Developer Merger") of
the Company's five area developers, Colonial Bagels, L.P. ("Colonial"), Great
Lakes Bagels, L.P., Gulfstream Bagels, L.P., Sunbelt Bagels, L.L.C. ("Sunbelt")
and Noah's (collectively, the "Area Developers"). Einstein/Noah Bagel
Partners, Inc., a California corporation and 100% owned subsidiary of the
Company, is the sole general partner of Bagel Partners. The remaining equity
interest in Bagel Partners is owned by area developer management and Bagel
Store Development Funding, L.L.C. ("Bagel Funding").
The Company acquired its interest in Bagel Partners pursuant to the
exercise of conversion and option rights under senior secured loan agreements
between the Company and each Area Developer, pursuant to which the Company had
committed to lend an aggregate of $359.6 million to the Area Developers
(collectively, the "Secured Loan Agreements"). The Secured Loan Agreements
permitted the Company to (a) convert the senior secured loans made by the
Company to each of the Area Developers into units ("Area Developer Units") in
such Area Developers (the "Conversion Rights") and (b) purchase additional Area
Developer Units pursuant to an option (the "Option Rights") to purchase such
units for an amount representing the aggregate amount of the Company's unfunded
secured loan commitment. The exercise of the Conversion Rights and the Option
Rights is referred to herein as the "Secured Loan Conversions." Immediately
prior to the Secured Loan Conversions, each Area Developer had agreed to amend
its Secured Loan Agreement to waive the applicable conversion moratorium period
and allow the immediate exercise by the Company of its Conversion Rights and
Option Rights. Pursuant to the Secured Loan Conversions, the Company converted
an aggregate of approximately $335.3 million of secured loans into Area
Developer Units pursuant to the Conversion Rights and purchased additional Area
Developer Units pursuant to the exercise of the Option Rights for approximately
$24.3 million. The Company used funds from its working capital to exercise the
Option Rights.
In connection with the waiver of the moratorium periods and the Secured
Loan Conversions, each Area Developer amended its limited partnership or limited
liability company agreement, as applicable, to modify the rights of Bagel
Funding pursuant to such agreements to require each Area Developer to redeem the
Area Developer Units owned by Bagel Funding in such Area Developer in certain
cases (collectively, the "Put Rights"). Prior to the amendments, Bagel Funding
was entitled to exercise the Put Rights in the event that (i) the Company
acquired a majority equity interest in an Area Developer upon exercise of the
Conversion Rights or Option Rights, (ii) Bagel Funding requested the
incorporation of the Area Developer and the public offering of the equity of the
Area Developer after the Conversion Rights and Option Rights expired unexercised
and the Company did not consent to such request, or (iii) Bagel Funding
requested the termination of the Area Developer's area development and franchise
agreements with the Company after the Conversion Rights and Option Rights
expired unexercised and the Company did not consent to such request. Upon
exercise, the Put Rights could be satisfied with cash, shares of common stock of
the Company, par value $.01 per share ("Common Stock"), shares of common stock
of Boston Chicken, Inc., majority owner of the Company ("Boston Chicken"), par
value $.01 per share ("BCI Common Stock"), or any combination thereof.
The Bagel Partners Partnership Agreement (which is filed as an exhibit
hereto and is incorporated herein by such reference) amends Bagel Funding's Put
Rights as follows: (i) the Put Rights are not exercisable until December 5,
1999, (ii) if at any time during the eighteen-month period commencing on
December 5, 1999 the Company does not consent to a public offering of Bagel
Partners equity or the termination of certain rights and obligations under
franchise or license agreements with the Company upon request by Bagel Funding,
then Bagel Funding may exercise the Put Rights, (iii) the exerciseability of
the Put Rights will be accelerated upon a Change in Control (as defined in the
Bagel Partners Partnership Agreement) of the Company in the event that the
Company does not consent to a public offering of Bagel Partners equity or the
termination of certain rights and obligations under franchise or license
agreements with the Company, (iv) the method of determining the valuation of
Bagel Partners for purposes of calculating the put price is a multiple of the
annualized average cash flow for the two fiscal quarters prior to the quarter
in which the Put Rights are exercised rather than a multiple of the annualized
average cash flow for the highest of the three prior fiscal quarters, (v) the
Bagel Funding unitholders will receive resale
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registration rights upon exercise of the Put Rights in the event that the
Company or Bagel Partners chooses to pay the purchase price of the Bagel
Partners units with shares of Common Stock of the Company, (vi) the right of
Bagel Partners or the Company to pay the purchase price of Bagel Partners units
with shares of BCI Common Stock is eliminated, and (vii) upon an exercise of
the Put Rights, Bagel Partners or the Company may purchase Bagel Funding's
Bagel Partners units.
Messrs. Scott A. Beck, Chairman of the Board of Directors of the
Company, Jeffrey L. Butler, President of the Company, W. Eric Carlborg, Chief
Financial Officer of the Company, Messrs. John H. Muehlstein, Jr. and Lloyd D.
Ruth, directors of the Company, David G. Stanchak, Chief Development Officer
and a director of the Company, and Lawrence Beck, Scott Beck's father, each own
a direct equity interest in Bagel Funding. In the aggregate, such interests
represent approximately 10.4% of the outstanding equity interest in Bagel
Funding. In addition, certain executive officers and directors of Boston
Chicken own direct or indirect equity interests in Bagel Funding. In the
aggregate, such interests, excluding interests owned by Scott Beck, represent
approximately 7.7% of the outstanding equity interest in Bagel Funding. In
addition, Lawrence Beck was a minority investor in Sunbelt and Colonial, and
Robert Schlacter, Senior Vice President-Operations Support, was a minority
investor in Colonial. Following the Secured Loan Conversion and the Area
Developer Merger, Bagel Funding owns an approximately 21% interest in Bagel
Partners and Messrs. Lawrence Beck and Schlacter own in the aggregate less than
a 1% interest in Bagel Partners.
The Company had previously entered into development and franchise
agreements with each of the Area Developers, pursuant to which the Area
Developers developed and operated Einstein Bros.(R) Bagels and Noah's New York
Bagels(R) stores. Pursuant to such agreements and the Secured Loan Agreements,
the Area Developers paid an aggregate of approximately $33.0 million in 1996 to
the Company in development, franchise, royalty, real estate, software
maintenance and miscellaneous fees, interest and deposits. Upon consummation
of the Area Developer Merger, the development agreements with each merging Area
Developer were terminated and Bagel Partners assumed the obligations under the
existing franchise agreements of each of the merging Area Developers.
The Company has entered into an amended and restated development
agreement (which is filed as an exhibit hereto and is incorporated herein by
such reference) (the "Development Agreement") with Bagel Partners, pursuant to
which Bagel Partners will develop approximately 175 stores in 1998 and each
year thereafter during the term of the development agreement. In addition, the
Development Agreement provides that the Company and Bagel Partners will enter
into a license agreement covering each store opened, which agreements will have
substantially the same terms as are currently provided in the Company's form of
franchise agreement.
The Company has also entered into a loan agreement (which is filed as
an exhibit hereto and is incorporated herein by such reference) (the "Loan
Agreement") with Bagel Partners, pursuant to which the Company has provided
Bagel Partners a secured loan of up to a maximum of $70 million. Such loan
will initially bear interest at the rate of interest announced by Bank of
America National Trust and Savings Association from time to time as its
reference rate (the "Prime Rate") plus 2.5%, payable currently, with a final
maturity on December 5, 2005.
The Company anticipates that, as of December 15, 1997, it will offer
employment with the Company to all of the employees of Bagel Partners.
Pursuant to a services agreement with Bagel Partners (the form of which is
filed as an exhibit hereto and is incorporated herein by such reference) (the
"Services Agreement"), the Company will provide to Bagel Partners the services
currently provided by such employees and any other employees that may be hired
by the Company for such purpose. Bagel Partners will reimburse the Company for
the cost of such employees (other than any grants of options to purchase Common
Stock). In addition, the Company intends to offer to all holders of options to
purchase Bagel Partners units, of which approximately 45,000,000 are
outstanding, the opportunity to receive options to purchase shares of Common
Stock at a ratio of one share of Common Stock for every 15 Bagel Partners units
subject to unit options. The Common Stock options are expected to be granted
under the Company's 1997 Stock Option Plan and will be contingent upon the
consent of each unit optionholder to the cancellation of such unit options. If
all outstanding options to purchase Bagel Partners units are exchanged for
options to purchase Common Stock, options to purchase an
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aggregate of approximately 3,000,000 shares of Common Stock will be granted and
will vest in accordance with the vesting schedules of the corresponding
canceled unit options.
ITEM 5. OTHER EVENTS
On November 21, 1997, the Company entered into a new credit facility
(the "Credit Facility") with Bank of America National Trust and Savings
Association, LaSalle National Bank and General Electric Capital Corporation
(collectively, the "Lenders"). The Credit Facility consists of a $30 million
secured term loan facility and a $40 million secured revolving credit facility.
The Credit Facility will be used for general corporate purposes, including the
funding of Bagel Partners.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial Statements of Business Acquired.
The financial statements required by this item (and an index thereto)
are filed as Exhibit 99.1 hereto and are incorporated herein by such reference.
(b) Pro Forma Financial Information.
The pro forma financial information required by this item (and an
index thereto) is filed as Exhibit 99.2 hereto and is incorporated herein by
such reference.
(c) Exhibits.
See Exhibit Index appearing elsewhere herein, which is incorporated
herein by such reference.
FORWARD LOOKING STATEMENTS
CERTAIN STATEMENTS IN THIS CURRENT REPORT ON FORM 8-K CONSTITUTE
"FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995 (THE "REFORM ACT"). SUCH FORWARD-LOOKING
STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES, AND OTHER FACTORS
THAT MAY CAUSE THE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS OF THE COMPANY,
BAGEL PARTNERS, EINSTEIN BROS. BAGELS STORES AND NOAH'S NEW YORK BAGELS STORES
TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS
EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. SUCH FACTORS INCLUDE,
AMONG OTHERS, THE FOLLOWING: COMPETITION; SUCCESS OF OPERATING INITIATIVES;
DEVELOPMENT AND OPERATING COSTS; ACHIEVEMENT OF DEVELOPMENT SCHEDULES;
ADVERTISING AND PROMOTIONAL EFFORTS; BRAND AWARENESS; ADVERSE PUBLICITY;
ACCEPTANCE OF NEW PRODUCT OFFERINGS; THE COMPANY'S RELATIONSHIP WITH, AND
BUSINESS OF BOSTON CHICKEN; AVAILABILITY, LOCATIONS AND TERMS OF SITES FOR
STORE DEVELOPMENT; CHANGES IN BUSINESS STRATEGY OR DEVELOPMENT PLANS;
AVAILABILITY AND TERMS OF CAPITAL; FOOD, LABOR AND EMPLOYEE BENEFIT COSTS;
CHANGES IN GOVERNMENT REGULATION; REGIONAL WEATHER CONDITIONS; AND OTHER
FACTORS REFERENCED IN THE COMPANY'S FILINGS WITH THE SECURITIES AND EXCHANGE
COMMISSION. THE COMPANY CANNOT PREDICT WHICH FACTORS WOULD CAUSE ACTUAL
RESULTS TO DIFFER MATERIALLY FROM THOSE INDICATED BY THE FORWARD-LOOKING
STATEMENTS. READERS ARE URGED TO CONSIDER STATEMENTS THAT INCLUDE THE TERMS
"EXPECTS," "ANTICIPATES," "INTENDS" OR THE LIKE TO BE UNCERTAIN AND
FORWARD-LOOKING.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: December 10, 1997
EINSTEIN/NOAH BAGEL CORP.
By: /s/ Paul A. Strasen
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Paul A. Strasen
Senior Vice President
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EINSTEIN/NOAH BAGEL CORP.
EXHIBIT INDEX
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<CAPTION>
EXHIBIT NUMBER DESCRIPTION
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2.1 Form of Secured Loan Agreement by and between the Company and each of Colonial Bagels, L.P.,
Great Lakes Bagels, L.P., Gulfstream Bagels, L.P., Sunbelt Bagels, L.L.C. and Noah's Pacific,
L.L.C.
10.1 Area Developer Merger Agreement and Plan of Merger dated as of December 5, 1997 among Colonial
Bagels, L.P., Great Lakes Bagels, L.P., Gulfstream Bagels, L.P., Sunbelt Bagels, L.L.C. and
Einstein/Noah Bagel Partners, L.P. (formerly Noah's Pacific, L.L.C.)
10.2 Partnership Agreement of Einstein/Noah Bagel Partners, L.P.
10.3 Loan Agreement dated as of December 5, 1997 by and between the Company and Einstein/Noah Bagel
Partners, L.P.
10.4 Amended and Restated Development Agreement dated as of December 5, 1997 by and between the Company
and Einstein/Noah Bagel Partners, L.P.
10.5 Form of Services Agreement by and among Einstein/Noah Bagel Partners, L.P. and Einstein/Noah
Bagel Corp.
10.6 Amended and Restated Secured Credit Agreement dated as of November 21, 1997 among the Company,
Bank of America National Trust and Savings Association, as Agent and Issuing Lender, General
Electric Capital Corporation, as Co-Agent, and the Lenders named therein.
23.1 Consent of Arthur Andersen LLP with respect to the Audited Financial Statements of Alamo
Bagels, L.P.
23.2 Consent of Arthur Andersen LLP with respect to the Audited Financial Statements of BCE West
Bagels, L.L.C.
23.3 Consent of Arthur Andersen LLP with respect to the Audited Financial Statements of Colonial
Bagels, L.P.
23.4 Consent of Arthur Andersen LLP with respect to the Audited Financial Statements of Finest
Bagels, L.L.C.
23.5 Consent of Arthur Andersen LLP with respect to the Audited Financial Statements of Great Lakes
Bagels, L.L.C.
23.6 Consent of Arthur Andersen LLP with respect to the Audited Financial Statements of Gulfstream
Bagels, L.P.
23.7 Consent of Arthur Andersen LLP with respect to the Audited Financial Statements of Liberty
Foods, L.L.C.
</TABLE>
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<TABLE>
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23.8 Consent of Arthur Andersen LLP with respect to the Audited Financial Statements of Mayfair
Bagels, L.L.C.
23.9 Consent of Arthur Andersen LLP with respect to the Audited Financial Statements of Noah's Bay
Area Bagels, L.L.C.
23.10 Consent of Arthur Andersen LLP with respect to the Audited Financial Statements of Noah's
Pacific, L.L.C.
23.11 Consent of Arthur Andersen LLP with respect to the Audited Financial Statements of Philly Rose,
L.P.
99.1 Financial Statements of Businesses Acquired.
99.2 Pro Forma Financial Information.
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EXHIBIT 2.1
SECURED LOAN AGREEMENT
This secured loan agreement (the "Agreement") is made and entered into
as of the _______ day of _________, 199__ between Einstein/Noah Bagel Corp., a
Delaware corporation (the "Company"), and ______________, a Delaware limited
liability company ("DEVELOPER").
RECITALS
The Company and DEVELOPER have entered into an area development
agreement ("Development Agreement") pursuant to which DEVELOPER is required to
establish and operate up to _________________________ 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 set forth herein, 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 ____ (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.
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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 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 Bagel Store Development 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 ____,000 Units of
DEVELOPER in the aggregate as provided in the unit purchase agreement dated as
of _____ __, 199_ 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 cash 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(a) 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 $____
per Voting Unit, and all references in this Agreement, the Unit Pledge
Agreement (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.
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
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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
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
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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 ____ and continuing until
the first day of the ______ Retail Period in the Company's fiscal year ____,
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 _____ __, 199_ ("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 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) _____ __, 199_ 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 ____; 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) _________ __,
199__, 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 ____, 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.
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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 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);
(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
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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
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.
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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 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, or, in the event such a
material adverse change shall have occurred, such change shall have been fully
remedied without any material adverse effect on the financial condition,
results of operations, assets or other business of DEVELOPER and its
Subsidiaries taken as a whole to the satisfaction of the Company in its sole
discretion.
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 Development Schedule. DEVELOPER shall be in compliance with
the terms of 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
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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.
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 199_ 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, or, in the event such a material adverse change shall have occurred,
such change shall have been fully remedied without any material adverse effect
on the financial condition, results of operations, assets or other business of
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DEVELOPER and its Subsidiaries taken as a whole to the satisfaction of the
Company in its sole discretion.
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.
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 State 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 and the Note have each been duly
authorized by all required action on the part of DEVELOPER, and each of this
Agreement and the Note 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
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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 Agreement dated as of _____ __, 199_, 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.
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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 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
______________ 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:
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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 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.
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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 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.
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(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 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
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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 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 and the Fund) 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
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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 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.
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(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.
(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):
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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 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 those certain promissory notes, each dated as of _____ __, 199_,
from ___________, ___________, and _____________ payable to DEVELOPER in the
principal amounts of $_________, __________, and __________, respectively (the
"Member Notes").
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.
6.3 Compensation to Members and Others. Other than (a) reasonable
salaries and other normal benefits (including options granted pursuant to a
199_ Unit Option Plan to be adopted by DEVELOPER with the consent of the
Company (the "Plan")) to be paid to Members of DEVELOPER employed by DEVELOPER
or the Manager, which salaries and benefits must be approved by the Company,
and (b) the Member Notes (as defined in Section 6.1 hereof) 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, waive any default under the Member Notes or
amend or modify in any way the Member Notes, the Plan, 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 reasonably adequate
reserves for working capital and foreseeable contingencies, in each case so
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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 the
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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; Exercise of Call Right.
Except for (i) Voting Units which may be issued upon (A) exercise of options
granted under DEVELOPER's 199_ Unit Option Plan pursuant to grants approved
under clause (iii) of this Section 6.8, (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 199_ 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.
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 Key Employee; Manager. DEVELOPER shall not remove, or
otherwise diminish the responsibilities of, ___________ or the manager of
DEVELOPER, for any reason whatsoever, nor shall any interest in the manager of
DEVELOPER be sold, transferred or otherwise assigned, in each case without the
Company's prior written consent.
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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 Opinion 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;
(c) the Accounting and Administration Services Agreement
in the form of Exhibit G hereto (the "Accounting and Administration Services
Agreement");
(d) the Investor Representation Letter set forth as
Exhibit H hereto signed by each investor in the DEVELOPER;
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(e) the Unit Pledge Agreement;
(f) the Stock Pledge Agreement, together with stock
certificates in form suitable for transfer and multiple stock powers executed
in blank;
(g) the Subsidiary Security Agreement, where applicable;
(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 Partner.
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 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 10 days of the Closing Date; and
(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 Security Agreements and the Note 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.
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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 had, as of Closing Date, members' equity of
at least $_________.
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"):
(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
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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, 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) 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(o) hereof);
(i) termination of the lesser of (a) 50% or (b) three of
the Franchise Agreements to which DEVELOPER and the Company are parties;
(j) dissolution or liquidation of the Company;
(k) 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, or, in the event such a material adverse
change shall have occurred, such change shall not have been fully remedies
without any material averse effect on the financial condition, results of
operations, assets or other business of DEVELOPER and its Subsidiaries taken as
a whole to the satisfaction of the Company in its sole discretion;
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(l) 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;
(m) 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;
(n) 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;
(o) 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 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; or
[RESERVED]
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;
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(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(o), 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 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
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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.
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.
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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 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:
with a copy to:
If to the Company:
Einstein/Noah Bagel Corp.
14123 Denver West Parkway
Golden, CO 80401
Attention: Chief Financial Officer
Facsimile: (303) 216-3490
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<PAGE> 31
with a copy to:
Einstein/Noah Bagel Corp.
14123 Denver West Parkway
Golden, CO 80401
Attention: General Counsel
Facsimile: (303) 216-3490
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.
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.
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<PAGE> 32
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 Indemnity, in any manner relating to or
arising out of this 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 Indemnity hereunder with respect to indemnified liabilities
arising from the gross negligence or willful misconduct of such Indemnity. 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.
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<PAGE> 33
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, 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.
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<PAGE> 34
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:
-----------------------
Its: Vice President
----------------------------
By:
-----------------------
Its: Manager
By:
--------------------
Title: President
34
<PAGE> 35
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 of DEVELOPER
Exhibit G Accounting and Administration Services Agreement
Exhibit H Investor Representation Letter
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<PAGE> 36
EXHIBIT A
CONVERTIBLE SECURED NOTE
$_____________ Golden, Colorado
as of ______ __, 199_
FOR VALUE RECEIVED, ______________________, a Delaware limited
liability company (the "DEVELOPER"), promises to pay to the order of
Einstein/Noah Bagel Corp., a Delaware corporation (the "Company"), pursuant to
the Loan Agreement (as hereinafter defined) at such place as the Company may
from time to time designate in writing, in lawful money of the United States of
America and in immediately available funds, the principal sum of
_________________ dollars ($_________) 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).
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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 fourth Retail Period in the Company's fiscal year 2000 and
continuing until the first day of the fourth Retail Period in the Company's
fiscal year 2005, 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.
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<PAGE> 38
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 $____ 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)
________ __, 199_ 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 ____; 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 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.
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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 corporation 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 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;
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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 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.
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<PAGE> 41
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
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
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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: President
7
<PAGE> 43
EXHIBIT B
BORROWING CERTIFICATE
The undersigned, the __________ of ____________________, the manager
of ______________________ (the "DEVELOPER"), borrower under that certain
Secured Loan Agreement dated _____ __, 199_ (the "Loan Agreement") between the
DEVELOPER and Einstein Bros. Bagels, Inc. (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 ________, 199_, 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.
--------------------------------
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EXHIBIT C
UNIT PLEDGE AGREEMENT
This Unit Pledge Agreement ("Pledge Agreement"), dated as of _____ __,
199_, is made and entered into by and between Einstein/Noah Bagel Corp., a
Delaware corporation (the "Company"), and all of the holders of Voting Units
in ______________________, a Delaware limited liability company (the
"DEVELOPER"), and their spouses listed on the signature pages hereof and any
other persons (other than the Company and Bagel Store Development Funding,
L.L.C., referred to herein as the "Fund") who, after the date of this Pledge
Agreement, become holders of Voting Units in the DEVELOPER and their spouses
(collectively, the "Members").
RECITALS
1. The Members own 100% of the issued and outstanding Voting
Units in the DEVELOPER (excluding any such Voting Units held by the Fund), 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 (excluding any such Voting Units held by the Fund) 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:
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<PAGE> 45
"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 _____ __, 199_, 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.
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<PAGE> 46
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.
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
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<PAGE> 47
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.
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
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<PAGE> 48
(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 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.
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<PAGE> 49
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.
14123 Denver West Parkway
Golden, CO 80401
Attention: General Counsel
Facsimile: (303) 216-3490
with a copy to:
Einstein/Noah Bagel Corp.
14123 Denver West Parkway
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<PAGE> 50
Golden, CO 80401
Attention: Chief Financial Officer
Facsimile: (303) 216-3490
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.
(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)
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<PAGE> 51
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.
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
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<PAGE> 52
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.
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<PAGE> 53
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: Vice President
MEMBERS
--------------------------
Name:
Address:
--------------------------
Name:
Address:
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 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: President
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<PAGE> 54
Schedule A
To
Pledge Agreement
Pledged Units at _____ __, 199_
No. of Units Issued To
------------ ---------
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<PAGE> 55
EXHIBIT D
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").
WITNESSETH:
WHEREAS, ______________________, a Delaware limited liability company
(the "Borrower"), has entered into a Secured Loan Agreement dated as of _____
__, 199_ (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 described property whether now owned
or existing or hereafter acquired or arising and wherever located (all of which
is herein collectively called the "Collateral"):
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<PAGE> 56
(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 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.
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<PAGE> 57
(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 1(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 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
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<PAGE> 58
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 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
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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 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.
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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 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
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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
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:
----------------------
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EXHIBIT E
CERTIFICATE FOR ADVANCES
The undersigned, the _______________ of ____________________, the manager of
_______________ (the "DEVELOPER"), borrower under that certain Secured Loan
Agreement dated as of _____ __, 199_ (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.
Capitalized terms used but not defined herein have the meanings ascribed
thereto in the Loan Agreement.
Date: __________________, 199_
--------------------------------------
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EXHIBIT F
[Form of Opinion of Counsel]
_____ __, 199_
Einstein/Noah Bagel Corp.
14123 Denver West Parkway
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]
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(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.
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[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 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
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<PAGE> 66
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 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 EBBI 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 EBBI
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
- -----------------------
(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.
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<PAGE> 67
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 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;
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<PAGE> 68
(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;
(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
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(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 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
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<PAGE> 70
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,
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Annex 1
UCC-1 Financing Statement filings to perfect a security interest in collateral
not constituting fixtures:
State Filing Office Reporting Publication
- ----- ------------- ---------------------
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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 as of _____ __, 199_, between the Company and Einstein/Noah Bagel Corp.)
Date:
------------------
-------------------
Secretary
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EXHIBIT G
ACCOUNTING AND ADMINISTRATION SERVICES AGREEMENT
This Accounting and Administration Services Agreement ("Agreement") is
made the ____ day of _____, 199_, by and between ______________________, a
Delaware limited liability company ("DEVELOPER"), and Boston Chicken, Inc.,
Delaware corporation ("Company").
RECITALS
1. Einstein/Noah Bagel Corp. ("ENBC") and DEVELOPER have entered
into an Area Development Agreement dated as of _____ __, 199_, 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 ENBC to DEVELOPER of the
right to operate an Einstein Bros.(TM) Bagel store.
2. Pursuant to the ADA and/or the Franchise Agreements, DEVELOPER
is required to maintain certain accounting records and provide to ENBC certain
periodic financial reports and other data.
3. DEVELOPER has requested and Company has offered that,
effective _________, 199_ (the "Effective Date"), 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 Commencing on the Effective Date and upon the terms and
subject to the conditions set forth in this Agreement, Company shall provide to
DEVELOPER for each Noah's store operated by DEVELOPER pursuant to the ADA and
the Franchise Agreements (each a "Unit") the following accounting services (the
"Services"):
(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);
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(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;
(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;
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(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, commencing
on the Effective Date, 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
(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;
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(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 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 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
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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.
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.
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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:
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If to DEVELOPER:
If to Company:
Boston Chicken, Inc.
14103 Denver West Parkway
Golden, CO 80401
Attention: General Counsel
Facsimile: (303) 216-5339
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 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.
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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.
BOSTON CHICKEN, INC.
By:
----------------------
Title:
----------------------
-----------------------------
By:
---------------------
its Manager
By:
----------------
Title: President
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EXHIBIT H
LETTER HEAD OF INVESTOR
___________ __, 199_
Einstein/Noah Bagel Corp.
14123 Denver West Parkway
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 Einstein Bros.
Bagel 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 Einstein Bros. Bagel 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,
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EXHIBIT 10.1
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AREA DEVELOPER
MERGER AGREEMENT AND PLAN OF MERGER
BY AND AMONG
COLONIAL BAGELS, L.P.,
GREAT LAKES BAGELS, L.P.,
GULFSTREAM BAGELS, L.P.,
NOAH'S PACIFIC, L.L.C. AND
SUNBELT BAGELS, L.L.C.
----------------------------------
DECEMBER 5, 1997
<PAGE> 2
AREA DEVELOPER MERGER
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER ("Agreement"), dated as of December 5,
1997, by and among Colonial Bagels, L.P., a Delaware limited partnership
("Colonial"), Great Lakes Bagels, L.P., a Delaware limited partnership ("Great
Lakes"), Gulfstream Bagels, L.P., a Delaware limited partnership ("Gulfstream"),
Sunbelt Bagels, L.L.C., a Delaware limited liability company ("Sunbelt" and,
collectively with Colonial, Great Lakes and Gulfstream, the "Merging Area
Developers"), and Noah's Pacific, L.L.C., a Delaware limited partnership (the
"Surviving Area Developer" and, together with the Merging Area Developers, the
"Area Developers").
BACKGROUND
WHEREAS, as part of the transactions (the "Transactions") proposed in
the Information Statement of Einstein/Noah Bagel Corp., dated November 24, 1997
(the "Information Statement"), the parties hereto desire to merge the Merging
Area Developers with and into the Surviving Area Developer pursuant to Delaware
law, with the Surviving Area Developer being the surviving entity (the
"Merger");
WHEREAS, the partners or members, as applicable, of each of the Merging
Area Developers (the "Merging Area Developer Unitholders") have approved the
Merger by the affirmative vote of unitholders holding units representing in
excess of one-half of the outstanding units of such Area Developer and having
capital account balances at such time in excess of one-half of the outstanding
capital account balances of the unitholders of such Area Developer (a "Majority
Vote"); and
WHEREAS, the members of the Surviving Area Developer (the "Surviving
Area Developer Unitholders") have approved the Merger by Majority Vote.
NOW, THEREFORE, for good and valuable consideration, the receipt of
which is hereby acknowledged, the parties to this Agreement covenant and agree
as follows:
ARTICLE I
THE MERGER
1.1 The Merger. Upon the terms and subject to the conditions
set forth in this Agreement, and in accordance with the relevant provisions of
the Delaware Revised Uniform
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Limited Partnership Act and the Delaware Limited Liability Company Act, at the
Effective Time (as defined in Section 1.2 below), the Merging Area Developers
shall each be merged with and into the Surviving Area Developer, and the
separate existence of each of the Merging Area Developers shall cease. The
Surviving Area Developer shall continue as the surviving entity and shall
continue to be governed by the laws of the State of Delaware.
1.2 Effective Time. The Merger shall become effective (the
"Effective Time") at such time as a Certificate of Merger (the "Certificate of
Merger") is duly filed with the Office of the Secretary of State of the State of
Delaware.
1.3 Name of Surviving Area Developer. The name of the
Surviving Area Developer shall be "Einstein/Noah Bagel Partners, L.P." at the
Effective Time.
1.4 Agreement of Limited Partnership. The Agreement of
Limited Partnership of Einstein/Noah Bagel Partners, L.P., substantially in the
form attached hereto as Exhibit A (the "Surviving Area Developer Partnership
Agreement"), shall be the agreement of limited partnership of the Surviving
Area Developer until thereafter altered, amended or repealed as provided
therein or by applicable law.
1.5 General Partner. Einstein/Noah Bagel Partners, Inc., a
California corporation ("Bagel Store Holdings"), shall be the general partner of
the Surviving Area Developer until the earlier of its resignation or removal in
accordance with the Surviving Area Developer Partnership Agreement or until its
successor is duly qualified.
1.6 Conversion of Merging Area Developer Units. At the
Effective Time, by virtue of the Merger and without any action on the part of
the Area Developers, the Merging Area Developer Unitholders or the Surviving
Area Developer Unitholders:
(a) each issued and outstanding limited partnership
unit or limited liability company unit, as applicable, of each Merging Area
Developer ("Merging Area Developer Unit") shall be converted into one limited
partnership unit of the Surviving Area Developer ("Surviving Area Developer
Unit") and all such Merging Area Developer Units shall cease to be outstanding
and shall automatically be cancelled and retired and shall cease to exist;
(b) The name of the Surviving Area Developer shall be
"Einstein/Noah Bagel Partners, L.P.";
(c) The Surviving Area Developer Partnership
Agreement shall become effective as the limited partnership agreement of the
Surviving Area Developer;
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(d) The number of Surviving Area Developer Units held
by each Merging Area Developer Unitholder and each Surviving Area Developer
Unitholder shall be as set forth on Schedule A to the Surviving Area Developer
Partnership Agreement;
(e) Bagel Store Holdings shall be the sole general
partner of the Surviving Area Developer and shall hold such Surviving Area
Developer Units as set forth on Schedule A to the Surviving Area Developer
Partnership Agreement; and
(f) each issued and outstanding option to purchase
Merging Area Developer Units (an "Area Developer Unit Option") shall be
converted into an option to purchase an equivalent number of Surviving Area
Developer Units, and all such Area Developer Unit Options shall cease to be
outstanding, shall automatically be cancelled and retired and shall cease to
exist.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF THE AREA DEVELOPERS
Each Area Developer severally represents and warrants to each
other Area Developer as follows:
2.1 Validity of Actions. Such Area Developer: (i) is a
limited partnership or limited liability company, duly formed, validly existing
and in good standing under the laws of the State of Delaware; (ii) has the
authority to conduct its business as currently conducted and to own and operate
the properties which it now owns and operates; (iii) is qualified to do
business in all jurisdictions in which such qualification is necessary; and
(iv) has full power and authority to enter into this Agreement and to carry out
all acts contemplated by it. This Agreement has been duly executed and
delivered on such Area Developer's behalf, and is enforceable against it in
accordance with its terms. The execution and delivery of this Agreement and
consummation of the transactions contemplated by such Area Developer will not
violate any provision of the partnership or limited liability company agreement
of such Area Developer nor violate, conflict with or result in any breach of
any of the terms, provisions or conditions of, or constitute a default under or
cause acceleration of, any indebtedness under any agreement or instrument to
which it is a party or by which its assets may be bound, or cause a breach of
any applicable federal or state law or governmental regulation, or any
applicable order, judgment , writ, award, injunction or decree of any court or
governmental instrumentality applicable to such Area Developer.
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ARTICLE III
COVENANTS OF THE PARTIES
3.1 Prohibited Acts. Pending consummation of the Merger or
prior to termination of this Agreement, each Area Developer agrees that, without
prior written consent of each other Area Developer and Einstein/Noah Bagel Corp.
("ENBC"), given in a letter which specifically refers to this Section of the
Agreement, such Area Developer shall not:
(a) perform any act or omit to take any action that
would make any of such Area Developer's representations made above or any
information pertaining to them in the Information Statement inaccurate or
materially misleading as of the Effective Time;
(b) enter into any commitment, contract or other
transaction in any way negatively affecting such Area Developer's ability to
conduct its business in the ordinary course and as contemplated by this
Agreement or in the Information Statement;
(c) make any loans or advances to, or investments in,
any other corporation, partnership or other legal entity or to any other
persons except in the ordinary course of business;
(d) borrow money for any purpose or agree to become
contingently liable, by guaranty or otherwise, for the obligations or
indebtedness of any other person other than in the ordinary course of business;
or
(e) mortgage, pledge, encumber, sell, lease or
transfer any of such Area Developer's assets other than in the ordinary course
of business.
3.2 Notices. Pending the consummation of the Merger or prior
to termination of this Agreement, each Area Developer agrees that it will
promptly advise the other of the occurrence of any condition or event which
would make any of its representations contained in this Agreement or Information
Statement incorrect or materially misleading.
3.3 Additional Documents. At the request of any Area
Developer, each Area Developer will execute and deliver any additional documents
and perform in good faith such acts as reasonably may be required in order to
consummate the transactions contemplated by this Agreement.
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ARTICLE IV
CONDITIONS TO THE MERGER
The obligation of the Area Developers to consummate the Merger
shall be subject to compliance with or satisfaction of the following conditions:
4.1 Bring Down. The representations and warranties set forth
in this Agreement shall be true and correct in all material respects at and as
of the Effective Time as if then made, as evidenced by a certificate made by the
general partner or managing member of each Area Developer as of the Effective
Time.
4.2 Consents Obtained. All necessary consents, waivers,
approvals, authoriza tions or orders required to be obtained, and the making of
all filings required to be made by any Area Developer for the authorization,
execution and delivery of this Agreement and the consummation of the
transactions contemplated on or before the Effective Time hereby shall have been
obtained or made and shall remain in effect at the Effective Time.
4.3 No Prohibiting Statute, Rule or Regulation. At the
Effective Time, there shall be no statute, rule, regulation, executive order,
decree, injunction or other order enacted or issued by any court or other
governmental authority which prohibits or challenges the consummation of the
Merger.
4.4 Consent of ENBC. ENBC shall have consented in writing to
the consumma tion of the Merger.
4.5 Consummation of Secured Loan Conversions. The Secured
Loan Conversions, as described in the Information Statement, shall have been
consummated.
4.6 Conversion of Noah's Pacific. Noah's Pacific, as
described in the Information Statement, shall have been converted into a
limited partnership pursuant to the Surviving Area Developer Partnership
Agreement and changed its name to Einstein/Noah Bagel Partners, L.P.
4.7 Consummation of the Area Developer Agreement
Modification. The Area Developer Agreement Modification, as described in the
Information Statement, shall have been consummated.
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ARTICLE V
TERMINATION; AMENDMENT; WAIVER
5.1 Termination. This Agreement and the transactions
contemplated hereby may be terminated at any time prior to the filing of the
Certificate of Merger with the Secretary of State of the State of Delaware by
the mutual consent of ENBC and the Area Developers.
5.2 Effect of Termination. If this Agreement is terminated
pursuant to Section 5.1, this Agreement shall become void and of no effect with
no liability on the part of any party hereto.
5.3 Amendment. The parties hereto may, by written agreement,
amend this Agreement at any time prior to the filing of the Certificate of
Merger with the Secretary of State of the State of Delaware, such amendment to
be approved by mutual consent of ENBC and the Area Developers, provided that no
amendment shall be made which alters or changes (i) the amount or kind of
consideration which the Merging Area Developer Unitholders are entitled to
receive upon conversion of the Merging Area Developer Units or (ii) the terms
and conditions of this Agreement if such alteration or change would materially
and adversely effect the Merging Area Developer Unitholders.
5.4 Waiver. At any time prior to the Effective Time, any
party to this Agreement may, with the consent of ENBC, extend the time for
performance of any of the obligations or other acts of any other party hereto,
or waive compliance with any of the agreements of any other party or with any
conditions to its obligations hereunder, in each case only to the extent that
such obligations, agreements and conditions are intended for its benefit.
ARTICLE VI
MISCELLANEOUS
6.1 Third-party Beneficiaries. The Area Developers hereby
agree that ENBC and its successors and assigns are intended to be third-party
beneficiaries of this Agreement with full legal and equitable rights hereunder.
6.2 Notices. All notices required or permitted under the
terms of this Agreement by any party shall be made in writing and shall be
delivered by first class mail or by personal delivery, postage or fees prepaid,
to the other parties at:
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If to Colonial:
c/o Gulfstream Bagels, L.P.
1801 Clint Moore Road
Suite 215
Boca Raton, Florida 33487
Attention: General Partner
If to Great Lakes:
Great Lakes Bagels, L.P.
770 Pasquinelli Drive, Suite 400
Westmont, Illinois 60559
Attention: General Partner
If to Gulfstream:
Gulfstream Bagels, L.P.
1801 Clint Moore Road
Suite 215
Boca Raton, Florida 33487
Attention: General Partner
If to Sunbelt:
Sunbelt Bagels, L.L.C.
7220 Trade Street, Suite 115
San Diego, California 92121-2325
Attention: Managing Member
If to the Surviving Area Developer:
Noah's Pacific, L.P.
14054 Catalina Street
San Leandro, California 94577
Attention: General Partner
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6.3 Non-Assignability. This Agreement shall not be
assignable by any of the parties to this Agreement.
6.4 Entire Agreement. This Agreement and the other
agreements described in the Information Statement contain the parties' entire
understanding and agreement with respect to their subject matter, and any and
all conflicting or inconsistent discussions, agreements, promises,
representations and statements, if any, between the parties or their
representatives that are not incorporated in this Agreement or contained in the
other agreements described in the Information Statement shall be null and void.
6.5 Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall constitute an original, but all of which
together shall constitute a single agreement.
6.6 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of Delaware, without giving effect to
conflicts of law principles.
6.7 Headings. The various section headings are inserted for
purposes of reference only and shall not affect the meaning or interpretation of
this Agreement or any provision hereof.
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IN WITNESS WHEREOF, the undersigned have caused this Agreement
to be executed by a party duly authorized to do so, all as of the day and year
first above-written.
NOAH'S PACIFIC, L.L.C.
By: NP Management, Inc., its manager
By: /s/ Edwin W. Brownell
---------------------------------
Edwin W. Brownell
President
COLONIAL BAGELS, L.P.
By: Colonial Bagels, Inc., its general partner
By: /s/ Paula Manley
---------------------------------
Paula Manley
Vice President
GREAT LAKES BAGELS, L.P.
By: Great Lakes Bagels, Inc., its general partner
By: /s/ John Morlock
---------------------------------
John Morlock
President
GULFSTREAM BAGELS, L.P.
By: Gulfstream Bagels, Inc., its general partner
By: /s/ Robert M. Hartnett
---------------------------------
Robert M. Hartnett
President
SUNBELT BAGELS, L.L.C.
By: Sunbelt Bagels, Inc., its manager
By: /s/ Pearce B. Tucker
---------------------------------
Pearce B. Tucker
President
10
<PAGE> 1
EXHIBIT 10.2
-----------------------------------------
LIMITED PARTNERSHIP AGREEMENT
OF
EINSTEIN/NOAH BAGEL PARTNERS, L.P.
----------------------------------------
Dated as of December 5, 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C> <C>
ARTICLE I.........................................................................................................2
Section 1.1 Definitions.........................................................................2
ARTICLE II........................................................................................................9
Section 2.1 Formation of the Partnership........................................................9
Section 2.2 Partnership Name....................................................................9
Section 2.3 Purposes of the Partnership.........................................................9
Section 2.4 Title to Partnership Property......................................................10
Section 2.5 Effective Date.....................................................................10
Section 2.6 Registered Office; Principal Place of Business.....................................10
Section 2.7 Qualifications in Other Jurisdictions..............................................10
ARTICLE III......................................................................................................11
Section 3.1 Term of Partnership................................................................11
ARTICLE IV.......................................................................................................11
Section 4.1 Capital Contributions of the Partners..............................................11
Section 4.2 Withdrawal and Return of Capital...................................................11
Section 4.3 Interest on Capital................................................................11
Section 4.4 Capital Accounts...................................................................11
Section 4.5 Incorporation and Public Offering..................................................12
Section 4.6 Right to Require Termination.......................................................13
Section 4.7 Fund Put Right.....................................................................14
Section 4.8 Registration of ENBC Common Stock..................................................16
Section 4.9 Registration Procedures............................................................18
Section 4.10 Registration Expenses..............................................................22
Section 4.11 Indemnification....................................................................22
Section 4.12 Additional Capital.................................................................24
Section 4.13 Partnership Repurchase Right.......................................................25
Section 4.14 Change in Control..................................................................25
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C> <C>
ARTICLE V........................................................................................................26
Section 5.1 Allocation of Profits and Losses...................................................26
Section 5.2 Special Allocations................................................................26
Section 5.3 Allocation of Tax Credits..........................................................27
Section 5.4 Section 704(c) Allocations.........................................................27
Section 5.5 Certain Other Allocation Rules.....................................................28
Section 5.6 Special Allocation of Recapture....................................................28
Section 5.7 Allocations to the General Partner.................................................28
ARTICLE VI.......................................................................................................29
Section 6.1 Distributions......................................................................29
Section 6.2 Distributions for Tax Purposes.....................................................29
Section 6.3 Restrictions on Distributions......................................................30
Section 6.4 Payment and Withholding of Certain Taxes...........................................30
ARTICLE VII......................................................................................................31
Section 7.1 Rights and Obligations of Limited Partners.........................................31
Section 7.2 Conduct of Other Business Activities by the Partners...............................31
Section 7.3 Assignments by Partners............................................................33
Section 7.4 Admission of Additional Partners...................................................35
Section 7.5 Resignation of Partners Prohibited.................................................35
ARTICLE VIII.....................................................................................................35
Section 8.1 Management of the Partnership......................................................35
Section 8.2 Certain Obligations of General Partner.............................................39
Section 8.3 Liability of General Partner for Certain Acts
or Omissions....................................................................40
Section 8.4 Indemnification....................................................................40
Section 8.5 General Partner as Limited Partner.................................................42
Section 8.6 Tax Matters Partner................................................................43
ARTICLE IX.......................................................................................................43
Section 9.1 Dissolution of Partnership.........................................................43
Section 9.2 Final Accounting...................................................................44
Section 9.3 Liquidation; Distribution..........................................................44
Section 9.4 Termination........................................................................45
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<S> <C> <C> <C>
ARTICLE X........................................................................................................45
Section 10.1 Notices............................................................................45
Section 10.2 Governing Law......................................................................45
Section 10.3 Amendments.........................................................................45
Section 10.4 Power of Attorney..................................................................46
Section 10.5 Successors and Assigns.............................................................47
Section 10.6 Counterparts.......................................................................47
Section 10.7 Fiscal Year........................................................................47
Section 10.8 Modifications to be in Writing.....................................................47
Section 10.9 Action for Partition or Distribution in Kind.......................................47
Section 10.10 Captions...........................................................................47
Section 10.11 Pronouns and Plurals...............................................................47
Section 10.12 Validity and Severability..........................................................47
Section 10.13 Statutory References...............................................................48
Section 10.14 Primacy of Certain Agreements......................................................48
</TABLE>
-iii-
<PAGE> 5
LIMITED PARTNERSHIP AGREEMENT
of
EINSTEIN/NOAH BAGEL PARTNERS, L.P.
This Limited Partnership Agreement (the "Agreement") of
Einstein/Noah Bagel Partners, L.P. (the "Partnership") is made as of December
5, 1997, by and among the persons whose names are set forth on Schedule A
hereto (the "Parties").
Recitals
WHEREAS, the Parties are members of a Delaware limited
liability company known as "Noah's Pacific, L.L.C." (the "Company"). The Members
and Manager of the Company have now determined to convert the Company to a
Delaware limited partnership pursuant to Section 18-216 of the Delaware Limited
Liability Company Act and Section 17-217 of the Delaware Revised Uniform Limited
Partnership Act (the "Act"). Pursuant to Section 17-217, the Members and Manager
of the Company hereby adopt this Limited Partnership Agreement to provide for
the regulation of the affairs of the Partnership.
WHEREAS, pursuant to an Agreement and Plan of Merger, dated as
of the date hereof, by and among the Company, Colonial Bagels, L.P., Great Lakes
Bagels, L.P., Gulfstream Bagels, L.P. and Sunbelt Bagels, L.L.C. (the "Area
Developers"), each of the Area Developers (other than the Company) will be
merged with and into the Partnership with the Partnership as the surviving
entity; and
WHEREAS, the Parties desire to form the Partnership in order
to conduct the businesses previously conducted by the Area Developers (the
"Business").
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein set forth, the Parties hereby agree as follows:
<PAGE> 6
ARTICLE I
Section 1.1 Definitions. When used in this Agreement the
following terms shall have the meanings set forth below:
"Act" means the Delaware Revised Uniform Limited Partnership
Act as in effect from time to time.
"Affiliate" means, with respect to any Person, any other
Person directly or indirectly controlling, controlled by, or under common
control with, such Person; for purposes of this definition, "control" of a
Person shall mean the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of such Person, whether
through the ownership of voting securities or otherwise.
"Agreement" means this Limited Partnership Agreement, as from
time to time amended.
"Area Development Agreement" means the amended and restated
area development agreement dated as of the date hereof between ENBC and the
Partnership, as it may be amended or amended and restated from time to time.
"Assignee" means a person to whom an interest in the
Partnership has been transferred in accordance with the provisions of this
Agreement but who has not been admitted as a substitute or additional Partner.
"Available Cash" means, with respect to any fiscal year, the
sum of (i) all cash receipts of the Partnership during such fiscal year
(excluding for this purpose Capital Contributions, including without limitation
any payments on notes delivered pursuant to Section 4.1), and (ii) all
reductions made by the General Partner during such fiscal year in reserves
established as hereinafter provided, less the sum of (i) all cash operating
expenditures, all cash debt service payments (including payments of principal
and interest and penalties, if any), and all Tax Distributions and (ii) all
additions to reserves during such fiscal year deemed reasonably appropriate by
the General Partner, including reserves for capital expenditures, working
capital and contingent liabilities.
"Bankruptcy" means the occurrence of any event or action
described in Section 17-402A(4) of the Act with respect to the General Partner
or any other Person.
"Capital Account" of a Partner means the Capital Account
established for such Partner under Section 4.4.
2
<PAGE> 7
"Capital Contribution" means, with respect to any Partner or
Assignee, the amount of cash and the fair market value of any property other
than cash contributed by the Partner or Assignee (or its predecessor in
interest) to the Partnership.
"Change in Control" shall have the meaning ascribed to it
4.14.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" shall have the meaning ascribed to it in Section
4.8.
"Covered Capacities" shall have the meaning ascribed to it in
Section 8.4.
"Credit Agreement" means ENBC's Credit Agreement with Bank of
America National Trust and Savings Association, LaSalle National Bank and
General Electric Capital Corporation in effect on the date hereof.
"Deferral Period" shall have the meaning ascribed to it in
Section 4.8(c).
"Depreciation" means, for each fiscal year or other period, an
amount equal to the depreciation, amortization or other cost recovery deduction
allowable with respect to an asset for such year or other period, except that if
the Gross Asset Value of an asset differs from its adjusted basis for Federal
income tax purposes at the beginning of such year or other period, Depreciation
shall be an amount which bears the same ratio to such beginning Gross Asset
Value as the Federal income tax depreciation, amortization or other cost
recovery deduction for such year or other period bears to such beginning
adjusted tax basis.
"Development Schedule" shall have the meaning ascribed to it
in the Area Development Agreement.
"Dissolution" of a Partner which is not a natural person means
that such Partner has terminated its existence, wound up its affairs and
dissolved.
"Distribution" means, with respect to any Partner, the amount
of cash and the fair market value of any property other than cash distributed by
the Partnership to the Partner.
"ENBC" means Einstein/Noah Bagel Corp., a Delaware
corporation.
3
<PAGE> 8
"ENBC Note" means the Note, as defined in the Secured Loan
Agreement, as it may be amended or amended and restated from time to time (and
any other note that may be substituted therefor).
"Einstein/Noah Bagel Partners" means Einstein/Noah Bagel
Partners, L.P., a Delaware limited partnership.
"Einstein/Noah Bagel Partners, Inc." means Einstein/Noah Bagel
Partners, Inc., a wholly owned subsidiary of ENBC.
"Fund" means Bagel Store Development Funding, L.L.C., a
Delaware limited liability company.
"Fund Put Right" shall have the meaning ascribed to it in
Section 4.5.
"General Partner" means, as of any particular time,
Einstein/Noah Bagel Partners, Inc., or such other Person who is at such time a
general partner of the Partnership.
"General Partner Units" means Units in the Partnership held by
the General Partner as a general partner.
"Gross Asset Value" means, with respect to any asset, the
adjusted basis for Federal income tax purposes of such asset, except as follows:
(a) The initial Gross Asset Value
of any asset contributed by a Partner to the Partnership shall be the fair
market value of such asset, as determined by the contributing Partner and the
Partnership.
(b) The Gross Asset Values of all
Partnership assets shall be adjusted to equal their respective fair market
values, as determined by the General Partner, as of the following times: (a) the
acquisition of an additional interest in the Partnership by any new or existing
Partner in exchange for more than a de minimis Capital Contribution; (b) the
distribution by the Partnership to a Partner of more than a de minimis amount of
property as consideration for an interest in the Partnership; and (c) the
liquidation of the Partnership within the meaning of Section 1.704-1(b)(2)
(ii)(g) of the Treasury Regulations; provided, however, that adjustments
pursuant to clauses (a) and (b) above shall be made only if the General Partner
reasonably determines that such adjustments are necessary or appropriate to
reflect the relative economic interests of the Partners. The Gross Asset Values
of any Partnership assets distributed to any Partner shall be the fair market
value of such asset on the date of distribution; and The Gross Asset Values of
Partnership assets shall be increased (or decreased) to reflect any adjustments
to the adjusted basis of
4
<PAGE> 9
such assets pursuant to Section 734(b) or Section 743(b) of the Code, but only
to the extent that such adjustments are taken into account in determining
Capital Accounts pursuant to Section 1.074-1(b)(2)(iv)(m) of the Treasury
Regulations and Section 5.2(d). If the Gross Asset Value of an asset has been
determined or adjusted pursuant to clauses (a) or (b), above, such Gross Asset
Value shall thereafter be adjusted in the same manner as would the asset's basis
for federal income tax purposes except that in lieu of regular depreciation, the
Partnership shall take deductions for Depreciation.
"Holders" shall have the meaning ascribed to it in Section
4.8.
"Incorporation" shall have the meaning ascribed to it in
Section 4.5.
"IPO Consent" shall have the meaning ascribed to it in Section
4.5.
"IPO Notice" shall have the meaning ascribed to it in Section
4.5.
"Issue Date" shall have the meaning ascribed to it in Section
4.8.
"License Agreement" means any license agreement between ENBC
and the Partnership.
"License Termination" shall have the meaning ascribed to it
in Section 4.6.
"Limited Partner Units" means Units in the Partnership held by
a partner who is not a general partner.
"Majority Interest" means, with respect to any group of
Partners as of any particular time, Partners in such group whose Units
(including both General Partner Units and Limited Partner Units except as
otherwise specifically provided) at such time exceed one-half of the outstanding
Units of all Partners in such group at such time.
"Newco" shall have the meaning ascribed to it in Section 4.5.
"Notice Holder" shall have the meaning ascribed to it in
Section 4.8(b).
"Nonrecourse Deductions"shall have the meaning ascribed to it
in Section 1.704-2 (b)(1) of the Treasury Regulations.
"Other Business Entity" shall have the meaning ascribed to it
in Section 17-211 of the Act.
5
<PAGE> 10
"Partner" means Persons named as partners of the Partnership
on Schedule A hereto and includes Persons admitted as additional Partners or
substitute Partners pursuant to the provisions of this Agreement.
"Partner Nonrecourse Debt" shall have the meaning ascribed to
it in Section 1.704-2(b)(4) of the Treasury Regulations.
"Partner Nonrecourse Deductions" has the meaning set forth in
Section 1.704-2(i)(2) of the Treasury Regulations.
"Partnership" means the limited partnership formed hereby.
"Partnership Value" shall have the meaning ascribed to it in
Section 4.7(b).
"Person" means an individual, corporation, partnership,
limited liability partnership, association, trust, joint venture, unincorporated
organization, other entity or group.
"Profits" or "Losses" means, for each fiscal year or other
period, an amount equal to the Partnership's taxable income or loss for such
year or period, determined in accordance with Section 703(a) of the Code (for
this purpose, all items of income, gain, loss, or deduction required to be
stated separately pursuant to Section 703(a)(1) of the Code shall be included in
taxable income or loss), with the following adjustments:
(i) any income of the Partnership
that is exempt from federal income tax and not otherwise taken into
account in computing Profits or Losses pursuant to this definition
shall be added to such taxable income or loss;
(ii) any expenditures of the
Partnership described in Code Section 705(a)(2)(B) or treated as
Section 705(a)(2)(B) expenditures pursuant to Section 1.704-
1(b)(2)(iv)(i) of the Treasury Regulations and not otherwise taken into
account in computing Profits or Losses pursuant to this definition
shall be subtracted from such taxable income or loss;
(iii) in the event the Gross Asset
Value of any Partnership asset is adjusted pursuant to clause (ii) or
(iii) of the definition of "Gross Asset Value", the amount of such
adjustment shall be taken into account as gain or loss from the
disposition of such asset for purposes of computing Profits or Losses;
6
<PAGE> 11
(iv) gain or loss resulting from
any disposition of any property of the Partnership with respect to
which gain or loss is recognized for Federal income tax purposes shall
be computed by reference to the Gross Asset Value of the property
disposed of, notwithstanding that the adjusted tax basis of such
property differs from its Gross Asset Value; and
(v) in lieu of the depreciation,
amortization and other cost recovery deductions taken into account in
computing such taxable income or loss, there shall be taken into
account Depreciation for such fiscal year or other period, computed in
accordance with the definition of "Depreciation."
"Prospectus" shall have the meaning ascribed to it in Section
4.8(b).
"Public Offering" shall have the meaning ascribed to it in
Section 4.5.
"Put Date" shall have the meaning ascribed to it in Section
4.7(b).
"Put Notice" shall have the meaning ascribed to it in Section
4.7.
"Put Price" means the Partnership Value divided by the total
number of outstanding Units at the time of the determination of the Put Price.
"Put Right" shall have the meaning ascribed to it or Section
4.7.
"Registerable Securities" shall have the meaning ascribed to
it in Section 4.8(a).
"Secured Loan Agreement" means the secured loan agreement
originally dated as of the date hereof between ENBC and the Partnership, as it
may be amended or amended and restated from time to time.
"Selling Confirmation" shall have the meaning ascribed to it
in Section 4.8(d).
"Selling Period" shall have the meaning ascribed to it in
Section 4.8(d)(ii).
"Selling Notice" shall have the meaning ascribed to it in
Section 4.8(b).
"Shelf Registration" shall have the meaning ascribed to it in
Section 4.8(a).
7
<PAGE> 12
"Shelf Registration Period" shall have the meaning ascribed
to it in Section 4.8(a).
"Shelf Registration Statement" shall have the meaning
ascribed to it in Section 4.8.
"Successors and Assignees" has the meaning ascribed to it in
the Secured Loan Agreement.
"Tax Distributions" shall have the meaning ascribed to it in
Section 6.2(a).
"Tax Matters Partner" shall have the meaning ascribed to it
in Section 8.6.
"Termination Consent" shall have the meaning ascribed to it
in Section 4.6.
"Termination Notice" shall have the meaning ascribed to it in
Section 4.6.
"Transfer" shall have the meaning ascribed to it in Section
7.3(a).
"Treasury Regulations" means the Income Tax Regulations,
including Temporary Regulations, promulgated under the Code, as such regulations
may be amended from time to time.
"Units" refers to the interest of a Partner or Assignee in the
Profits, Losses, income, deductions and credits of the Partnership and
Distributions by the Partnership and includes both General Partner Units and
Limited Partner Units. The number of Units held by each Person admitted to the
Partnership as a Partner and by each Assignee shall be as set forth on Schedule
A, which shall also indicate whether such Units are General Partner Units or
Limited Partner Units.
8
<PAGE> 13
ARTICLE II
Section 2.1 Formation of the Partnership. The parties intend
to convert the Company to a limited partnership pursuant to Section 17-217 of
the Act by (i) adopting this Agreement and (ii) filing promptly a certificate of
conversion to limited partnership and a certificate of limited partnership
("Certificate") of the Partnership with the office of the Secretary of State of
the State of Delaware under the name "Einstein/Noah Bagel Partners, L.P." The
Partners hereby agree that the rights, duties and liabilities of the Partners
and the General Partner shall be as provided in the Act, except as otherwise
expressly provided herein.
Section 2.2 Partnership Name. The business of the
Partnership shall be conducted under the name Einstein/Noah Bagel Partners, L.P.
or under such other name as the General Partner may from time to time determine.
Section 2.3 Purposes of the Partnership.
(a) The Partnership is organized primarily for
the purpose of acquiring, constructing, owning and operating stores under the
name Einstein Bros.(R) Bagels and Noah's New York Bagels(R) stores (the
"Stores") as a franchisee or licensee of ENBC. The Partnership is a party to the
Area Development Agreement, pursuant to which it has the right, on the terms and
subject to the conditions set forth herein, to develop and thereafter own and
operate Stores in the Development Area. The Partnership shall be authorized to
engage in any and all other activities, whether or not related to the foregoing,
which in the judgment of the General Partner may be beneficial or desirable for
the achievement of the purposes of the Partnership.
(b) Subject to the limitations expressly set forth
in this Agreement, the Partnership and the General Partner shall have the power
and authority to do any and all acts and things deemed necessary or desirable by
the General Partner to further the Partnership's purposes and carry on its
business, including, but not limited to, the following:
(i) entering into any kind of
activity and performing contracts of any kind necessary or desirable
for the accomplishment of the purposes of the Partnership;
(ii) acquiring any property, real
or personal, in fee or under lease or license, or any rights therein or
appurtenant thereto, necessary or desirable for the accomplishment of
the purposes of the Partnership;
9
<PAGE> 14
(iii) borrowing money and issuing
evidences of indebtedness and securing any such indebtedness by
mortgage or pledge of, or other lien on, the assets of the Partnership;
(iv) entering into any such
instruments and agreements as the General Partner may deem necessary or
desirable for the ownership, management, operation, leasing and sale of
the Partnership's property; and
(v) negotiating and concluding
agreements for the sale, exchange or other disposition of all or
substantially all of the properties of the Partnership, or for the
refinancing of any loan or payment obtained by the Partnership.
Section 2.4 Title to Partnership Property. Title to
Partnership property shall be held in the name of the Partnership or its
nominee.
Section 2.5 Effective Date. This Agreement shall become
effective upon the execution of this Agreement by the Parties.
Section 2.6 Registered Office; Principal Place of Business.
The name of the Partnership's registered agent for service of process is The
Corporation Trust Company, and the address of the Partnership's registered
office in the State of Delaware is 1209 Orange Street, Wilmington, Delaware
19801. The principal place of business of the Partnership shall be at 14123
Denver West Parkway, Golden, CO 80401-4086. The General Partner may change the
Partnership's registered agent or the location of the Partnership's registered
office or principal place of business as the General Partner may from time to
time determine.
Section 2.7 Qualifications in Other Jurisdictions. The
General Partner may cause the Partnership to be qualified, formed or registered
under assumed or fictitious names statutes or similar laws in any jurisdiction
in which the Partnership transacts business. The General Partner may execute,
deliver and file any certificates (and any amendments and/or restatements
thereof) necessary for the Partnership to do business in a jurisdiction in which
the Partnership may wish to conduct such business.
10
<PAGE> 15
ARTICLE III
Section 3.1 Term of Partnership. The term of the Partnership
shall continue until December 31, 2022, unless the Partnership is earlier
dissolved in accordance with the provisions of this Agreement or the Act.
ARTICLE IV
Section 4.1 Capital Contributions of the Partners. The
Capital Contributions made by each of the Partners are as set forth on Schedule
A.
Section 4.2 Withdrawal and Return of Capital. No Partner
shall have the right to withdraw or to demand a return of any his Capital
Contribution, except upon dissolution and winding up of the Partnership in
accordance with the terms of Section 10.3. Any return of such Capital
Contribution shall be made solely from the assets of the Partnership (including
the Capital Contributions of the Partners) and only in accordance with the terms
hereof, and no Partner shall have personal liability for the return of any other
Partner's Capital Contribution. Under circumstances requiring a return of any
Capital Contribution, no Partner shall have the right to receive property other
than cash except as may be specifically provided herein, and to the extent any
moneys which any Partner is entitled to receive pursuant to Article VI hereof or
any other provision of this Agreement would constitute a return of capital, each
of the Partners consents to the withdrawal of such capital.
Section 4.3 Interest on Capital. No interest shall accrue
or be paid on any Capital Contribution made to the Partnership.
Section 4.4 Capital Accounts.
(a) The Partnership shall create upon its books and
records a capital account ("Capital Account") for each Partner and Assignee,
which shall be maintained in accordance with the following provisions:
(i) To each Partner's or
Assignee's Capital Account there shall be credited such Partner's or
Assignee's Capital Contributions, such Partner's or Assignee's
distributive share of Profits and any items in the nature of income or
gain which are specially allocated pursuant to Section 5.2 to such
Partner or Assignee, the amount of any Partnership liabilities which
are assumed by such Partner or Assignee or which are secured by any
property distributed
11
<PAGE> 16
to such Partner or Assignee and such Partner or Assignee's share of any
increase in Gross Asset Value.
(ii) To each Partner's or
Assignee's Capital Account there shall be debited the amount of cash
and the Gross Asset Value of any property distributed to such Partner
pursuant to any provision of this Agreement, such Partner's or
Assignee's distributive share of Losses and any items in the nature of
deductions or losses which are specially allocated pursuant to Section
5.2 to such Partner or Assignee, the amount of any liabilities of such
Partner or Assignee which are assumed by the Partnership or which are
secured by any property contributed by such Partner or Assignee to the
Partnership and such Partner or Assignee's share of any decrease in
Gross Asset Value.
(iii) In the event all or a portion
of an interest in the Partnership is transferred in accordance with the
terms of this Agreement, the transferee shall succeed to the Capital
Account of the transferor to the extent it relates to the transferred
interest.
(iv) In determining the amount of
any liability for purposes of clauses (i) and (ii) above, there shall
be taken into account Section 752(c) of the Code and any other
applicable provisions of the Code and Treasury Regulations.
Section 4.5 Incorporation and Public Offering
(a) At any time after December 5, 1999 (or such
earlier date as a Change in Control occurs) and prior to the end of the 42-
month period commencing on December 5, 1997, the Fund may request by written
notice to the Partnership (the "IPO Notice") that the business and assets of the
Partnership be transferred to a newly organized Delaware corporation (the
"Incorporation") and the Partnership effect a public offering of common stock of
Newco (as defined below) pursuant to a "firm commitment" underwriting (the
"Public Offering"). The right to request the Incorporation and the Public
Offering is personal to the Fund and may not be sold or assigned upon the
Dissolution of the Fund or otherwise. In the event of such a request, the
Incorporation shall be effected on the following terms and in the following
manner:
(i) the parties shall organize a
Delaware corporation ("Newco"), the certificate of incorporation and
the
12
<PAGE> 17
bylaws of which shall be in form and substance reasonably satisfactory
to the Fund;
(ii) in the Incorporation the
holders of Units of the Partnership shall receive shares of common
stock of Newco in proportion to the number of Units held by them; and
(iii) the Incorporation shall be
effected pursuant to such agreements, assignments and other instruments
as shall be satisfactory to counsel for the parties, including without
limitation, agreements that include customary representations and
warranties regarding title to any transferred interests.
(b) Upon the Incorporation, Newco will use its
reasonable best efforts, as promptly as practicable, (i) to register the shares
of its common stock held by the Fund under the Securities Act of 1933, as
amended (the "Securities Act"), and all applicable state securities laws, (ii)
to enter into an agreement in customary form for an underwritten "firm
commitment" public offering of such shares with one or more underwriters
selected by Newco and reasonably acceptable to the Fund and (iii) to cause such
offering to be consummated.
(c) Notwithstanding the provisions of Sections
4.5(a) and (b) hereof, the Partnership shall not take any of the steps provided
for in such Sections without the prior written consent of ENBC (the "IPO
Consent").
Section 4.6 Right to Require Termination.
(a) At any time after December 5, 1999 (or such
earlier date as a Change in Control occurs) and prior to the end of the 42-
month period commencing on December 5, 1997, the Fund may request by written
notice to the Partnership (the "Termination Notice") that the Partnership seek
to terminate its obligation to pay royalties (and any obligation of ENBC to
provide services) pursuant to all franchise and license agreements between the
Partnership and ENBC (a "License Termination"). Other than the License
Termination, such franchise and license agreements shall remain in full force
and effect. The right to request the License Termination is personal to the
Fund and may not be sold or assigned upon the Dissolution of the Fund or
otherwise.
(b) Notwithstanding the provisions of Section 4.6(a)
hereof, the parties acknowledge that the Partnership does not and will not have
the right to
13
<PAGE> 18
cause the License Termination without the prior written consent of ENBC (the
"Termination Consent").
Section 4.7 Fund Put Right.
(a) In the event that the IPO Consent or the
Termination Consent is not received by the Partnership within 120 days of the
IPO Notice or the Termination Notice, respectively, then the Fund shall have the
right, at any time after such 120 day period and prior to the later of (i) the
end of the 42-month period commencing on December 5, 1997 and (ii) 60 days
after the end of such 120-day period, on the other terms and subject to the
conditions set forth herein (the "Put Right"), to require the Partnership or
ENBC to purchase all but not less than all the Units owned by the Fund at the
Put Price. The Fund may exercise the Put Right by giving written notice to the
Partnership or ENBC of such exercise (the "Put Notice"). The Put Right is
personal to the Fund and may not be sold or assigned upon the Dissolution of
the Fund or otherwise.
(b) The Put Price shall be the Partnership Value (as
herein defined) divided by the total number of Units outstanding as of the date
of the Put Notice (the "Put Date"). The "Partnership Value" means the amount
equal to (i) the income from operations of the Partnership (computed in
accordance with generally accepted accounting principles) before general and
administrative expenses, depreciation and amortization, but after royalties and
marketing expenses (including without limitation contributions to national and
local advertising funds), for the highest of the two fiscal quarters prior to
the quarter in which the Put Date occurs, adjusted by adding back to income from
operations any amounts deducted therefrom representing rental expense with
respect to capital leases and leases that are not classified as capital leases
for financial accounting purposes but that are intended to be treated as secured
borrowings under applicable commercial law and annualized by dividing such
amount by the number of weeks in such quarter and multiplying the result by 52,
multiplied by (ii) 6.5, less (iii) any indebtedness of the Partnership
outstanding on the Put Date, including without limitation the imputed principal
amount of any lease financing (including for this purpose capital leases as well
as leases that are not classified as capital leases for financial accounting
purposes but that are intended to be treated as secured borrowings under
applicable commercial law), plus (iv) any cash balances of the Partnership on
the Put Date.
(c) Upon exercise of the Put Right, the Units owned
by the Fund shall be purchased by the Partnership or ENBC, as selected by the
Partnership, within 60 days of the Put Date. At the election of such purchaser,
the Put Price may be paid in (i) cash, (ii) shares of ENBC common stock, par
value $0.01 per share (the
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<PAGE> 19
"Common Stock") or (iii) any combination of the foregoing. In the event the Put
Price is paid in whole or in part by the delivery of shares of ENBC Common
Stock, (i) the value of such shares shall be equal to the number of shares
delivered multiplied by an amount per share equal to the average of the closing
sales prices per share of ENBC Common Stock, on the principal stock exchange or
quotation system on which such common stock is traded or quoted, for the twenty
trading days ending with the second Business Day preceding the day on which such
shares are delivered (with such prices to be appropriately adjusted, if
necessary, to reflect any stock splits or similar transactions occurring between
the beginning of such twenty-day trading period and the day of delivery), and
(ii) ENBC will use its reasonable best efforts to cause a registration statement
with respect to the resale of such shares of ENBC Common Stock to be filed and
become effective under the Securities Act pursuant to the provisions of Section
4.8 hereof, on or before the date such shares are delivered pursuant hereto (the
"Issue Date").
(d) In the event that the exercise of the Put Right
or the payment of the Put Price requires any filing with, or obtaining the
approval, consent or authorization of, any governmental or other regulatory
body, including without limitation any filing under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, the Fund and the Partnership
shall cooperate to make such filing or obtain such approval, consent or
authorization and the time for payment of the Put Price shall be extended until
such filing is made or such approval, consent or authorization is re ceived.
(e) In the event that the payment of the Put Price
in cash is prohibited by the terms of any credit agreement or other financing
arrangement with one or more third-party lenders to which ENBC or the
Partnership is then a party and the issuance of the number of shares of Common
Stock required to satisfy the Put Price in full is prohibited by applicable law
or the rules of any securities exchange or quotation system on which the Common
Stock is then traded without the prior approval of the stockholders of ENBC,
then (i) ENBC will issue to the Fund the maximum number of shares of Common
Stock in satisfaction of the Put Price that it is permitted to issue without
obtaining prior stockholder approval, (ii) the Put Right shall be deemed
exercised only with respect to that portion of the Units held by the Fund equal
to the portion of the aggregate Put Price actually paid by the issuance of such
Common Stock, (iii) ENBC will use reasonable best efforts to obtain, as soon as
reasonably practicable, the approval by its stockholders of the issuance of
additional shares of Common Stock sufficient to permit the payment in full of
the Put Price with respect to all remaining Units held by the Fund as and to the
extent required by applicable law and the applicable rules of any securities
exchange or quotation system and (iv) upon obtaining such stockholder approval
and subject to the
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<PAGE> 20
other terms hereof, ENBC will issue to the Fund such additional shares of Common
Stock as necessary to satisfy that portion of the Put Price that remains unpaid.
(f) The Fund's exercise of the Put Right together
with the Partnership or ENBC's payment of the Put Price shall constitute a
complete release by the Fund of the Partnership, the General Partner, the
Partners, ENBC and their Affiliates of all claims or rights arising out of, or
on account of, the ownership of Units by the Fund.
Section 4.8 Registration of ENBC Common Stock.
(a) In the event that the Partnership or ENBC
determines to pay the Put Price in shares of ENBC Common Stock, ENBC shall
prepare and file with the Securities and Exchange Commission (the "Commission"),
as soon as practi cable, a registration statement under the Securities Act (the
"Shelf Registration State ment") registering the resale from time to time by
holders thereof of all of the shares of ENBC Common Stock issued in payment of
the Put Price (the "Registerable Securi ties"). The Shelf Registration Statement
shall permit resales of Registerable Securities by holders thereof ("Holders")
in the manner or manners designated by them from time to time, which shall be
set forth in such Shelf Registration Statement. ENBC shall use its reasonable
best efforts to cause the Shelf Registration Statement to be declared effective
under the Securities Act prior to the Issue Date and, subject to the provisions
contained herein, to keep the Shelf Registration Statement continuously ef
fective under the Securities Act until the earlier of: (i) the second
anniversary of the Issue Date; (ii) the date on which the Registerable
Securities may be sold by non-affiliates of ENBC, as applicable, pursuant to
paragraph (k) of Rule 144 (or any successor provision) promulgated by the
Commission; and (iii) such date as of which all the Registerable Securities have
been sold pursuant to the Shelf Registration Statement (the period ending at
such earlier date, the "Shelf Registration Period").
(b) Each Holder of Registerable Securities agrees
that if such Holder wishes to sell its Registerable Securities pursuant to the
Shelf Registration Statement and the prospectus included in any Shelf
Registration Statement, and all amendments and supplements to such prospectus,
including post-effective amendments (the "Prospectus"), it will do so only in
accordance with this Section 4.8(b). Each Holder of Registerable Securities
agrees to give written notice to ENBC at least three Business Days prior to any
intended resale of Registerable Securities under the Shelf Registration
Statement, which notice shall specify the date on which such Holder in tends to
begin such distribution and such information with respect to such Holder and the
intended distribution as may be reasonably required to amend the Shelf Regis
tration Statement or supplement the Prospectus with respect to
16
<PAGE> 21
such intended distribution (each Holder providing the notice described in this
sentence and with re spect to which the related Selling Period (as defined
herein) is continuing or has been deferred, a "Notice Holder"; each such notice,
a "Selling Notice"). As soon as prac ticable after the date a Selling Notice is
received by ENBC, and in any event within two Business Days after such date,
ENBC shall either:
(i) (A) provide a Selling Confirma
tion (as defined herein) to such Notice Holder or (B) file a supplement
to the Prospectus or a post-effective amendment to the Shelf Regis
tration Statement as required by Section 4.9(a) (and use all reasonable
efforts to cause any such amendment to become effective as soon as
practicable thereafter and immediately thereafter provide a Selling Con
firmation to such Notice Holder); or
(ii) in the event of the happening
of any event of the kind described in Section 4.9(b)(ii)(A),
4.9(b)(ii)(B), 4.9(b)(ii)(C) or 4.9(b)(ii)(D) hereof, ENBC shall
deliver to such Notice Holder the notice required by Section 4.9(b)(ii)
and notify the holder that the consent granted pursuant to Section
4.9(e) is suspended until further notice.
(c) Each such Notice Holder may sell all or any
Registerable Securities pursuant to the Shelf Registration Statement and the
Prospectus only during the Selling Period commencing with the earlier of (x) the
date on which such Notice Holder receives a Selling Confirmation and (y) the
third Business Day after the related Selling Notice has been received by ENBC;
provided that in the event ENBC elects to take the actions permitted by Section
4.8(b)(ii), the commencement of the Selling Period shall be deferred until such
later date as ENBC delivers a Selling Confirmation. A Notice Holder shall not
sell any Registerable Securities pursuant to the Shelf Regis tration Statement
or the Prospectus after the expiration of the applicable Selling Period without
giving a new Selling Notice pursuant to Section 4.8(b) hereof and receiving a
new Selling Confirmation. Notwithstanding the foregoing, the aggregate number of
days during which ENBC shall be entitled to exercise its right under this
paragraph to defer the commencement of a Selling Period or its right under
Section 4.9(b)(ii) to defer existing Selling Periods (any such period of
deferral herein referred to as a "Deferral Period") shall not exceed 60 days
within any twelve-month period; pro vided, however, that each day during any
Deferral Period shall only be counted once in determining the aggregate number
of days in such Deferral Period notwithstanding the occurrence of multiple
concurrent deferrals; and, provided further, if ENBC deems it necessary to file
a post-effective amendment to the Shelf Registration State ment in order to
comply with Section 4.9(a) hereof as a result of any
17
<PAGE> 22
Selling Notice or other information provided by a Holder for inclusion in the
Prospectus, then such period of time from the date of filing such post-effective
amendment until the date on which the Shelf Registration Statement is declared
effective by the Commission shall not be treated as a Deferral Period.
In the event ENBC elects to take the actions described in
Section 4.8(b)(ii), ENBC will, at such time as it is in compliance with Section
4.8(a) and as use of the Prospectus may be resumed, immediately provide Selling
Confirmations to all Notice Holders.
(d) (i) "Selling Confirmation" means, with respect
to a Notice Holder and a Selling Notice given by such Notice Holder, a
written notice given by ENBC to such Notice Holder instructing and
notifying such Notice Holder that the Shelf Registration Statement and
Prospectus may be used during the applicable Selling Period to effect
the transactions described in such Selling Notice, that ENBC is then
currently in compliance with Section 4.9(a) and that ENBC reaffirms the
consent granted pursuant to Section 4.9(e); and
(ii) "Selling Period" means, with respect to a
Notice Holder and a Selling Notice given by such Notice Holder, a
period of forty-five calendar days commencing on the earlier of the
date such Notice Holder receives a Selling Confirmation in respect of
the transactions described in such Selling Notice or the third business
day after such Selling Notice has been received by ENBC; provided, that
ENBC may defer existing Selling Periods in accordance with Section
4.9(b)(ii).
Section 4.9 Registration Procedures.
In connection with any Shelf Registration Statement, the
following provisions, shall apply:
(a) ENBC shall ensure that: (i) any Shelf
Registration State ment and any amendment thereto and any Prospectus forming
part thereof and any amendment or supplement thereto comply in all material
respects with the Act and the rules and regulations thereunder; (ii) any Shelf
Registration Statement and any amend ment thereto does not, when it becomes
effective, contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading; and (iii) "any Prospectus forming part of any Shelf
Registration Statement, and any amendment or supplement to such Pro spectus does
not include an untrue statement of a material fact or omit to state a
18
<PAGE> 23
material fact necessary in order to make the statements therein, in light of the
circum stances under which they were made, not misleading; provided that no
representation or agreement is made hereby with respect to information with
respect to any Holder required to be included in any Shelf Registration
Statement or Prospectus pursuant to the Act or the rules and regulations
thereunder or provided by or on behalf of any Holder.
(b) (i) ENBC shall advise the Holders and, if re-
quested by any such Holder, confirm such advice in writing when the
Shelf Registration Statement or any post-effective amendment thereto
has become effective.
(ii) During any Selling Period, during the
deferral of any Selling Period and within two Business Days of receipt
by ENBC of any Selling Notice, ENBC shall notify the Notice Holders
and, if requested by any such Notice Holder, confirm such notification
in writing:
(A) of the issuance by the Commis sion of
any stop order suspending the effectiveness of the Shelf
Registration Statement or the initiation of any proceedings
for that purpose;
(B) of the receipt by ENBC of any
notification with respect to the suspension of the qualifi
cation of the Securities included in any Shelf Registra tion
Statement for sale in any jurisdiction or the indi cation or
threat of any proceeding for such purpose;
(C) of the happening of any event that
requires the making of any changes in the Shelf Registration
Statement or the Prospectus so that, as of such date, the
statements therein are not misleading and do not omit to state
a material fact required to be stated therein or necessary to
make the statements therein (in the case of the Prospectus, in
light of the circumstances under which they were made) not
misleading; and
(D) of the determination by ENBC, in its
judgment, that it is advisable to suspend use of the
Prospectus for valid business reasons (not including avoidance
of ENBC's obligations hereunder) including,
19
<PAGE> 24
among other things, the acquisition or divestiture of assets,
public filings with the Commission, pending corporate
developments and similar events; which no tice shall be
accompanied by an instruction to defer the use of the
Prospectus until ENBC delivers a Selling Confirmation
whereupon any existing Selling Period shall be deferred and
shall recommence upon delivery of the aforementioned Selling
Confirmation; provided, that such Selling Period shall be
extended by the num ber of days elapsed during any such period
of deferral.
(c) ENBC shall use all reasonable efforts to obtain
the withdrawal of any order suspending the effectiveness of any Shelf
Registration Statement at the earliest possible time, including filing an
amendment to the Shelf Registration Statement in a manner reasonably expected by
ENBC to obtain the withdrawal of such order, or filing an additional Shelf
Registration Statement covering all of the Registerable Securities (whereupon
references herein to the Shelf Regis tration Statement shall be deemed to
include reference to such additional filing).
(d) ENBC shall furnish to each Holder of
Registerable Securities upon their written request, without charge, at least one
copy of such Shelf Registration Statement and any post-effective amendment
thereto, including financial statements and schedules, and, if the Holder so
requests in such writing, all exhibits (including those incorporated by
reference).
(e) ENBC shall, during the Shelf Registration
Period, deliver to each Holder of Registerable Securities, without charge, as
many copies of the Prospectus included in such Shelf Registration Statement and
any amendment or supplement thereto as such Holder may reasonably request; and,
except during such periods as ENBC shall have suspended the use of the
Prospectus pursuant to Section 4.8(b)(ii) or 4.9(b)(ii), ENBC consents to the
use of the Prospectus or any amendment or supplement thereto by each of the
selling Holders in connection with the offering and sale of the Registerable
Securities covered by the Prospectus or any amendment or supplement thereto.
(f) Prior to any offering of Registerable Securities
pursuant to any Shelf Registration Statement, ENBC shall register or qualify or
cooperate with the Holders of Registerable Securities included therein and their
respective counsel in connection with the registration or qualification of such
Registerable Securities for offer and sale under the securities or blue sky laws
of such jurisdictions as any such Holders reasonably request in writing and do
any and all other acts or things necessary
20
<PAGE> 25
or advisable to enable the offer and sale in such jurisdictions of the
Registerable Securities; provided, however, that ENBC will not be required to
qualify generally to do business in any jurisdiction where it is not then so
qualified or to take any action which would subject it to general service of
process or to taxation in any such jurisdiction where it is not then so subject.
(g) ENBC shall cooperate with the Holder to
facilitate the timely preparation and delivery of certificates representing
Registerable Securities sold pursuant to any Shelf Registration Statement free
of any restrictive legends and in such denominations and registered in such
names as Holders may request.
(h) Upon the occurrence of any event contemplated
by para graph 4.9(b)(ii)(C) above, ENBC shall promptly prepare a
post-effective amendment to any Shelf Registration Statement or an amendment or
supplement to the related Pro spectus or file any other required document so
that, as thereafter delivered (when and as permitted pursuant to Section
4.8(c)) to purchasers of the Registerable Securities included therein, the
Prospectus will not include an untrue statement of a material fact or omit to
state any material fact necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading.
(i) ENBC may require each Holder of Registerable
Securi ties to be sold pursuant to any Shelf Registration Statement to furnish
to ENBC such information regarding the Holder and the distribution of the
Registerable Securities as may, from time to time, be required by the Act and
the rules and regulations promulgated thereunder (including the information
specified in Item 507 of Regulation S-K under the Act), and the obligations of
ENBC to any Holder hereunder shall be ex pressly conditioned on the compliance
of such Holder with such request.
(j) ENBC shall, if requested, use its reasonable
efforts to promptly incorporate in a Prospectus supplement or post-effective
amendment to a Shelf Registration Statement such information as a Holder may
provide from time to time to ENBC in writing for inclusion in a Prospectus or
any Shelf Registration Statement concerning such Holder and the distribution of
such Holder's Registerable Securities and shall make all required filings of
such Prospectus supplement or post-effective amendment as soon as practicable
after being notified of the matters to be incorporated in such Prospectus
supplement or post-effective amendment.
(k) ENBC shall enter into such agreements and take
all other appropriate actions in order to expedite or facilitate the
registration or the disposition of the Registerable Securities; provided,
however, that ENBC shall not be required to enter into an underwriting agreement
in connection with any such disposition.
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<PAGE> 26
(l) Each Holder of Registerable Securities agrees
by acqui sition of such Registerable Securities that upon receipt of any notice
from ENBC of the happening of any event of the kind described in Section
4.9(b)(ii)(A), 4.9(b)(ii)(B), 4.9(b)(ii)(C) or 4.9(b)(ii)(D) hereof, such Holder
will forthwith discontinue disposition of such Registerable Securities covered
by such Registration Statement or Prospectus and will not resume disposition of
such Registerable Securities under such Holder's receipt of one or more copies
of a supplemented or amended Prospectus contemplated by Section 4.9(e) hereof,
or until it is advised in writing by ENBC that the use of the applicable
Prospectus may be resumed and has received copies of the Prospectus.
Section 4.10 Registration Expenses. ENBC shall pay all fees
and ex penses incurred by it incident to the performance of or compliance with
this Agreement by ENBC including, without limitation: (i) all Commission, stock
ex change or National Association of Securities Dealers, Inc. registration and
filing fees; (ii) all fees and expenses incurred in connection with compliance
with state securities or Blue Sky laws (including reasonable fees and
disbursements of counsel for any holders in connection with Blue Sky
qualification of any of the Registerable Securi ties); and (iii) all expenses in
preparing or assisting in preparing, printing and distrib uting any Shelf
Registration Statement, any Prospectus, any amendments or sup plements thereto,
and any other documents relating to ENBC's performance of and compliance with
this Agreement
Section 4.11 Indemnification.
(a) In connection with any Shelf Registration
Statement, ENBC agrees to indemnify and hold harmless each Holder of
Registerable Securities, the directors, officers, employees and agents of each
such Holder and each person who controls any such Holder within the meaning of
either the Act or the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), against any and all losses, claims, damages or liabilities, joint or
several, to which they or any of them may be come subject under the Securities
Act, the Exchange Act or other Federal or state statutory law or regulation, at
common law or otherwise, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact contained in the Shelf
Registration Statement as originally filed or in any amendment thereof, or in
any preliminary Prospectus or Prospectus, or in any amendment thereof or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and agrees to reimburse
each such indemnified
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<PAGE> 27
party, as incurred, for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that ENBC will not be liable in any case
to the extent that any such loss, claim, damage or liability arises out of or is
based upon: (A) any such untrue statement or alleged untrue statement or
omission or alleged omission made therein in reliance upon and in conformity
with written information furnished to ENBC by or on behalf of any such Holder;
(B) use of a Shelf Registration Statement or the related Prospectus during a
period when a stop order has been issued in respect of such Shelf Registration
Statement or any proceedings for that purpose have been initiated or use of a
Prospectus when use of such Prospectus has been deferred pursu ant to Section
4.8(c) or 4.9(b)(ii); provided, further, in each case, that ENBC deliv ered
prior notice in accordance with Section 10.1 hereof of such stop order,
initiation of proceedings or deferral; or (C) if the Holder fails to deliver a
Prospectus or the then current Prospectus. This indemnity agreement will be in
addition to any liability which ENBC may otherwise have.
(b) Each Holder of Registerable Securities covered
by a Shelf Registration Statement severally agrees to indemnify and hold
harmless ENBC, its directors, officers, employees and agents and each person who
controls ENBC within the meaning of either the Securities Act or the Exchange
Act to the same extent as the foregoing indemnity from ENBC to each such Holder,
but only with reference to written information relating to such Holder furnished
to ENBC by or on behalf of such Holder. This indemnity agreement will be in
addition to any liability which any such Holder may otherwise have.
(c) Promptly after receipt by an indemnified party
under this Section 4.11 of notice of the commencement of any action such
indemnified party will, if a claim in respect thereof is to be made against the
indemnifying party under this Section 4.11, notify the indemnifying party in
writing of the commencement thereof, but the failure so to notify the
indemnifying party (i) will not relieve it from liability under paragraph
4.11(a) or (b) above unless and to the extent it did not otherwise learn of such
action and such failure results in the forfeiture by the indemnifying party of
substantial rights and defenses and (ii) will not, in any event, relieve the
indemnifying party from any obligations to any indemnified party other than the
indemnification obligation provided in paragraph 4.11(a) or (b) above. The
indemnifying party shall be entitled to appoint counsel of the indemnifying
party's choice at the indemnifying party's expense to represent the indemnified
party in any action for which indemnifi cation is sought (in which case the
indemnifying party shall not thereafter be responsible for the fees and expenses
of any separate counsel retained by the indemni fied party or parties except as
set forth below); provided, however, that such counsel shall be satisfactory to
the indemnified party. Notwithstanding the
23
<PAGE> 28
indemnifying party's election to appoint counsel to represent the indemnified
party in an action, the indemnified party shall have the right to employ
separate counsel (including local counsel), and the indemnifying party shall
bear the reasonable fees, costs and expenses of such separate counsel (and local
counsel) if (i) the use of counsel chosen by the indemnifying party to represent
the indemnified party would present such counsel with a conflict of interest,
(ii) the actual or potential defendants in, or targets of, any such action
include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be legal
defenses available to it and/or other indemnified parties which are different
from or additional to those available to the indemnifying party, (iii) the
indemnifying party shall not have employed counsel satisfactory to the
indemnified party to represent the indemnified party within a reasonable time
after notice of the institution of such action or (iv) the indemnifying party
shall authorize the indemnified party to employ separate counsel at the expense
of the indemnifying party; provided further, that the indemnifying party shall
not be responsible for the fees and expenses of more than one separate counsel
(together with appropriate local counsel) representing all the indemnified
parties under paragraph 4.11(a)(i), paragraph 4.11(a)(ii) or paragraph 4.11(b)
above. An indemni fying party will not, without the prior written consent of the
indemnified parties, settle or compromise or consent to the entry of any
judgment with respect to any pending or threatened claim, action, suit or
proceeding in respect of which indemnification may be sought hereunder (whether
or not the indemnified parties are actual or potential parties to such claim or
action) unless such settlement, compromise or consent includes an unconditional
release of each indemnified party from all liability arising out of such claim,
action, suit or proceeding.
(d) The provisions of this Section 4.11 will remain
in full force and effect, regardless of any investigation made by or on behalf
of any Holder or ENBC or any of the officers, directors or controlling persons
referred to in Section 4.11 hereof, and will survive the sale by a Holder of
Securities covered by a Shelf Registration Statement.
Section 4.12 Additional Capital. The Partnership shall be
entitled to sell additional Units at such times, in such amounts, for such
prices and on such terms as may be determined by the General Partner. The
Partners hereby consent to the admission as a Partner of any Person acquiring
Units pursuant to this Section 4.12 who executes this Agreement (if such Person
was not previously a Partner). Notwithstanding anything else in this Agreement,
upon any sale of additional Units, the General Partner agrees to purchase
sufficient additional General Partner Units so that the General Partner shall at
all times own 1% of the outstanding Units.
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Section 4.13 Partnership Repurchase Right. In the event that
any owner of the Units of the Partnership who is an employee of ENBC or any
subsidiary of ENBC ceases to be an employee of ENBC or any subsidiary of ENBC
(for reasons other than death or permanent disability) at any time, the
Partnership shall have the right, but not the obligation, to repurchase at any
time after such employment termination, all of the Units held by such owner at a
price equal to the original purchase price paid by such owner (the "Repurchase
Price"). If such owner paid for part or all of his Units by delivering a note to
the Partnership, the Repurchase Price shall include any interest paid or accrued
on the note through the date of repurchase. The Partnership may exercise its
rights under this Section 4.13 by giving written notice to such owner at any
time after the date that the owner ceases to be an employee of ENBC or any
subsidiary of ENBC. The Repurchase Price shall be paid by the Partnership within
30 days of the date of such notice and shall be payable first by credit against
any note or other obligation of such owner to the Partnership and then in cash.
Section 4.14 Change in Control. A "Change in Control" shall
be deemed to have occurred if any of the following occurs:
(a) the acquisition by any person or entity,
including any syndicate or group deemed to be a "person" under Section 13(d)(3)
or 14(d)(2) of the Exchange Act, or any successor provision, but excluding BCI
and its successors, or any person or group controlled by such persons (a
"Person"), of beneficial ownership, directly or indirectly, through a purchase,
merger, or other acquisition transaction or series of transactions, of shares of
capital stock of ENBC entitling such Person to exercise more than 50% of the
total voting power of all shares of capital stock of ENBC entitling the holders
thereof to vote generally in elections of directors; or
(b) any consolidation of ENBC with, or merger of
ENBC into, any other Person, any merger of another Person into ENBC, or any
sale, lease, or exchange of all or substantially all of the property and assets
of ENBC to another Person (other than (i) sales or leases of property to
franchisees or licensees of ENBC in the ordinary course of business or (ii) a
merger which (x) does not result in any reclassification, conversion, exchange,
or cancellation of outstanding shares of capital stock of ENBC or (y) is
effected primarily to change the jurisdiction of incorporation of ENBC and
results in reclassification, conversion or exchange of outstanding shares of
ENBC Common Stock solely into shares of ENBC Common Stock of the surviving
entity).
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ARTICLE V
Section 5.1 Allocation of Profits and Losses. Subject to
Section 5.2 and the other provisions of this Article V, Profits and Losses of
the Partnership for any fiscal year shall be allocated to the Partners and
Assignees in proportion to their Units.
Section 5.2 Special Allocations. Notwithstanding Section
5.1, the following special allocations shall be made in the following order:
(a) Profits and Losses and items thereof shall be
allocated as though this Agreement contained (and there are hereby incorporated
herein by reference):
(i) a minimum gain chargeback
provision that complies with the requirements of Section 1.704-2(f) of
the Treasury Regulations;
(ii) a nonrecourse debt minimum
gain chargeback provision that complies with the requirements of
of Section 1.704-2(i)(4) of the Treasury Regulations; and
(iii) a qualified income offset
provision that complies with the requirements of Section
1.704-1(b)(2)(ii)(d) of the Treasury Regulations.
(b) Nonrecourse Deductions for any fiscal year or
other period shall be specially allocated to the Partners and Assignees in
proportion to their Units.
(c) Any Partner Nonrecourse Deductions for any
fiscal year or other period shall be specially allocated to the Partner or
Assignee who bears the economic risk of loss with respect to the Partner
Nonrecourse Debt to which such Partner Nonrecourse Deductions are attributable
in accordance with Sections 1.704-2(i)(1) and (2) of the Treasury Regulations.
(d) To the extent an adjustment to the adjusted tax
basis of any Partnership asset pursuant to Section 734(b) or Section 743(b) of
the Code is required, pursuant to Section 1.704-1(b)(2)(iv)(m) of the Treasury
Regulations, to be taken into account in determining Capital Accounts, the
amount of such adjustment to the Capital Accounts shall be treated as an item of
gain (if the adjustment increases
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the basis of the asset) or loss (if the adjustment decreases such basis) and
such gain or loss shall be specially allocated to the Partners and Assignees in
a manner consistent with the manner in which their Capital Accounts are required
to be adjusted pursuant to such Section of the Regulations.
(e) The allocations set forth in this Section 5.2
(the "Regulatory Allocations") are intended to comply with certain provisions of
Sections 1.704-1 and 1.704-2 of the Treasury Regulations. Notwithstanding any
other provisions of this Agreement, the Regulatory Allocations shall be taken
into account in allocating Profits and Losses and other items of income and
deduction among the Partners and Assignees so that, to the extent possible, the
net amount of such allocations of Profits and Losses, other items of income,
gain, loss and deduction, and the Regulatory Allocations to each Partner or
Assignee shall be equal to the net amount that would have been allocated to each
Partner or Assignee if the Regulatory Allocations had not occurred.
Section 5.3 Allocation of Tax Credits. All tax credits
allowed in connection with any depreciable property (and any related adjustments
to the basis of such property) shall be allocated in the same manner as
deductions for Depreciation of such property, and all tax credits allowed in
connection with other expenditures shall be allocated in the same manner as
deductions arising out of such other expenditures.
Section 5.4 Section 704(c) Allocations.
(a) In accordance with Section 704(c) of the Code
and the Treasury Regulations thereunder, income, gain, loss, and deduction with
respect to any property contributed to the capital of the Partnership shall be
allocated among the Partners and Assignees so as to take account of any
variation between the adjusted basis of such property to the Partnership for
federal income tax purposes and its initial fair market value.
(b) In the event the Gross Asset Value of any asset
is adjusted pursuant to the definition of "Gross Asset Value" in Section 1.1,
subsequent allocations of income, gain, loss, and deduction with respect to such
asset shall take account of any variation between the adjusted basis of such
asset for federal income tax purposes and the value at which such asset is
reflected in the Capital Accounts of the Partners and Assignees, to the extent
such variation was not previously taken into account pursuant to Section 5.5(a),
in the same manner as under Section 704(c) of the Code and the Treasury
Regulations thereunder.
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(c) Allocations pursuant to Sections 5.5(a) and (b)
shall be determined by the General Partner using any permissible method under
Section 704(c) of the Code and the Treasury Regulations thereunder.
(d) Allocations pursuant to Sections 5.5(a) and (b)
are solely for purposes of federal, state, and local income taxes and
notwithstanding any other provision of this Agreement, such allocations shall
not affect, or in any way be taken into account in computing, any Partner's or
Assignee's Capital Account or share of Profits, Losses, other items, or
Distributions pursuant to any provision of this Agreement.
Section 5.5 Certain Other Allocation Rules.
(a) For purposes of determining the Profits,
Losses, or any other items allocable to any period, Profits, Losses, and any
such other items shall be determined on a daily, monthly or other basis, as
determined by the General Partner in its sole discretion using any permissible
method under Section 706 of the Code and the Treasury Regulations thereunder.
(b) Except as otherwise contemplated by Section 5.1
or any other provision of this Agreement, all items of Partnership income, gain,
loss, deduction, and credit, for any fiscal year or other period, and any other
allocations not otherwise provided for shall be divided among the Partners or
Assignees in the same proportions as they share Profits or Losses, as the case
may be, for such year or other period.
Section 5.6 Special Allocation of Recapture. In making
allocations of Profit among the Partners, the ordinary income portion, if any,
of such Profit caused by the recapture of cost recovery or any other deductions
shall be allocated among those Partners who were previously allocated the cost
recovery or any other deductions in proportion to the amount of such deductions
previously allocated to them. It is intended that the Partners, as between
themselves, shall be allocated the proportionate recapture income as a result of
any cost recovery or other deductions which were previously allocated to them,
in proportion to the amount of such deductions which have been allocated to
them, notwithstanding that a Partner's share of Profits, Losses or liabilities
may increase or decrease from time to time. Nothing in this Section 5.6,
however, shall cause the Partners to be allocated more or less gain or profit
than would otherwise be allocated to them pursuant to this Article V.
Section 5.7 Allocations to the General Partner.
Notwithstanding the other provisions of this Article V, if in any instance, by
virtue of the operation of
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such provisions, less than 1% of any item of income, gain, loss, deduction or
credit would be allocated to the General Partner, then such allocations shall be
modified so that 1% of such item is allocated to the General Partner.
ARTICLE VI
Section 6.1 Distributions.
(a) Except as otherwise provided in Sections
6.1(c), 6.2, 6.4 and 9.3, Distributions shall be made at such times and in
such amounts as may be determined by the General Partner, subject to compliance
with the Act and the covenants set forth in the Secured Loan Agreement.
(b) Except as provided in Sections 6.2, 6.4 and 9.3,
Distributions shall be made to the Partners and Assignees in proportion to their
Units.
(c) The General Partner shall cause the Partnership
to make Distributions of Available Cash not less often than quarterly if but
only if each of the following conditions is satisfied (except that Distributions
pursuant to Sections 6.2, 6.4 and 9.3 shall be made in accordance with such
provisions, without regard to whether the following conditions are satisfied):
(i) the Development Schedule (under each Development Agreement) between the
Partnership and ENBC, as amended from time to time, has been satisfactorily
completed, (ii) the reserves referred to in the definition of the term Available
Cash shall be reasonably adequate to satisfy the Partnership's working capital
needs and to cover foreseeable contingencies, (iii) cash flow during the quarter
is at least equal to Prospective Fixed Charges (as defined in the Secured Loan
Agreement) for the next succeeding quarter and (iv) the Partnership shall be in
compliance with the covenants set forth in the Secured Loan Agreement.
Section 6.2 Distributions for Tax Purposes.
(a) Subject to the provisions of the Act, the
General Partner shall cause the Partnership to make Distributions within 75 days
after the end of any fiscal year of the Partnership, beginning with the fiscal
year ending in December 1998, to each of the Partners and Assignees in an amount
equal to (i) the excess of (A) the total amount of taxable income allocated to
such Partner or Assignee (and any predecessor in interest of such Partner or
Assignee) for such fiscal year, over (B) the amount, if any, by which the sum of
all items of deduction and loss allocated to such Partner or Assignee (and any
predecessor in interest of such Partner or Assignee) for all prior fiscal years
exceeds the sum of all items of taxable income allocated to such Partner or
Assignee for all prior fiscal years, multiplied by (ii) a tax rate reasonably
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selected by a Majority Interest of the Partners as the highest effective
combined statutory rate of federal and state income tax imposed on taxable
income of the Partnership allocated to the Partners or Assignees (or to the
partners or members of any Partner treated as a partnership for federal income
tax purposes) (the "Tax Distributions"); provided, however, that the Tax
Distributions to each of the Partners for any fiscal year shall not be less than
the withholding or estimated tax liability imposed with respect to or on any
Partner by any State or local government with respect to the amount described in
clause (A) above. In the event that in any fiscal year Tax Distributions
computed as set forth above are not paid, then in any succeeding fiscal year in
which Available Cash exceeds required Tax Distributions with respect to such
year, the Tax Distributions payable under this Section 6.2(a) shall be increased
(but not in excess of Available Cash) until such deficiency has been recouped.
(b) The General Partner may cause the Partnership
to make periodic Distributions to the Partners and Assignees during each
fiscal year based on its reasonable estimate of the amount that will be
required to be distributed pursuant to Section 6.2(a) for such fiscal year in
order to provide funds to the Partners and Assignees for the payment of
estimated taxes by them. In the event any such periodic Distributions are made
for any fiscal year, the amount of the Distribution made after the end of the
fiscal year shall be appropriately adjusted so that the total amount
distributed to each Partner or Assignee (taking into account periodic
Distributions made pursuant to this Section 6.2(b)) is equal to the amount such
Partner or Assignee would have been entitled to receive pursuant to Section
6.2(a) had no such periodic Distributions been made.
Section 6.3 Restrictions on Certain Distributions.
Notwithstanding compliance with the foregoing conditions of Sections 6.1 or 6.2,
or any other provision of this Agreement, no Distributions shall be made in the
event that (i) the Credit Agreement or the Secured Loan Agreements, or any
extension, replacement or refinancing of either of them, is in effect, and (ii)
any such agreements prohibit the making of such Distributions.
Section 6.4 Payment and Withholding of Certain Taxes.
Notwithstanding anything to the contrary herein, to the extent that the
Partnership is required, pursuant to any applicable law, (i) to pay tax
(including estimated tax) on a Partner's or Assignee's allocable share of
Partnership items of income or gain, whether or not distributed, or (ii) to
withhold and pay over to the tax authorities any portion of a Distribution
otherwise distributable to a Partner or Assignee, the Partnership may pay over
such tax or such withheld amount to the tax authorities, and such amount shall
be treated as a Distribution to such Partner or Assignee at the time
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it is paid to the tax authorities to the extent it would have otherwise been
distributed to the Partner or Assignee. To the extent such amount is not
distributed (or treated as distributed) pro rata to the Partners or Assignees in
proportion to their Units, it shall be treated as a loan, and shall be repayable
to the Partnership without interest out of future Distributions to such Partner
or Assignee. For purposes of this Section 6.4, the Partnership may assume that
any Partner or Assignee who fails to provide to the Partnership satisfactory
evidence of his tax status for United States federal income tax purposes is a
foreign person.
ARTICLE VII
Section 7.1 Rights and Obligations of Limited Partners.
Notwithstanding any other provisions of this Agreement, no Limited Partner shall
be personally liable for any of the debts of the Partnership or any of its
obligations except to the extent of such Partner's Capital Contribution and its
share of undistributed profit, as provided by the Act. No Limited Partner shall
participate in the control of the business of the Partnership within the meaning
of Section 17-303 of the Act. The Limited Partners shall not have either the
obligation or the right to take part, directly or indirectly, in the active
management of the business of the Partnership, and no Limited Partner is
authorized to do or perform any act, thing or deed in the name of, for or on
behalf of either the General Partner or the Partnership. A Limited Partner is
not authorized and shall not be permitted to do any act, deed, or thing which
will cause such Limited Partner to be classified as a general partner of the
Partnership under the Act, unless such Limited Partner is also a General Partner
hereunder.
Section 7.2 Conduct of Other Business Activities by the
Partners.
(a) The Partners may generally engage in any
business or profession or possess an interest in other businesses or professions
of every nature and description, independently or with others, including but not
limited to, all phases of the restaurant business; provided that no Partner
shall engage in any Competitive Business other than a Permitted Competitive
Business (as such terms are defined in the Development Agreement). The
restriction set forth in the foregoing sentence shall not, however, be
applicable to (i) ENBC, its Successors and Assignees and their Affiliates other
than the Partnership, (ii) participation by any Person in the ownership,
management or operation of the Fund or (iii) investment by the Fund in any other
developer or franchisee of ENBC. Neither the Partnership nor its Partners shall,
under the terms of this Agreement or by virtue of the existence of the
Partnership or the relation created among the Partners, have any rights in or to
any independent
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venture of any other Partner or its Affiliates, or the income or profits
thereof, whether or not any such venture is, or may be deemed to be, competitive
with the Partnership.
(b) In the event that any owner (other than ENBC,
any subsidiary of ENBC or the Fund) of Units in the Partnership ceases to own
Units, whether as a result of a repurchase by the Partnership pursuant to
Section 4.13 hereof, a negotiated sale of such owner's Units to the Partnership
or otherwise, for a period of two years thereafter such owner agrees (i) not to
compete against the Partnership, ENBC or their respective Affiliates (for
purposes of this paragraph 7.2(b), "Affiliates" shall include area developers,
franchisees and joint venturers of the Partnership or ENBC), 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 Partnership or ENBC or their
respective Affiliates at the time such owner 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 store owned or operated by the Partnership or ENBC or their
respective Affiliates, or within any standard metropolitan statistical area,
trade area or "area of dominant influence" (as defined by Arbitron Ratings
Company) in which the Partnership, ENBC or their respective Affiliates, as the
case may be, engage, or have developed specific plans to engage, in business and
(ii) not to solicit employees from the Partnership, ENBC or their respective
Affiliates. This paragraph 7.2(b) shall not prevent such owner from
participating as an investor, officer, or director in any restaurant venture not
covered by the foregoing applicable restrictions or prevent such owner 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 hereto that this paragraph 7.2(b) 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 paragraph 7.2(b), by substitution of words or
otherwise, so as to create the broadest permissible protection to the
Partnership and ENBC.
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Section 7.3 Assignments by Partners.
(a) A Partner or Assignee may not assign, pledge,
mortgage, hypothecate, sell, or otherwise dispose or encumber (hereinafter
referred to as a "Transfer") all or any part of his Units in the Partnership to
any Assignee (and no such Transfer, whether voluntary or involuntary, whether by
operation of law or otherwise and whether or not for value, shall be effective)
unless:
(i) ENBC shall have consented in
writing to such transfer;
(ii) in the case of a Transfer of
Units by any Partner or Assignee other than the General Partner, the
General Partner shall have consented in writing to such Transfer (which
consent may be withheld in the sole and absolute discretion of the
General Partner except for a Transfer of Units pursuant to the
dissolution of the Fund, in which case the General Partner shall
consent) and in the case of a Transfer of Units by the General Partner
(other than Units held by ENBC or its Successors or Assignees), a
Majority Interest of Partners other than the General Partner shall have
consented in writing to such Transfer (which consent may be withheld in
the sole and absolute discretion of such Partners);
(iii) such Transfer shall be made by
means of an assignment in such form as shall be reasonably satisfactory
to the General Partner;
(iv) the Partnership shall have
received advice of counsel satisfactory to the General Partner to the
effect: (a) that the proposed Transfer is permissible under the
Securities Act of 1933, as amended, the rules and regulations of the
Securities and Exchange Commission thereunder and all applicable state
securities laws; and (b) that the proposed Transfer will not adversely
affect the classification of the Partnership as a partnership for
federal income tax purposes;
(v) the Assignee shall have
executed and delivered a counterpart signature page to the Pledge
Agreement, as such term is defined in the Secured Loan Agreement; and
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(vi) the assignor and Assignee,
and, if deemed necessary by the General Partner, all other Partners,
shall have executed all such certificates and other documents and
performed all such acts as the General Partner reasonably deems
necessary or appropriate to effect a valid transfer of the Units being
transferred, and to preserve the rights, status and existence of the
Partnership.
(b) The Partnership shall, after the effective date
of any Transfer pursuant to the provisions of this Section 7.3, pay all
Distributions on account of the Units so transferred to the Assignee, provided,
however, that if instructed to do so in writing by the assignor and the
Assignee, the General Partner shall cause the Partnership to pay to the assignor
a portion of the Tax Distribution provided for in Section 6.2 that would
otherwise have been payable to the Assignee for the year in which the Transfer
occurs, equal to the amount that would have been payable under Section 6.2 with
respect to the Units transferred if the period beginning on the first day of the
fiscal year in which the Transfer occurred and ending on the effective date of
the Transfer had been a separate fiscal year of the Partnership. Any such
Distribution paid to the assignor shall be treated as if paid to the Assignee
for purposes of determining the Capital Account balance of the Assignee.
(c) Any Partner who Transfers all of his Units in
the Partnership shall, upon the effective date of such Transfer, cease to be a
Partner for all purposes, except that no assignment of all or any portion of his
Units in the Partnership shall relieve the assignor of his obligations under
this Agreement whether arising prior to or subsequent to such Transfer.
(d) An Assignee who has not become a substitute or
additional Partner in the manner provided in this Agreement shall have no rights
whatsoever in respect of the Partnership except the rights specifically accorded
him by the terms of this Agreement. The provisions of this Agreement shall be
binding on all Assignees.
(e) No Assignee of Units shall have the right to
become a substitute or additional Partner unless the conditions set forth in
Section 7.3 (a) (i) through (vi) have been satisfied and:
(i) the General Partner and a
Majority Interest of Partners other than the assignor shall have
consented in writing to the substitution or addition of such Person as
a Partner (which consent of the General Partner or Partners may be
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withheld in the sole and absolute discretion of the General Partner or
Partners); and
(ii) the Assignee shall have paid
to the Partnership the costs and expenses (including attorneys' fees
and filing costs) incurred in effecting the substitution or addition.
(f) Notwithstanding anything to the contrary
herein, (i) the General Partner and Partners shall not cause or permit Units to
become traded on an established securities market and (ii) the General Partner
and Partners shall withhold their consent to any Transfer that, to the General
Partner's knowledge after reasonable inquiry, would otherwise be accomplished by
a trade on a secondary market (or the substantial equivalent thereof). For
purposes of this subsection the terms "traded on an established securities
market" and "secondary market (or the substantial equivalent thereof)" shall
have the meanings set forth in Sections 469(k)(2) and 7704 of the Code and any
regulations promulgated thereunder that are in effect at the time of the
proposed Transfer.
Section 7.4 Admission of Additional Partners. Persons
acquiring Units for additional capital pursuant to Section 4.12 shall be
admitted to the Partnership as Partners as provided in such Section 4.12.
Section 7.5 Resignation of Partners Prohibited. No Partner
shall have the right to resign or withdraw from the Partnership as a Partner
(except that this restriction shall not prevent any Partner from transferring
its interest in the Partnership to the extent otherwise permitted by Section
7.3).
ARTICLE VIII
Section 8.1 Management of the Partnership.
(a) The business and affairs of the Partnership
shall be managed by the General Partner, subject to the limitations expressly
set forth in this Agreement. The General Partner shall have full authority to
act for the Partnership in all matters in connection with or relating to the
Partnership's Business.
(b) The General Partner of the Partnership shall be
Einstein/Noah Bagel Partners, Inc., a California corporation. The General
Partner may be removed, and a successor General Partner elected, by the vote of
a Majority Interest of the Partners; provided, however, that the General Partner
may only be removed if at the same time a successor General Partner is elected
and the successor
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General Partner acquires at least 1% of the then outstanding Units in the
Partnership, treating as outstanding for this purpose any Units with respect to
which options have been granted and are outstanding under the Partnership's Unit
Option Plan.
(c) The General Partner shall possess and enjoy all
the rights and powers of a general partner under the Act, except as otherwise
provided for by this Agreement. On behalf of the Partnership and in furtherance
of the business of the Partnership, the General Partner shall have the authority
to perform all acts which the Partnership is authorized to perform, without the
consent of the Partners, including the authority to:
(i) purchase or otherwise acquire,
outright or by lease, at such time or times, for such prices and on
such terms as it deems desirable, real or personal property, tangible
or intangible, of all types for use in the Partnership's business,
which property may be owned at the time of such purchase by the General
Partner or its Affiliates;
(ii) execute and deliver such
documents, instruments or agreements as the General Partner may deem
necessary or desirable for the acquisition, operation and disposition
of the Partnership's business and the investment, management and
maintenance of its assets, or for other Partnership purposes, and
amendments, revisions and substitutions to any of the foregoing,
including, without limitation, the Area Development Agreement, the
License Agreements, the Secured Loan Agreement and all exhibits thereto
and documents contemplated therein, the ENBC Note, and any and all
other documents related to, or in connection with, the formation of the
Partnership and the acquisition of the business and assets of the
Partnership;
(iii) acquire, and make all
decisions relating to, any interests of the Partnership in any
corporation, partnership, limited liability company, joint venture, or
other entity, including, without limitation, decisions relating to: (a)
the execution of subscription, shareholders', partnership, operating,
limited liability company or joint venture agreements, voting
agreements, or the like having such terms as the General Partner, in
its sole discretion, shall determine or consent to; (b) the operation,
financing or acquisition or sale of properties of such entity, and (c)
the sale of the Partnership's interest in the entity;
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(iv) enter into leases, licenses,
sublicenses, franchises or other agreements with respect to all or any
portion of the Partnership's property, whether or not such leases,
licenses or agreements (including renewal or option terms) shall extend
beyond the date of termination of the Partnership, upon such terms as
it deems proper;
(v) compromise, submit to
arbitration, sue on, or defend all claims in favor of or against the
Partnership;
(vi) do all acts it deems
necessary or appropriate for the protection and preservation of the
Partnership's assets, including insuring the business and assets of the
Partnership in such amounts and against such risks as the General
Partner deems advisable;
(vii) subject to the provisions of
Section 8.1(f), sell or otherwise dispose of any or all of the assets
of the Partnership in one or more transactions at any time;
(viii) finance any assets or
activities of the Partnership or refinance, increase, modify,
consolidate, prepay or extend any debts, mortgages or other security
obligations of the Partnership; borrow money (including borrowings from
the General Partner or any other Partner or their Affiliates, there
being no obligation, however, for the General Partner or any of their
Affiliates to make any such loan) on a secured or unsecured basis and
grant or pledge Partnership assets as security for any such loan and
confess a judgment against the Partnership in connection therewith;
(ix) hold the Partnership assets
in the Partnership name or the name of one or more nominees;
(x) open one or more bank
accounts in the name of the Partnership or in any other name in which
the Partnership's funds are to be held, make deposits therein, draw
funds therefrom and deal in or with the Partnership's funds in such
manner as it may deem appropriate;
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(xi) make distributions of
Partnership funds or assets to the Partners and Assignees as provided
for by this Agreement; and
(xii) make such income tax
elections as it deems appropriate or desirable, in its sole
discretion exercise all rights, powers and duties as Tax Matters
Partner, as contemplated by the Code and the Regulations, prepare and
file tax returns for the Partnership with federal, state and local
authorities; file amendments to such returns; participate on behalf of
the Partnership in audits of such returns; consent to extensions
relating to such returns; execute on behalf of the Partnership
documents relating to the settlement of tax proceedings involving the
Partnership or its tax returns; participate at the Partnership's
expense in administrative and judicial proceedings, including appeals,
relating to the Partnership's tax returns or its tax liabilities; and
settle issues relating to the Partnership's federal and, to the extent
required, state and local income tax returns even though the Partners
rather than the Partnership shall be subject to tax as so determined.
(d) The General Partner may, on behalf of the
Partnership, employ, engage, retain or deal with any persons, corporations or
other entities (including its Affiliates) to act in such capacities as the
General Partner may determine.
(e) With respect to third parties, the signature of
the General Partner on any agreement, contract, mortgage, deed of trust,
promissory note, instrument or other document shall be sufficient to bind the
Partnership in respect thereof and shall conclusively evidence the authority of
the General Partner with respect thereto, and no Person need look to any other
evidence or require joinder or consent of any other Person.
(f) In the event that the General Partner proposes
a merger or consolidation of the Partnership with or into any Other Business
Entity or a sale of substantially all of the assets of the Partnership, such
merger, consolidation or sale shall require the approval of a Majority Interest
of the Units owned by Partners.
(g) Any approval, consent, vote or other action of
the Partners required or contemplated by this Agreement may be taken without a
meeting, without prior notice and without a vote, if a consent or consents in
writing, setting forth the approval, consent, vote or other action so taken is
signed by Partners holding
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the requisite number of Units and delivered to the General Partner. Any failure
to give notice of any such approval, consent, vote or other action to the
Partners not executing a consent shall not effect the validity of the approval,
consent, vote or other action.
(h) ENBC shall have the power to elect the board of
directors of the General Partner; provided, that ENBC shall be required to elect
as directors of the General Partner at least two persons who are not officers,
directors or employees of ENBC or Boston Chicken, Inc.
Section 8.2 Certain Obligations of General Partner. The
General Partner shall:
(a) arrange for Partnership records and books of
account to be maintained in which shall be entered fully and accurately all
transactions and other matters relative to the Partnership business;
(b) make available to any Partner, at such
Partner's request, during normal business hours and at the principal place of
business of the Partnership, all books and records of the Partnership required
to be maintained by this Section 8.2, and such other financial information as
shall be reasonably requested by any Partner; provided, that the General
Partner shall not be required to disclose to any Partner information regarding
the Partnership if such information is acquired by the Partnership or the
General Partner under circumstances where the disclosure thereof to a Partner
may be in violation of any fiduciary duty of the Partnership or the General
Partner or in violation of a confidentiality agreement to which the Partnership
or the General Partner is subject;
(c) use its best efforts to provide, or cause to be
provided, to all Partners at least the following reports, within the time period
specified below:
(i) within 90 days after the end
of each fiscal year, a statement of operations for such fiscal year and
a balance sheet as of the end of such fiscal year, which shall be
prepared in accordance with generally accepted accounting principles
and audited by a firm of independent certified public accountants; and
(ii) within 75 days after the end
of each fiscal year, the information necessary for Partners to prepare
so much of their federal and all applicable state income tax returns as
relates to the Partnership; and
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(iii) as soon as practicable after
the end of each quarter (as determined for federal estimated tax
purposes), such information relating to the Partnership as is
reasonably necessary for each Partner (or its constituent partners or
shareholders) to determine its (or their) quarterly federal and state
estimated tax liability.
(d) cause the Partnership to timely file all
required Partnership federal, state, local and foreign tax and information
returns; and
(e) cause the Partnership to be duly qualified in
each jurisdiction in which it proposes to commence business if such
qualification is necessary to avoid subjecting Partners to additional liability.
Section 8.3 Liability of General Partner for Certain Acts or
Omissions. The doing of any act or the failure to do any act by the General
Partner, the effect of which may cause or result in loss or damage to the
Partnership, shall not subject the General Partner to any liability to the
Partners if the General Partner acted in good faith and in a manner the General
Partner reasonably believed to be in or not opposed to the best interests of the
Partnership.
Section 8.4 Indemnification.
(a) To the fullest extent permitted under the Act,
the Partnership shall indemnify any Person who was or is a party, or is
threatened to be made a party, to any threatened, pending or completed action,
suit, or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Partnership) by reason of the
fact that he is or was a General Partner or Partner of the Partnership, or a
director, management committee or advisory member or officer (or Person serving
in any capacity equivalent to any of the foregoing) of the Partnership or a
General Partner, or is or was serving at the request of the Partnership as a
director, management or advisory committee member or officer (or in any capacity
equivalent to any of the foregoing) of another corporation, part nership, joint
venture, trust or other enterprise (all of the foregoing being herein
collectively referred to as "Covered Capacities"), against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reason ably incurred by him in connection with such action, suit, or proceeding
if he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Partnership, and, with respect to any
criminal action or pro ceeding, had no reasonable cause to believe his conduct
was unlawful.
40
<PAGE> 45
(b) The termination of any action, suit or
proceeding by judgment, order, settlement, conviction, or pleas of nolo
contendre or its equivalent, shall not of itself create a presumption that the
person did not act in good faith and in a manner which he reasonably believed to
be in and not opposed to the best interests of the Partnership, and with respect
to any criminal action or proceeding, had reasonable cause to believe that his
conduct was unlawful. To the fullest extent permitted under the Act, the
Partnership shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending, or completed action or suit by or in
the right of the Partnership to procure a judgment in its favor by reason of the
fact that he is or was serving in any of the Covered Capacities, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with the
defense or settlement of such action or suit if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the Partnership and except that no indemnification shall be made in respect to
any claim, issue or matter as to which such action or suit alleges misconduct in
the performance of his duty to the Partnership unless and then only to the
extent that the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability, and in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
be indemnified for such expenses which the court shall deem proper.
(c) Anything in Sections 8.4(a) or (b) to the
contrary notwithstanding, to the extent that any person referred to therein has
been successful on the merits or otherwise in defense of any action, suit or
proceeding referred to therein or in defense of any claim, issue or matter
therein, he shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection therewith.
(d) Any indemnification under Sections 8.4(a) or
(b) (unless ordered by a court) shall be made by the Partnership only as
authorized in the specific case upon a determination that indemnification is
proper in the circumstances because the indemnitee has met the applicable
standard of conduct set forth in Sections 8.4(a) or (b). Such determination
shall be made by the General Partner. Expenses incurred in defending a civil or
criminal action, suit or proceeding may be paid by the Partnership in advance
of the final disposition of such action, suit or proceeding, as authorized by
the General Partner in the specific case upon receipt of any undertaking by or
on behalf of the indemnitee to repay such amount unless it shall ultimately be
determined that he is entitled to be indemnified by the Partnership.
41
<PAGE> 46
(e) The indemnification provided by this Section
8.4 shall not be deemed exclusive of any other rights to which those seeking
indemnification may be entitled under any statute, agreement, or otherwise, and
shall continue as to a person who has ceased to serve in a Covered Capacity and
shall inure to the benefit of his successors in interest, including but not
limited to his trustees, heirs, executors, and administrators.
(f) The Partnership shall have the power to
purchase and maintain insurance on behalf of any person who is or was serving
in any of the Covered Capacities and incurred by him in any such capacity or
arising out of his status as such, whether or not the Partnership would have
the power to indemnify him against such liability under the provisions of this
Section.
(g) Each Person who is or was an employee or agent
of the Partnership or an employee or agent of a General Partner, or who is or
was serving at the request of the Partnership as an employee or agent of another
corporation, partnership, joint venture, trust or other enterprise may be
indemnified (or covered by insurance), in the manner and to the extent provided
in this Section 8.4 for persons acting in Covered Capacities, at the discretion
of the General Partner.
(h) The Partnership shall have the right to assume
the defense of any action, suit or proceeding in connection with which any
Person is entitled to indemnification under this Section 8.4 and to select
counsel for such purpose. No Person entitled to indemnification hereunder shall
consent to entry of any judgment or enter into any settlement in connection with
any such action, suit or proceeding without the consent of the Partnership, and
the Partnership shall not, without the consent of each such Person that is
entitled to indemnification, consent to entry of any judgment or enter into any
settlement in connection with such action, suit or proceeding which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such Person of a release from all liability in respect to such claim or
litigation.
(i) Indemnification under this Section 8.4 shall
not be available to any Person in the case of any action, suit or proceeding
brought against the Partnership by or on behalf of such Person.
Section 8.5 General Partner as Limited Partner. To the
extent the General Partner has invested in the Partnership as a Limited Partner,
it shall acquire the same rights and obligations as other Limited Partners.
42
<PAGE> 47
Section 8.6 Tax Matters Partner.
(a) The General Partner is hereby appointed the "Tax
Matters Partner" of the Partnership for all purposes pursuant to the Code and
the Treasury Regulations. The General Partner is hereby authorized to designate
another Partner of the Partnership to serve as the Tax Matters Partner. The Tax
Matters Partner will (i) furnish to each Partner or Assignee affected by an
audit of the Partnership income tax returns a copy of each notice or other
communication received from the Internal Revenue Service or applicable state
authority, (ii) keep each such Partner and Assignee informed of any
administrative or judicial proceeding for the adjustment at the partnership
level of any "partnership items," and (iii) allow each such Partner and Assignee
an opportunity to participate in all such administrative and judicial
proceedings.
(b) The Tax Matters Partner shall have the authority
conferred on a Tax Matters Partner by the Code and the Treasury Regulations.
(c) The Partnership is not obligated to pay any
fees or other compensation to the Tax Matters Partner in his capacity as such.
However, the Partnership will reimburse the Tax Matters Partner for any and all
out-of-pocket costs and expenses (including reasonable attorneys and other
professional fees) incurred by him in his capacity as Tax Matters Partner. Each
Partner who elects to participate in administrative tax proceedings will be
responsible for its own expenses incurred in connection with such
participation. In addition, the cost of any adjustments to a Partner and the
cost of any resulting audits or adjustments of a Partner's tax return will be
borne solely by the affected Partner.
(d) The Partnership will indemnify, defend and hold
the Tax Matters Partner harmless from and against any loss, liability, damage,
cost or expense (including reasonable attorneys' and other professional fees)
sustained or incurred as a result of any act or decision concerning Partnership
tax matters and within the scope of his responsibilities as Tax Matters Partner,
so long as such act or decision was not made fraudulently or in bad faith and
did not constitute willful or wanton misconduct or gross negligence.
ARTICLE IX
Section 9.1 Dissolution of Partnership. Upon the Bankruptcy
of any Partner, the Partnership shall be dissolved unless a Majority Interest of
the remaining Partners shall elect, within a period of 90 days from the date of
such occurrence, to
43
<PAGE> 48
continue the Partnership and, if necessary, designate a successor General
Partner. The Partnership shall also be dissolved upon the happening of any of
the following events:
(a) the action of the General Partner, with the
approval of not less than a Majority Interest of the Partners, to dissolve the
Partnership; or
(b) the entry of a decree of judicial dissolution
under Section 17-802 of the Act or as otherwise provided in the Act.
The Partnership shall not be dissolved upon the occurrence of
any other event.
Section 9.2 Final Accounting. Upon dissolution and
termination of the Partnership, an accounting shall be made of the accounts of
each Partner and of the Partnership's assets, liabilities and operations, from
the date of the last previous accounting to the date of such termination.
Section 9.3 Liquidation; Distribution. In the event of the
dissolution of the Partnership, the General Partner (or in the event the
dissolution is caused by the Bankruptcy or Dissolution of the General Partner, a
person selected by a Majority Interest of the Partners) shall act in an orderly
manner as liquidating trustee and, in an orderly manner, shall wind up the
affairs of the Partnership and, after paying all debts and liabilities of the
Partnership, including all costs of dissolution, shall distribute the remaining
assets in the following order of priority:
(a) first, to the establishment of any reserves
which the liqui dating trustee may deem reasonably necessary for any contingent
or unforeseen liabili ties or obligations of the Partnership arising out of or
in connection with the Partnership, which reserves may, at the option of the
liquidating trustee, be paid over by the liquidating trustee to an escrow agent,
to be held by it for the purpose of disbursing such reserves in payment of any
of the aforementioned contingencies, and, at the expiration of such period as
the liquidating trustee shall deem advisable, for distributing the balance
thereafter remaining in the manner hereinafter provided; and
(b) second, to the Partners and Assignees in
accordance with their positive Capital Account balances, after taking into
account all Capital Account adjustments for the taxable year during which the
liquidation occurs, in compliance with Treasury Regulations Section
1.704-1(b)(2)(ii)(b)(2).
44
<PAGE> 49
Section 9.4 Termination. A reasonable time shall be
allowed for the orderly liquidation of the assets of the Partnership and the
discharge of liabilities to creditors so as to enable the General Partner or
liquidating trustee to minimize the normal losses attendant upon a liquidation.
Each of the Partners shall be furnished with a statement prepared by the
Partnership's then certified public accountant, which shall set forth the
assets and liabilities of the Partnership as at the date of complete
liquidation. Upon compliance with the distribution plan set forth in Section
10.3 (including any payment over to any escrowee if there are sufficient funds
therefor), the Partners shall cease to be such, and the General Partner or the
liquidating trustee shall execute, acknowledge, and cause to be filed a
certificate of cancellation of the Partnership. Upon completion of the
dissolution, winding up, liquidation and distribution of the liquidation
proceeds, the Partnership shall terminate.
ARTICLE X
Section 10.1 Notices. Except as otherwise provided herein,
all notices and other written communications required or permitted to be given
under this Agreement shall be in writing and shall be sent by Federal Express or
other reliable courier, transmitted by fax, personally delivered or mailed by
certified or registered mail, return receipt requested. Any notices to be given
to the Partners shall be given or delivered to the addresses set forth on
Schedule A hereto or such other address of which a Partner may notify the
General Partner in writing. Any notices to be given to the Partnership shall be
sent or delivered to the office of the Partnership as specified herein or at
such other address as the General Partner may specify in a notice to all of the
Partners. Each notice given to the Partners or the Partnership shall also be
given to Einstein/Noah Bagel Corp., 14123 Denver West Parkway, Golden, Colorado
80401, Attention: General Counsel or to such other address of which ENBC shall
notify the Partnership in writing. Notices sent for next day delivery by Federal
Express or other reliable courier shall be deemed given the next business day
after sending, notices transmitted by fax or personally delivered shall be
deemed given when so transmitted or delivered, respectively, and notices sent by
certified or registered mail shall be deemed given on the third business day
after sending.
Section 10.2 Governing Law. This Agreement shall be
governed by and construed in accordance with the Act.
Section 10.3 Amendments.
(a) Subject to the provisions of Sections 10.3(b)
and (c), this Agreement may be amended only in writing with the written consent
of Persons holding a majority of all outstanding Units.
45
<PAGE> 50
(b) Amendments to this Agreement which are of a
clerical or inconsequential nature or which may be required to comply with the
Act or the terms of this Agreement, and which do not adversely affect the
Partners in any material respect or which are required or contemplated by this
Agreement, including, without limitation, amendments necessary to reflect the
Transfer of Units or the admission, substitution or withdrawal of a Partner that
is otherwise permitted by this Agreement or the change in the name of the
registered agent, the address of the registered office or the address of the
office at which Partnership records are kept, may be made by the General
Partner, without notice to or consent of any Partner, through the exercise of
the power of attorney granted the General Partner by Section 10.4 of this
Agreement.
(c) No amendment shall increase the liability of
any Partner, decrease the Capital Account of any Partner, decrease the number
of Units of any Partner or affect the right of any Partner to receive
Distributions, except in each case with the written consent of the Partner
adversely affected thereby.
Section 10.4 Power of Attorney. Each Partner does irrevocably
constitute and appoint the General Partner, as his true and lawful attorney and
agent (with full power of substitution) with full power and authority in his
name, place and stead to execute, swear to, acknowledge, deliver, file and
record in the appropriate public offices (i) all certificates and other
instruments (including counterparts of this Agreement) which the General Partner
deems necessary or appropriate to establish or to qualify or continue the
Partnership as a limited partnership in the State of Delaware and in such other
states as the General Partner may determine; (ii) all instruments which the
General Partner deems necessary or appropriate to effect an amendment to this
Agreement in accordance with the terms of this Agreement; (iii) all conveyances
and other instruments which the General Partner deems necessary or appropriate
to effect the dissolution and termination of the Partnership; and (iv) all
instruments relating to the admission of additional or substitute Partners or
withdrawal of Partners in accordance with the terms of this Agreement. The
foregoing grant of authority: (a) shall survive the death, incompetence or
termination of existence of any or all of the Partners; (b) may be executed by
the General Partner for the Partners by the signature of the General Partner
together with a list of all of the Partners; (c) shall bind any person who
becomes a substitute or additional Partner pursuant to this Agreement; and (d)
shall continue to bind any Partner who assigns the whole or any portion of his
interest, except that where the Assignee thereof has been approved for admission
to the Partnership as a substitute Partner pursuant to this Agreement, then, as
to such assigning Partner this power of attorney shall survive the delivery of
such assignment for the sole purpose of enabling the General Partner to execute,
acknowledge and file
46
<PAGE> 51
any instrument necessary to effect such substitution and file any instrument
necessary to effect such substitution. Upon the request of the General Partner,
the Partners shall execute any certificate or other instrument with respect to
which the General Partner could have invoked this power of attorney.
Section 10.5 Successors and Assigns. Except as otherwise
provided herein, this Agreement shall be binding upon and inure to the benefit
of the Partners, the Assignees and their respective legal representatives,
heirs, successors and assigns.
Section 10.6 Counterparts. This Agreement may be executed in
multiple counterparts, each of which shall be an original, but all of which
shall constitute one instrument.
Section 10.7 Fiscal Year. The fiscal year of the Partnership
shall be the period, if any, specified in the Secured Loan Agreement or, if none
is so specified, the period selected by the General Partner. The Partnership
shall use the accrual method of accounting for tax and financial reporting
purposes.
Section 10.8 Modifications to be in Writing. This Agreement
constitutes the entire understanding of the parties hereto with respect to the
subject matter hereof and no amendment, modification or alteration of the terms
hereof shall be binding unless the same be in writing and adopted in accordance
with the provisions of Section 10.3.
Section 10.9 Action for Partition or Distribution in Kind.
Each of the parties hereto irrevocably waives any right which it may have to
partition Partnership property or maintain an action for distribution of
Partnership property in kind.
Section 10.10 Captions. The captions herein are inserted for
convenience of reference only and shall not affect the construction of this
Agreement.
Section 10.11 Pronouns and Plurals. Whenever the context may
require, any pronoun used in this Agreement shall include the corresponding
masculine, feminine or neuter forms, and the singular form of nouns, pronouns
and verbs shall include the plural and vice versa.
Section 10.12 Validity and Severability. If any provision
herein shall be held invalid or unenforceable, such decision shall not affect
the validity or enforceability of any other provisions hereof, all of which
other provisions shall, in such case, remain in full force and effect.
47
<PAGE> 52
Section 10.13 Statutory References. Each reference in this
Agreement to a particular statute or regulation, or a provision thereof, shall,
at any particular time, be deemed to be a reference to such statute or
regulation, or provision thereof, or to any similar or superseding statute or
regulation, or provision thereof, as at such time in effect.
Section 10.14 Primacy of Certain Agreements. Notwithstanding
anything to the contrary contained herein, the Partners acknowledge that the
Partnership is currently and may in the future be subject to certain agreements,
including the Secured Loan Agreement, the Area Development Agreement and the
License Agreement, with terms that are or may be inconsistent with the
provisions of this Agreement, and that the provisions of those agreements shall
control in the event of any conflict herewith and may limit or preclude the
Partners' ability to exercise their rights or realize any benefits otherwise
available to them hereunder. The Partners further agree that any distribution
made or compensation paid in violation of the Secured Loan Agreement, the Area
Development Agreement or any License Agreement shall be reimbursed by the
recipient thereof upon demand by the Partnership.
48
<PAGE> 53
This Agreement is accepted and agreed to by:
GENERAL PARTNER:
EINSTEIN/NOAH BAGEL
PARTNERS, INC.
By: /s/ Jeffrey L. Butler
--------------------------
Name: Jeffrey L. Butler
Title: President
49
<PAGE> 54
SCHEDULE A
GENERAL PARTNER
<TABLE>
<CAPTION>
Name Mailing Address
<S> <C>
Einstein/Noah Bagel Partners, Inc. 14123 Denver West Parkway
Golden, CO 80401
</TABLE>
LIMITED PARTNERS
<TABLE>
<CAPTION>
Mailing Capital Number
Name Address Contribution of Units
<S> <C> <C> <C>
</TABLE>
<PAGE> 1
EXHIBIT 10.3
--------------------------------------
LOAN AGREEMENT
BY AND BETWEEN
EINSTEIN/NOAH BAGEL CORP.
AND
EINSTEIN/NOAH BAGEL PARTNERS, L.P.
--------------------------------------
DECEMBER 5, 1997
<PAGE> 2
TABLE OF CONTENTS
ARTICLE I
The Loan
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1.1 The Loan..........................................................................1
1.2 Purposes of the Loan..............................................................2
1.3 The Loan Account..................................................................2
1.4 Interest Rate.....................................................................2
1.5 Payment of Interest...............................................................3
1.6 Repayment of the Loan.............................................................3
1.7 Term of this Agreement............................................................3
1.8 One Obligation....................................................................3
1.9 Credit Resources..................................................................4
1.10 Payment Method....................................................................4
1.11 Authorization to Advance for Limited Purposes.....................................4
ARTICLE II
Security and Collateral
2.1 Security Interest.................................................................4
2.2 Subsidiary Security Documents.....................................................5
2.3 Pledge of Units...................................................................6
2.4 Preservation of Collateral and Perfection
of Security Interests Therein...................................................6
2.5 Alternate Security and Pledge Agreements..........................................7
ARTICLE III
Conditions to Advances
3.1 No Material Adverse Change........................................................7
3.2 No Default........................................................................8
3.3 Representations and Warranties....................................................8
3.4 Other Requirements................................................................8
3.5 Advance Request...................................................................8
3.6 No Default by Company.............................................................8
3.7 Sufficient Credit Available to Company............................................8
</TABLE>
i
<PAGE> 3
ARTICLE IV
Representations and Warranties
<TABLE>
<S> <C> <C>
4.1 Financial Statements..............................................................8
4.2 Partner Units.....................................................................9
4.3 No Material Adverse Change........................................................9
4.4 No Pending Material Litigation or Proceedings ....................................9
4.5 Valid Organization: Due Authorization;
Valid and Binding Agreement......................................................9
4.6 Conduct of Business..............................................................10
4.7 Absence of Material Liabilities..................................................10
4.8 Tax Matters......................................................................11
4.9 Ownership of Collateral; Security Interest Priority..............................11
4.10 Location of Offices, Records, and Facilities.....................................11
4.11 Location of Inventory, Fixtures, Machinery, and Equipment........................12
4.12 Investment Company Act...........................................................12
4.13 Public Utility Holding Company Act...............................................12
4.14 Subsidiaries.....................................................................12
ARTICLE V
Affirmative Covenants
5.1 Financial Statements.............................................................13
5.2 Inspection.......................................................................14
5.3 Conduct of Business..............................................................14
5.4 Insurance........................................................................15
5.5 Use of Proceeds..................................................................16
5.6 Company Loan Compliance..........................................................16
5.7 Company Loan Agreement Representations...........................................16
5.8 Additional Members...............................................................16
ARTICLE VI
Negative Covenants
6.1 Guarantees; Loans; etc...........................................................17
6.2 Disposal of Property.............................................................17
6.3 Compensation to Members and Others...............................................17
6.4 Distributions and Redemption.....................................................17
6.5 Additional Indebtedness..........................................................18
6.6 Mergers, Consolidations, Acquisitions, etc.......................................18
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
6.7 Certificate of Limited Partnership and Limited
Partnership Agreement..........................................................18
6.8 Issuance of Units................................................................18
6.9 Liens............................................................................18
6.10 Transactions with Affiliates.....................................................18
6.11 Subsidiaries.....................................................................19
ARTICLE VII
Conditions of Closing
7.1 Proceedings and Documents........................................................19
7.2 Executed Documents...............................................................19
7.3 No Defaults......................................................................20
7.4 Compliance with Company Credit Agreements........................................20
ARTICLE VIII
Default, Rights and Remedies of the Company
8.1 Default..........................................................................20
8.2 Default; Remedies................................................................23
8.3 No Waiver........................................................................24
ARTICLE IX
Miscellaneous
9.1 No Oral Change...................................................................25
9.2 Assignment.......................................................................25
9.3 Costs and Attorneys' Fees........................................................25
9.4 Communications and Notices.......................................................26
9.5 Governing Law....................................................................26
9.6 Headings.........................................................................27
9.7 Severability.....................................................................27
9.8 Avoidance........................................................................27
9.9 Counterparts.....................................................................27
9.10 Entire Agreement.................................................................27
9.11 General Indemnity................................................................27
9.12 Limitation on Damages............................................................28
9.13 Submission to Jurisdiction.......................................................28
9.14 Waiver of Jury Trial.............................................................29
</TABLE>
iii
<PAGE> 5
EXHIBITS
EXHIBIT A Form of Promissory Note of Einstein/Noah Bagel Partners, L.P.
EXHIBIT B Form of Subsidiary Security Agreement
EXHIBIT C Form of Pledge Agreement
iv
<PAGE> 6
SECURED LOAN AGREEMENT
This Secured Loan Agreement (the "Agreement") is made and entered into
as of the 5th day of December, 1997 between Einstein/Noah Bagel Corp., a
Delaware corporation (the "Company"), and Einstein/Noah Bagel Partners, L.P., a
Delaware limited partnership ("DEVELOPER").
RECITALS
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 Einstein Bros(R) Bagels
and Noah's New York Bagels(R) 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 license agreements (each
a "License Agreement") for such specific Stores; and
The Company has entered into an Amended and Restated Credit Agreement,
dated as of November 24, 1997, with the Bank of America National Trust and
Savings Association ("Bank of America"), LaSalle National Bank and General
Electric Credit Corporation (as it may be amended from time to time, the "Senior
Credit Facility"), the proceeds of which are intended to be used in part to fund
Advances (as defined herein) to the DEVELOPER required hereunder.
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 set forth herein, 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 third
anniversary of the date hereof (the "Draw Termination Date"), amounts requested
by DEVELOPER in an aggregate principal amount not to exceed $70,000,000 (the
<PAGE> 7
"Loan"). Each Advance of the Loan ("Advance") shall be in a minimum amount of
$100,000 and shall be made by wire transfer by or on behalf of the Company to
the account of DEVELOPER or by regular check of or on behalf of the 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.
1.2 PURPOSES OF THE LOAN. Proceeds of the Loan shall be used by
DEVELOPER for general corporate purposes, including to pay fees and make
payments to the Company, to fund Store operating costs, to fund general
corporate overhead, to provide general working capital for DEVELOPER, and to
finance the purchase, design, construction and equipment of Stores, commissaries
and production facilities in the Development Area pursuant to and in accordance
with the Development Agreement.
1.3 THE LOAN ACCOUNT. The Company shall maintain a loan account
on its books in which shall be recorded all 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.
1.4 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 of
interest announced by the Bank of America National Trust and Savings Association
or its successor in interest (the "Bank") from time to time at its head office
as its "reference rate," plus 2.5%. The interest rate shall be adjusted, from
time to time, on the same day on which the Bank adjusts its "reference rate." In
addition, the interest rate shall be increased or reduced by an amount
equivalent to any increase or reduction in the interest rate under the Senior
Credit Facility or any extension, replacement or refinancing thereof. 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).
2
<PAGE> 8
(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).
1.5 PAYMENT OF INTEREST. During the Term of the Loan, DEVELOPER
shall pay to the Company interest on the outstanding principal balance of the
Loan on the first day of each of the Company's 13 consecutive four-week
accounting periods used for accounting purposes (each, a "Retail Period").
1.6 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 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
determined at the close of business on the Draw 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 Retail
Periods, commencing on the first day of the first Retail Period in the Company's
fiscal year 2001 and continuing until the first day of the last Retail Period in
the Company's fiscal year 2005, when the entire remaining principal balance of
the Loan and all interest accrued thereon shall be due and payable.
1.7 TERM OF THIS AGREEMENT. This Agreement and all covenants and
agreements of the Company hereunder shall be effective on the date hereof and
shall continue in effect until the last to occur of (i) the date on which there
is no amount (principal or interest) remaining outstanding under the Note and
(ii) the date on which the Company no longer has any obligation to make any
Advances hereunder if DEVELOPER were to make a valid request for an Advance
pursuant to and in accordance with Article 3 hereof.
1.8 ONE OBLIGATION. All Advances made hereunder, and all interest
accrued thereon, shall constitute one obligation of DEVELOPER secured by the
3
<PAGE> 9
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.
1.9 CREDIT RESOURCES. DEVELOPER acknowledges that the Company has
informed it that the Company may not from time to time in the future have cash,
cash equivalents, and credit resources sufficient to permit the Company to make
requested Advances under this Agreement while maintaining sufficient working
capital for the Company's operating needs. DEVELOPER agrees that the Company
shall have no obligation to make any Advances if sufficient funds are not
available to the Company under the Senior Credit Facility to fund the full
amount of the requested Advance.
1.10 PAYMENT METHOD. 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.
1.11 AUTHORIZATION TO ADVANCE FOR LIMITED PURPOSES. 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 (a) 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 DEVELOPER has specifically requested
such Advance and without waiver of any of the Company's rights hereunder, and
(b) 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.
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 law or otherwise.
DEVELOPER hereby grants to the Company a continuing security interest in and to
the following property
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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, other than
capital stock of the Company, or other ownership interests of all Subsidiaries
(as defined in Section 6.11 hereof);
(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 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 B (a "Subsidiary Security Agreement"), 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 in a form
acceptable to the Company, 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 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
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covered by such Security Instruments shall be included in the term "Collateral"
used herein.
2.3 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 pledge agreement between the Company and all of the
partners of DEVELOPER, other than the Company and the Fund (the "Partners"),
substantially in the form attached hereto as Exhibit C (the "Pledge Agreement").
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
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 2.2 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
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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 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 2.3 hereof and the additional security interests described in
Sections 2.2 and 2.4 hereof 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 Subsidiary 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.l 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, or, in the event such a
material adverse change shall have occurred, such change shall have been fully
remedied without any material adverse effect on the financial condition, results
of operations, assets or other business of DEVELOPER and its Subsidiaries taken
as a whole to the satisfaction of the Company in its sole discretion.
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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, the Pledge Agreement and the other
Security Instruments shall be true and correct on and as of the date such
Advance is made.
3.4 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.
3.5 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, copies of all documents required to be delivered to
Company under Section 5.1 below or otherwise reasonably requested.
3.6 NO DEFAULT BY COMPANY. The Company shall not be in default
under the Senior Credit Facility nor shall any event which, through the passage
of time or the service of notice or both, would mature into a default under the
Senior Credit Agreement, have occurred and be continuing, and the making of an
Advance will not cause the Company to be in default under the Senior Credit
Facility.
3.7 SUFFICIENT CREDIT AVAILABLE TO COMPANY. Sufficient funds shall
be available to the Company under the Senior Credit Facility to fund the full
amount of the requested Advance.
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
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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 PARTNER UNITS. DEVELOPER has previously furnished to the
Company a true and correct copy of the certificate of limited partnership of
DEVELOPER and the limited partnership agreement of DEVELOPER (the "Limited
Partnership 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 Limited Partnership Agreement, and the number of Units set
forth on such Exhibit A constitute 100% of the issued and outstanding ownership
interests in DEVELOPER. 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 partner interests or obligations of DEVELOPER
or for the purchase of any of its partnership 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, or, in the event such a material adverse change shall have occurred, such
change shall have been fully remedied without any material adverse effect on the
financial condition, results of operations, assets or other business of
DEVELOPER and its Subsidiaries, taken as a whole, to the satisfaction of the
Company in its sole discretion.
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, arbitrator or governmental agency.
4.5 VALID ORGANIZATION: DUE AUTHORIZATION; VALID AND BINDING
AGREEMENT.
(a) DEVELOPER is a limited partnership duly organized, validly
existing, and in good standing under the laws of the State of Delaware, with
power
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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 each jurisdiction in which failure to so
qualify could have a material adverse effect on its property, business,
operations or prospects.
(b) This Agreement and the Note have each been duly authorized
by all required action on the part of DEVELOPER, and each of this Agreement and
the Note 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 limited partnership of DEVELOPER or the Limited Partnership
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, and (c) obligations under contracts and agreements entered into in the
ordinary course of business.
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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 with 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
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Colorado, at the address of DEVELOPER set forth in Section 9.4 hereof (as such
address may be changed from time to time in accordance therewith). The federal
tax identification number of DEVELOPER is 36-4019835. The name of DEVELOPER is
"Einstein/Noah Bagel Partners, L.P." and DEVELOPER operates under no other names
than the name Einstein Bros. Bagels, Noah's New York Bagels, Bagel Boulevard,
Baltimore Bagel and Bagel & Bagel on its Stores or such other names authorized
pursuant to and in accordance with any applicable License 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.
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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 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 General Partner, subject to changes resulting from normal, returning
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 any other officer of the General Partner 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 have 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
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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 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
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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 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,
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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 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.
5.6 COMPANY LOAN COMPLIANCE. DEVELOPER agrees that it will not
incur any indebtedness or create any lien or take any other action which would
cause the Company to be in default under, or in violation of, any lending
arrangement or credit agreement to which the Company or its parent company, if
any, is a party.
5.7 COMPANY LOAN AGREEMENT REPRESENTATIONS. DEVELOPER agrees that
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.
5.8 ADDITIONAL MEMBERS. DEVELOPER agrees to cause each person
(other than the Company and the Fund) becoming a Partner from time to time after
the date of the Pledge Agreement to execute and deliver to the Company within
five days after such person becomes a Partner a copy of the Pledge Agreement.
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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 person other than the Company, 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 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.
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.
6.3 COMPENSATION TO MEMBERS AND OTHERS. Other than reasonable
salaries and other normal benefits to be paid to employees of DEVELOPER or the
General Partner, which salaries and benefits must be approved by the Company,
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.
6.4 DISTRIBUTIONS AND REDEMPTION.
(a) Subject to the provisions of Section 6.4(b) 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 partners.
(b) Notwithstanding anything to the contrary contained herein,
DEVELOPER may make cash distributions to its partners to the maximum extent
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permitted under the laws of the state of its organization, pursuant to and in
accordance with Section 6.2 of the Limited Partnership Agreement.
6.5 ADDITIONAL INDEBTEDNESS. 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 addi tional 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 to: (a) 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); (c) effect any
change in its capital structure or in any of its business objectives, purposes,
and operations; (d) acquire any capital in or equity ownership of another
limited liability company, corporation, partnership, or other business
organization; (e) engage in any business other than the operation of Stores and
related production and distribution activities; or (f) liquidate or dissolve or
take any action with a view toward liquidation or dissolution.
6.7 CERTIFICATE OF LIMITED PARTNERSHIP AND LIMITED PARTNERSHIP
AGREEMENT. DEVELOPER shall not make any changes in or amendments to its cer
tificate of limited partnership or the Limited Partnership Agreement as they are
in effect as of the date hereof.
6.8 ISSUANCE OF UNITS. DEVELOPER will not issue any additional
units of partnership interests or grant any option, warrant, or similar right to
acquire units of partnership 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.
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 arm's-length transaction with a person other
than an affiliate.
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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").
ARTICLE VII
CONDITIONS OF CLOSING
The Company's obligations hereunder shall be subject to (a) the
performance by DEVELOPER prior to or on the date hereof 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
date hereof, and (c) the satisfaction, prior to or on the date hereof, of the
following further conditions:
7.1 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.
7.2 EXECUTED DOCUMENTS. DEVELOPER and its Subsidiaries, and to the
extent applicable, the partners 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;
(c) the Pledge Agreement;
(d) the Subsidiary Security Agreement, where applicable; and
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(e) 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 Partner.
7.3 NO DEFAULTS. There shall exist no Event of Default or Default.
7.4 COMPLIANCE WITH COMPANY CREDIT AGREEMENTS. The Company's
performance of its obligations hereunder shall comply with all applicable
restrictions or limitations under any lending arrangements or credit agreements
to which the Company is a party.
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"):
(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 Note, the Pledge Agreement, the Subsidiary Security
Agreement, 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 Pledge Agreement, the
Subsidiary Security Agreement or in any other Security Instrument;
(e) the breach of, or failure to perform or observe, any
covenant, condition, or agreement contained in Sections 5.5, 6.1, 6.2, 6.4, 6.6,
6.7, 6.8, 6.10 or 6.11 of this Agreement;
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<PAGE> 26
(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's default under, or breach of any provision of
the Development Agreement (other than a default which constitutes a default
under Section 8.1(o) hereof);
(h) 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,
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;
(i) termination of the lesser of (a) 50% or (b) three of the
franchise or license agreements to which DEVELOPER and the Company are parties;
(j) dissolution or liquidation of the Company;
(k) 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, or, in the event such a material adverse change
shall have occurred, such change shall not have been fully remedied without any
material adverse effect on the financial condition, results of operations,
assets or other business
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of DEVELOPER and its Subsidiaries taken as a whole to the satisfaction of the
Company in its sole discretion;
(l) 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;
(m) 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;
(n) the 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
(o) 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 the Development Agreement, so long as during the 180-day period
immediately preceding the event giving rise to the default under this Section
8.1 (o), both (i) the Company has not failed to make an Advance requested
hereunder as a result of unavailability to the Company of funds under the Senior
Credit Facility 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, 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
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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 Pledge Agreement and/or
the other Security Instruments;
provided, however, that in the case of any event or condition described in
Section 8.1(h) 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.
(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 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
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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.
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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
Pledge Agreement and the Security Instruments), (a) without notice to DEVELOPER,
(i) to any Affiliate of the Company, other than 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,
other than 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
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<PAGE> 31
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 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:
Einstein/Noah Bagel Partners, L.P.
c/o Einstein/Noah Bagel Corp
14123 Denver West Parkway
Golden, CO 80401
Attention: General Partner
If to the Company:
Einstein/Noah Bagel Corp.
14123 Denver West Parkway
Golden, CO 80401
Attention: Chief Financial Officer
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.
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
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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 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,
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<PAGE> 33
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 Indemnity, in any manner relating to or
arising out of this Agreement, the Note, the 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 for any matters arising under this
Agreement (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.
9.13 SUBMISSION TO JURISDICTION. DEVELOPER agrees that any legal
action or proceeding with respect to this Agreement, the Note, the Pledge
Agreement, the Subsidiary Security Agreement, the 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
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<PAGE> 34
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, proceeding, counterclaim, or any other
litigation procedure based upon, or arising out of this Agreement, the Note, the
Pledge Agreement, the Subsidiary Security Agreement, the 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.
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<PAGE> 35
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: /s/ Paul A. Strasen
--------------------------
Name: Paul A. Strasen
Title: Senior Vice President
EINSTEIN/NOAH BAGEL
PARTNERS, L.P.
By: Einstein/Noah Bagel Partners, Inc.
Its: General Partner
By: /s/ Jeffrey L. Butler
---------------------------
Name: Jeffrey L. Butler
Title: President
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<PAGE> 36
PROMISSORY NOTE
$70,000,000 Golden, Colorado
as of December 5, 1997
FOR VALUE RECEIVED, EINSTEIN/NOAH BAGEL PARTNERS, L.P., a Delaware
limited partnership (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 seventy million
dollars ($70,000,000) 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 Promissory Note dated as of December 5, 1997 (the "Note")
evidences the Loan made under, and is referred to in and is executed and
delivered pursuant to, a Loan Agreement 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 National Trust and Savings Association or its
successor in interest (the "Bank") from time to time at its head office as its
"reference rate," plus 2.5%. The interest rate shall be adjusted, from time to
time, on the same day on which the Bank adjusts its "reference rate." In
addition, the interest rate shall be increased or reduced by an amount
equivalent to any increase or reduction in the interest rate under the Senior
Credit Facility or any extension, replacement or refinancing thereof. Interest
on the outstanding principal amount of the Loan shall be payable in arrears as
provided in the Loan Agreement.
Interest shall be computed on the basis of a 360-day year and the
actual number of days elapsed.
<PAGE> 37
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).
Except as otherwise provided in the Loan Agreement, and 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 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 Retail Periods, commencing
on the first day of the first Retail Period in the Company's fiscal year 2001
and continuing until the first day of the last Retail Period in the Company's
fiscal year 2005, 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
ADVANCES
I.1 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 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
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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 the Loan Agreement and this
Note.
ARTICLE II
DEFAULT, RIGHTS AND REMEDIES OF HOLDER
II.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 without demand, presentment or notice of any kind and
exercise such other rights and remedies as are available to the holder under the
Loan Agreement or applicable law.
II.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 III
MISCELLANEOUS
III.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.
III.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 the right
to enforce this Note with respect to any persons; (iv) change, exchange, or
release any property in which the
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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.
III.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, hereunto duly authorized.
EINSTEIN/NOAH BAGEL PARTNERS, L.P.
By: Einstein/Noah Bagel Partners, Inc.
Its: General Partner
By:
-------------------------------------
Name: Jeffrey L. Butler
Title: President
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FORM OF SUBSIDIARY SECURITY AGREEMENT
THIS SUBSIDIARY 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").
WITNESSETH:
WHEREAS Einstein/Noah Bagel Partners, L.P., a Delaware limited
partnership (the "Borrower"), has entered into a loan agreement dated as of
December ___, 1997 (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 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 December __, 1997, 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 Pledge Agreement 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
<PAGE> 41
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 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 nor 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 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
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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 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 l(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.
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(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 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.
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(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 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
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<PAGE> 45
(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 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.
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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 enforce ability of the 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
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<PAGE> 47
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
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<PAGE> 48
or offset any amount or right claimed under the provisions of this 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.
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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:
----------------------------------
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PLEDGE AGREEMENT
This Pledge Agreement ("Pledge Agreement") dated as of December __,
1997, is made and entered into by and between Einstein/Noah Bagel Corp., a
Delaware corporation (the "Company"), and all of the holders of Units in
Einstein/Noah Bagel Partners, L.P., a Delaware limited partnership (the
"DEVELOPER"), and their spouses listed on the signature pages hereof and any
other persons (other than the Company and Bagel Store Development Funding,
L.L.C., referred to herein as the "Fund") who, after the date of this Pledge
Agreement, become holders of Units in the DEVELOPER, and their spouses
(collectively, the "Partners").
RECITALS
1. The Partners own certain of the issued and outstanding Units in the
DEVELOPER, in the amounts set forth on Schedule A hereto.
2. As an inducement to the Company to enter into the loan agreement
with DEVELOPER, dated December ___, 1997 (the "Loan Agreement") the Partners
agreed, among other things, to pledge to the Company, and grant a security
interest to the Company, in and to, 100% of the issued and outstanding Units in
the DEVELOPER (excluding any such Units held by the Fund or the Company).
NOW, THEREFORE, the Company and the Partners 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:
"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.
<PAGE> 51
"Default" shall have the meaning given it in Section 10 of this Pledge
Agreement.
"Pledged Units" shall mean all the issued and outstanding Units in the
DEVELOPER now or hereafter owned by the Partners.
"Secured Obligations" shall mean the obligations secured by this Pledge
Agreement described in Section 3 of this Pledge Agreement.
"Units" shall have the meaning ascribed thereto in the limited
partnership agreement of the DEVELOPER dated December __, 1996 (the "Limited
Partnership Agreement"), as it may be amended from time to time.
2. GRANT OF SECURITY INTEREST.
(a) The Partners 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 Partners 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 Partners 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 Partners 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 Partners 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.
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4. REPRESENTATIONS AND WARRANTIES. To induce the Company to enter into
this Pledge Agreement, each of the Partners represents and warrants for himself
as follows:
(a) The Partners 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 Partner enforceable in accordance with its terms.
(b) The Partner 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 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 Limited Partnership Agreement, the Partner
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 and 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 Partners shall keep the Pledged
Units and other Collateral free and clear of liens, other than the lien granted
hereunder 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 Partners 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 Partners shall promptly
reimburse the Company for any such
3
<PAGE> 53
payments and until reimbursement, such payments shall be a part of the Secured
Obligations.
7. CERTAIN RIGHTS RESPECTING PLEDGED UNITS.
(a) The Partners shall continue to be the owners 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 Partners 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'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's execution of this Pledge Agreement.
(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 Partners 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 Partners 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 general partner of the
DEVELOPER, or any of them, and to elect new general partners 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
4
<PAGE> 54
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.
8. DELIVERY OF CERTIFICATES AND TRANSFER DOCUMENTS; PLEDGE OF
ADDITIONAL UNITS. If the Pledged Units are at any time represented by
certificates, the Partners 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 Partners acquires any interest in any additional
partnership units of the DEVELOPER such Partner 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 units acquired by any of the Partners, the Company will hold
certificates representing those units as bailee for DEVELOPER.
9. DEFAULT. At the option of the Company, the occurrence of any
Default under the Loan Agreement shall constitute a default under this Pledge
Agreement.
10. 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 Partners 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 Partners
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 Partners 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
5
<PAGE> 55
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 a public sale. The
Partners agree that all such private sales made under the foregoing
circumstances shall be deemed to have been made in a commercially reasonable
manner.
11. 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.
12. 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 Partners. The receipt by the Partners 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.
13. 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 Partners:
To the particular Partner at his or her last known
address
6
<PAGE> 56
If to the Company:
Einstein/Noah Bagel Corp.
14123 Denver West Parkway
Golden, CO 80401
Attention: General Counsel
Facsimile: (303) 216-3490
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.
14. FURTHER ASSURANCES. The Partners 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.
15. 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.
16. 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 a 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 this Pledge Agreement and the application of
such provision to other persons or
7
<PAGE> 57
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.
(d) This Pledge Agreement shall benefit the Company and its
successors and assigns, and all obligations of the Partners shall bind their
successors and assigns. The Partners 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 PER FORMED 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 Partner 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 9
and 10 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 10 hereof, and as may be otherwise
appropriate to carry out the transactions contemplated by this Pledge Agreement.
(h) Each of the Partners agrees that any legal action or
proceeding with respect to this Pledge Agreement or the transactions
contemplated hereby may
8
<PAGE> 58
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 Partners 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 Partners or by the mailing thereof by registered or certified
mail, postage prepaid addressed to each of the Partners at the address for
notices as provided in Section 13 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 Partners or property in the courts of any other jurisdiction. Each of the
Partners hereby irrevocably waives any objection to the laying of venue of any
such suit or proceeding in the above described courts.
17. 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, or 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.
9
<PAGE> 59
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:
-----------------------------------
Name: Paul A. Strasen
Title: Senior Vice President
The DEVELOPER hereby executes this Pledge Agreement for purposes of
acknowledging and consenting to its execution by the DEVELOPER's Partners and
agrees that its security interest in and to the Pledged Units is junior to the
security interest in and to the Pledged Units granted to the Company hereunder.
EINSTEIN/NOAH BAGEL
PARTNERS, L.P.
By: Einstein/Noah Bagel Partners, Inc.
Its: General Partner
By:
------------------------------------
Name: Jeffrey L. Butler
Title: President
10
<PAGE> 60
Schedule A
To
Pledge Agreement
Pledged Units at December __, 1997
<TABLE>
<CAPTION>
No. of Units Issued To
============ =========
<S> <C>
------------ ---------
------------ ---------
------------ ---------
</TABLE>
<PAGE> 1
EXHIBIT 10.4
EINSTEIN/NOAH BAGEL CORP.
AMENDED AND RESTATED
DEVELOPMENT AGREEMENT
EINSTEIN/NOAH BAGEL PARTNERS, L.P.
DEVELOPER
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C>
1. PREAMBLES.............................................................................................. 1
2. CERTAIN DEFINITIONS.................................................................................... 2
3. DEVELOPMENT RIGHTS AND OBLIGATIONS..................................................................... 10
A. GRANT OF DEVELOPMENT RIGHTS;
PRINCIPAL OWNERS' GUARANTY.................................................................... 10
B. TERRITORIAL RIGHTS............................................................................ 11
C. DEVELOPMENT OBLIGATIONS....................................................................... 11
D. RIGHTS RETAINED BY COMPANY.................................................................... 12
E. DEVELOPER'S OPTION TO DEVELOP TARGET SITES.................................................... 12
F. DEVELOPER'S OPTION TO PURCHASE CONVERSION SITES............................................... 14
G. POST-TERM DEVELOPMENT......................................................................... 15
4. OTHER DISTRIBUTION METHODS............................................................................. 17
A. SPECIAL DISTRIBUTION ARRANGEMENTS............................................................. 17
B. DELIVERY SERVICE.............................................................................. 17
C. CATERING SERVICE.............................................................................. 18
5. DEVELOPMENT AND OPERATION OF COMMISSARIES.............................................................. 19
A. OBLIGATION TO OPERATE COMMISSARIES............................................................ 19
B. DEVELOPMENT AND OPENING OF COMMISSARIES....................................................... 20
C. TRAINING AND GUIDANCE......................................................................... 20
D. COMMISSARY MANUALS............................................................................ 21
E. OPERATION OF THE COMMISSARY................................................................... 21
F. INSURANCE..................................................................................... 22
G. TRANSFERS..................................................................................... 22
H. EXPIRATION AND TERMINATION OF COMMISSARY OPERATIONS........................................... 23
I. RIGHTS AND OBLIGATIONS OF COMPANY AND DEVELOPER UPON TERMINATION OR
EXPIRATION OF RIGHT TO OPERATE A COMMISSARY................................................... 23
6. GRANT OF LICENSES AND ADVERTISING REQUIREMENT.......................................................... 24
A. SITE REVIEW AND APPROVAL...................................................................... 24
B. LEASE OF APPROVED SITES....................................................................... 25
C. EXECUTION OF LICENSE AGREEMENTS............................................................... 26
D. INITIAL LICENSE AND ROYALTY FEES.............................................................. 26
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C>
6. E. ADVERTISING EXPENDITURES...................................................................... 27
7. INITIAL PAYMENTS....................................................................................... 27
A. DEVELOPMENT FEE............................................................................... 27
B. REAL ESTATE SERVICES FEE...................................................................... 27
8. MARKS.................................................................................................. 27
A. GOODWILL AND RIGHTS TO USE THE MARKS.......................................................... 27
B. LIMITATIONS ON DEVELOPER'S USE OF MARKS....................................................... 28
C. NOTIFICATION OF INFRINGEMENTS AND CLAIMS...................................................... 28
D. DISCONTINUANCE OF USE OF MARKS................................................................ 29
E. INDEMNIFICATION OF DEVELOPER.................................................................. 29
F. NON-DENIGRATION............................................................................... 29
G. MARKING REQUIREMENTS.......................................................................... 30
9. COPYRIGHTS............................................................................................. 30
A. OWNERSHIP OF COPYRIGHTED WORKS................................................................ 30
B. LIMITATION ON DEVELOPER'S USE OF COPYRIGHTED WORKS............................................ 31
C. NOTIFICATION OF INFRINGEMENTS AND CLAIMS...................................................... 31
D. DISCONTINUANCE OF USE OF ..................................................................... 31
10. COMPUTER SYSTEM AND SOFTWARE........................................................................... 32
A. GRANT OF LICENSE.............................................................................. 32
B. SOFTWARE LICENSE FEE.......................................................................... 34
C. SOFTWARE SUPPORT SERVICE...................................................................... 34
D. SOFTWARE SUPPORT SERVICE FEE.................................................................. 35
E. MODIFICATION, ENHANCEMENT AND REPLACEMENT
OF COMPUTER SYSTEM AND SOFTWARE............................................................... 35
F. WARRANTIES AND LIMITATION OF LIABILITY........................................................ 36
G. SUBCOMPONENT LICENSES AND THIRD-PARTY LICENSES................................................ 36
H. COVENANT TO USE ONLY SPECIFIED SOFTWARE AND
LICENSED PROGRAM SUPPORT/CONTROL PROGRAMS..................................................... 37
11. CONFIDENTIAL INFORMATION............................................................................... 37
12. EXCLUSIVE RELATIONSHIP................................................................................. 40
13. OBLIGATIONS OF DEVELOPER............................................................................... 41
A. FULL-TIME SUPERVISION......................................................................... 41
B. CHIEF OPERATING OFFICER....................................................................... 41
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C>
13. C. DEVELOPMENT DIRECTOR AND REAL ESTATE MANAGERS................................................. 42
D. TRAINING DIRECTOR............................................................................. 42
E. MARKETING DIRECTOR............................................................................ 43
F. MANAGEMENT PERSONNEL AND TRAINING............................................................. 44
G. BUDGETS AND FINANCING PLANS................................................................... 45
H. INSURANCE..................................................................................... 45
I. RECORDS AND REPORTS........................................................................... 46
J. DEVELOPMENT MANUAL, COMMISSARY MANUALS
AND STORE MANUALS............................................................................. 48
K. COMPLIANCE WITH LAWS AND GOOD BUSINESS PRACTICES.............................................. 48
L. HUMAN RESOURCES............................................................................... 49
M. SPECIFICATIONS, STANDARDS AND PROCEDURES...................................................... 49
14. TRANSFER............................................................................................... 51
A. BY COMPANY.................................................................................... 51
B. THIS AGREEMENT IS NOT TRANSFERABLE BY DEVELOPER............................................... 51
C. CERTAIN RIGHTS TO TRANSFER
OWNERSHIP INTERESTS IN DEVELOPER.............................................................. 52
D. COMPANY'S RIGHT TO APPROVE TRANSFERS.......................................................... 52
E. PUBLIC OR PRIVATE OFFERINGS................................................................... 55
F. EFFECT OF CONSENT TO TRANSFER................................................................. 56
G. COMPANY'S RIGHT OF FIRST REFUSAL.............................................................. 57
H. OWNERSHIP STRUCTURE........................................................................... 58
I. DELEGATION BY COMPANY......................................................................... 58
J. PERMITTED TRANSFERS........................................................................... 58
15. TERMINATION OF AGREEMENT............................................................................... 58
A. BY DEVELOPER.................................................................................. 58
B. BY COMPANY.................................................................................... 59
C. TERMINATION OF THE DEVELOPMENT
TERM AND CERTAIN RIGHTS OF DEVELOPER.......................................................... 61
16. RIGHTS AND OBLIGATIONS OF COMPANY AND
DEVELOPER UPON TERMINATION OF THIS
AGREEMENT OR EXPIRATION OF THE AGREEMENT TERM.......................................................... 62
A. PAYMENT OF AMOUNTS OWED TO COMPANY............................................................ 62
B. MARKS AND COPYRIGHTED WORKS................................................................... 62
C. CONFIDENTIAL INFORMATION...................................................................... 63
D. COVENANT NOT TO COMPETE....................................................................... 64
E. EFFECT ON COMMISSARIES........................................................................ 65
</TABLE>
iii
<PAGE> 5
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C>
16. F. CONTINUING OBLIGATIONS........................................................................ 65
17. INDEPENDENT CONTRACTORS/INDEMNIFICATION................................................................ 65
18. ENFORCEMENT............................................................................................ 66
A. SEVERABILITY AND SUBSTITUTION OF VALID PROVISIONS............................................. 66
B. WAIVER OF OBLIGATIONS......................................................................... 67
C. INJUNCTIVE RELIEF............................................................................. 68
D. RIGHTS OF PARTIES ARE CUMULATIVE.............................................................. 69
E. COSTS AND LEGAL FEES.......................................................................... 69
F. GOVERNING LAW................................................................................. 69
G. CONSENT TO JURISDICTION/CHOICE OF FORUM....................................................... 69
H. LIMITATIONS OF CLAIMS......................................................................... 70
I. WAIVER OF PUNITIVE DAMAGES.................................................................... 70
J. WAIVER OF JURY TRIAL.......................................................................... 70
K. BINDING EFFECT................................................................................ 70
L. CONSTRUCTION.................................................................................. 70
M. REASONABLENESS; APPROVALS..................................................................... 71
19. NOTICES AND PAYMENTS................................................................................... 71
</TABLE>
iv
<PAGE> 6
EXHIBITS AND ATTACHMENTS
<TABLE>
<S> <C>
EXHIBIT A - CATERING RIDER
EXHIBIT B - DELIVERY RIDER
EXHIBIT C - DEVELOPMENT FEE
EXHIBIT D - DEVELOPMENT AREA(S)
EXHIBIT E - DEVELOPMENT SCHEDULE
EXHIBIT F - FORM LICENSE 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
</TABLE>
v
<PAGE> 7
EINSTEIN/NOAH BAGEL CORP.
DEVELOPMENT AGREEMENT
THIS AGREEMENT is made and entered into this 5th day of December, 1997
(the "EFFECTIVE Date"), by and between EINSTEIN/NOAH BAGEL CORP., a Delaware
corporation ("COMPANY"), and DEVELOPER (defined below).
"DEVELOPER": EINSTEIN/NOAH BAGEL PARTNERS, L.P.
----------------------------------
a DELAWARE LIMITED PARTNERSHIP
----------------------------------
Principal Address: 14123 DENVER WEST PARKWAY
----------------------------------
GOLDEN, CO 80401
----------------------------------
----------------------------------
1. PREAMBLES.
COMPANY and its Affiliates (as defined below) have developed and are
continuing to develop and refine methods of operating a number of branded
retail food service businesses, each with its own concept and operated under
its own system and marks 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 an owner of 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).
Each UNIT utilizes the Marks (defined below) and operates at a location that
features distinctive food service formats and trade dress and utilizes
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 grants franchises and licenses to certain qualified parties to
own and operate UNITS using the Marks and the System associated with the
Principal Marks (defined below) authorized by COMPANY.
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 License Agreements (defined below) which grant the right to
develop UNITS which use the branded concept, the Principal Marks, the other
Marks associated with the Principal Marks and those elements of the System
associated with the
<PAGE> 8
Principal Marks ("DEVELOPER Stores", as further defined below) within the
Development Area (defined below) in accordance with the Development Schedule
(defined below). The operation of each DEVELOPER Store will be governed by a
Franchise Agreement (defined below) or a License Agreement.
COMPANY and DEVELOPER have previously entered into a
Development Agreement dated as of June 17, 1996 (the "Original Development
Agreement") pursuant to which DEVELOPER was granted the right and undertook the
obligation to develop a specified number of UNITS within a defined geographic
territory.
COMPANY has also entered into various development agreements with
Colonial Bagels, L.P., Great Lakes Bagels, L.P., Gulfstream Bagels, L.P., and
Sunbelt Bagels, L.L.C. (collectively referred to as the "Area Developers" )
pursuant to which the Area Developers were granted the right and undertook the
obligation to develop a specified number of UNITS within defined geographic
territories (the "Other Development Agreements").
As of the date hereof, the Area Developers will merge with, and into,
DEVELOPER. As a result of said merger, (a) DEVELOPER will own and operate 555
UNITS pursuant to Franchise Agreements previously executed by DEVELOPER and the
Area Developers (the "Franchise Agreements") and (b) DEVELOPER desires to
undertake the remaining development obligations of the Area Developers under
the Other Development Agreements, all of which have been terminated by COMPANY
and the Area Developers as of the date hereof. In order to facilitate the
foregoing and the development of the UNITS and to amend, restate, replace and
substitute in full the obligations of COMPANY and DEVELOPER under the Original
Development Agreement, COMPANY and DEVELOPER desire to enter into this
Agreement, upon the terms and subject to the conditions set forth herein and as
an amendment, restatement, replacement and substitute for the Original
Development Agreement.
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.
"AGREEMENT TERM" - The period commencing upon the Effective Date and
ending upon
2
<PAGE> 9
the expiration or termination of the last to expire or terminate of the
Franchises or Licenses (defined below) and successor Franchises or Licenses
granted to DEVELOPER pursuant to this Agreement, unless terminated sooner in
accordance with the provisions of this Agreement.
"ALBERT EINSTEIN PUBLICITY SYMBOLS" - The full name Albert Einstein
and the likeness, image, caricature, photographs and signature of Albert
Einstein and up to two sayings or slogans originated by Albert Einstein and to
be selected by COMPANY from among his sayings and slogans.
"ALBERT EINSTEIN INDICIA" - All indicia of Albert Einstein (other than
the name Albert Einstein, sayings or slogans originated by Albert Einstein or
the likeness, image, caricature, photographs or signature of Albert Einstein),
including but not limited to references to (i) genius and human intelligence
(e.g., references to IQ), (ii) scientific formulas and mathematical equations
(e.g. E=MC2), (iii) scientific and mathematical theories (e.g., the theory of
relativity), and (iv) drawings or symbols of the atom or atomic particles.
"APPROVED SITE" - A site which COMPANY has approved as meeting its
minimum criteria for the development and operation of a DEVELOPER Store.
"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 or License (a "FRANCHISE OR
LICENSE 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 or License Agreement used by COMPANY from time to time to
authorize in its sole discretion a Franchise or License 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
(1) such Products are intended to serve fifteen (15) or more
persons, or
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(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 Stores 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 DEVELOPER Stores Products and other materials
and supplies used in the operation of Stores.
"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
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(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.
"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
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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.
"DELIVERY RIDER" - The form of rider to this Agreement or to a
Franchise Agreement or License Agreement used by COMPANY from time to time to
authorize or require in its sole discretion a Franchise or License Owner of a
Store 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.
"DEVELOPER STORES" - The UNITS developed, owned and operated by
DEVELOPER pursuant to this Agreement and/or Franchise Agreements or License
Agreements that operate using the Principal Marks, the other Marks associated
with the Principal Marks and the elements of the System associated with the
Principal Marks and pursuant to COMPANY's operational requirements associated
with such Principal Marks as in effect from time to time.
"DEVELOPMENT AREA" - The aggregate of the geographic areas described
in Exhibit D to this Agreement.
"DEVELOPMENT SCHEDULE" - The schedule of the number of DEVELOPER
Stores 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 Developer Stores pursuant to this Agreement, which will
commence on the Effective Date and will expire, unless terminated earlier in
accordance with the terms of this
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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
Developer Stores for which a Franchise Agreement (other than Franchise
Agreements in effect as of the date hereof) or License 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).
"EINSTEIN ALONE" - The name EINSTEIN in combination with no other
word, with or without a logo, and the name EINSTEIN in combination with another
word that is a generic or immediately descriptive reference to a product or
service or location (e.g. RESTAURANT, BAGELS or CREAM CHEESE).
"ENBC PROMOTIONAL ITEMS" - Goods intended to promote COMPANY's
restaurant services or food products, including and specifically limited to
magnets; pins; playing cards; flags; banners; umbrellas; name badges; key
chains; cups; glasses; bagel slicers; toasters; mugs; can cooler sleeves; golf
towels; clothing, namely, shirts, blouses, t-shirts, jackets, hats, caps,
visors, sweaters and sweatshirts; golf bags, flying discs and balls.
"FRANCHISE OR LICENSE " - 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.
"LICENSE AGREEMENT" - at COMPANY's option, either:
(1) the form of license agreement (including exhibits, riders,
addenda and attachments thereto) attached hereto as Exhibit F; or
(2) the form of license 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
Licenses in the United States of America,
in either instance revised by COMPANY in good faith to the extent necessary to
have the License Agreement reflect the substantive changes contained in
Addendum No. 1 to the License 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.
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"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', license 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 uses and authorizes developers, franchise owners and
license owners to use to identify, the services and/or products offered by
Stores, and the "TRADE DRESS" (defined in the License 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. The
Marks include the Principal Marks DEVELOPER is authorized to use in the
operation of the DEVELOPER Stores.
"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.
"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,
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provided that if such business is a franchised or licensed business of a
franchisor or licensor 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 MARKS" - The Marks COMPANY authorizes DEVELOPER to use to
identify DEVELOPER Stores. The Principal Marks as of the date of this Agreement
are described in Exhibit K to this Agreement.
"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.
"SPECIAL DISTRIBUTION AGREEMENT" - A separate agreement whereby
COMPANY authorizes a Franchise owner or License owner to operate a Special
Distribution Arrangement (defined below) at a Special Distribution Location (as
defined below) designated by COMPANY.
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"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.
"STORES" - UNITS that operate using the Principal Marks, the other
Marks associated with the Principal Marks and the elements of the System
associated with the Principal Marks and pursuant to COMPANY's operational
requirements associated with such Principal Marks as in effect from time to
time.
"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 DEVELOPER Stores 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 License 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 branded retail store 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 the Marks; and
(3) is either operated by COMPANY or its Affiliates or pursuant
to a valid franchise or license 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, Stores in the Development Area.
DEVELOPER's request, with respect to the Principal Marks, the other Marks
associated with the Principal Marks and those elements of the System associated
with the Principal 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
DEVELOPER Stores in the Development 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 License Agreements
executed pursuant hereto and the Franchise Agreements, COMPANY will grant to
DEVELOPER during the Development Term and in accordance with Section 6 hereof,
the right to develop and operate the number of Stores in each Sub-Area of the
Development Area as
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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 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 License Agreements and
Franchise Agreements, COMPANY and its Affiliates will not during the Sub-Area
Term for each Sub-Area operate or grant franchises or licenses for the
operation of Stores within such Sub-Area.
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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
Stores within the Development Area. Without limiting the foregoing obligation,
DEVELOPER agrees to have open and in operation in each Sub-Area the number of
Stores set forth as the respective Sub-Area Quota in Exhibit E attached hereto
by the opening dates specified therein, exclusive of Stores operating pursuant
to the Franchise Agreements. DEVELOPER and COMPANY acknowledge and agree that a
DEVELOPER Store that closes for more than five (5) days (not 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 DEVELOPER 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 Stores specified in the Development Schedule.
DEVELOPER acknowledges and agrees that its failure to open and operate Stores
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, using the Principal Marks, any of the other
Marks or any other marks and using the System or any other system 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 expressly 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
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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 using the Principal Marks or any of the other Marks
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.
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 Store. 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 Store at such Target Site as
described in the notice.
If DEVELOPER timely notifies COMPANY in writing that DEVELOPER desires
to develop and operate a Store 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 License Agreement and such ancillary documents as are then
customarily used by COMPANY in the grant of licenses for Stores (collectively,
the "License 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 License 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
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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 Store 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, partially negotiating the lease or purchase agreement, all within
ten business (10) days after COMPANY's delivery of the License 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 License
Documents for a Target Site and pay the applicable fee as provided herein, then
COMPANY or its designee may develop and operate a Store at such Target Site.
Any Target Site for which DEVELOPER executes the License 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 license to develop a Store 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 Store after the total
number of sites for which DEVELOPER has executed a License 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 Stores, COMPANY agrees to
offer to sell such Conversion Sites to DEVELOPER for the price paid therefor by
COMPANY. Such price will include that portion
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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
(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 License 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 a
Store 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 License Agreements and
Franchise Agreements to which they are parties, it will not utilize or license
the use of the Principal Marks at such Conversion Sites for one (1) year
following COMPANY's acquisition thereof; provided, however, that COMPANY
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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 License Documents
and develops and opens a Store 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 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 Stores beyond those 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 license to operate the
agreed-upon number of Stores.
(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.
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(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 of any provision of the Agreement, any
Franchise Agreement, License 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
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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 DEVELOPER 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 DEVELOPER
Store 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 or License 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 DEVELOPER 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
and license owners of Stores in the trade area where a DEVELOPER 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 License
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 or License Agreement) which
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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 DEVELOPER 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 DEVELOPER
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 or License Agreement). DEVELOPER will
have fifteen (15) days after its receipt thereof to execute and deliver to
COMPANY such executed Catering Rider. A Catering Facility will not be counted
as a separate DEVELOPER 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
and license owners of Stores in the trade area where a DEVELOPER 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 License
Agreement), shall offer Catering Service, COMPANY will notify DEVELOPER and
will deliver to DEVELOPER a Catering Rider to this Agreement
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(or to the applicable Franchise Agreement or License 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 and License
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 and License
Agreements, it will establish and operate the number of Commissaries reasonably
determined by COMPANY from time to time to be sufficient to supply the
DEVELOPER Stores.
DEVELOPER agrees that each Commissary (and, where the Commissary is
operated under the same roof as a DEVELOPER Store 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
DEVELOPER Stores 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.
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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 Agreements and License Agreement. Section 4.F. of the
Franchise Agreements and License Agreement shall apply to the opening and
commencement of operation of the Commissary and Sections 4.H. and 4.I. of the
Franchise Agreements and License 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 DEVELOPER 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,
DEVELOPER shall have thirty (30) days in which to appoint a substitute or
replacement Commissary Manager 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
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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, DEVELOPER
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 Agreements and License 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;
(4) conduct initial and periodic (at least once every six (6)
months) driving records checks on all Commissary delivery drivers;
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(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 License 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 DEVELOPER Stores pursuant to Section 12.G. of the Franchise
Agreements and License 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 License 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 DEVELOPER 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 License 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
Agreements and the License 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 or License 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).
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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.
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
Agreements and License Agreement, including the ancillary rights set forth in
Section 19.F.
6. GRANT OF LICENSES AND ADVERTISING REQUIREMENT.
6.A. SITE REVIEW AND APPROVAL.
Annually throughout the Development Term, DEVELOPER shall purchase
from COMPANY market plans on the demographics of each Sub-Area ("MARKET PLANS")
in which DEVELOPER retains the right to develop DEVELOPER Stores. Such Market
Plan shall be available to DEVELOPER at COMPANY's or its designee's
then-current charges. At DEVELOPER's request, COMPANY or its designee may
provide other demographic services at COMPANY's or its designee'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 or its designee'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, its
designee 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 Store 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
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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, license 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
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, license owner, 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 Stores. 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,
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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 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 LICENSE 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 and License Agreements it has entered into, and
(3) DEVELOPER has obtained legal possession of an Approved Site, COMPANY agrees
to offer to DEVELOPER a License to operate a Store at such Approved Site by
delivering to DEVELOPER a License Agreement in
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form for execution by DEVELOPER and its Principal Owners. Such License
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
Store, together with the fees required to be paid upon execution thereof.
COMPANY may withdraw its offer to grant a License for a Store 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 License
Agreement. In no event may a DEVELOPER Store 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 LICENSE AND ROYALTY FEES.
For each License 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 License Agreement, except that the Initial License
Fee (defined in the License Agreement) shall be Thirty-Five Thousand Dollars
($35,000.00), and the Royalty Fee (as defined in the License Agreement) shall
be an amount equal to eight percent (8%) of the Store's Royalty Base Revenue
(as defined in the License Agreement).
6.E. ADVERTISING EXPENDITURES.
DEVELOPER shall cause each DEVELOPER Store to contribute to the Local
Ad Fund (as defined in the License Agreement) for such DEVELOPER Store an
amount equal to the standard Local Ad Fund contribution required pursuant to
the applicable License Agreement; provided, however, that, on notice from
COMPANY, DEVELOPER shall also cause each such DEVELOPER Store to contribute to
the standard Local Ad Fund such additional amounts which, when aggregated with
the Local Ad Fund contributions of the other DEVELOPER 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
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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 RIGHTS TO USE THE MARKS.
DEVELOPER acknowledges that DEVELOPER right to use the Marks, as
described in this Agreement and which include the Principal Marks set forth in
Exhibit K hereto, is derived solely from this Agreement and is limited to the
development of Stores 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. Developer
further acknowledges that COMPANY'S right to use and sublicense the use of
certain of the Marks may derive from agreements between COMPANY and third-party
licensors. 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 and may constitute a breach by COMPANY of its license agreement(s)
with its licensor(s). 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 or its licensor(s), as applicable, and that this
Agreement does not confer any goodwill or other interests in the Marks upon
DEVELOPER, other than the right to use the Principal Marks and the other Marks
associated with the Principal Marks in the development of the DEVELOPER 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 and license owners by COMPANY), for use by and licensed to DEVELOPER by
COMPANY.
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8.B. LIMITATIONS ON DEVELOPER'S USE OF MARKS.
Except with the written consent of COMPANY, 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 and, if applicable, COMPANY'S
licensor and its counsel, with respect to any such infringement, challenge or
claim. COMPANY (and its licensor, if applicable) 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.
8.D. DISCONTINUANCE OF USE OF MARKS.
If it becomes advisable at any time in COMPANY's sole judgment, or
pursuant to any agreement between COMPANY and a licensor of any of the Marks,
for DEVELOPER to modify or discontinue use of any Mark and/or for 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
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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 indemnify 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 licensed hereunder 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.
8.F. NON-DENIGRATION.
If COMPANY authorizes DEVELOPER to use the Albert Einstein Indicia,
the word EINSTEIN Alone or the Albert Einstein Publicity Symbols, DEVELOPER
agrees not to use the Albert Einstein Indicia, the Albert Einstein Publicity
Symbols or any name that includes the name "EINSTEIN" in any manner that
denigrates, disparages, defames or otherwise reflects poorly on the character
of Albert Einstein.
8.G. MARKING REQUIREMENTS.
If COMPANY authorizes DEVELOPER to use the Albert Einstein Indicia,
the word EINSTEIN Alone or the Albert Einstein Publicity Symbols, DEVELOPER
agrees that it will use such marks in a manner that is consistent with good
trademark practice, and shall affix onto substantially all written advertising
material, written promotional material, and the ENBC Promotional Items, to the
extent practicable as to size and being readily visible, a legend indicating
that such marks are being used under license from the Hebrew University of
Jerusalem. The following is an example of a satisfactory legend or words:
"Intellectual Property of Albert Einstein is used under license from Hebrew
University represented by The Roger Richman Agency of Beverly Hills." In the
event DEVELOPER uses the Albert Einstein
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Indicia, the word EINSTEIN Alone or the Albert Einstein Publicity Symbols
hereunder in connection with a television or radio advertisement, DEVELOPER
shall cause such legend or words to appear on the leader.
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 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 License 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.
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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
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.
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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 or its designee a reasonable installation and
testing fee upon completion of COMPANY's or its designee'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 $5,000 is reasonable. COMPANY
agrees that the installation and testing fee applicable to any
License Agreement executed pursuant to this Agreement will not
exceed $5,000.
(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 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 DEVELOPER
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
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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.
(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.
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(7) COMPANY or its designee 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 or its designee 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
Stores, and DEVELOPER shall promptly implement their use.
(9) Upon expiration or termination of this Agreement, DEVELOPER
shall allow COMPANY's or its designee'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 or its designee,
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 or its designee(s) upon
installation of the Licensed Program on DEVELOPER's Computer System, a software
license fee (the "Software License Fee") in the amount of Sixteen Thousand
Dollars ($16,000.00). The Software License Fee shall be fully earned by COMPANY
or its designee upon installation of the Licensed Program on the Computer
System and is non-refundable in whole or in part.
10.C. SOFTWARE SUPPORT SERVICE.
During the Agreement Term and, provided that DEVELOPER is in
compliance with the terms of this Agreement, COMPANY or its designee 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.
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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
or its designee 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 License 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. 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
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is then currently specifying the same enhancements, modifications, and
replacements for use in COMPANY-operated Stores.
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.
Neither COMPANY nor its designee represents or warrants 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. Neither COMPANY nor its designee
shall have any 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 AND/OR ITS
DESIGNEE MAKE 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 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
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(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
LICENSED PROGRAM 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, license owners, and developers (the
"CONFIDENTIAL INFORMATION"):
(1) methods, techniques, equipment, specifications (including Design
Specifications, as defined in the License Agreement), standards, policies,
procedures, information, concepts and systems relating to and knowledge of
and experience in the
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development, operation, franchising and licensing of UNITS and the
development and operation of Commissaries; 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 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 License Agreement); and
(8) customer lists and Product sales of the DEVELOPER 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 Stores 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
Stores and Commissaries pursuant to this
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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, franchise owners and license owners.
DEVELOPER agrees to disclose the Confidential Information to Owners and to its
employees only to the extent reasonably necessary for the development of Stores
pursuant to this Agreement and only if such individuals have agreed to maintain
such information in confidence in an agreement enforceable by COMPANY.
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 Store pursuant to a Franchise Agreement, License 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:
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(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 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, license owners, and developers of UNITS, if developers,
franchise owners, license 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
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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
(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, franchise owner or license 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 Stores.
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, franchise agreements
or license 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
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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.
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:
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(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
DEVELOPER 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 "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 DEVELOPER 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
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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 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 DEVELOPER Stores; and
(3) preparing and, subject to COMPANY's approval, implementing
local marketing plans and marketing budgets for the DEVELOPER Stores;
and
(4) coordinating the direction and administration of any local
marketing efforts of the DEVELOPER Stores; and
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(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 DEVELOPER 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.
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 DEVELOPER 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
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approval, in a format specified by COMPANY, a written plan for the funding of
the development of DEVELOPER 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.
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.
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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
DEVELOPER 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 DEVELOPER 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.
In addition to the reports and information required in connection with
the development and operation of DEVELOPER 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
DEVELOPER
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Stores each Monday (for the preceding Monday through Sunday period)
and, if requested by COMPANY, daily reports of sales and Royalty Base
Revenue for DEVELOPER 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 DEVELOPER 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 DEVELOPER
Stores.
DEVELOPER shall immediately report to COMPANY any events or
developments which may have a materially adverse impact on the operation of any
of the DEVELOPER Stores, the performance of DEVELOPER under this Agreement, or
the goodwill associated with the Marks and UNITS.
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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 Stores 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, 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 Stores 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 DEVELOPER
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 withholding and payment of all taxes. All
advertising by DEVELOPER shall be approved by
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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 DEVELOPER 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 DEVELOPER 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 Development Manual, 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 DEVELOPER 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 Stores based on COMPANY's reasonable judgment of the
requirements of a Store's trade area and whether COMPANY has approved any
special services to be offered at or from a site), and operation of DEVELOPER
Stores, 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
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(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 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 License
Agreements for Stores pursuant to the Development Agreement) as the owner
of DEVELOPER 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.
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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 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;
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(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 DEVELOPER Store or the business to be
conducted by DEVELOPER 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.
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
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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:
(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 affect 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, franchise owners or
license owners of Stores;
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(5) that DEVELOPER, the transferring Owner and the purchaser (if the
purchaser is then the owner of interests in another developer, franchise
owner or license 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:
(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
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(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, franchise owner or
license 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-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, Franchise Agreement or License Agreement may not be offered pursuant to
a public offering. DEVELOPER further agrees that such securities will not be
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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 of DEVELOPER Stores 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;
(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
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"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.
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,
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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.
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
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(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 License Agreements and COMPANY materially breaches
this Agreement, DEVELOPER may terminate this Agreement effective thirty (30)
days after COMPANY's receipt of written notice of 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.
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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 Stores or the
goodwill associated with the Marks, or engages in any misconduct which may
adversely affect the reputation of UNITS or Stores 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 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
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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 the 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
(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
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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 or License Agreement in accordance with its terms and conditions
or DEVELOPER has attempted to terminate a Franchise Agreement or License
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:
(1) DEVELOPER's right to develop Stores for which no License
Agreement has been executed under Section 3.A.; and
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(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 Stores at Target Sites under
Section 3.E.; and
(4) DEVELOPER's option to purchase, and develop and operate Stores 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/or its
licensor(s), as applicable; 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 and any License
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
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COMPANY pursuant to this Agreement.
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
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any Competitive Business; or
(4) employ or seek to employ any person who is employed by COMPANY,
its Affiliates or by any other developer, franchise owner or license 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 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
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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.
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 Stores 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 of
DEVELOPER Stores, 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
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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.
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 License
Agreements, the
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relationship of the parties, the DEVELOPER 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:
(i) custom or practice of the parties at variance with the terms
hereof; or
(ii) 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) 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) grant of a License 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
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(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 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.
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18.F. GOVERNING LAW.
EXCEPT TO THE EXTENT GOVERNED BY THE UNITED STATES TRADEMARK ACT OF 1946
(LANHAM ACT, 15 U.S.C. SECTIONS 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 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.
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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
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
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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 14123 Denver West
Parkway, Golden, Colorado 80401, 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.
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. EINSTEIN/NOAH BAGEL PARTNERS, L.P.
- ------------------------------------- -------------------------------------
COMPANY DEVELOPER
By: Einstein/Noah Bagel Partners, Inc.
Its: General Partner
By: By:
-------------------------------- ----------------------------------
Paul A. Strasen
Its: Sr. Vice President Its:
-------------------------------- ---------------------------------
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EXHIBIT A
TO THE DEVELOPMENT AGREEMENT
BY AND BETWEEN EINSTEIN/NOAH BAGEL CORP.
AND
EINSTEIN/NOAH BAGEL PARTNERS, L.P.
DATED ______________________
CATERING RIDER
<PAGE> 85
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 _________________________
("DEVELOPER"), and is attached to and incorporated into the Einstein/Noah Bagel
Corp. Franchise Agreement or License Agreement by and between COMPANY and
DEVELOPER (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. DEVELOPER 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, DEVELOPER 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, DEVELOPER 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 DEVELOPER, 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. DEVELOPER acknowledges and agrees
that Catering Service shall not include Delivery Service, as defined in the
Agreement. DEVELOPER, 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. DEVELOPER 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.
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In particular, and without limiting the foregoing, DEVELOPER shall:
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.
DEVELOPER 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. DEVELOPER
shall comply with COMPANY's specifications and requirements regarding site
selection (if applicable), development and construction of the Catering
Facility. DEVELOPER 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 DEVELOPER proposes and intends in good
faith to establish and operate the Catering Facility and which DEVELOPER
reasonably believes to conform to certain minimum site criteria for catering
facilities established by COMPANY from
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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, 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 DEVELOPER. COMPANY agrees to exert
its best efforts to deliver such notification to DEVELOPER 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 DEVELOPER acknowledges and agrees that COMPANY shall have no liability
therefor. Notwithstanding any other provision of this Rider, 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 the site for the Catering Facility.
4. COMPANY'S RIGHT TO TERMINATE THE AGREEMENT OR CATERING SERVICE.
If DEVELOPER fails to provide Catering Service as required pursuant to this
Rider, DEVELOPER acknowledges and agrees COMPANY shall have the right to
terminate (a) the Agreement pursuant to and in accordance with the terms
specified in Section 3.C. of the Agreement, or (b) DEVELOPER'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
DEVELOPER'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 DEVELOPER.
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 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 18.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 one hundred eighty (180) days after COMPANY's
written notice to DEVELOPER (in
A-3
<PAGE> 88
which case, DEVELOPER 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 DEVELOPER to
reinstate Catering Service upon fifteen (15) days' prior written notice to
DEVELOPER.
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Rider in multiple originals as of the date of the Agreement.
- -------------------------------- ----------------------------------
COMPANY DEVELOPER
By: By:
---------------------------- ----------------------------
Its: Its:
---------------------------- ----------------------------
A-4
<PAGE> 89
SCHEDULE A
TO THE CATERING RIDER
TO THE EINSTEIN/NOAH BAGEL CORP.
DEVELOPMENT AGREEMENT
BY AND BETWEEN EINSTEIN/NOAH BAGEL CORP.
AND EINSTEIN/NOAH BAGEL PARTNERS, L.P.
DATED ________________
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 DEVELOPER in
establishing and conducting Catering Service or the length of time DEVELOPER
has offered Catering Service, reduce, modify or expand the Catering Area.
2. CATERING FACILITY. The Catering Facility will be located at the
following address:
---------------------------------------------------------------
---------------------------------------------------------------
INITIALS:
COMPANY:
---------------
DEVELOPER:
--------------
A-1
<PAGE> 90
EXHIBIT B
TO THE DEVELOPMENT AGREEMENT
BY AND BETWEEN EINSTEIN/NOAH BAGEL CORP.
AND
EINSTEIN/NOAH BAGEL PARTNERS, L.P.
DATED ______________________
DELIVERY RIDER
<PAGE> 91
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 ______________________
("DEVELOPER"), and is attached to and incorporated into the Einstein/Noah Bagel
Corp. Franchise Agreement or License Agreement by and between COMPANY and
DEVELOPER (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. DEVELOPER 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, DEVELOPER 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 Store 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. DEVELOPER acknowledges and
agrees that Delivery Service shall not include Catering Service, as defined in
the Agreement. DEVELOPER, 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. DEVELOPER 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, DEVELOPER 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
B-1
<PAGE> 92
consideration road conditions, when performing delivery services;
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 DEVELOPER'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.
DEVELOPER 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 DEVELOPER fails to provide Delivery Service as required pursuant to this
Rider, DEVELOPER 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) DEVELOPER's right to provide Delivery
Service, among other rights, pursuant to and in accordance with Section 3.B of
the Agreement. If COMPANY terminates DEVELOPER'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 DEVELOPER.
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 DEVELOPER in establishing and conducting Delivery Service or
the length of time DEVELOPER has offered Delivery Service: (a) to reduce,
modify or expend the Delivery Area, effective upon
B-2
<PAGE> 93
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 18.C of this Agreement), such
reduction or modification shall not be effective until 90 days after COMPANY's
written notice to DEVELOPER; or (b) to suspend or terminate DEVELOPER's right
to offer Delivery Service, effective one hundred eighty (180) days after
COMPANY's written notice to DEVELOPER. In the event of such suspension or
termination, COMPANY reserves the right to require DEVELOPER to reinstate
Delivery Service upon fifteen (15) days' prior written notice to DEVELOPER.
4. DISPLAY OF MARKS. DEVELOPER 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
DEVELOPER'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.
- -------------------------------- ---------------------------------
COMPANY DEVELOPER
By: By:
---------------------------- ----------------------------
Its: Its:
---------------------------- ----------------------------
B-3
<PAGE> 94
SCHEDULE A
TO THE DELIVERY RIDER
TO THE EINSTEIN/NOAH BAGEL CORP. DEVELOPMENT AGREEMENT
BY AND BETWEEN
EINSTEIN/NOAH BAGEL CORP.
AND EINSTEIN/NOAH BAGEL PARTNERS, L.P.
DATED _________________
DELIVERY AREA
1. DELIVERY AREA. The Delivery Area of the Store will be as
follows:
, provided that COMPANY may, and DEVELOPER 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 DEVELOPER in establishing and conducting Delivery
Service or the length of time DEVELOPER has offered Delivery Service, reduce,
modify or expand the Delivery Area.
INITIALS:
COMPANY:
---------------
DEVELOPER:
--------------
B-1
<PAGE> 95
EXHIBIT C
TO THE DEVELOPMENT AGREEMENT
BY AND BETWEEN EINSTEIN/NOAH BAGEL CORP.
AND
EINSTEIN/NOAH BAGEL PARTNERS, L.P.
DATED _____________________________
DEVELOPMENT FEE
<PAGE> 96
DEVELOPMENT FEE
1. DEVELOPMENT FEE. The Development Fee referred to in Section 7.A.
of this Agreement shall be FOUR MILLION FOUR HUNDRED FIFTEEN THOUSAND DOLLARS
($4,415,000). COMPANY shall credit DEVELOPER for the Development Fees
previously paid to COMPANY in the following manner: Colonial Bagels, L.P. -
$1,025,000, Great Lakes Bagels, L.P. - $1,125,000, Gulfstream Bagels, L.P. -
$990,000, Noah's Pacific, L.L.C. - $825,000 and Sunbelt Bagels, L.L.C. -
$450,000; which the parties acknowledge are in the aggregate Four Million Four
Hundred Fifteen Thousand Dollars ($4,415,000).
INITIALS:
COMPANY:
---------------
DEVELOPER:
--------------
C-1
<PAGE> 97
EXHIBIT D
TO THE DEVELOPMENT AGREEMENT
BY AND BETWEEN EINSTEIN/NOAH BAGEL CORP.
AND
EINSTEIN/NOAH BAGEL PARTNERS, L.P.
DATED ______________________
DEVELOPMENT AREA(S)
<PAGE> 98
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 - BOSTON DMA
Barnstable County, MA Nantucket County, MA
Belknap County, NH Norfolk County, MA
Cheshire County, NH Plymouth County, MA
Dukes County, MA Rockingham County, NH
Essex County, MA Strafford County, NH
Hillsborough County, NH Suffolk County, MA
Merrimack County, NH Windham County, VT
Middlesex County, MA Worcester County, MA
SUB-AREA NO. 2 - BURLINGTON/PLATTSBURGH DMA
Addison County, VT Grand Isle County, VT
Caledonia County, VT Lamoille County, VT
Chittenden County, VT Orange County, VT
Clinton County, NY Orleans County, VT
Essex County, NY Rutland County, VT
Essex County, VT Sullivan County, NH
Franklin County, NY Washington County, VT
Franklin County, VT Windsor County, VT
Grafton County, NH
SUB-AREA NO. 3 - CLEVELAND DMA
Ashland County, OH Lorain County, OH
Ashtabula County, OH Medina County, OH
Carroll County, OH Portage County, OH
Cuyahoga County, OH Richland County, OH
Erie County, OH Stark County, OH
Geauga County, OH Summit County, OH
Holmes County, OH Tuscarawas County, OH
Huron County, OH Wayne County, OH
Lake County, OH
<PAGE> 99
SUB-AREA NO. 4 - COLUMBUS DMA
Coshocton County, OH Madison County, OH
Delaware County, OH Marion County, OH
Fairfield County, OH Morgan County, OH
Fayette County, OH Morrow County, OH
Franklin County, OH Perry County, OH
Hardin County, OH Pickaway County, OH
Hocking County, OH Pike County, OH
Knox County, OH Union County, OH
Licking County, OH
SUB-AREA NO. 5 - PITTSBURGH DMA
Allegheny County, PA Indiana County, PA
Armstrong County, PA Lawrence County, PA
Beaver County, PA Monongalia County, WV
Butler County, PA Preston County, WV
Clarion County, PA Venango County, PA
Fayette County, PA Washington County, PA
Forest County, PA Westmoreland County, PA
Greene County, PA
SUB-AREA NO. 6 - NEW YORK DMA
Bergen County, NJ Nassau County, NY
Bronx County, NJ New York County, NY
Dutchess County, NY Ocean County, NJ
Essex County, NJ Orange County, NY
Fairfield County CT Passaic County, NJ
Hudson County, NJ Pike County, PA
Hunterdon County, NJ Putnam County, NY
Kings County, NY Queens County, NY
Middlesex County, NJ Richmond County, NY
Monmouth County, NJ Rockland County, NY
Morris County, NJ Somerset County, NJ
<PAGE> 100
SUB-AREA NO. 6 - NEW YORK DMA - CONT'D.
Suffolk County, NY Union County, NJ
Sullivan County, NY Warren County, NJ
Sussex County, NJ Westchester County, NY
Ulster County, NY
SUB-AREA NO. 7 - MILWAUKEE DMA
Dodge County, WI Racine County, WI
Jefferson County, WI Sheboygan County, WI
Kenosha County, WI Walworth County, WI
Milwaukee County, WI Washington County, WI
Ozaukee County, WI Waukesha County, WI
SUB-AREA NO. 8 - CHICAGO DMA
Cook County, IL Lake County, IL
De Kalb County, IL Lake County, IN
DuPage County, IL LaPorte County, IN
Grundy County, IL LaSalle County, IL
Jasper County, IN McHenry County, IL
Kane County, IL Newton County, IN
Kankakee County, IL Porter County, IN
Kendall County, IL Will County, IL
SUB-AREA NO. 9 - DETROIT DMA
Lapeer County, MI Oakland County, MI
Livingston County, MI St. Clair County, MI
Macomb County, MI Washtenaw County, MI
Monroe County, MI Wayne County, MI
SUB-AREA NO. 10 - MADISON DMA
Columbia County, WI Lafayette County, WI
Dane County, WI Marquette County, WI
Grant County, WI Richland County, WI
Green County, WI Rock County, WI
Iowa County, WI Sauk County, WI
Juneau County, WI
<PAGE> 101
SUB-AREA NO. 11 - INDIANAPOLIS DMA
Bartholomew County, IN Johnson County, IN
Benton County, IN Lawrence County, IN
Blackford County, IN Madison County, IN
Boone County, IN Marion County, IN
Brown County, IN Miami County, IN
Carroll County, IN Monroe County, IN
Cass County, IN Montgomery County, IN
Clinton County, IN Morgan County, IN
Decatur County, IN Owen County, IN
Delaware County, IN Putnam County, IN
Fountain County, IN Randolph County, IN
Grant County, IN Rush County, IN
Hamilton County, IN Shelby County, IN
Hancock County, IN Tippecanoe County, IN
Hendricks County, IN Tipton County, IN
Henry County, IN Warren County, IN
Howard County, IN White County, IN
SUB-AREA NO. 12 - ST. LOUIS DMA
Bond County, IL Monroe County, IL
Calhoun County, IL Montgomery County, IL
Clinton County, IL Montgomery County, MO
Crawford County, MO Perry County, MO
Fayette County, IL Pike County, MO
Franklin County, MO Randolph County, IL
Gasconade County, MO St. Charles County, MO
Greene County, IL St. Clair County, IL
Iron County, MO St. Francois County, MO
Jefferson County, MO St. Louis (Independent City), MO
Jersey County, IL St. Louis County, MO
Lincoln County, MO Ste. Genevieve County, MO
Macoupin County, IL Warren County, MO
Madison County, IL Washington County, IL
Madison County, MO Washington County, MO
Marion County, IL
<PAGE> 102
SUB-AREA NO. 13 - KANSAS CITY DMA
Anderson County, KS Henry County, MO
Atchison County, KS Jackson County, MO
Bates County, MO Johnson County, KS
Brown County, KS Johnson County, MO
Carroll County, MO Lafayette County, MO
Cass County, MO Leavenworth County, KS
Cladwell County, MO Linn County, KS
Clay County, MO Linn County, MO
Clinton County, MO Livingston County, MO
Daviess County, MO Miami County, KS
Douglas County, KS Pettis County, MO
Franklin County, KS Platte County, MO
Gentry County, MO Ray County, MO
Grundy County, MO Saline County, MO
Harrison County, MO Wyandotte County, KS
SUB-AREA NO. 14 - MINNEAPOLIS-ST. PAUL, DULUTH-SUPERIOR, LACROSSE-EAU CLAIRE DMA
Aitkin County, MN Douglas County, MN
Anoka County, MN Douglas County, WI
Ashland County, WI Dunn County, WI
Barron County, WI Eau Claire County, WI
Bayfield County, WI Gogebic County, MI
Beltrami County, MN Goodhue County, MN
Benton County, MN Grant County, MN
Big Stone County, MN Hennepin County, MN
Buffalo County, WI Houston County, MN
Burnett County, WI Hubbard County, MN
Carlton County, MN Iron County, WI
Carver County, MN Isanti County, MN
Cass County, MN Itasca County, MN
Chippewa County, MN Jackson County, MN
Chippewa County, WI Kanabec County, MN
Chisago County, MN Jackson County, WI
Cook County, MN Kandiyohi County, MN
Cottonwood County, MN Koochiching County, MN
Crawford County, WI La Crosse County, WI
Crow Wing County, MN Lac qui ParleCounty, MN
Dakota County, MN Lake County, MN
<PAGE> 103
SUB-AREA NO. 14 - MINNEAPOLIS-ST. PAUL, DULUTH-SUPERIOR,
LACROSSE-EAU CLAIRE DMA - CONT'D.
LeSueur County, MN Sherburne County, MN
Lyon County, MN Sibley County, MN
McLeod County, MN St. Croix County, WI
Meeker County, MN St. Louis County, MN
Mille Lacs County, MN Stearns County, MN
Monroe County, WI Steele County, MN
Morrison County, MN Stevens County, MN
Nicollet County, MN Swift County, MN
Pepin County, WI Todd County, MN
Pierce County, WI Tempealeau County, WI
Pine County, MN Traverse County, MN
Polk County, WI Vernon County, WI
Pope County, MN Wabasha County, MN
Ramsey County, MN Wadena County, MN
Redwood County, MN Waseca County, MN
Renville County, MN Washburn County, WI
Rice County, MN Washington County, MN
Rusk County, WI Winona County, MN
Sawyer County, WI Wright County, MN
Scott County, MN Yellow Medicine County, MN
SUB-AREA NO. 15 - AUSTIN DMA
Bastrop County, TX Lee County, TX
Blanco County, TX Llano County, TX
Burnet County, TX Mason County, TX
Caldwell County, TX Travis County, TX
Fayette County, TX Williamson County, TX
Hays County, TX
SUB-AREA NO. 16 - DALLAS DMA
Anderson County, TX Dallas County, TX
Bosque County, TX Delta County, TX
Collin County, TX Denton County, TX
Comanche County, TX Ellis County, TX
Cooke County, TX Erath County, TX
<PAGE> 104
SUB-AREA NO. 16 - DALLAS DMA - CONT'D.
Fanin County, TX Lamar County, TX
Freestone County, TX Navarro County, TX
Hamilton County, TX Palo Pinto County, TX
Henderson County, TX Parker County, TX
Hill County, TX Rains County, TX
Hood County, TX Rockwall County, TX
Hopkins County, TX Somervell County, TX
Hunt County, TX Tarrant County, TX
Jack County, TX Van Zandt County, TX
Johnson County, TX Wise County, TX
Kaufman County, TX
SUB-AREA NO. 17 - HOUSTON DMA
Austin County, TX Liberty County, TX
Brazoria County, TX Matagorda County, TX
Calhoun County, TX Montgomery County, TX
Chambers County, TX Polk County, TX
Colorado County, TX San Jacinto County, TX
Fort Bend County, TX Walker County, TX
Galveston County, TX Waller County, TX
Grimes County, TX Washington County, TX
Harris County, TX Wharton County, TX
Jackson County, TX
SUB-AREA NO. 18 - FT. MYERS/NAPLES DMA
Charlotte County, FL Glades County, FL
Collier County, FL Hendry County, FL
De Soto County, FL Lee County, FL
SUB-AREA NO. 19 - MIAMI/FT. LAUDERDALE DMA
Broward County, FL
Dade County, FL
Monroe County, FL
<PAGE> 105
SUB-AREA NO. 20 - ORLANDO/DAYTONA BEACH/MELBOURNE DMA
Brevard County, FL Osceola County, FL
Flagler County, FL Seminole County, FL
Lake County, FL Sumter County, FL
Marion County, FL Volusia County, FL
Orange County, FL
SUB-AREA NO. 21 - TAMPA/ST. PETERSBURG/SARASOTA DMA
Citrus County, FL Manatee County, FL
Hardee County, FL Pasco County, FL
Hernando County, FL Pinellas County, FL
Highlands County, FL Polk County, FL
Hillsborough County, FL Sarasota County, FL
SUB-AREA NO. 22 - WEST PALM BEACH/FT. PIERCE DMA
Indian River County, FL Palm Beach County, FL
Martin County, FL St. Lucie County, FL
Okeechobee County, FL
SUB-AREA NO. 23 - ATLANTA DMA
Banks County, GA Douglas County, GA
Barrow County, GA Fayette County, GA
Bartow County, GA Floyd County, GA
Butts County, GA Forsyth County, GA
Carroll County, GA Fulton County, GA
Chattooga County, GA Gilmer County, GA
Cherokee County, GA Gordon County, GA
Clarke County, GA Greene County, GA
Clay County, GA Gwinnett County, GA
Clayton County, GA Habersham County, GA
Cleburne County, AL Hall County, GA
Cobb County, GA Haralson County, GA
Coweta County, GA Heard County, GA
Dawson County, GA Henry County, GA
DeKalb County, GA Jackson County, GA
<PAGE> 106
SUB-AREA NO. 23 - ATLANTA DMA - CONT'D.
Jasper County, GA Putnam County, GA
Lamar County, GA Rabun County, GA
Lumpkin County, GA Randolph County, AL
Meriwether County, GA Rockdale County, GA
Morgan County, GA Spalding County, GA
Newton County, GA Towns County, GA
Oconee County, GA Troup County, GA
Oglethorpe County, GA Union County, GA
Paulding County, GA Upson County, GA
Pickens County, GA Walton County, GA
Pike County, GA White County, GA
Polk County, GA
SUB-AREA NO. 24 - CHARLOTTE DMA
Alexander County, NC Gaston County, NC
Anson County, NC Iredell County, NC
Ashe County, NC Lancaster County, SC
Avery County, NC Lincoln County, NC
Burke County, NC Mecklenberg County, NC
Cabarrus County, NC Richmond County, NC
Caldwell County, NC Rowan County, NC
Catawba County, NC Stanly County, NC
Chester County, SC Union County, NC
Chesterfield County, SC Watauga County, NC
Cleveland County, NC York County, SC
SUB-AREA NO. 25 - BALTIMORE DMA
Anne Arundel County, MD Dorchester County, MD
Baltimore (Ind. City), MD Harford County, MD
Baltimore County, MD Howard County, MD
Caroline County, MD Kent County, MD
Carroll County, MD Queen Anne's County, MD
Cecil County, MD Talbot County, MD
<PAGE> 107
SUB-AREA NO. 26 - WASHINGTON, DC
Alexandria (City of), VA Jefferson County, WV
Allegany County, PA King George County, VA
Arlington County, VA Loudoun County, VA
Berkeley County, WV Mineral County, WV
Bowie (City of), MD Montgomery County, MD
Calvert County, MD Morgan County, WV
Charles County, MD Page County, VA
Clarke County, VA Prince George's County, MD
Culpepper County, VA Prince William County, VA
District of Columbia Rappahannock County, VA
Fairfax County, VA Shenandoah County, VA
Fauquier County, VA Spotsylvania County, VA
Franklin County, PA St. Mary's County, MD
Frederick County, MD Stafford County, VA
Frederick County, VA Warren County, VA
Gaithersburg (City of), MD Washington County, MD
Hampshire County, WV Westmoreland County, VA
Hardy County, WV
SUB-AREA NO. 27 - RICHMOND DMA
Amelia County, VA Lancaster County, VA
Augusta County, VA Louisa County, VA
Brunswick County, VA Lunenburg County, VA
Buckingham County, VA Madison County, VA
Caroline County, VA Middlesex County, VA
Charles City County, VA Nelson County, VA
Chesterfield County, VA New Kent County, VA
Cumberland County, VA Northumberland County, VA
Dinwiddie County, VA Nottoway County, VA
Essex County, VA Orange County, VA
Fluvanna County, VA Powhatan County, VA
Goochland County, VA Prince Edward County, VA
Greensville County, VA Prince George County, VA
Hanover County, VA Richmond County, VA
Henrico County, VA Richmond (Ind. City), VA
King & Queen County, VA Sussex County, VA
King William County, VA
<PAGE> 108
SUB-AREA NO. 28 - PHILADELPHIA DMA
Atlantic County, NJ Gloucester County, NJ
Berks County, PA Kent County, DE
Bucks County, PA Lehigh County, PA
Burlington County, NJ Mercer County, NJ
Camden County, NJ Montgomery County, PA
Cape May County, NJ New Castle County, DE
Chester County, PA Northampton County, PA
Cumberland County, NJ Philadelphia County, PA
Delaware County, PA Salem County, NJ
SUB-AREA NO. 29 - LOS ANGELES DMA
Inyo County, CA San Bernardino County, CA
Kern County, CA San Luis Obispo County, CA
Los Angeles County, CA Santa Barbara County, CA
Orange County, CA Ventura County, CA
Riverside County, CA
SUB-AREA NO. 30 - PORTLAND DMA
Baker County, OR Linn County, OR
Benton County, OR Marion County, OR
Clackamas County, OR Multnomah County, OR
Clark County WA Polk County, OR
Clatsop County, OR Sherman County, OR
Columbia County, OR Skamania County, WA
Cowlitz County, WA Tillamook County, OR
Crook County, OR Union County, OR
Gilliam County, OR Wahkiakum County, WA
Harney County, OR Hood Wasco County, OR
River County, OR Washington County, OR
Jefferson County, OR Wheeler County, OR
Klickitat County, WA Yamhill County, OR
Lincoln County, OR
<PAGE> 109
SUB-AREA NO. 31 - SEATTLE/TACOMA DMA
Chelan County, WA Mason County, WA
Clallam County, WA Pacific County, WA
Grays Harbor County, WA Pierce County, WA
Island County, WA San Juan County, WA
Jefferson County, WA Skagit County, WA
King County, WA Snohomish County, WA
Kitsap County, WA Thurston County, WA
Lewis County, WA Whatcom County, WA
SUB-AREA NO. 32 - SACRAMENTO/STOCKTON/MODESTO DMA
Amador County, CA San Joaquin County, CA
Calaveras County, CA Sierra County, CA
Colusa County, CA Solano County, CA
El Dorado County, CA Stanislaus County, CA
Nevada County, CA Sutter County, CA
Placer County, CA Tuolumne County, CA
Plumas County, CA Yolo County, CA
Sacramento County, CA Yuba County, CA
SUB-AREA NO. 33 - SAN FRANCISCO/OAKLAND/SAN JOSE DMA
Alameda County, CA San Benito County, CA
Contra Costa County, CA San Francisco County, CA
Lake County, CA San Mateo County, CA
Marin County, CA Santa Clara County, CA
Mendocino County, CA Santa Cruz County, CA
Monterey County, CA Sonoma County, CA
Napa County, CA
SUB-AREA NO. 34 - FRESNO/VISALIA DMA
Fresno County, CA Mariposa County, CA
Kings County, CA Merced County, CA
Madera County, CA Tulare County, CA
SUB-AREA NO. 35 - PALM SPRINGS DMA
Riverside County, CA (Central portion)
<PAGE> 110
SUB-AREA NO. 36 - SAN DIEGO DMA
SAN DIEGO COUNTY, CA
SUB-AREA NO. 37 - PHOENIX
COCONINO COUNTY, AZ MARICOPA COUNTY, AZ
GILA COUNTY, AZ MOHAVE COUNTY, AZ
GRAHAM COUNTY, AZ NAVAJO COUNTY, AZ
GREENLEE COUNTY, AZ PINAL COUNTY, AZ
LA PAZ COUNTY, AZ YAVAPAI COUNTY, AZ
SUB-AREA NO. 38 - TUCSON
Cochise County, AZ Santa Cruz County, AZ
Pima County, AZ
SUB-AREA NO. 39 - ALBUQUERQUE DMA
Apache County, AZ Los Alamos County, NM
Archuleta County, CO Luna County, NM
Bernalillo County, NM McKinley County, NM
Catron County, NM Montequma County, CO
Chaves County, NM Mora County, NM
Cibola County, NM Otero County, NM
Colfax County, NM Rio Arriba County, NM
Conejos County, CO Roosevelt County, NM
De Baca County, NM Sandoval County, NM
Eddy County, NM San Juan County, NM
Grant County, NM San Miguel County, NM
Guadalupe County, NM Santa Fe County, NM
Harding County, NM Sierra County, NM
Hidalgo County, NM Socorra County, NM
Lincoln County, NM Taos County, NM
La Plata County, CO Torrance County, NM
Lea County, NM Valencia County, NM
<PAGE> 111
SUB-AREA NO. 40 - DENVER
Adams County, CO Lake County, CO
Alamosa County, CO Lander County, NV
Arapahoe County, CO Larimer County, CO
Boulder County, CO Lincoln County, CO
Box Butte County, NE Logan County, CO
Campbell County, WY Mineral County, CO
Chaffee County, CO Moffat County, CO
Clear Creek County, CO Morgan County, CO
Costilla County, CO Park County, CO
Dawes County, NE Phillips County, CO
Douglas County, CO Pitkin County, CO
Eagle County, CO Prowers County, CO
Elbert County, CO Rio Blanco County, CO
Eureka County, NV Rio Grande County, CO
Fallon County, MT Routt County, CO
Garfield County, CO Saguache County, CO
Gilpin County, CO San Juan County, CO
Grand County, CO Sedgewick County, CO
Gunnison County, CO Summit County, CO
Hinsdale County, CO Washington County, CO
Jackson County, CO Weld County, CO
Jefferson County, CO Yuma County, CO
Kit Carson County, CO
SUB-AREA NO. 41 - COLORADO SPRINGS
Baca County, CO Huerfano County, CO
Bent County, CO Kiowa County, CO
Cheyenne County, CO Las Animas County, CO
Crowley County, CO Otero County, CO
Custer County, CO Pueblo County, CO
El Paso County, CO Teller County, CO
Fremont County, CO
SUB-AREA NO. 42 - LAS VEGAS
Clark County, NV Lincoln County, NV Nye County, NV
<PAGE> 112
SUB-AREA NO. 43 - SALT LAKE CITY
Bear Lake County, ID Oneida County, ID
Beaver County, UT Piute County, UT
Box Elder County, UT Rich County, UT
Cache County, UT Salt Lake County, UT
Carbon County, UT San Juan County, UT
Caribou County, ID Sanpete County, UT
Daggett County, UT Sevier County, UT
Davis County, UT Sublette County, WY
Dolores County, CO Summit County, UT
Duchesue County, UT Sweetwater County, WY
Elko County, NV Teton County, WY
Emery County, UT Tooele County, UT
Franklin County, ID Uinta County, WY
Garfield County, UT Uintah County, UT
Grand County, UT Utah County, UT
Iron County, UT Wasatch County, UT
Juab County, UT Washington County, UT
Kane County, UT Wayne County, UT
Millard County, UT Weber County, UT
Morgan County, UT White Pine County, NV
INITIALS:
COMPANY:
-------------
DEVELOPER:
-----------
<PAGE> 113
EXHIBIT E
TO THE DEVELOPMENT AGREEMENT
BY AND BETWEEN EINSTEIN/NOAH BAGEL CORP.
AND
EINSTEIN/NOAH BAGEL PARTNERS, L.P.
DATED _________________________
DEVELOPMENT SCHEDULE
<PAGE> 114
DEVELOPMENT SCHEDULE
1. STORE DEVELOPMENT. DEVELOPER agrees to develop a total of EIGHT
HUNDRED EIGHTY-THREE (883) Stores in accordance with the terms of this
Agreement.
1. DEVELOPMENT OBLIGATIONS. DEVELOPER agrees to have the number of
Stores specified below open during each specified "Quarter" shown below and to
have open and in operation in each Quarter indicated, the cumulative numbers of
Stores shown below:
<TABLE>
<CAPTION>
DEVELOPMENT QUOTA/ DEVELOPMENT QUOTA/
QUARTER QUARTER CUMULATIVE
------- ------------------ ------------------
<S> <C> <C>
12/01/97 - 12/28/97 20 20
12/29/97 - 04/19/98 30 50
04/20/98 - 07/12/98 35 85
07/13/98 - 10/04/98 55 140
10/05/98 - 12/27/98 55 195
12/28/98 - 04/18/99 40 235
04/19/99 - 07/11/99 45 280
07/12/99 - 10/03/99 45 325
10/04/99 - 12/26/99 45 370
12/27/99 - 04/16/00 40 410
04/17/00 - 07/09/00 45 455
07/10/00 - 10/01/00 45 500
10/02/00 - 12/31/00 45 545
</TABLE>
E-1
<PAGE> 115
<TABLE>
<CAPTION>
DEVELOPMENT QUOTA/ DEVELOPMENT QUOTA/
QUARTER QUARTER CUMULATIVE
------- ------------------ ------------------
<S> <C> <C>
01/01/01 - 04/22/01 40 585
04/23/01 - 07/15/01 45 630
07/16/01 - 10/07/01 45 675
10/08/01 - 12/30/01 45 720
12/31/01 - 04/21/02 40 760
04/22/02 - 07/14/02 40 800
07/15/02 - 10/06/02 40 840
10/07/02 - 12/29/02 43 883
</TABLE>
TOTAL DEVELOPMENT QUOTA FOR THE
DEVELOPMENT AREA (THE "TOTAL
DEVELOPMENT QUOTA"):
883
INITIALS:
COMPANY:
-------------
DEVELOPER:
-----------
E-2
<PAGE> 116
EXHIBIT F
TO THE DEVELOPMENT AGREEMENT
BY AND BETWEEN EINSTEIN/NOAH BAGEL CORP.
AND
EINSTEIN/NOAH BAGEL PARTNERS, L.P.
DATED ________________
FORM LICENSE AGREEMENT
<PAGE> 117
EINSTEIN/NOAH BAGEL CORP.
LICENSE AGREEMENT
---------------------------
LICENSE OWNER
<PAGE> 118
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 LICENSE....................................................................................... 8
A. GRANT OF LICENSE; TERM; PRINCIPAL OWNERS' GUARANTY............................................ 8
B. TERRITORIAL RIGHTS............................................................................ 9
C. RIGHTS RETAINED BY COMPANY.................................................................... 9
D. LICENSE 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............................................................................... 15
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
</TABLE>
<PAGE> 119
<TABLE>
<CAPTION>
SECTION PAGE
<S> <C> <C>
B. LIMITATIONS ON LICENSE OWNER'S USE OF MARKS................................................... 20
C. NOTIFICATION OF INFRINGEMENTS AND CLAIMS...................................................... 20
D. DISCONTINUANCE OF USE OF MARKS................................................................ 21
E. INDEMNIFICATION OF LICENSE OWNER.............................................................. 21
7. COPYRIGHTS............................................................................................. 22
A. OWNERSHIP OF COPYRIGHTED WORKS................................................................ 22
B. LIMITATION ON LICENSE 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................................................................... 23
A. GRANT OF SOFTWARE LICENSE..................................................................... 23
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................................................ 27
9. CONFIDENTIAL INFORMATION............................................................................... 28
10. EXCLUSIVE RELATIONSHIP................................................................................. 31
11. FEES................................................................................................... 32
A. INITIAL LICENSE 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..................................................................... 33
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
</TABLE>
ii
<PAGE> 120
<TABLE>
<CAPTION>
SECTION PAGE
<S> <C> <C>
D. SPECIFICATIONS, STANDARDS AND PROCEDURES...................................................... 38
E. COMPLIANCE WITH LAWS AND GOOD BUSINESS PRACTICES.............................................. 40
F. MANAGEMENT AND PERSONNEL OF THE STORE......................................................... 41
G. INSURANCE..................................................................................... 41
H. CREDIT CARDS AND OTHER METHODS OF PAYMENT..................................................... 42
13. ADVERTISING............................................................................................ 43
A. MARKETING FUND................................................................................ 43
B. LOCAL ADVERTISING FUND........................................................................ 45
C. ADVERTISING BY LICENSE 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 LICENSE 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 LICENSES............................................................................ 60
A. LICENSE OWNER'S RIGHT TO A SUCCESSOR LICENSE.................................................. 60
B. NOTICES....................................................................................... 61
C. SUCCESSOR LICENSE AGREEMENT/RELEASES.......................................................... 61
18. TERMINATION OF THE LICENSE............................................................................. 62
A. BY LICENSE OWNER.............................................................................. 62
B. BY COMPANY.................................................................................... 62
C. TERMINATION OF CERTAIN RIGHTS OF LICENSE OWNER................................................ 65
</TABLE>
iii
<PAGE> 121
<TABLE>
<CAPTION>
SECTION PAGE
<S> <C> <C>
19. RIGHTS AND OBLIGATIONS OF COMPANY AND LICENSE
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...................................................................... 67
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............................................................................... 71
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.......................................................................... 74
F. GOVERNING LAW................................................................................. 75
G. CONSENT TO JURISDICTION/CHOICE OF FORUM....................................................... 75
H. LIMITATIONS OF CLAIMS......................................................................... 75
I. WAIVER OF PUNITIVE DAMAGES.................................................................... 75
J. WAIVER OF JURY TRIAL.......................................................................... 76
K. BINDING EFFECT................................................................................ 76
L. CONSTRUCTION.................................................................................. 76
M. REASONABLENESS; APPROVALS..................................................................... 76
22. NOTICES AND PAYMENTS................................................................................... 76
</TABLE>
iv
<PAGE> 122
<TABLE>
<CAPTION>
EXHIBITS AND ATTACHMENTS
<S> <C>
EXHIBIT A - CATERING RIDER
EXHIBIT B - DELIVERY RIDER
EXHIBIT C - LICENSE 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 LICENSE 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 TO BE USED BY LICENSE OWNER
</TABLE>
v
<PAGE> 123
EINSTEIN/NOAH BAGEL CORP.
LICENSE AGREEMENT
THIS AGREEMENT is made and entered into this day of , (the "EFFECTIVE
DATE"), by and between EINSTEIN/NOAH BAGEL CORP., a Delaware corporation
("COMPANY"), and LICENSE OWNER (as defined below).
LICENSE 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 a number of branded retail food
service businesses, each with its own concept and operated under its own system
and marks 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 LICENSE OWNER the right to offer Delivery Service (defined
below); or Catering Service (defined below) or to operate Special Distribution
Arrangements (defined below) in connection with the UNIT. UNITS utilize the
Marks (defined below) and 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 grants licenses to certain qualified parties to own and
operate UNITS using the System and the Marks.
LICENSE OWNER has requested that COMPANY grant it a license to own and
operate a UNIT at the Site (defined below) using the branded concept, Principal
Marks (defined below) and System described in Exhibit K (a "Store"). LICENSE
OWNER's request and the Site have been approved by COMPANY in reliance upon all
of the representations made in LICENSE OWNER'S application, in LICENSE OWNER's
Site Approval Package (as defined in the Development Agreement), during the
application process and in the License Owner Acknowledgments and
Representations Statement, a copy of which is attached hereto as Exhibit C,
which shall be executed by LICENSE OWNER concurrently with this Agreement.
Pursuant to the terms of the Development Agreement (defined below)
COMPANY has granted to LICENSE OWNER (referred to in the Development Agreement
as "DEVELOPER") the right to acquire the license to own and operate one (1) or
more Stores.
<PAGE> 124
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.
"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 LICENSE 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 License Agreement (as
defined in the Development Agreement) used by COMPANY from time to time to
authorize in its sole discretion a license 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, LICENSE 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 LICENSE OWNER
pursuant to
2
<PAGE> 125
this Agreement that:
(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 licenses or franchises 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 agreement 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
3
<PAGE> 126
operated by COMPANY or a franchisee or a licensee
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 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 LICENSE OWNER;
(2) security systems;
(3) printers; and
(4) archival and back-up systems.
"CONTROLLING INTEREST" - If LICENSE OWNER is a:
(1) corporation, such number of the voting shares of LICENSE
OWNER or such other rights as (a) shall permit voting control of
LICENSE 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 LICENSE 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, a general partnership interest, or
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 LICENSE OWNER or such other rights as (a)
shall permit voting control of LICENSE 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 LICENSE 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
4
<PAGE> 127
different from the Territory (defined below).
"DELIVERY RIDER" - The form of rider to a License Agreement used by
COMPANY from time to time to authorize or require in its sole discretion a
license 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 particular location
within the Delivery Area.
"DEVELOPMENT AGREEMENT" - The Einstein/Noah Bagel Corp. Amended and
Restated Development Agreement executed by COMPANY and LICENSE OWNER, as
Developer, dated as of the date stated in Exhibit D attached hereto, pursuant
to which LICENSE OWNER 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 LICENSE 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 or license
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
5
<PAGE> 128
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:
(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 uses and authorizes developers and franchise or license
owners to use to identify the services and/or products offered by UNITS, 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 Marks include the Principal
Marks which LICENSE OWNER is authorized to use in the operation of the Store.
"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 LICENSE OWNER and each person who has other
direct or indirect property rights in LICENSE OWNER, this Agreement, 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
6
<PAGE> 129
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 or licensor 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.
"PRINCIPAL MARKS" - The Marks COMPANY authorizes LICENSE OWNER to use
to identify the Store. The Principal Marks as of the date of this Agreement are
described in Exhibit K to this Agreement.
"PRINCIPAL OWNER" - Each Owner which:
(1) is a general partner or managing member in LICENSE 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)
LICENSE OWNER or (b) any Store or (c) any developer and/or license
owner of UNITS other than LICENSE 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
LICENSE OWNER, a UNIT or such developer and/or license owner of a
UNIT; or
(3) is designated as a Principal Owner in Exhibit E 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 license 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
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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 Territory.
"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 LICENSE OWNER is licensed to operate at the
Site pursuant to this Agreement that operates using the System and Principal
Marks identified in Exhibit K hereto and pursuant to COMPANY's operational
requirements associated with such Principal Marks as in effect from time to
time.
"TERRITORY" - The geographic area described in Exhibit F of this
Agreement.
"TRADE DRESS" - The 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 branded retail store 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 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 or license from COMPANY.
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2. GRANT OF LICENSE
2.A. GRANT OF LICENSE; TERM; PRINCIPAL OWNERS' GUARANTY
Subject to the provisions of this Agreement, COMPANY hereby grants to
LICENSE OWNER a license (the "License") 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 License
and any and all licenses granted herein. LICENSE 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. LICENSE 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.
LICENSE 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 spouses, to execute and deliver to
COMPANY promptly thereafter, the form of Guaranty and Assumption of License
Owner's Obligations ("GUARANTY") attached hereto as Exhibit G.
Notwithstanding the foregoing:
(a) LICENSE 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, LICENSE
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 LICENSE OWNER is in
full compliance with this Agreement, COMPANY and its Affiliates will not during
the term of this Agreement, operate or grant licenses or franchises for the
operation of Stores within the Territory other than the License granted to
LICENSE OWNER pursuant to this Agreement.
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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, using the Marks or any other
marks and using the System or any other system 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 expressly granted to LICENSE OWNER in Section
2.B. of this Agreement); and
(2) subject to any rights of LICENSE 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 (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. LICENSE 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 Stores, COMPANY agrees
to offer to sell such Conversion Sites to LICENSE 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
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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 LICENSE OWNER's
acquisition; and
(5) LICENSE OWNER agrees to (a) execute, concurrently with
LICENSE OWNER's purchase, COMPANY's then current form of standard
license agreement containing COMPANY's then current fees and expense
requirements and such ancillary documents (including guarantees) as
are then customarily used by COMPANY in the grant of licenses 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 a Store 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.
LICENSE 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,
LICENSE OWNER shall have 30 days from the date of acceptance within which to
complete the acquisition.
In the event LICENSE 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
LICENSE 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
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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 LICENSE 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
LICENSE OWNER acknowledges and agrees that: (1) LICENSE OWNER is not
granted, and COMPANY has no obligation to offer to LICENSE 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 LICENSE OWNER the right to operate a Special Distribution
Arrangement at a Special Distribution Location designated by COMPANY, COMPANY
will so notify LICENSE OWNER by delivering to LICENSE OWNER a form of Special
Distribution Agreement. LICENSE OWNER will have fifteen (15) days after its
receipt thereof to execute and deliver to COMPANY such executed Special
Distribution Agreement. If LICENSE 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 LICENSE 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 LICENSE 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 LICENSE OWNER's right to operate the Special Distribution
Arrangement, effective ninety (90) days after COMPANY's written notice to
LICENSE 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 LICENSE OWNER a
Special Distribution Agreement, the execution of which shall be governed by
this Section 3.A.
3.B. DELIVERY SERVICE
LICENSE OWNER acknowledges and agrees that: (1) LICENSE OWNER is not
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granted, and COMPANY has no obligation to offer to LICENSE 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
LICENSE OWNER, or to DEVELOPER pursuant to the Development Agreement, the right
to offer Delivery Service by delivering to LICENSE OWNER (or DEVELOPER) a form
of Delivery Rider to this Agreement (or a Delivery Rider to the Development
Agreement). LICENSE 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 LICENSE 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
LICENSE 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
and license 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 LICENSE OWNER (or DEVELOPER) and will deliver to LICENSE OWNER (or
DEVELOPER) a Delivery Rider to this Agreement (or the Development Agreement)
which LICENSE 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 LICENSE OWNER (or DEVELOPER) in establishing and conducting
Delivery Service or the length of time LICENSE OWNER (or DEVELOPER) has offered
Delivery Service: (1) to reduce, modify or expand the Delivery Area, effective
upon COMPANY's written notice to LICENSE OWNER, provided, however, that if a
reduction or modification of the Delivery Area amounts to a termination of
substantially all of LICENSE 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 LICENSE OWNER; or (2) to suspend or terminate
LICENSE OWNER's (or DEVELOPER's) right to offer Delivery Service, effective
ninety (90) days after COMPANY's written notice to LICENSE OWNER (or
DEVELOPER); and COMPANY may otherwise terminate LICENSE 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 LICENSE
OWNER's (or DEVELOPER's) right to offer Delivery Service, COMPANY reserves the
right to require LICENSE OWNER (or DEVELOPER) to reinstate Delivery Service
upon fifteen (15) days' prior written notice to LICENSE OWNER (or DEVELOPER).
3.C. CATERING SERVICE
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LICENSE OWNER acknowledges and agrees that: (1) LICENSE OWNER is not
granted, and COMPANY has no obligation to offer to LICENSE 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
LICENSE OWNER, or to DEVELOPER pursuant to the Development Agreement the right
to offer Catering Service by delivering to LICENSE OWNER (or DEVELOPER) a form
of Catering Rider to this Agreement (or to the Development Agreement). LICENSE
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 LICENSE 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 LICENSE 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
and license 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 LICENSE OWNER (or DEVELOPER) and will deliver to LICENSE OWNER (or
DEVELOPER) a Catering Rider to this Agreement (or to the Development Agreement)
which LICENSE 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 LICENSE OWNER (or DEVELOPER) in
establishing and conducting Catering Service or the length of time LICENSE
OWNER (or DEVELOPER) has offered Catering Service: (1) to reduce, modify or
expand the Catering Area, effective upon COMPANY's written notice to LICENSE
OWNER, provided, however, that if a reduction or modification of the Catering
Area amounts to a termination of substantially all of LICENSE 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 LICENSE
OWNER; or (2) to suspend or terminate LICENSE OWNER's (or DEVELOPER's) right to
offer Catering Service, effective ninety (90) days after COMPANY's written
notice to LICENSE OWNER (or DEVELOPER) (in which case LICENSE 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 LICENSE
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 LICENSE
OWNER's (or DEVELOPER's) right to offer Catering Service, COMPANY reserves the
right to require LICENSE OWNER (or DEVELOPER) to reinstate Catering Service
upon fifteen (15) days' prior written notice to LICENSE OWNER (or DEVELOPER).
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4. DEVELOPMENT AND OPENING OF THE STORE
4.A. SITE SELECTION AND LEASE
Prior to execution of this Agreement, LICENSE 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 LICENSE OWNER specifications of COMPANY's
requirements for design, decoration, layout, equipment, furnishings, fixtures
and signs for Stores using the Principal Marks designed on Exhibit K and the
Trade Dress and operating procedures associated therewith (the "Design
Specifications"). LICENSE 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. LICENSE 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 one hundred twenty (120) days after the date of execution of
this Agreement, LICENSE 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
(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
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(6) (a) acquire the Computer System for the Store and acquire
the right to use, for the remainder of the term of this Agreement, 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
LICENSE 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. LICENSE 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
LICENSE OWNER's request, COMPANY will from time to time supply LICENSE OWNER
with a list of suppliers who sell items which meet COMPANY's specifications.
4.E. COMPUTER SYSTEM
LICENSE 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. LICENSE 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.
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4.F. STORE OPENING
LICENSE OWNER agrees not to open the Store for business until:
(1) COMPANY notifies LICENSE OWNER in writing that all of
LICENSE 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.
LICENSE OWNER agrees to comply with these conditions and to be prepared to open
the Store for business within one hundred twenty (120) days after the date of
this Agreement. COMPANY's determination that LICENSE OWNER has met all of
COMPANY's pre-opening requirements shall not constitute a waiver of
non-compliance by LICENSE OWNER or of COMPANY's right to demand full compliance
with such requirements. LICENSE 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 LICENSE OWNER
stating that the Store is ready for opening.
4.G. GRAND OPENING PROGRAM
LICENSE 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
(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 LICENSE OWNER
shall prepare
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and submit to COMPANY for approval at least forty-five (45) days prior
to the opening date of the Store. If LICENSE 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 LICENSE OWNER's lease or sublease for the Site of the Store expires
or terminates without fault of LICENSE 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 LICENSE 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 or licensees under their agreements with COMPANY. Any such
relocation shall be at LICENSE OWNER's sole expense. LICENSE 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, LICENSE
OWNER must submit a written plan for LICENSE 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. LICENSE 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 LICENSE OWNER's
debt/equity ratio and amount of indebtedness in reviewing such plan. Once a
plan is approved by COMPANY, LICENSE 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.
5. TRAINING AND GUIDANCE
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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 LICENSE 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 LICENSE 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 LICENSE
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 LICENSE 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, LICENSE 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, LICENSE 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.
LICENSE OWNER shall be responsible for the travel, living and other
expenses (including, without limitation, local transportation expenses) and
compensation of LICENSE OWNER, the Store Manager, the Additional Manager,
assistant managers, and any other agents or employees of LICENSE OWNER incurred
in connection with attendance at training programs or work at UNITS that is
part of their training.
5.B. GUIDANCE AND ASSISTANCE
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COMPANY shall, in its sole discretion, furnish guidance to LICENSE
OWNER with respect to:
(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 LICENSE 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 LICENSE 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 LICENSE OWNER, for its sole use, one (1) copy of
a set of COMPANY's confidential manuals relating to the development and
operation of Stores, 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 LICENSE OWNER with respect to the type of
UNIT developed pursuant to this Agreement), whether by way of supplements,
replacement pages, 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 LICENSE OWNER in
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the operation of the Store, and to specify changes in the decor, format, image,
Products, services and operations of Stores prescribed by COMPANY or such other
changes or additions as COMPANY deems necessary or advisable. LICENSE 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. LICENSE OWNER
acknowledges that the Store Manuals are part of the Confidential Information
and will be used and protected accordingly. LICENSE OWNER acknowledges and
agrees that the content of the Store Manuals, as modified from time to time, is
incorporated herein by reference and that LICENSE 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
LICENSE OWNER acknowledges that LICENSE 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 LICENSE 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 License. Any unauthorized use of the Marks by
LICENSE OWNER shall constitute a breach of this Agreement and an infringement
of the rights of COMPANY in and to the Marks. LICENSE OWNER acknowledges and
agrees that all usage of the Marks by LICENSE 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 LICENSE 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 license
owners by COMPANY), for use by and licensed to LICENSE OWNER by COMPANY.
6.B. LIMITATIONS ON LICENSE OWNER'S USE OF MARKS
LICENSE OWNER agrees to use the Marks as the sole trade identification
of the Store and the Products, provided that LICENSE OWNER shall identify
itself as the independent owner and licensee of the Store in the manner
prescribed by COMPANY. Except with the written consent of COMPANY, LICENSE
OWNER shall not use any Mark as part of any corporate name or other name of
LICENSE OWNER or with any prefix, suffix, or other modifying words, terms,
designs, or symbols, or in any modified form, nor may LICENSE 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.
LICENSE OWNER agrees to
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display the Marks prominently in the manner prescribed by COMPANY at the Store
and in connection with advertising and marketing materials. LICENSE 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.
6.C. NOTIFICATION OF INFRINGEMENTS AND CLAIMS
LICENSE OWNER shall immediately notify COMPANY of any apparent
infringement of or challenge to LICENSE OWNER's authorized use of any Mark, or
claim by any person of any rights in any Mark, and LICENSE 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. LICENSE 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 LICENSE OWNER for the reasonable out-of-pocket expenses incurred and
paid by LICENSE 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 LICENSE OWNER (by way of counterclaim or otherwise)
which exceeds LICENSE OWNER's costs, then LICENSE OWNER must pay its own costs
and share pro rata in COMPANY's costs therefor up to the amount of LICENSE
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, LICENSE 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 LICENSE OWNER for any expenditures made by LICENSE
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
LICENSE OWNER for any goodwill related to the discontinued Mark.
6.E. INDEMNIFICATION OF LICENSE OWNER
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COMPANY agrees to indemnify LICENSE OWNER against and to reimburse
LICENSE OWNER for all damages for which LICENSE 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 LICENSE OWNER's authorized use of the Marks, pursuant to
and in compliance with this Agreement, and for all costs reasonably incurred by
LICENSE OWNER in the defense of any such claim brought against LICENSE OWNER or
in any proceeding in which LICENSE OWNER is named as a party, provided that
LICENSE 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
LICENSE OWNER and COMPANY acknowledge and agree (1) that COMPANY may
authorize LICENSE 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 LICENSE OWNER's rights to use the Copyrighted Works are granted to LICENSE
OWNER solely on the condition that LICENSE OWNER complies with the terms of
this Section. LICENSE 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. LICENSE OWNER acknowledges that this Agreement does not confer any
interest in the Copyrighted Works upon LICENSE OWNER, other than the right to
use them in the operation of the Store in compliance with this Agreement. If
COMPANY authorizes LICENSE OWNER to prepare any adaptation, translation or work
derived from the Copyrighted Works, or if LICENSE OWNER prepares any Copyrighted
Works such as menus, advertisements, posters or promotional material, LICENSE
OWNER hereby agrees that such adaptation, translation, derivative work or
Copyrighted Work shall be the property of COMPANY, and LICENSE OWNER hereby
assigns all its right, title and interest therein to COMPANY (or such other
person identified by COMPANY). LICENSE OWNER agrees to execute any documents, in
recordable form, which COMPANY determines are necessary to reflect such
ownership. LICENSE OWNER shall submit all such adaptations, translations,
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derivative works and Copyrighted Works to COMPANY for approval prior to use.
7.B. LIMITATION ON LICENSE OWNER'S USE OF COPYRIGHTED WORKS
LICENSE OWNER acknowledges that LICENSE 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 Agreement and all applicable standards, specifications,
and operating procedures prescribed by COMPANY from time to time during the
term of this Agreement. LICENSE 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
LICENSE 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. LICENSE 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. LICENSE 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 LICENSE OWNER for the reasonable out-of-pocket expenses incurred
and paid by LICENSE 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 LICENSE OWNER (by way of counterclaim or otherwise) which
exceeds LICENSE OWNER's costs, then LICENSE OWNER must pay its own costs and
share pro rata in COMPANY's costs therefor up to the amount of LICENSE 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
LICENSE
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OWNER to modify or discontinue use of any of the Copyrighted Works and/or for
LICENSE OWNER to use one or more additional or substitute copyrighted or
copyrightable items, LICENSE 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 LICENSE OWNER for any
expenditures made by LICENSE OWNER to modify or discontinue the use of any
Copyrighted Work or to adopt additional or substitute copyrighted or
copyrightable items.
8. LICENSED PROGRAM AND COMPUTER SYSTEM
8.A. GRANT OF SOFTWARE LICENSE
COMPANY hereby grants to LICENSE 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 LICENSE OWNER does
not purchase the Computer System from COMPANY, LICENSE OWNER must
pay COMPANY or its designee a reasonable installation and testing
fee upon completion of COMPANY's or its designee's installation
and testing of the operation of the Licensed Program with the
Computer System. LICENSE 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 LICENSE
OWNER and employees of LICENSE 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 LICENSE
OWNER's principal office; provided, however, that with prior
notice to COMPANY, LICENSE OWNER may operate the Licensed Program
on equipment other than the Computer System and at a location
other than the Store and the LICENSE OWNER's principal office to
the extent required due to malfunction of the Computer System or
other cause beyond the reasonable control of LICENSE 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 LICENSE OWNER's operation
of the Store and shall not be used for any other purpose.
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(4) Without limiting the foregoing, LICENSE 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, 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) LICENSE 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
LICENSE 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. LICENSE 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. LICENSE 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. LICENSE 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) LICENSE OWNER shall promptly disclose to COMPANY all ideas
and suggestions for modifications or enhancements of the
Licensed Program conceived or developed by or for LICENSE
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 LICENSE OWNER hereby assigns all of its
right, title, and interest in any ideas, modifications, and
enhancements to
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COMPANY. LICENSE OWNER agrees to execute any document, in
recordable form, which COMPANY determines is necessary to
reflect such ownership.
(7) COMPANY or its designee shall have the right at all times to
access the Licensed Program and to retrieve, analyze and use all
data in the files of LICENSE OWNER for the Licensed Program.
(8) COMPANY or its designee shall provide to LICENSE 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 LICENSE OWNER
shall promptly implement their use.
(9) Upon expiration or termination of this Agreement, LICENSE OWNER
shall allow COMPANY's or its designee'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 or its designee, 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
LICENSE OWNER agrees to pay to COMPANY or its designee upon
installation of the Licensed Program on LICENSE 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 or its designee 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 LICENSE OWNER is
in compliance with the terms of this Agreement, COMPANY or its designee shall
provide to LICENSE 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 or its designee provides to COMPANY-operated
UNITS. Such support services shall not extend to error corrections, operational
support and assistance resulting from LICENSE OWNER's use or operation of
software which is not authorized by this Agreement for use on the Computer
System, (b) software training or (c) hardware maintenance such support service
shall include non-
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procedure Help Desk calls. All procedural Help Desk calls will be handled by
COMPANY for an additional fee of $25 per call.
8.D. SOFTWARE SUPPORT SERVICE FEE
For the software support service provided to LICENSE OWNER, as
described above, LICENSE OWNER agrees to pay to COMPANY or its designee 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 LICENSE OWNER.
8.E. MODIFICATION, ENHANCEMENT,
AND REPLACEMENT OF COMPUTER SYSTEM,
LICENSED PROGRAM AND SPECIFIED SOFTWARE.
LICENSE OWNER acknowledges that COMPANY may, during the term of this
Agreement, require LICENSE OWNER to modify, enhance and/or replace all or any
part of the Computer System, the Licensed Program and/or the Specified Software
at LICENSE 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 LICENSE 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. LICENSE 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
License Agreement. Nonetheless, LICENSE 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 LICENSE OWNER that: (1) COMPANY has
the right to license the Licensed Program to LICENSE 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 LICENSE OWNER's use of the Licensed
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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 LICENSE 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
LICENSE OWNER's sole and exclusive remedy against COMPANY in such event.
Neither COMPANY nor its designee represents or warrants to LICENSE
OWNER, and expressly disclaims any warranty, that the Licensed Program is
error-free or that the operation and use of the Licensed Program by LICENSE
OWNER will be uninterrupted or error-free. Neither COMPANY nor its designee
shall have any obligation or liability for any expense or loss incurred by
LICENSE 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 AND/OR ITS
DESIGNEE MAKE 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.
8.G. SUBCOMPONENT LICENSES AND THIRD-PARTY LICENSES
LICENSE OWNER acknowledges that the Licensed Program contains
third-party components and subcomponents which COMPANY has the authority to
license to LICENSE 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, LICENSE OWNER
acknowledges that acquisitions by LICENSE 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 LICENSE
OWNER or specifically require LICENSE OWNER to agree to be bound by the terms
thereof (either type of license hereinafter referred to as the "Third Party
Licenses"). LICENSE 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 LICENSE 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. LICENSE
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
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Licenses by LICENSE 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 or license 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, licensing 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
(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 LICENSE 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 Store during training, and in guidance
and assistance furnished to
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LICENSE OWNER during the term of the License, and LICENSE OWNER may learn or
otherwise obtain from COMPANY and its Affiliates and other licensors of
components or elements of the System, other developers, other license owners
and franchise owners additional Confidential Information of COMPANY during the
term of the License. LICENSE OWNER acknowledges and agrees that neither LICENSE
OWNER nor any other person or entity will acquire by or through LICENSE OWNER
any interest in or right to use the Confidential Information other than the
LICENSE 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, franchise owners and license owners. LICENSE
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.
LICENSE 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 LICENSE OWNER solely on the condition that LICENSE OWNER,
its Owners and its employees who have access to the Confidential Information
agree, and LICENSE OWNER does hereby agree, that, during and after the term of
this Agreement, LICENSE 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
(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"). LICENSE 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, LICENSE OWNER may use the Confidential Information in connection
with the operation of other UNITS (in addition to the Store) pursuant to other
license or franchise agreements with COMPANY.
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Notwithstanding anything to the contrary contained in this Agreement
and provided LICENSE OWNER shall have obtained COMPANY's prior written consent,
the restrictions on LICENSE 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 LICENSE 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 LICENSE
OWNER is legally compelled to disclose such information, provided
LICENSE 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.
LICENSE OWNER agrees to disclose to COMPANY all ideas, concepts,
methods, techniques and products conceived or developed by LICENSE OWNER, its
affiliates, Owners or employees during the term of this Agreement relating to
the development and operation of UNITS, provided that LICENSE OWNER will not be
obligated to make such disclosures if doing so would violate any contractual
obligations of LICENSE 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 LICENSE OWNER's execution of this Agreement); and
(B) DEVELOPER disclosed to COMPANY in writing prior to or
upon execution of the Development Agreement.
LICENSE 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, licensees,
franchisees and designees. COMPANY shall have no obligation to make any lump
sum or on-going payments to LICENSE OWNER with respect to any such ideas,
concepts, methods, techniques or products. LICENSE OWNER agrees that LICENSE
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
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LICENSE 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, license owners and developers of UNITS if license owners,
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. LICENSE 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 LICENSE OWNER on the express condition that, with
respect to the operation of food service businesses that sell Products, LICENSE
OWNER and its Principal Owners and members of their respective Immediate
Families will deal exclusively with COMPANY. LICENSE OWNER therefore agrees
that during the term of this Agreement, neither LICENSE OWNER nor any Principal
Owner of LICENSE OWNER, nor any member of the Immediate Family of LICENSE 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.
LICENSE OWNER also agrees that, during the term of this Agreement, neither
LICENSE OWNER nor any Principal Owner of LICENSE OWNER, nor any member of the
Immediate Family of LICENSE 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, franchise owner, or license owner of
UNITS, nor induce any such person to leave said employment without the prior
written consent of such person's employer.
Furthermore, if LICENSE 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.
LICENSE 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
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Non-Competition Agreement) shall constitute a breach of this Agreement.
The restrictions of this Section 10 shall not be construed to prohibit
LICENSE OWNER, any Principal Owner of LICENSE OWNER, or any member of the
Immediate Family of LICENSE OWNER or its Principal Owners from having a direct
or indirect ownership interest in any UNIT, development agreements, license
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 LICENSE
OWNER, any Principal Owner, or any member of the Immediate Family of LICENSE
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 LICENSE FEE
LICENSE OWNER agrees to pay to COMPANY upon execution of this
Agreement an initial license fee (the "Initial License Fee") in the amount of
Thirty-Five Thousand Dollars ($35,000.00). The Initial License 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 License Fee is non-refundable in whole or in part and is
paid to compensate COMPANY for various services provided to LICENSE 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 License Fee is not compensation for the use of the Marks or the
Copyrighted Works.
11.B. ROYALTY FEE
LICENSE 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 LICENSE OWNER after the Store opens, including,
but not limited to, quality, service, and cleanliness inspections. COMPANY,
upon written notice to LICENSE OWNER shall have the right to change the timing
of LICENSE 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. LICENSE
OWNER shall not subordinate to any other obligation its obligation to pay the
Royalty Fee or any other fee or charge hereunder. Each
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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 LICENSE 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
LICENSE 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 LICENSE 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.
LICENSE 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 LICENSE OWNER's operation of the
Store. Further, LICENSE 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 LICENSE OWNER, COMPANY shall have
sole discretion to apply any payments received from LICENSE OWNER or any
indebtedness of COMPANY to LICENSE OWNER, to any past due indebtedness, of
whatever nature, of LICENSE OWNER to COMPANY or its Affiliates.
11.F. ELECTRONIC FUNDS TRANSFER
COMPANY reserves the right to require LICENSE OWNER to remit fees and
other amounts due to COMPANY hereunder via electronic funds transfer or other
similar means
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utilizing the Computer System or otherwise. If COMPANY notifies LICENSE OWNER
to use such payment method, LICENSE 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 LICENSE OWNER's
business bank operating account, as may be necessary to assist in or accomplish
payment by such method. Under this procedure LICENSE 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.
LICENSE OWNER shall make the funds available to COMPANY for withdrawal by
electronic transfer no later than the due date for payment therefor. If LICENSE
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 LICENSE OWNER's account in an amount equal to (a) the fees transferred
from LICENSE 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
LICENSE 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) LICENSE 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) LICENSE 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
(b) thorough repainting and redecorating of the interior
and exterior of the Store and/or the Site at reasonable
intervals; and
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(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) LICENSE 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, LICENSE 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 license owners and
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) LICENSE 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 LICENSE 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
LICENSE 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) LICENSE 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 LICENSE
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 LICENSE 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.
LICENSE 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
LICENSE 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. LICENSE
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. LICENSE 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, LICENSE 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. LICENSE OWNER also acknowledges and agrees
that if COMPANY requires the Store to offer new or substitute products or
services not currently offered at UNITS, LICENSE 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. LICENSE OWNER acknowledges and understands that
such modifications to the services and/or products to be offered by the Store
may require LICENSE 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 LICENSE OWNER agrees to incur
such expenses in connection therewith.
LICENSE OWNER acknowledges that COMPANY may conduct quality, service,
cleanliness, and other inspections of the Store from time to time without
notice to LICENSE 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
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evaluation service to conduct a "mystery shopper" quality control and
evaluation program with respect to COMPANY-owned, licensed and/or franchised
UNITS. LICENSE 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. LICENSE 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. LICENSE 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
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(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
equipment, products, materials, supplies or other items. LICENSE 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.
LICENSE OWNER shall notify COMPANY and submit to COMPANY such
information, specifications and samples as COMPANY requests if the LICENSE
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 LICENSE OWNER
within one hundred twenty (120) days after receipt of all requested information
and materials whether LICENSE OWNER is authorized to purchase such products
from such distributor or supplier. If LICENSE OWNER fails to receive a notice
of approval or disapproval within such one hundred twenty (120) day period,
LICENSE OWNER may not purchase such products from such distributor or supplier.
COMPANY may require LICENSE OWNER to reimburse COMPANY for its reasonable costs
incurred in connection with the evaluation, inspection and supervision of such
distributor or supplier.
LICENSE 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.
LICENSE 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 LICENSE
OWNER or COMPANY or its Affiliates by manufacturers, suppliers and distributors
for promotional or advertising purposes based upon LICENSE OWNER's purchases of
Proprietary Items, Supplies and Materials and Non-Proprietary Products. LICENSE
OWNER assigns to COMPANY or its designee all of LICENSE OWNER's right, title
and interest in and to any and all such Promotional Allowances for authorizes
COMPANY or its designee to collect any such Promotional Allowances for
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remission to: (a) the Marketing Fund (defined below) to the extent based on
LICENSE 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 LICENSE 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.
LICENSE 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
LICENSE OWNER of any goods or services.
12.D. SPECIFICATIONS, STANDARDS AND PROCEDURES
LICENSE OWNER acknowledges that the operation of the Store in strict
compliance with COMPANY's high standards is important to COMPANY and other
UNITS and LICENSE 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. LICENSE
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
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(8) use and illumination of signs, posters, displays,
standard formats and similar items; and
(9) identification of LICENSE 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 LICENSE OWNER) Delivery Service, Catering
Service and Special Distribution Arrangements; and
(12) required and approved menu items; and
(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. LICENSE
OWNER agrees, if requested by COMPANY, to participate in COMPANY's
customer surveys and market research programs.
LICENSE 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 LICENSE OWNER in
writing, shall constitute binding obligations on the part of LICENSE OWNER as
if fully set forth herein, and any failure by LICENSE 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
LICENSE 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. LICENSE 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
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compensation insurance, unemployment insurance, and withholding and payment of
all taxes. All advertising by LICENSE 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. LICENSE 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. LICENSE
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. LICENSE 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 LICENSE 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.
12.F. MANAGEMENT AND PERSONNEL OF THE STORE
LICENSE OWNER (or the persons identified as supervising Owners in
Exhibit E hereto) shall supervise and oversee the operation of the Store.
LICENSE 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
LICENSE 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. LICENSE 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. LICENSE 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.
LICENSE 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.
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12.G. INSURANCE
During the term of this Agreement, LICENSE 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
LICENSE 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 LICENSE 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
LICENSE OWNER pursuant to this Agreement, under one or more policies
of insurance containing minimum liability coverage prescribed by
COMPANY from time to time; and
(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 LICENSE OWNER determines are appropriate for its particular circumstances
shall be the responsibility of LICENSE OWNER.
Upon execution of this Agreement, LICENSE 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, LICENSE OWNER shall
furnish COMPANY with a copy of each renewal or replacement insurance policy to
be maintained by LICENSE OWNER for the immediately following term and evidence
of the payment of the premium therefor. If LICENSE 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
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coverage on behalf of LICENSE OWNER and LICENSE 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.
LICENSE 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 LICENSE OWNER of any indemnification obligations under this Agreement.
12.H. CREDIT CARDS AND OTHER METHODS OF PAYMENT
LICENSE 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. LICENSE OWNER
shall use only such methods of payment which COMPANY authorizes or approves.
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 LICENSE 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. LICENSE 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 LICENSE OWNER. COMPANY shall have the right to require LICENSE OWNER from
time to time to increase LICENSE 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. LICENSE OWNER agrees that the Marketing Fund may be used to
pay various costs and expenses, including, by way of example
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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. LICENSE OWNER agrees to
participate in all advertising, marketing, promotions, research and public
relations programs instituted by the Marketing Fund. The Marketing Fund shall
furnish LICENSE 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
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 LICENSE OWNER upon LICENSE 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 LICENSE OWNER of any
goods or services.
LICENSE OWNER understands and acknowledges that the Marketing Fund is
intended to maximize recognition of the Marks and the System generally.
Although COMPANY will
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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. LICENSE 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. LICENSE
OWNER further acknowledges and agrees that the failure (whether with or without
COMPANY's permission) of any other license owner to make the appropriate amount
of contributions to the Marketing Fund shall not in any way release LICENSE
OWNER from or reduce LICENSE OWNER's obligations under this Paragraph A., such
obligations being separate and independent obligations of LICENSE OWNER under
this Agreement. Except as expressly provided in this Paragraph A., COMPANY
assumes no direct or indirect liability or obligation to LICENSE OWNER with
respect to the maintenance, direction, or administration of the Marketing Fund.
LICENSE OWNER understands and acknowledges that the monies it
contributes to the Marketing Fund shall be combined with contributions of other
license owners and franchise owners in the System, including those franchise
owners and license owners in the System that may operate their UNITs under
different brand names or Marks, or with trade dress and operations that differ
from LICENSE OWNER'S. Contributions to the Marketing Fund made by LICENSE OWNER
may be used to promote UNITS and brands that differ from the type of UNIT
LICENSE OWNER operates and the brands LICENSE OWNER uses, and contributions to
the Marketing Fund made by license owners in the System that use brands and
operate UNITS that differ from LICENSE OWNER'S brands and UNIT may be used to
promote the type of UNIT LICENSE 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 and license 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 LICENSE OWNER. All unspent monies on the date of termination shall be
distributed to COMPANY and franchise owners and license 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 LICENSE OWNER.
13.B. LOCAL ADVERTISING FUND
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LICENSE OWNER agrees that, unless otherwise notified by COMPANY, in
its sole discretion, LICENSE 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 or license owners, to the
extent COMPANY has the right to require any such Affiliate, license owner or
franchise owner to do so) located in the same Marketing Area (subject to the
rights of other license owners and franchise owners under their license
agreements or 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. LICENSE 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 LICENSE OWNER from time to
time to increase LICENSE 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 LICENSE 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 license owners and franchise owners who
are members of such Local Ad Fund. Notwithstanding the foregoing, LICENSE 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.
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. LICENSE OWNER may consult
with and advise COMPANY concerning activities of the Local Ad Fund. LICENSE
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
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advertising, promotional and marketing activities, including testing and test
marketing, fulfillment charges and development, implementation, and testing of
Trade Dress and design prototypes. LICENSE 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 LICENSE OWNER upon LICENSE 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.
LICENSE 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 Ad Fund. The COMPANY may use the Local Ad Fund to
promote any type of UNIT in the System. LICENSE 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. LICENSE OWNER
further acknowledges and agrees that the failure (whether with or without
COMPANY's permission) of any other license owner or franchise owner to make the
appropriate amount of contributions to the Local Ad Fund shall not in any way
release LICENSE OWNER from or reduce LICENSE OWNER's obligations under this
Paragraph B., such obligations being separate and independent obligations of
LICENSE OWNER under this Agreement. Except as expressly provided in this
Paragraph B., COMPANY assumes no direct or indirect liability or obligation to
LICENSE OWNER with respect to the maintenance, direction, or administration of
the Local Ad Fund.
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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 LICENSE OWNER. All unspent monies on the date of termination shall be
distributed to COMPANY and license owners 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 LICENSE OWNER. In the event that COMPANY terminates or
suspends operation of the Local Ad Fund, LICENSE 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 LICENSE 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, LICENSE OWNER shall conduct local advertising and promotion for the
Store. Expenditures for such required advertising and promotion are referred to
herein as "LOCAL EXPENDITURES". LICENSE 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 LICENSE OWNER's Local Expenditures under
this Agreement to the extent that LICENSE OWNER is reimbursed for such
expenditures by, or such expenditures are made by, a supplier of the Store.
Prior to their use by LICENSE 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 of such materials, COMPANY shall be
deemed to have disapproved the submitted materials. LICENSE 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, LICENSE OWNER shall only utilize advertising agencies designated by
COMPANY for the placement of local advertising with the various media.
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14. ACCOUNTING, REPORTS AND FINANCIAL STATEMENTS
LICENSE 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. LICENSE 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 LICENSE
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 LICENSE 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,
LICENSE 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 or its designee 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 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
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by means of telephonic, facsimile or other transmission system);
(4) within thirty (30) days after the end of each quarter of
LICENSE OWNER's fiscal year, LICENSE 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 license owners, provided
that COMPANY will not identify to prospective license owners any
specific financial results of the Store; and
(5) within sixty (60) days after the end of LICENSE 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 LICENSE 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 LICENSE OWNER to COMPANY or
its designee shall be signed by LICENSE OWNER and verified as correct in the
manner prescribed by COMPANY.
LICENSE OWNER agrees to maintain and to furnish to COMPANY and/or its
designee 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 LICENSE OWNER reflecting activities of the Store.
LICENSE OWNER shall immediately report to COMPANY and/or its designee
any events or developments which may have a materially adverse impact on the
operation of the Store, the performance of License 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 LICENSE 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
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. LICENSE OWNER agrees to cooperate fully
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with COMPANY in connection with any such inspections, observations,
photographing and video taping, product removal and interviews. LICENSE 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. LICENSE OWNER
agrees that COMPANY may inspect and monitor electronically information
concerning LICENSE 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 LICENSE 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 LICENSE 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 LICENSE OWNER and the books and
records of LICENSE OWNER if a corporation or partnership. LICENSE 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 LICENSE 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, LICENSE 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 LICENSE 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%), LICENSE 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.
16. TRANSFER
16.A. BY COMPANY
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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
LICENSE 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 LICENSE 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 LICENSE OWNER and its
Owners. Therefore, LICENSE OWNER agrees that:
(1) no Ownership Interest in LICENSE OWNER; and
(2) no obligations, rights or interest of LICENSE OWNER in
(a) this Agreement, (b) the lease for the premises of the Store, (c)
the License, (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 LICENSE
OWNER; and
(5) except where specifically approved by COMPANY, a
management agreement whereby LICENSE OWNER 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
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business to be conducted by LICENSE 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 LICENSE 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, LICENSE 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 LICENSE 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.
LICENSE 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 LICENSE OWNER or of a change in the composition of the
group holding a Controlling Interest in LICENSE OWNER;
(3) the proposed transfer is to a Competitive Business or to
a direct or indirect owner of interests in a Competitive Business;
(4) LICENSE 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 license owners or owners of
license owners or (c) are not in full compliance with any
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other license agreements, franchise agreements or development
agreements between COMPANY and them; or
(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 LICENSE OWNER reimburse COMPANY for any costs and
expenses incurred by COMPANY in evaluating the proposed transfer;
(2) that LICENSE 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 license owners or
franchise owners or owners of license owners or franchise owners of
UNITS;
(5) that LICENSE OWNER, the transferring Owner and the
purchaser (if the purchaseris then the owner of interests in another
developer or license 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 LICENSE 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:
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(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
(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 license 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) LICENSE OWNER, the transferor and the transferee (if it
is then a developer or license owner of COMPANY) must pay such Royalty
Fees, Software License Fees, Software Support Fees, Marketing
Contributions, amounts owed for purchases by LICENSE 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
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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 license agreement and such
ancillary documents (including guarantees) as are then customarily
used by COMPANY in the grant of licenses 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, if any, and accounting
services agreement and such ancillary documents as are then
customarily used by COMPANY in the grant of area development rights,
licenses or franchises for UNITS containing such terms as are then
customarily used by COMPANY in the grant of area development rights,
licenses or franchises for UNITS; and
(11) that the transferee and LICENSE 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 license 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 LICENSE 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
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in LICENSE 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. LICENSE 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 LICENSE OWNER, any Principal Owner of LICENSE OWNER, or
any member of the Immediate Family of LICENSE OWNER or any Principal Owner from
having a direct or indirect ownership interest in any UNIT, development
agreement, license 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 LICENSE OWNER, any Principal Owner of
LICENSE OWNER, or any member of the Immediate Family of LICENSE OWNER or a
Principal Owner of LICENSE 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 LICENSE 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 LICENSE 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 LICENSE OWNER.
16.E. DEATH OR INCAPACITY OF LICENSE OWNER
Upon the death of LICENSE OWNER or the permanent incapacity of LICENSE
OWNER to conduct business affairs or, if LICENSE OWNER is a corporation,
limited liability company or partnership, upon the death or permanent
incapacity of a Principal Owner of LICENSE OWNER, all of such person's interest
in this Agreement, or such interest in LICENSE OWNER shall be transferred to a
transferee approved by COMPANY. Such disposition of this Agreement or such
interest in LICENSE 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 LICENSE OWNER, within said period of time shall constitute a breach
of this Agreement.
16.F. PUBLIC OR PRIVATE OFFERING
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LICENSE OWNER acknowledges and agrees that it is the intent of both
COMPANY and LICENSE OWNER that LICENSE 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, LICENSE OWNER agrees that securities
of LICENSE OWNER or an entity owning a direct or indirect equity interest in
LICENSE OWNER, this Agreement, the License or the Store may not be offered
pursuant to a public offering. LICENSE 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 LICENSE OWNER provided that LICENSE OWNER
ensures that:
(1) such private placement complies with all applicable
federal, state and local laws governing offerings of securities and
all applicable agreements between LICENSE 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 LICENSE OWNER or the Store or in the parties
owning a Controlling Interest in LICENSE OWNER or any Store or in the
individual or individuals controlling the management, policies or
decision-making power of LICENSE 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 LICENSE OWNER may allow
unaccredited investors to receive securities if LICENSE 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 LICENSE
OWNER;
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(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) LICENSE 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.
LICENSE 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. LICENSE 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 LICENSE 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 LICENSE
OWNER or the transferee. COMPANY's consent to any such transfer shall not,
unless expressly provided in such consent, effect a release of LICENSE OWNER
(or its Owners, as the case may be) post-transfer.
16.H. COMPANY'S RIGHT OF FIRST REFUSAL
If LICENSE OWNER or any of its Owners shall at any time determine to
sell an interest in this Agreement, the License, the Store, some or all of the
assets of the Store (other than in the ordinary course of business) or an
ownership interest in LICENSE OWNER, LICENSE 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
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immediately be submitted to COMPANY by LICENSE 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 LICENSE OWNER (or such Owner(s)) and the price and terms
of purchase offered to LICENSE 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
LICENSE OWNER (or such Owner(s)) under a separate, contemporaneous purchase
agreement, LICENSE 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 LICENSE 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 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, LICENSE 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
LICENSE 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 LICENSE OWNER, to
change without complying with this Agreement.
16.J. DELEGATION BY COMPANY
LICENSE OWNER agrees that COMPANY shall have the right, from time to
time, to
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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) LICENSE OWNER reimburses any costs incurred by COMPANY in
connection therewith, (b) LICENSE OWNER, its Owners and the transferees comply
with the provisions of the HSR Act, if applicable, prior to such a transfer,
(c) LICENSE 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 LICENSE OWNER or of a change in the composition of the group
holding a Controlling Interest in LICENSE 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 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 LICENSE OWNER and/or of the Boston
Chicken, Inc. license owner which provides
management services to LICENSE 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 LICENSES
17.A. LICENSE OWNER'S RIGHT TO A SUCCESSOR LICENSE
Subject to the provisions of Paragraphs B and C of this Section, upon
expiration of the initial term of this Agreement, if:
(1) LICENSE OWNER and its Owners have complied with this
Agreement during the initial term of this Agreement in all material
respects; and
(2) LICENSE OWNER and its Owners are then in full compliance
with this
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Agreement; and
(3) (a) LICENSE 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 licenses for UNITS; or
(b) if LICENSE OWNER is unable to maintain possession of the
Site, or if, in the judgment of COMPANY, the Store should be relocated
within the Territory, LICENSE 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 licenses for UNITS;
then LICENSE OWNER shall have the right to obtain a successor license to
operate a UNIT at the Site (a "Successor License") for a term of five (5)
years. In consideration of the grant of the Successor License, LICENSE 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 license fee charged by COMPANY in
connection with the grant of a single UNIT license. If COMPANY is not, at that
time, actively engaged in the sale of UNIT licenses, the fee shall be equal to
33-1/3% of the higher of (a) the Initial License 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 version of COMPANY's Uniform
Franchise Offering Circular. As additional consideration for the grant of a
Successor License, LICENSE OWNER agrees to execute a general release in form
prescribed by COMPANY in accordance with this Section. LICENSE OWNER shall have
the right to obtain a second Successor License on the same terms and subject to
the same conditions as the initial Successor License.
17.B. NOTICES
LICENSE OWNER shall give COMPANY written notice of its election to
obtain a Successor License 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 LICENSE OWNER written notice, not more than ninety (90) days
after receipt of LICENSE OWNER's notice, of (a) COMPANY's determination whether
or not it will grant LICENSE OWNER a Successor License pursuant to this Section
and/or (b) any deficiencies in LICENSE 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 License. Such notice shall state what
actions LICENSE OWNER must take to correct the deficiencies and shall specify
the time period in which such deficiencies must be corrected. COMPANY shall
give LICENSE OWNER written notice of a decision not to grant a Successor
License based upon LICENSE OWNER's failure to cure deficiencies not less than
ninety (90) days prior to the expiration of the initial term of this
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Agreement. Such notice shall state the reasons for COMPANY's refusal to grant a
Successor License. In the event COMPANY fails to give LICENSE OWNER (a) notice
of deficiencies in the Store, or in LICENSE OWNER's operation of the Store,
within ninety (90) days after receipt of LICENSE OWNER's timely election to
obtain a Successor License, or (b) notice of COMPANY's decision not to grant a
Successor License 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 LICENSE OWNER reasonable
time to cure deficiencies or to provide ninety (90) days' notice of COMPANY's
determination not to grant a Successor License. The grant of a Successor
License shall be conditioned upon LICENSE OWNER's continued compliance with all
the terms and conditions of this Agreement up to the date of expiration.
17.C. SUCCESSOR LICENSE AGREEMENT/RELEASES
To obtain a Successor License, COMPANY, LICENSE OWNER and its Owners
shall execute the form of license agreement and any ancillary agreements then
customarily used by COMPANY in the grant of licenses for the operation of UNITS
(with appropriate modifications to the term, the successor license provisions,
and other appropriate provisions to reflect the fact that the agreement relates
to a Successor License) which may provide for higher or additional Royalty Fees
and other fees, and LICENSE 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, agents, successors and assigns. The license agreement for
a Successor License will not include any right to any further renewal,
extension, or successor license rights. Failure by LICENSE OWNER and its Owners
to sign and deliver to COMPANY, such agreements and releases within fifteen
(15) days after delivery thereof to LICENSE OWNER shall be deemed an election
by LICENSE OWNER not to obtain a Successor License.
18. TERMINATION OF THE LICENSE
18.A. BY LICENSE OWNER
If LICENSE OWNER is in full compliance with this Agreement and COMPANY
materially breaches this Agreement, LICENSE OWNER may terminate this Agreement
effective thirty (30) days after COMPANY's receipt of written notice of
termination if LICENSE 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
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cure such breach.
Any attempt to terminate this Agreement by LICENSE 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 LICENSE 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) LICENSE 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) LICENSE OWNER fails to operate, abandons, surrenders or
transfers control of the operation of the Store without prior written
approval of COMPANY; or
(3) LICENSE OWNER or any of its Principal Owners has made any
material misrepresentation or omission in the application for or
acquisition of the License or in materials submitted relating to a
transfer; or
(4) LICENSE 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
LICENSE 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) LICENSE OWNER or any of its Owners makes an assignment or
transfer in violation of this Agreement; or
(6) LICENSE 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 LICENSE 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
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(7) LICENSE 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) LICENSE OWNER fails to timely commence or provide:
(a) Delivery Service pursuant to a Delivery Rider
executed by COMPANY and LICENSE OWNER; or
(b) Catering Service pursuant to a Catering Rider
executed by COMPANY and LICENSE OWNER; or
(c) Special Distribution Arrangements if required
pursuant to a Special Distribution Agreement executed by
COMPANY and LICENSE OWNER,
in accordance with COMPANY's standards, specifications and procedures,
and does not correct such failure within 10 days after LICENSE 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
LICENSE 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
(9) LICENSE 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
LICENSE OWNER.
(10) LICENSE OWNER becomes insolvent in the sense that it is
unable to pay its bills as they become due; or
(11) LICENSE 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
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(12) LICENSE 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
LICENSE OWNER; or
(13) LICENSE 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) LICENSE 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) LICENSE 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 LICENSE 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 LICENSE OWNER's receipt of COMPANY's written
notice, and continue until completion within 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) LICENSE 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 LICENSE 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
LICENSE OWNER, undertake corrective action within twenty-four (24)
hours and achieve full compliance within five (5) days after written
notice thereof; or
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(17) The lesser of (a) three (3) or more, or (b) fifty
percent (50%) or more, of the Franchise Agreements or License
Agreements granted to LICENSE OWNER and DEVELOPER or their
predecessors in accordance with the terms of the Development Agreement
or its predecessors 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) LICENSE OWNER has attempted to terminate a License
Agreement with COMPANY without complying with Section 18.A. of this
Agreement.
18.C. TERMINATION OF CERTAIN RIGHTS OF LICENSE 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) LICENSE 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 LICENSE
OWNER; and
(3) any Catering Rider in effect between COMPANY and LICENSE
OWNER; and
(4) any Special Distribution Agreement in effect between
COMPANY and LICENSE OWNER; and
(5) any exclusivity for the Territory granted under Section
2.B. of this Agreement,
effective ten (10) days after delivery of written notice thereof to LICENSE
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 LICENSE
OWNER UPON TERMINATION OR EXPIRATION OF THE AGREEMENT.
19.A. PAYMENT OF AMOUNTS OWED TO COMPANY
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LICENSE 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 LICENSE 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, LICENSE 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
license 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 LICENSE 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
(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. LICENSE OWNER acknowledges that,
as between COMPANY and LICENSE OWNER, COMPANY has the sole right to
and interest in all telephone numbers and directory listings
associated with the Marks. LICENSE 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. LICENSE OWNER
acknowledges and agrees that the telephone company and all listing
agencies may accept
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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 LICENSE 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
LICENSE OWNER fails to initiate immediately or complete such
modifications, alterations and/or removals within such time as COMPANY
deems appropriate, LICENSE 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 LICENSE
OWNER's expense, without liability for trespass or damages. LICENSE
OWNER expressly acknowledges that its failure to make such alterations
will cause irreparable injury to COMPANY and consents to entry, at
LICENSE 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.
LICENSE OWNER shall furnish to COMPANY (i) within thirty (30) days after the
effective date of termination or expiration, evidence satisfactory to COMPANY
of LICENSE 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 LICENSE 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 LICENSE OWNER regarding which, if any, of the above
requirements LICENSE OWNER shall observe.
19.C. CONFIDENTIAL INFORMATION
LICENSE OWNER agrees that upon termination or expiration of the
License (without grant of a Successor License):
(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 LICENSE
OWNER and will refrain from using such Confidential
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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
LICENSE OWNER, other than pursuant to Section 18.A., neither LICENSE OWNER nor
any of its Principal Owners shall directly or indirectly (through a member of
the Immediate Family of LICENSE 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 LICENSE 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
(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
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(4) employ or seek to employ, any person who is employed by
COMPANY, its Affiliates or any developer or license 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 LICENSE OWNER, any Principal Owner of
LICENSE OWNER, or any member of the Immediate Family of LICENSE OWNER or any
Principal Owner from having a direct or indirect ownership interest in any
UNIT, development agreement, license 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 LICENSE OWNER, any
Principal Owner of LICENSE OWNER, or (to the extent any such person is an
individual) any member of the Immediate Family of LICENSE OWNER or a Principal
Owner of LICENSE 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 LICENSE 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 LICENSE OWNER
without complying with this Agreement, or upon expiration of this Agreement
(without the grant of a Successor License), 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 LICENSE 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, 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
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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 LICENSE 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 License 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 LICENSE OWNER
of notice of exercise of this option to purchase, at which time LICENSE 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 LICENSE 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
LICENSE 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, LICENSE 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. LICENSE 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 LICENSE
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 LICENSE OWNER shall continue to operate the Store on the terms of this
Agreement until the closing of the purchase. Alternatively, COMPANY may require
LICENSE OWNER to close the Store during such time period without removing any
assets from the Store. LICENSE 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 existing lease for the
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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 LICENSE OWNER's rights
under the lease for the Site are assigned to COMPANY or COMPANY subleases the
Site from LICENSE OWNER, COMPANY will indemnify and hold harmless LICENSE 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 LICENSE
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. LICENSE OWNER
shall conspicuously identify itself in all dealings with customers, suppliers,
vendors, public officials, LICENSE OWNER personnel, and others as the owner of
the Store under a license 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
LICENSE 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
LICENSE OWNER, nor will LICENSE OWNER use the Marks in any way not expressly
authorized herein. Except as expressly authorized in writing, neither COMPANY
nor LICENSE 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 licensor and
license owner, and neither COMPANY nor LICENSE 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 LICENSE 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,
LICENSE OWNER, the Store or LICENSE OWNER's property, or upon COMPANY, in
connection with the sales made or business conducted by LICENSE OWNER, except
any taxes COMPANY is required by law to collect from LICENSE OWNER with respect
to purchases from COMPANY. Payment of all such taxes shall be the responsi-
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bility of LICENSE OWNER.
20.D. INDEMNIFICATION
LICENSE 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 LICENSE OWNER resulting
from LICENSE 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 LICENSE 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 License, the Store, some or all of the assets of the Store
(other than sales in the ordinary course of business) or LICENSE 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 LICENSE 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
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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, LICENSE
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 License 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 LICENSE 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, LICENSE 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 LICENSE OWNER may rely, and assumes no liability or
obligation to LICENSE OWNER, by granting any waiver, approval, or consent to
LICENSE 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 LICENSE OWNER of ten (10) days' prior written notice.
COMPANY and LICENSE 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
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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 LICENSE
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
(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 other UNIT or any
development or license agreement therefor; or
(iv) the acceptance by COMPANY of any payments from LICENSE
OWNER after any breach by LICENSE OWNER of this Agreement.
Neither COMPANY nor LICENSE 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.
LICENSE 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.
LICENSE OWNER agrees that COMPANY will not be required to post a bond to obtain
any injunctive relief and that LICENSE OWNER's only remedy if an injunction is
entered against LICENSE OWNER will be the dissolution of that injunction, if
warranted, upon due hearing (all
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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 LICENSE OWNER hereunder are cumulative and
no exercise or enforcement by COMPANY or LICENSE OWNER of any right or remedy
hereunder shall preclude the exercise or enforcement by COMPANY or LICENSE
OWNER of any other right or remedy hereunder or to which COMPANY or LICENSE
OWNER is entitled by law.
21.E. COSTS AND LEGAL FEES
If COMPANY engages legal counsel in connection with any failure by
LICENSE OWNER to comply with this Agreement, LICENSE 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. {{ 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
LICENSE OR 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
LICENSE OWNER AGREES THAT LICENSE 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
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ACTION IS FILED. LICENSE 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 LICENSE 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 LICENSE 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 LICENSE OWNER
OR COMPANY KNEW OR 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 LICENSE 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 LICENSE 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 LICENSE OWNER
and COMPANY.
21.L. CONSTRUCTION
The preambles and exhibits are a part of this Agreement, this
Agreement constitutes the
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entire agreement of the parties, and there are no other oral or written
understandings or agreements between COMPANY and LICENSE 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 "LICENSE 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 LICENSE 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 LICENSE 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 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 14123 Denver West Parkway,
Golden, Colorado 80401, to the attention of the Vice President, Development,
with a copy to the Vice President and General Counsel or at its most current
principal business address of which LICENSE OWNER has been notified. Notices to
LICENSE OWNER shall be sent to LICENSE OWNER at the address shown on the first
page of this Agreement or to LICENSE 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.
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<PAGE> 204
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. --------------------------------
LICENSE OWNER
By: By:
------------------------------- --------------------------------
Title: Title:
------------------------- --------------------------
82
<PAGE> 205
EXHIBIT A
TO THE EINSTEIN/NOAH BAGEL CORP. LICENSE AGREEMENT
BY AND BETWEEN
EINSTEIN/NOAH BAGEL CORP.
AND _________________
DATED __________
CATERING RIDER
<PAGE> 206
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 ____________________________
("LICENSE OWNER"), and is attached to and incorporated into the Einstein/Noah
Bagel Corp. License Agreement by and between COMPANY and LICENSE 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. LICENSE 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, LICENSE OWNER will offer and provide Catering
Service (defined below) from the Store 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 Store 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, LICENSE 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 Store or the Catering Facility, whichever is used
for the conduct of Catering Service by LICENSE 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. LICENSE OWNER
acknowledges and agrees that Catering Service shall not include Delivery
Service, as defined in the Agreement. LICENSE 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. LICENSE 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.
A-1
<PAGE> 207
In particular, and without limiting the foregoing, LICENSE OWNER
shall:
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.
LICENSE 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. LICENSE
OWNER shall comply with COMPANY's specifications and requirements regarding
site selection (if applicable), development and construction of the Catering
Facility. LICENSE 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 LICENSE
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OWNER proposes and intends in good faith to establish and operate the Catering
Facility and which LICENSE 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, 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 LICENSE OWNER. COMPANY agrees to
exert its best efforts to deliver such notification to LICENSE 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 LICENSE OWNER acknowledges and agrees that COMPANY shall have no
liability therefor. Notwithstanding any other provision of this Rider,
COMPANY's failure to provide LICENSE 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 LICENSE OWNER fails to provide Catering Service as required pursuant to this
Rider, LICENSE OWNER acknowledges and agrees COMPANY shall have the right to
terminate (a) the Agreement pursuant to and in accordance with the terms
specified in Section 3.C. of the Agreement, or (b) LICENSE 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 LICENSE 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 LICENSE 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 LICENSE OWNER in establishing and conducting Catering
Service or the length of time LICENSE OWNER has offered Catering Service: (1)
to reduce, modify or expand the Catering Area, effective upon COMPANY's written
notice to LICENSE OWNER, provided, however, that if a reduction or modification
of the Catering Area amounts to a termination of substantially all of LICENSE
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 LICENSE OWNER; or (2) to
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suspend or terminate LICENSE OWNER's right to offer Catering Service, effective
one hundred eighty (180) days after COMPANY's written notice to LICENSE OWNER
(in which case, LICENSE 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
LICENSE OWNER to reinstate Catering Service upon fifteen (15) days' prior
written notice to LICENSE OWNER.
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. --------------------------------
LICENSE OWNER
By: By:
------------------------------- --------------------------------
Its: Its:
------------------------------- --------------------------------
A-4
<PAGE> 210
SCHEDULE A
TO THE CATERING RIDER
TO THE EINSTEIN/NOAH BAGEL CORP.
LICENSE AGREEMENT
BY AND BETWEEN EINSTEIN/NOAH BAGEL CORP.
AND _________________
DATED___________
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 LICENSE OWNER in
establishing and conducting Catering Service or the length of time LICENSE
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:
----------------------------------------------------------------
INITIALS:
COMPANY:
---------
LICENSE
OWNER:
-----------
A-1
<PAGE> 211
EXHIBIT B
TO THE EINSTEIN/NOAH BAGEL CORP.
LICENSE AGREEMENT
BY AND BETWEEN EINSTEIN/NOAH BAGEL CORP.
AND _______________
DATED ___________
DELIVERY RIDER
<PAGE> 212
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 ________________________________
("LICENSE OWNER"), and is attached to and incorporated into the Einstein/Noah
Bagel Corp. License Agreement by and between COMPANY and LICENSE 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. LICENSE 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, LICENSE OWNER will offer and provide Delivery Service
(defined below) from the Store 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 Store 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. LICENSE OWNER acknowledges and agrees that Delivery
Service shall not include Catering Service, as defined in the Agreement. LICENSE
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. LICENSE 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, LICENSE 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
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consideration road conditions, when performing delivery services;
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 LICENSE 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.
LICENSE 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 LICENSE OWNER fails to provide Delivery Service as required pursuant to this
Rider, LICENSE 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) LICENSE 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 LICENSE 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 Territory of the Store from and
after COMPANY's delivery of written notice of such termination to LICENSE
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 LICENSE OWNER in establishing and conducting Delivery
Service or the length of time LICENSE OWNER has offered Delivery Service: (a)
to reduce, modify or expand the Delivery Area, effective upon
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COMPANY's written notice to LICENSE OWNER, provided, however, that if a
reduction or modification of the Delivery Area amounts to a termination of
substantially all of LICENSE 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 LICENSE OWNER; or (b) to suspend or terminate
LICENSE OWNER's right to offer Delivery Service, effective one hundred eighty
(180) days after COMPANY's written notice to LICENSE OWNER. In the event of
such suspension or termination, COMPANY reserves the right to require LICENSE
OWNER to reinstate Delivery Service upon fifteen (15) days' prior written
notice to LICENSE OWNER.
4. DISPLAY OF MARKS. LICENSE 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
LICENSE 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. --------------------------------
LICENSE OWNER
By: By:
------------------------------- --------------------------------
Its: Its:
------------------------------- --------------------------------
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<PAGE> 215
SCHEDULE A TO THE DELIVERY RIDER
TO THE EINSTEIN/NOAH BAGEL CORP. LICENSE 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 LICENSE 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 LICENSE OWNER in establishing and
conducting Delivery Service or the length of time LICENSE OWNER has offered
Delivery Service, reduce, modify or expand the Delivery Area.
INITIALS:
COMPANY:
---------
LICENSE
OWNER:
-----------
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<PAGE> 216
EXHIBIT C
TO THE EINSTEIN/NOAH BAGEL CORP.
LICENSE AGREEMENT
BY AND BETWEEN EINSTEIN/NOAH BAGEL CORP.
AND _________________
DATED ___________
LICENSE OWNER ACKNOWLEDGEMENTS
AND REPRESENTATIONS STATEMENT
<PAGE> 217
LICENSE OWNER ACKNOWLEDGEMENTS
AND REPRESENTATIONS STATEMENT
1. LICENSE OWNER acknowledges that it has read the License Agreement
(the "AGREEMENT") between Einstein/Noah Bagel Corp. ("COMPANY") and LICENSE
OWNER dated as of the same date hereof in its 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.)
2. LICENSE OWNER acknowledges that the food service business is a
highly competitive industry, with constantly changing market conditions.
LICENSE 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 LICENSE OWNER.
3. LICENSE OWNER acknowledges and agrees that COMPANY has developed
and will continue to develop or modify in the future a number of branded retail
food service businesses that offer and sell Products and other food and
beverage items under different marks, systems and concepts. LICENSE OWNER
understands that the rights granted to it under this Agreement are with regard
only to the type of branded retail store that operates under the Marks and
System designated in Exhibit K to the Agreement. Further, LICENSE OWNER
acknowledges and agrees that COMPANY retains the right, among other rights, to
(1) operate and/or grant others the right to operate retail stores featuring
bagels in LICENSE OWNER's Territory under marks and systems other than the
Marks and System designated in Exhibit K to the Agreement; or (2) operate
and/or grant others the right to offer Products in LICENSE OWNER's Territory
using any method of distribution other than UNITS including but not limited to
wholesaling to other retail stores and to other distribution channels such as
hotels and airlines.
4. LICENSE OWNER acknowledges and agrees that some aspects of
COMPANY's license 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 LICENSE OWNER
to use one recipe for bagels, cream cheeses or other items while allowing other
developers, license owners and franchise owners to use different recipes.
COMPANY may also allow variations between developers, license owners and
franchise owners in the areas of trademarks, trade dress, operational items or
other aspects of UNITS. LICENSE OWNER acknowledges and agrees that only COMPANY
may determine what variations
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LICENSE OWNER may use and that LICENSE OWNER will in any event conform
strictly to the standards and specifications which COMPANY establishes for
LICENSE OWNER's Store.
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. LICENSE 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 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. LICENSE OWNER acknowledges and agrees that this may mean
that LICENSE OWNER may be required, for example, to change one or more of (a)
the recipes LICENSE OWNER uses for bagels, cream cheese or other items; (b) the
trademarks and/or service marks LICENSE OWNER uses; (c) the trade dress or
operational procedures LICENSE OWNER uses; or (d) other aspects of LICENSE
OWNER's UNITS. Some or all of these changes may require LICENSE OWNER to make
substantial additional capital expenditures. LICENSE OWNER acknowledges and
agrees that COMPANY may discontinue any of the variations which it had
previously allowed LICENSE OWNER to utilize and that LICENSE 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 LICENSE OWNER. Further, COMPANY
acknowledges and agrees that it shall provide to COMPANY the data COMPANY
requires concerning LICENSE OWNER'S operations in order to allow COMPANY to
assess the success of different variations in its retail store concept.
Furthermore, LICENSE OWNER acknowledges and agrees that COMPANY may
continue to operate, license and/or franchise others to operate UNITS in
certain areas under a variety of trademarks and service marks including without
limitation "BAGEL & BAGEL," "BALTIMORE BAGELS," "EINSTEIN BROS.," "NOAH'S NEW
YORK BAGELS" or "OFFERDAHL'S." COMPANY may allow the use of such various marks
temporarily, indefinitely or permanently and on a local, regional, national or
international basis. LICENSE OWNER further understands and agrees that COMPANY
may, rather than operating, licensing and/or franchising a national chain of
bagel stores operating under a single trademark or service mark, determine in
its sole discretion to operate, license and/or franchise a network of bagel
shops operating under different names and in different geographic areas.
5. LICENSE 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, license owner or franchise owner can
expect or that present or past license
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<PAGE> 219
owners or 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 licenses make
their own investigations and determine whether or not a UNIT is profitable.
COMPANY will not be bound by any unauthorized representations as to LICENSE
OWNER's sales, profits, earnings, cash flow, costs or prospects or chances of
success. COMPANY recommends that each applicant for a UNIT license consult with
an attorney of its choosing and further be represented by legal counsel at the
time of its closing. LICENSE OWNER acknowledges that it has had ample
opportunity to consult with legal counsel and other professional advisors.
6. LICENSE 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 Store, or the successful
operation or profitability of a Store 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 LICENSE
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 LICENSE OWNER's expectations as to revenue or
operational criteria. LICENSE OWNER further acknowledges and agrees that its
acceptance of a License for the operation of a Store at the Site is based on
its own independent investigation of the suitability of the Site.
7. LICENSE 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 LICENSE 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.
8. LICENSE OWNER acknowledges that in all of COMPANY's dealings with
LICENSE OWNER, the officers, directors, employees, and agents of COMPANY act
only in a representative capacity and not in an individual capacity. LICENSE
OWNER further acknowledges that the Agreement, and all business dealings
between LICENSE OWNER and such individuals as a result of the Agreement, are
solely between LICENSE OWNER and
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COMPANY. Furthermore, LICENSE OWNER represents to COMPANY, as an inducement to
its entry into the Agreement, that neither LICENSE OWNER nor its Owners have
made any misrepresentations in obtaining the License.
9. LICENSE 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
LICENSE OWNER requires such qualification, and has the authority to
execute and deliver the Agreement and perform all LICENSE OWNER's
obligations under the Agreement; and
(B) agrees that all certificates representing Ownership
Interests in LICENSE 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 LICENSE OWNER is subject to
restrictions contained in this Agreement.
10. LICENSE OWNER represents and warrants that LICENSE OWNER
is not subject to any restriction, agreement, contract, commitment, law,
judgment or decree which would prohibit or be breached or violated by LICENSE
OWNER's execution and delivery of the Agreement or performance of its
obligations thereunder. At COMPANY's request, LICENSE 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 LICENSE OWNER,
enforceable against LICENSE OWNER in accordance with its terms, and that LICENSE
OWNER is not subject to any restriction, agreement, law, judgment or decree
which would prohibit or be violated by LICENSE OWNER's execution and delivery of
the Agreement and performance of its obligations thereunder.
Date:
------------
INITIALS:
COMPANY:
---------
LICENSE
OWNER:
-----------
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<PAGE> 221
EXHIBIT D
TO THE LICENSE AGREEMENT
BY AND BETWEEN EINSTEIN/NOAH BAGEL CORP.
AND
_________________________________________________________ ("LICENSE OWNER")
DATED ___________________
PERMITTED COMPETITIVE BUSINESSES,
IDENTITY OF DEVELOPER AND DATE OF DEVELOPMENT AGREEMENT
<PAGE> 222
PERMITTED COMPETITIVE BUSINESSES,
IDENTITY OF DEVELOPER AND DATE OF DEVELOPMENT AGREEMENT
1. APPLICABILITY. If the License Agreement is not executed pursuant
to a Development Agreement, Section 2 of this Exhibit shall be completed by the
parties and incorporated into the License Agreement. If the License Agreement
is executed pursuant to a Development Agreement, Section 3 of this Exhibit
shall be completed by the parties and incorporated into the License Agreement.
2. OWNERS IN PERMITTED COMPETITIVE BUSINESSES. If applicable pursuant
to Section 1 of this Exhibit and as specified in Section 10 of the License
Agreement, the following Owners currently perform services for or have an
ownership interest in a Permitted Competitive Business as of the date of the
License 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:
- ------------------------------------ ------------------------------------
- ------------------------------------ ------------------------------------
D-1
<PAGE> 223
LICENSE 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. LICENSE OWNER and its Owners acknowledge that COMPANY has
relied on the aforementioned description of such Competitive Businesses in
entering into the License Agreement with DEVELOPER.
3. 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
Date:
------------
INITIALS:
COMPANY:
---------
LICENSE
OWNER:
-----------
D-2
<PAGE> 224
EXHIBIT E
TO THE LICENSE AGREEMENT
BY AND BETWEEN EINSTEIN/NOAH BAGEL CORP.
AND
_____________ ("LICENSE OWNER")
DATED _________________
PRINCIPAL OWNERS, OTHER OWNERS,
DESIGNATED PRINCIPAL OWNERS,
STORE MANAGER AND ADDITIONAL MANAGER,
SUPERVISING OWNERS AND INITIAL CAPITALIZATION
<PAGE> 225
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 LICENSE OWNER and a
description of the nature and amount of such Principal Owner's direct or
indirect equity or voting interest in LICENSE OWNER:
____________________ (INITIAL HERE IF THE FOLLOWING STATEMENT IS APPLICABLE AND
DO NOT COMPLETE THE REST OF THIS SECTION 1.) The Principal Owners of LICENSE
OWNER and their respective equity and voting interests in LICENSE 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> 226
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 LICENSE 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
I DO NOT COMPLETE THE REST OF THIS SECTION 3.) The Owners of LICENSE OWNER and
their respective equity and voting interests in LICENSE 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> 227
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. LICENSE 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 LICENSE 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.
INITIALS:
COMPANY:
---------
LICENSE
OWNER:
-----------
E-3
<PAGE> 228
EXHIBIT F
TO THE LICENSE AGREEMENT
BY AND BETWEEN EINSTEIN/NOAH BAGEL CORP.
AND
_____________________ ("LICENSE OWNER")
DATED ________________
SITE AND TERRITORY
<PAGE> 229
SITE AND TERRITORY
1. SITE. The Site of the Store will be as follows:
2. TERRITORY. The Territory shall be as follows:
INITIALS:
COMPANY:
----------------------
LICENSE
OWNER:
------------------------
F-1
<PAGE> 230
EXHIBIT G
TO THE LICENSE AGREEMENT
BY AND BETWEEN EINSTEIN/NOAH BAGEL CORP.
AND
_______________________________________________________ ("LICENSE OWNER")
DATED ___________________
GUARANTY AND ASSUMPTION OF LICENSE OWNER'S OBLIGATIONS
<PAGE> 231
GUARANTY AND ASSUMPTION OF LICENSE OWNER'S OBLIGATIONS
THIS GUARANTY AND ASSUMPTION OF LICENSE OWNER'S OBLIGATIONS is given
this _____ day of ____________, 19__, by the undersigned.
LICENSE OWNER:
---------------------------------
DATE OF LICENSE AGREEMENT:
---------------------
In consideration of, and as an inducement to, the execution of the
above mentioned Einstein/Noah Bagel Corp. License Agreement (the "LICENSE
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 License Agreement and thereafter as provided
in the License Agreement, that LICENSE OWNER shall punctually pay and perform
each and every undertaking, agreement and covenant set forth in the License
Agreement; and (b) agrees to be personally bound by, and personally liable for
the breach of, each and every provision in the License Agreement, both monetary
obligations and other obligations, including, without limitation, the
obligation to pay costs and legal fees as provided in the License 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 License 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 LICENSE OWNER or any other person as a condition of
liability; and
(5) all rights to payments and claims for reimbursement or
subrogation which
G-1
<PAGE> 232
he may have against LICENSE 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 LICENSE OWNER, but also among
the Guarantors; and
(B) he shall render any payment or performance required under
the License Agreement upon demand if LICENSE 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 LICENSE 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 License
Agreement or by any extension of time, credit or other indulgence
which COMPANY may from time to time grant to LICENSE 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
License Agreement and for so long thereafter as there are any monies
or obligations owing by LICENSE OWNER to COMPANY under the License
Agreement; and
(E) the written acknowledgment of LICENSE OWNER, accepted in
writing by COMPANY, or the judgement of any court or arbitration panel
of competent jurisdiction establishing the amount due from LICENSE
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> 233
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 License 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:
G-3
<PAGE> 234
PRINCIPAL OWNERS OF LICENSE OWNER:
Spouse:
- ---------------------------------- -------------------------------
Name: Name:
Spouse:
- ---------------------------------- -------------------------------
Name: Name:
Spouse:
- ---------------------------------- -------------------------------
Name: Name:
G-4
<PAGE> 235
EXHIBIT H
TO THE EINSTEIN/NOAH BAGEL CORP.
LICENSE AGREEMENT
BY AND BETWEEN
EINSTEIN/NOAH BAGEL CORP.
AND
____________________________
DATED ________
CONFIDENTIALITY AND NON-COMPETE AGREEMENT
<PAGE> 236
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, licensees, 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, licensee
composition, franchisee composition, territories, and development plans, and
all related trade
H-1
<PAGE> 237
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.
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
H-2
<PAGE> 238
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
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 or license agreement as if
Owner were the franchise or license 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.
H-3
<PAGE> 239
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.
14123 Denver West Parkway
Golden, Colorado 80401
Attention: General Counsel
Facsimile: (303) 202-3490
If to the Related Party signatory hereto, addressed to:
---------------------------
---------------------------
---------------------------
---------------------------
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
H-4
<PAGE> 240
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 License 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.
e. This Agreement shall be construed and interpreted in
accordance with the laws of the State of Colorado.
H-5
<PAGE> 241
EXECUTED as of the day of .
------- --------------------
EINSTEIN/NOAH BAGEL CORP. UNDERSIGNED
---------------------------
(Entity Name, if any)
By:
----------------------------------
Title: By:
---------------------------- ----------------------------------
Print Name:
-------------------------
Print Title:
------------------------
RELATED PARTY
- -------------------------------------
(Name)
By:
----------------------------------
Title:
----------------------------
H-6
<PAGE> 242
EXHIBIT I
TO THE LICENSE AGREEMENT
BY AND BETWEEN EINSTEIN/NOAH BAGEL CORP.
AND
_______________________________________________________ ("LICENSE OWNER")
DATED _________________________
AUTHORIZATION AGREEMENT FOR PREARRANGED PAYMENTS
(DIRECT DEBITS)
<PAGE> 243
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:
---------------------------- ------------------------------
I-1
<PAGE> 244
EXHIBIT J
TO THE LICENSE AGREEMENT
BY AND BETWEEN EINSTEIN/NOAH BAGEL CORP.
AND
__________________________________________________ ("LICENSE OWNER")
DATED ______________
COLLATERAL ASSIGNMENT OF TELEPHONE NUMBERS AND LISTINGS
<PAGE> 245
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. License
Agreement (the "LICENSE AGREEMENT") between ____________________ ("LICENSE
OWNER") and Einstein/Noah Bagel Corp., a Delaware corporation ("COMPANY"),
executed concurrently with this Assignment, under which COMPANY granted LICENSE
OWNER the right to own and operate a UNIT located at _________________________
_______________________________ (the "STORE").
FOR VALUE RECEIVED, LICENSE OWNER hereby assigns to COMPANY, all of
LICENSE 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 LICENSE 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 License 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, LICENSE 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.
LICENSE OWNER agrees and acknowledges that as between COMPANY and
LICENSE OWNER, upon termination or expiration of the License Agreement, COMPANY
shall have the sole right to and interest in the Telephone Numbers and
Listings, and LICENSEE appoints COMPANY as LICENSE 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, LICENSE OWNER shall immediately notify the
Telephone Company to assign the Telephone Numbers and Listings to COMPANY. If
LICENSE 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
J-1
<PAGE> 246
parties agree that the Telephone Company may accept COMPANY's written
direction, the License 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 LICENSE 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
expiration of the License Agreement, COMPANY's execution of such forms or
documentation on behalf of LICENSE OWNER shall effectuate LICENSE 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 License Agreement.
INITIALS:
COMPANY:
------------
LICENSE
OWNER:
--------------
ACCEPTED AND AGREED TO BY:
- -----------------------------------
(Telephone Company Authorized
Representative)
- -----------------------------------
(Name of Telephone Company)
J-2
<PAGE> 247
EXHIBIT K
TO THE LICENSE AGREEMENT
BY AND BETWEEN EINSTEIN/NOAH BAGEL CORP.
AND
__________________________________________________ ("LICENSE OWNER")
DATED ____________
PRINCIPAL MARKS TO BE USED BY LICENSE OWNER
<PAGE> 248
PRINCIPAL MARKS TO BE USED BY LICENSE OWNER
The Store 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 Principal Marks pursuant to Section 6 of this
Agreement) and shall be operated in accordance with COMPANY'S requirements,
including but not limited to the System designated for the Store associated
with such Principal Marks as in effect from time to time:
COMPANY will provide LICENSE OWNER with the Store Manual(s), as
modified from time to time, that describes and provides standards and
specifications for operation of a Store under the Principal Marks and the
System associated therewith.
<PAGE> 249
EXHIBIT G
TO THE DEVELOPMENT AGREEMENT
BY AND BETWEEN EINSTEIN/NOAH BAGEL CORP.
AND
EINSTEIN/NOAH BAGEL PARTNERS, L.P.
DATED __________________
PRINCIPAL OWNERS, OTHER OWNERS, KEY MANAGERS,
PERMITTED COMPETITIVE BUSINESSES,
AND INITIAL CAPITALIZATION
<PAGE> 250
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: SEE ATTACHED Number of Interests Owned:
-------------------------------- -----------
Address: SCHEDULE A % of Total Interests:
----------------------------- ---------------
IMMEDIATELY Number of Interests Owner is Entitled
- ------------------------------------- to Vote:
FOLLOWING THIS -----------------------------
- ------------------------------------- Other Interest (Describe):
EXHIBIT G -----------
- ------------------------------------- --------------------------------------
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> 251
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> 252
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:
- ----------------------------------- ---------------------------------
- ----------------------------------- ---------------------------------
G-3
<PAGE> 253
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 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.
INITIALS:
COMPANY:
------------
DEVELOPER:
----------
G-4
<PAGE> 254
SCHEDULE A
<TABLE>
<CAPTION>
General
Partner Units
-------------
<S> <C>
Einstein/Noah Bagel Partners, Inc. 4,169,754
14123 Denver West Parkway
Golden, CO 80401
Limited
Partner Units
-------------
Einstein/Noah Bagel Corp. 321,071,429
14123 Denver West Parkway
Golden, CO 80401
Bagel Store Development Funding, L.L.C. 89,450,000
14123 Denver West Parkway
Golden, CO 80401
Lawrence Beck 350,000
2301 Mitchell Park Drive
Petoskey, MI 49770
Robert Schlacter 10,000
14123 Denver West Parkway
Golden, CO 80401
Henry Huth 250,000
860 Canal Street
Stamford, CT 06902
Timothy Nolan 250,000
14 Midbrook Lane
Darien, CT 06820
Colonial Bagels, Inc. 350,000
c/o Glenn Pierce
29 White Barn Lane
Norwell, MA 02061
</TABLE>
G-5
<PAGE> 255
<TABLE>
<CAPTION>
Limited
Partner Units
-------------
<S> <C>
Great Lakes Bagels, Inc. 370,000
770 Pasquinelli Drive
Suite 400
Westmont, IL 60559
John Morlock 126,500
770 Pasquinelli Drive
Suite 400
Westmont, IL 60559
Joseph D. Hoog 101,500
770 Pasquinelli Drive
Suite 400
Westmont, IL 60559
Tracy S. Sinnott 38,000
770 Pasquinelli Drive
Suite 400
Westmont, IL 60559
William Sullivan 38,000
770 Pasquinelli Drive
Suite 400
Westmont, IL 60559
Thomas Jednorowicz 38,000
770 Pasquinelli Drive
Suite 400
Westmont, IL 60559
Matthew Flandermeyer 38,000
770 Pasquinelli Drive
Suite 400
Westmont, IL 60559
</TABLE>
G-6
<PAGE> 256
<TABLE>
<CAPTION>
Limited
Partner Units
-------------
<S> <C>
Douglas Henzlik 100,000
4407 W. 112th Terrace
Leanado, KS 66211
Finest Bagels, Inc. 200,000
c/o Edwin Brownell
1250 Marina Village Parkway
Alameda, CA 94501
BC Detroit, L.P. 468,386
Huizenga Capital Management
Attn: Peter Huizenga
2215 York Road
Suite 500
Oakbrook, IL 60521
BC Chicago, Inc. 1,095,524
770 Pasquinelli Drive
Suite 400
Westmont, IL 60559
Edwin Brownell 610,000
1250 Marina Village Parkway
Alameda, CA 94501
Noah Alper 150,000
5 Yehoash Street
Jerusalem 93152
Israel
Gulfstream Bagels, Inc. 350,000
1801 Clint Moore Road
Suite 215
Boca Raton, FL 33487
</TABLE>
G-7
<PAGE> 257
<TABLE>
<CAPTION>
Limited
Partner Units
-------------
<S> <C>
Robert Hartnett 150,000
1801 Clint Moore Road
Suite 215
Boca Raton, FL 33487
Steven Quamme 185,000
14123 Denver West Parkway
Golden, CO 80401
Andrew Murphy 150,000
1801 Clint Moore Road
Suite 215
Boca Raton, FL 33487
John Hay 150,000 150,000
1801 Clint Moore Road
Suite 215
Boca Raton, FL 33487
Andrew Sears 25,000
805 Spinnaker's Reach
Ponte Vedra, FL 32082
Todd Martin 50,000
1801 Clint Moore Road
Suite 215
Boca Raton, FL 33487
Pearce Tucker 510,000
7220 Trade Street
Suite 115
San Diego, CA 92121
Larry Hohl 125,000
4110 North Scottsdale Rd., Ste. 315
Scottsdale, AZ 85251
</TABLE>
G-8
<PAGE> 258
<TABLE>
<CAPTION>
Limited
Partner Units
-------------
<S> <C>
Mark Villalpando 75,000
7220 Trade Street
Suite 115
San Diego, CA 92121
John Christenson 25,000
4110 North Scottsdale Road
Suite 315
Scottsdale, AZ 85251
Troy Cooper 75,000
4110 North Scottsdale Road
Suite 315
Scottsdale, AZ 85251
-----------
Total Units* 416,975,339
</TABLE>
- -----------------------
* General and Limited Partner Units
G-9
<PAGE> 259
EXHIBIT H
TO THE DEVELOPMENT AGREEMENT
BY AND BETWEEN EINSTEIN/NOAH BAGEL CORP.
AND
EINSTEIN/NOAH BAGEL PARTNERS, L.P.
DATED ______________________
DEVELOPER ACKNOWLEDGMENTS AND REPRESENTATIONS STATEMENT
<PAGE> 260
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 in its 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 Stores in order to protect
and preserve the goodwill of the Marks, the Principal Marks, the other Marks
associated with the Principal Marks and the System associated with the
Principal Marks. (Capitalized terms not defined herein shall have the
respective meanings set forth in the Agreement.)
2. DEVELOPER acknowledges that the License Agreement attached to the
Agreement is the current form of License Agreement and that COMPANY, at its
sole discretion, may from time to time modify or amend in any respect the
standard form of License Agreement used by COMPANY in offering or granting a
UNIT license.
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 Stores may change over time, that an
investment in a Store 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 COMPANY has developed and
will continue to develop or modify in the future branded retail food service
businesses that offer and sell Products and other food and beverage items under
different marks, systems and concepts. DEVELOPER understands that the rights
granted to it under this Agreement are with regard only to the type of branded
retail store that operates under the Principal Marks. Further, DEVELOPER
acknowledges and agrees that COMPANY retains the right, among other rights, to
(1) operate and/or grant others the right to operate retail stores featuring
bagels in DEVELOPER's Territory under marks other than the Principal Marks
designated in Exhibit K; or (2) operate and/or grant others the right to offer
Products in DEVELOPER's Territory using any method of distribution other than
Stores including but not limited to wholesaling to other retail stores and to
other distribution channels such as hotels and airlines.
5. DEVELOPER acknowledges and agrees that some aspects of COMPANY's
license 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
H-1
<PAGE> 261
allowing other developers, franchise owners and license owners to use different
recipes. COMPANY may also allow variations between developers, franchise owners
and license owners in the areas of trademarks, trade dress, operational items
or other aspects of Stores. 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 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. 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 DEVELOPER Stores. 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, franchise and/or license others to operate UNITS in
certain areas under a variety of trademarks and service marks. COMPANY may
allow the use of such various 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, franchising and
licensing a national chain of bagel stores operating under a single trademark
or service mark, determine in its sole discretion to operate, franchise and
license a network of bagel shops operating under different names in different
geographic areas.
6. DEVELOPER 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 or the
business contemplated by the Agreement. Neither COMPANY's
H-2
<PAGE> 262
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, franchisee or licensee can expect or that present or past
developers, franchisees or licensees 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. 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.
7. DEVELOPER hereby acknowledges and agrees that COMPANY's approval
of a proposed site or Site Agreement for a Store 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
Store or a Commissary or the successful operation or profitability of a Store
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 license for the operation of a
Store 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.
8. 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
H-3
<PAGE> 263
established by COMPANY solely for its own purposes at the time of approval
thereof.
9. 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.
10. If DEVELOPER is a legal entity, DEVELOPER:
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.
11. 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.
Dated:
---------------
INITIALS:
COMPANY:
-------------
DEVELOPER:
-----------
H-4
<PAGE> 264
EXHIBIT I
TO THE DEVELOPMENT AGREEMENT
BY AND BETWEEN EINSTEIN/NOAH BAGEL CORP.
AND
EINSTEIN/NOAH BAGEL PARTNERS, L.P.
DATED ____________
GUARANTY AND ASSUMPTION OF DEVELOPER'S OBLIGATIONS
<PAGE> 265
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
I-1
<PAGE> 266
DEVELOPER or any other person as a condition of liability; and
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
I-2
<PAGE> 267
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.
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.
Spouse:
- ---------------------------------- -----------------------------
Name: Name:
Spouse:
- ---------------------------------- -----------------------------
Name: Name:
- ---------------------------------- -----------------------------
Name: Name:
Spouse:
- ---------------------------------- -----------------------------
Name:
- ---------------------------------- -----------------------------
Name:
Spouse:
- ---------------------------------- -----------------------------
Name:
I-3
<PAGE> 268
EXHIBIT J
TO THE EINSTEIN/NOAH BAGEL CORP.
DEVELOPMENT AGREEMENT
BY AND BETWEEN
EINSTEIN/NOAH BAGEL CORP.
AND
EINSTEIN/NOAH BAGEL PARTNERS, L.P.
DATED ________________________
CONFIDENTIALITY AND NON-COMPETE AGREEMENT
<PAGE> 269
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, licensees, 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, licensee composition, territories, and development
plans, and all related trade secrets or confidential or proprietary information
treated as such by the Company and/or the
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<PAGE> 270
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.
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
J-2
<PAGE> 271
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 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 or License Agreement as if Owner were
Franchise Owner or License 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.
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<PAGE> 272
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.
14123 Denver West Parkway
Golden, Colorado 80401
Attention: General Counsel
Facsimile: (303) 216-3490
If to the Related Party signatory hereto, addressed to:
----------------------------
----------------------------
----------------------------
----------------------------
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.
J-4
<PAGE> 273
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, Franchise Agreement or License 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.
e. This Agreement shall be construed and interpreted in
accordance with the laws of the State of Colorado.
J-5
<PAGE> 274
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:
---------------------------
J-6
<PAGE> 275
EXHIBIT K
TO THE DEVELOPMENT AGREEMENT
BY AND BETWEEN EINSTEIN/NOAH BAGEL CORP.
AND
EINSTEIN/NOAH BAGEL PARTNERS, L.P.
DATED _________________________
PRINCIPAL MARKS TO BE USED BY DEVELOPER
<PAGE> 276
PRINCIPAL MARKS TO BE USED BY DEVELOPER
The Stores 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, including
but not limited to the System designated for the Store associated with such
Principal Marks as in effect from time to time:
EINSTEIN BROS.
EINSTEIN BROS. BAGELS
BAGEL BOULEVARD
MELVYN & ELMO'S
NOAH'S
NOAH'S BAGELS
NOAH'S NEW YORK BAGELS
COMPANY will provide DEVELOPER with the Development Manual(s) and
Commissary Manual(s) (if applicable), as modified from time to time, that
describe and provide standards and specifications for development of Stores
under the Principal Marks and the System associated therewith and development
and operation of commissaries.
K-1
<PAGE> 277
ADDENDUM NO. 1 TO AMENDED AND RESTATED
DEVELOPMENT AGREEMENT
THIS ADDENDUM No. 1 is to the Amended and Restated Development
Agreement (the "Agreement"), dated as of December __, 1997, by and between
EINSTEIN/NOAH BAGEL CORP., a Delaware corporation ("COMPANY"), and
EINSTEIN/NOAH BAGEL PARTNERS, L.P., a Delaware limited partnership
("DEVELOPER").
The following shall amend and be incorporated into the Agreement. In
the event of any conflict between the terms of the Agreement and the terms of
this Addendum, then the terms of this Addendum shall control. All capitalized
terms not defined in this Addendum shall have the respective meanings set forth
in the Agreement.
1. Section 3.A. is amended by deleting paragraphs 3 and 4 therefrom.
2. Section 3.B. is amended by adding an additional provision at the end
thereof as follows:
Notwithstanding the foregoing, DEVELOPER acknowledges that COMPANY
desires to reserve itself the right to develop and operate one (1)
UNIT for its own account to be used primarily as a training and
testing facility (the "Company Store"). COMPANY and DEVELOPER
therefore agree that, notwithstanding the exclusivity provided in this
Section 3.B., COMPANY shall have the right to develop and operate
within the Development Area, either itself or through an Affiliate,
the Company Store. COMPANY agrees to use best efforts to locate a
site for such Company Store within a 2-mile radius of COMPANY's
headquarters in Golden, Colorado, provided however, that if such a
site is not available, COMPANY may develop the Company Store anywhere
within the Denver Sub-Area. If the Company Store is not located
within a 2-mile radius of COMPANY's headquarters, COMPANY will
coordinate site selection efforts with DEVELOPER so as not to
interfere with DEVELOPER's planned development of the Denver Sub-Area.
In no event will the Company Store be located within the Territory (as
defined in the Franchise Agreement or License Agreement) of an
EINSTEIN BROS. Store.
3. Section 3 is amended by adding an additional paragraph at the end of
the Section as follows:
3.H. EXPANSION OF DEVELOPMENT AREA.
(1) If, at any time during the period commencing on the date of
this Agreement and ending on the earlier of (a) the last day of the
30th month thereafter or (b) the termination of the Development Term
for every Sub-Area (the "Expansion Period"), COMPANY determines that
development of UNITS should
<PAGE> 278
commence in all or part of the Designated Marketing Areas ("DMAs")
identified on Schedule 1 attached hereto (the "Expansion Area"),
COMPANY shall notify DEVELOPER of such determination (the "Expansion
Notice"). The Expansion Notice shall (a) describe the DMAs affected,
(b) include any demographic, competitive or market analysis on which
COMPANY based its determination and (c) describe the development plan
and schedule proposed for such development.
(2) The parties shall, as soon as practicable following issuance
and receipt of an Expansion Notice and for a period of 30 days
thereafter, engage in good faith negotiations for the execution of an
amendment to this Agreement or, at COMPANY's option, a new area
development agreement providing for the right to develop and acquire
the license to operate the agreed-upon number of UNITS in the
Expansion Area. For each additional UNIT to be developed under such
amendment, DEVELOPER will be obligated to pay fees as described in
Section 7 of the Agreement and provide for COMPANY's approval a
Funding Plan pursuant to Section 13.G of the Development Agreement.
(3) If COMPANY and DEVELOPER timely agree on the terms of the
amendment or the new area development agreement within the period
specified in paragraph (2) above, COMPANY shall provide DEVELOPER with
execution forms of the amendment or new area development agreement,
and DEVELOPER shall execute and return the amendment or new area
development agreement to COMPANY within 15 days of its receipt thereof
and pay all additional development fees and real estate service fees
due upon the execution thereof.
(4) Notwithstanding the foregoing, COMPANY shall have no
obligation to negotiate with DEVELOPER pursuant hereto and may develop
in all or any part of the Expansion Area 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 an Expansion 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 amendment during
the 30-day negotiation period; or
(c) DEVELOPER fails to execute the amendment and pay all
fees required thereunder within the periods specified in
sub-paragraph (3) below; or
(d) the Agreement is terminated, either in whole or with
respect to any Sub-Area, prior to its expiration date; or
<PAGE> 279
(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 of any provision of the
Agreement, any Franchise Agreement, License Agreement, or any
other agreement with COMPANY and which, if curable, has not
been cured within any applicable cure period.
4. Section 3 is further amended by adding an additional paragraph at the
end of the Section as follows:
3.I. RIGHT OF FIRST REFUSAL FOR EINSTEIN BROS. BAGELS STORES
DEVELOPER acknowledges that the development rights and exclusivity
granted to it in this Agreement in the following DMAs apply only with
respect to UNITS which operate using the Noah's Marks and operating
procedures: Los Angeles-Santa Barbara; Portland; Seattle/Tacoma;
Sacramento/Stockton/Modesto; San Francisco/Oakland/San
Jose-Monterey/Salinas; and Fresno/Visalia (the "Former NP Development
Area"). COMPANY and DEVELOPER agree that if, at any time during the
term of this Agreement, COMPANY desires or intends to develop UNITS
using the Einstein Bros. Marks and operating procedures ("Einstein
Bros. UNITS") in the Former NP Development Area, either itself or
through one or more subsidiaries, licensees or franchisees, DEVELOPER
shall have a right of first refusal with respect to such development
on the following terms and conditions:
(1) COMPANY will notify DEVELOPER of its intention to develop
itself or to grant the rights to a third party to develop in the
Former NP Development Area Einstein Bros. UNITS (the "Einstein
Notice"). The Einstein Notice shall (a) describe the DMAs affected,
(b) include any demographic, competitive or market analysis on which
COMPANY based its determination and (c) describe the development plan
and schedule which COMPANY intends to establish for such development.
(2) DEVELOPER shall have the right, excercisable by written notice
(the "Exercise Notice") delivered to COMPANY within 14 days from the
date of its receipt of the Einstein Notice, to notify COMPANY of its
election to undertake such development itself. The following
conditions shall apply to DEVELOPER's election to exercise its right
of first refusal:
(a) DEVELOPER shall be entitled to exercise its right of
first refusal only with respect to the entire plan proposed by
COMPANY in the Einstein Notice;
(b) DEVELOPER must, at the time of the exercise, be in
full compliance with the Development Schedule and in
substantial compliance with all other provisions of this
Agreement;
<PAGE> 280
(c) DEVELOPER must demonstrate to the reasonable
satisfaction of COMPANY that it has the human resources and
financial resources to undertake such additional development
and, in that regard, shall submit, within 60 days of the date
of COMPANY's receipt of the Exercise Notice, a Funding Plan as
described in and in accordance with Section 13.G. of this
Agreement (DEVELOPER agrees that, in making its determination
regarding the suitability and acceptability of the Funding
Plan, COMPANY shall be entitled to consider, among other
things, the potential impact that such additional development
would likely have on DEVELOPER's obligations under this
Agreement); and
(d) COMPANY shall, within 14 days of its acceptance of
DEVELOPER's Funding Plan, issue an addendum to this Agreement
or, at COMPANY's option, a new area development agreement in
the form then being used by COMPANY in the grant of
development rights for the Einstein Bros. concept. DEVELOPER
shall execute and return to COMPANY the executed development
agreement or addendum, as applicable, and pay all fees due in
connection with such agreement or addendum (including, without
limitation, all development fees and other initial fees then
being assessed by COMPANY) within 14 days of its receipt from
COMPANY of the forms of such documents in execution form.
(3) In the event DEVELOPER either elects not to exercise, fails to
timely exercise or fails to otherwise comply with the provisions of
this Section 3.I., COMPANY shall be entitled to either itself commence
the development of the Einstein Bros. UNITS as described in the
Einstein Notice or grant to a third party the rights to develop
Einstein Bros. UNITS as set forth in the Einstein Notice in all
material respects. If COMPANY intends to alter the terms and
conditions of such development in any material respects, the right of
first refusal, as described above, shall apply to the new terms and
conditions.
(4) Notwithstanding the provisions of this Section 3.I. to the
contrary, the foregoing right of first refusal shall not apply to, and
DEVELOPER shall have no rights with respect to:
(a) the development of Einstein Bros. UNITS in the Las
Vegas DMA; or
(b) the development by COMPANY or its subsidiaries,
licensees or franchisees of up to five (5) Einstein Bros.
UNITS anywhere in the Former NP Development Area (in addition
to any Einstein Bros. UNITS developed in the Las Vegas DMA).
<PAGE> 281
5. Section 6.D. is amended by (a) deleting the phrase "eight percent (8%)
of the Store's Royalty Base Revenue (as defined in the License Agreement)." and
replacing it with the phrase "six percent (6%) of the Store's Royalty Base
Revenue (as defined in the License Agreement) with respect to those Stores
located in the DMAs identified on Schedule 2 attached hereto and five percent
(5%) of the Store's Royalty Base Revenue with respect to those Stores located
in the DMAs identified on Schedule 3 attached hereto." and (b) adding the
following at the end thereof:
Notwithstanding the foregoing, DEVELOPER acknowledges and agrees that
if it seeks approval of a Site within a one-mile radius of the
intersection of Union Street and Alameda Parkway in Lakewood,
Colorado, it will pay, in addition to the license fee indicated in
this Section, an additional sum of $178,645, less any amounts paid by
DEVELOPER to COMPANY prior to that time in connection with the
acquisition by DEVELOPER from COMPANY of any equipment used in the
operation of that certain Bagel Stop store located in Market Square
Shopping Center, 12091 West Alameda Parkway, Unit G-2, Lakewood,
Colorado.
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound hereby,
have duly executed this Addendum in duplicate as of the date written below.
EINSTEIN/NOAH BAGEL CORP.
By:
------------------------------
Its: VICE PRESIDENT
EINSTEIN/NOAH BAGEL PARTNERS, L.P.
By: EINSTEIN/NOAH BAGEL PARTNERS, INC.
Its: GENERAL PARTNER
By:
------------------------------
Its:
------------------------------
<PAGE> 282
SCHEDULE 1
EXPANSION AREA
<TABLE>
<S> <C>
Alaska (all or portions of) Springfield (IL)
Albany/Schenectady/Troy Springfield (MA)
Bluefield/Beckley/Oak Hill St. Joseph
Bowling Green Tallahassee
British Columbia, Canada Terre Haute
Buffalo Toledo
Cedar Rapids-Waterloo/Dubuque Topeka
Champaign/Springfield/Decatur Wichita/Hutchinson
Charleston/Huntington Wilkes Barre-Scranton
Cincinnati Youngstown
Columbia/Jefferson City
Davenport/Rock Island/Moline
Dayton
Des Moines/Ames
El Paso
Erie
Evansville
Ft. Wayne
Gainesville
Grand Rapids/Kalamazoo/Battle Creek
Green Bay-Appleton
Harrisburg-Lancaster-Lebanon-York
Hartford/New Haven
Hawaii (all or portions of)
Jacksonville-Brunswick
Johnstown-Altoona
Joplin/Pittsburg
Knoxville
Lansing
Lexington
Louisville
Nashville
Norfolk
Parkersburg
Providence/New Bedford
Reno
Rochester
Rockford
Sioux City/Omaha/North Platte/Lincoln/Hastings/Kearney
Sioux Falls/Mitchell-Mankato-Rochester-Mason City-Austin
South Bend
</TABLE>
<PAGE> 283
SCHEDULE 2
ROYALTY RATES - 6%
Albuquerque
Colorado Springs
Denver
Fresno/Visalia
Ft. Myers
Kansas City
Las Vegas
Los Angeles/Santa Barbara
Miami
Minneapolis
Orlando
Palm Springs
Phoenix
Portland
Sacramento/Stockton/Modesto
Salt Lake City
San Diego
San Francisco/Oakland/San Jose-Montery/Salinas
Seattle/Tacoma
St. Louis
Tampa
Tucson
West Palm Beach
<PAGE> 284
SCHEDULE 3
ROYALTY RATES - 5%
Atlanta
Austin
Baltimore
Boston
Burlington/Plattsburgh
Charlotte
Chicago
Cleveland
Columbus
Dallas
Detroit
Houston
Indianapolis
Madison
Milwaukee
New York
Philadelphia
Pittsburgh
Richmond
Washington, DC
<PAGE> 1
EXHIBIT 10.5
------------------------------------
SERVICES AGREEMENT
BY AND BETWEEN
EINSTEIN/NOAH BAGEL PARTNERS, L.P.
AND
EINSTEIN/NOAH BAGEL CORP.
------------------------------------
DECEMBER ____, 1997
<PAGE> 2
SERVICES AGREEMENT
This Services Agreement ("Agreement") is made as of December
__, 1997 (the "Effective Date"), by and between Einstein/Noah Bagel Partners,
L.P., a Delaware limited partnership ("Bagel Partners") and Einstein/Noah Bagel
Corp., a Delaware corporation ("ENBC").
Recitals
A. Bagel Partners develops, owns and operates certain retail
food service establishments primarily utilizing ENBC's proprietary Einstein
Bros.(R) and Noah's New York Bagels(R) concepts ("Stores") within certain
defined geographic areas.
B. As of December 15, 1997, ENBC has offered employment to
all employees of Bagel Partners (the "Transferred Employees").
C. Bagel Partners desires that ENBC provide the services
(the "Services") provided by the Transferred Employees to Bagel Partners prior
to their employment by ENBC (their "ENBC Employment"), and ENBC has agreed to
provide the Services, upon the terms and subject to the conditions forth in
this Agreement.
Agreement
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 is hereby acknowledged, the
parties hereto agree as follows:
1. ENGAGEMENT OF ENBC.
2
<PAGE> 3
1.1 Services. Bagel Partners hereby engages ENBC to
provide the Services and ENBC hereby agrees to provide the Services on the
terms and subject to the conditions set forth in this Agreement. Bagel Partners
and ENBC agree that the Services shall include, without limitation, accounting,
corporate, managerial, human resources and training, operational, marketing,
real estate and construction, insurance and information system services.
ENBC further agrees to make the Transferred Employees
and the New Employees (as defined herein) available to Bagel Partners and its
management for meetings and consultation at the reasonable request of Bagel
Partners. All direct and out-of-pocket expenses incurred by ENBC in the course
of such meetings and consultation with Bagel Partners shall be borne solely by
Bagel Partners.
1.2 Stores. Bagel Partners and ENBC agree that the
Services will be provided to Stores existing on the date hereof and developed
by Bagel Partners and its subsidiaries after the date hereof.
1.3 Personnel. Bagel Partners and ENBC agree that
the Services shall be provided by the Transferred Employees and any employees
subsequently hired by ENBC, in ENBC's sole discretion, to provide the Services
(the "New Employees").
2. TERM AND TERMINATION. Either party hereto may terminate
this Agreement upon ninety (90) days' prior written notice to the other party.
In the event of any such termination under this Section 2, Bagel Partners shall
be obligated to pay ENBC, upon termination, all fees due and payable to ENBC
under this Agreement through and as of the date of such termination, together
with such reasonable costs and expenses incurred by ENBC as a result of such
termination.
3. FEES AND COSTS. In consideration for the provision of the
Services, Bagel Partners shall pay to ENBC an amount equivalent to all payroll,
employee benefit, overhead and administrative and other expense severally
associated with fees and costs incurred by ENBC in employing the Transferred
Employees and the New Employees. Such amounts shall be paid
3
<PAGE> 4
by Bagel Partners as and when such expenses are incurred by ENBC. Bagel
Partners shall also reimburse ENBC for all out-of-pocket expenses incurred by
ENBC in providing services hereunder, upon receipt of appropriate supporting
documentation. Notwithstanding the foregoing, ENBC will not be entitled to
compensation from Bagel Partners with respect to any grants of options to
purchase ENBC common stock granted to any such Transferred Employees or New
Employees.
4. OTHER AGREEMENTS OF THE PARTIES.
4.1 Cooperation. Bagel Partners and ENBC make the
following material covenants, upon which each party relies as an inducement to
enter into this Agreement:
4.1.1 Bagel Partners agrees to supply ENBC all
information, materials, data, and documents reasonably necessary or advisable
for ENBC to properly perform the Services in such form, format, or media as
ENBC may reasonably request and to reasonably cooperate with ENBC in the
performance of its duties hereunder, and Bagel Partners further agrees to use
reasonable efforts to cause each of its Stores to do the same.
4.1.2 Bagel Partners agrees to provide ENBC with
reasonable access to Bagel Partners' office(s) for use by employees and/or
agents of ENBC who are providing and/or delivering Services to Bagel Partners.
4.1.3 Bagel Partners agrees that it shall carry
insurance with respect to its operations and Stores as required by ENBC under
its development agreement and license agreement with ENBC.
4.1.4 Each of ENBC and Bagel Partners will
promptly examine documents submitted by the other and will promptly render
decisions pertaining thereto, when required, to avoid excessive delay in the
performance of their respective obligations hereunder. ENBC and Bagel Partners
shall execute and deliver any and all applications and other documents as are
deemed necessary or appropriate in connection with this Agreement.
4
<PAGE> 5
4.1.5 ENBC and Bagel Partners will permit each
other to examine and copy data in their respective possession and control which
affect the performance of their respective obligations under this Agreement,
and will in every way reasonably cooperate with each other to enable the
performance of their respective obligations under this Agreement. Bagel
Partners shall hold in strictest confidence any and all confidential
information that may come into Bagel Partners' possession or within Bagel
Partners' knowledge concerning any of the products, services, processes,
suppliers, operations and financial information of ENBC. Bagel Partners
acknowledges that such information is of a highly confidential nature and is to
be used solely for the purpose of assisting Bagel Partners in connection with
this Agreement and in developing and refining its operations and Stores. Bagel
Partners agrees to keep such information confidential and not to divulge such
information to any third parties, except that Bagel Partners may disclose such
information to (i) Bagel Partners' agents, including, but not limited to, Bagel
Partners' accountants and/or attorneys, and Bagel Partners' investors, so long
as such agent/investors are using such information in the course of assisting
Bagel Partners with its operations and development of Stores or to assess or
evaluate their investment, respectively, or (ii) if required to do so by law,
legal process or court order.
4.2 Compliance with Laws. ENBC agrees to use its best
efforts to comply with all governmental laws, regulations, and orders
applicable to its operations with respect to performing the Services as
contemplated by this Agreement.
5. INDEMNIFICATION.
5.1 Indemnification. Notwithstanding any other
agreement between the parties, Bagel Partners shall indemnify, defend, and hold
ENBC and its officers, directors, agents, employees, contractors, and insurers
(collectively, "Indemnified Parties") harmless from, and defend all Indemnified
Parties against, all claims, losses, costs, damages and liabilities asserted
against any Indemnified Party by any person or entity that relate to or arise
from, directly or indirectly: (i) the execution or delivery of this Agreement
by ENBC or Bagel Partners; (ii) the performance by any
5
<PAGE> 6
Indemnified Party of the Services to be provided to Bagel Partners under this
Agreement; or (iii) the gross negligence or willful misconduct of Bagel
Partners, its agents, employees, or contractors, including, without limitation,
Bagel Partners' violation or failure to perform, or misrepresentation with
respect to, any of the terms, covenants, conditions, representations or
warranties set forth in this Agreement. The parties understand and agree that
this indemnification obligation shall apply to, without limitation, any claim
by any current or former Transferred Employee arising from any violation or
alleged violation of federal, state or local civil rights laws or ordinances,
or sounding in breach of contract (express or implied), promissory estoppel,
wrongful discharge, tort, defamation, interference with contract or business
advantage, negligence, or reckless or willful misconduct. The parties also
understand and agree that the indemnity obligation shall apply to all
attorneys' fees and related costs incurred by any Indemnified Party in
connection with any indemnified claim or in enforcing Bagel Partners'
obligations under this paragraph.
5.2 Indemnification Procedures. Any party entitled to
indemnification hereunder will give prompt written notice to the indemnifying
party of any claim with respect to which it seeks indemnification and, unless
in such indemnified party's reasonable judgment a conflict of interest between
such indemnified and indemnifying parties may exist with respect to such claim,
permit such indemnifying party to assume the defense of such claim with counsel
reasonably satisfactory to the indemnified party. If such defense if assumed,
the indemnifying party will not be required to pay the indemnified party's
legal fees unless the indemnifying party has specifically requested the
participation of indemnified party's counsel. An indemnifying party who is not
entitled to, or elects not to, assume the defense of a claim will not be
obligated to pay the fees and expenses of more than one counsel for all parties
indemnified by such indemnifying party with respect to such claim, unless in
the reasonable judgment of such counsel a conflict of interest may exist
between such indemnified party and any other of such indemnified parties with
respect to such claim. Failure to provide notice of any claim hereunder shall
only relieve the indemnifying party hereunder to the extent such failure
prejudices the indemnifying party. An indemnifying party may not settle any
claim on behalf of the indemnified party without the indemnified party's
consent, which shall not be unreasonably withheld, unless such claim is
strictly
6
<PAGE> 7
monetary in nature and the indemnifying party is willing to satisfy
such claim in full.
6. MISCELLANEOUS.
6.1 Relationship of the Parties. In performing the
Services set forth in this Agreement, ENBC shall be an independent contractor.
ENBC will have neither express nor implied power or authority to execute
agreements on behalf of Bagel Partners, Bagel Partners' Stores, or any of its
or their employees. Nothing contained in this Agreement shall be construed to
constitute ENBC as a partner or employee of Bagel Partners, nor shall any party
have authority to bind the other in any respect, except as otherwise provided
herein, it being intended that each party shall remain an independent
contractor responsible for its own actions. Except as otherwise provided
herein, ENBC shall not have nor hold itself out as having, the power to make
contracts in Bagel Partners' name, to bind or to pledge Bagel Partners' credit,
or to extend credit in Bagel Partners' name.
6.2 Notices. All notices provided under 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 ENBC:
Einstein/Noah Bagel Corp.
14123 Denver West Parkway
Golden, CO 80401
Attention: Chief Financial Officer
If to Bagel Partners:
c/o Einstein/Noah Bagel Corp.
14123 Denver West Parkway
Golden, CO 80401
Attention: President, Einstein/Noah Bagel Partners, Inc.
7
<PAGE> 8
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.
6.3 Governing Law. THIS AGREEMENT SHALL BE CONSTRUED
IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF DELAWARE APPLICABLE
TO CONTRACTS MADE AND TO BE PERFORMED THEREIN WITHOUT REGARD TO THE CONFLICT OF
LAW PROVISIONS THEREOF.
6.4 Waiver of Punitive Damages and Jury Trial. IN THE
ABSENCE OF FRAUD, NO PARTY HERETO SHALL SEEK OR BE LIABLE FOR PUNITIVE,
SPECULATIVE, EXEMPLARY, OR SPECIAL DAMAGES FOR ANY ACTION OR INACTION RELATING
TO THIS AGREEMENT. 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. 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 6.4 HAVE BEEN FULLY
DISCUSSED BY THE PARTIES HERETO, AND THESE PROVISIONS SHALL BE SUBJECT TO NO
EXCEPTIONS. THIS PROVISION IS A MATERIAL INDUCEMENT FOR EACH OF THE PARTIES IN
ENTERING INTO THIS AGREEMENT.
6.5 Waiver. A failure of any party to insist in any
instance upon the strict and punctual performance of any provisions of this
8
<PAGE> 9
Agreement shall not constitute a continuing waiver of such provision. No party
shall be deemed to have waived any right, 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.
6.6 Amendment. This Agreement may be amended or
modified only by a written instrument signed by each of the parties hereto.
6.7 Entire Agreement. 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 oral or
written, with respect thereto.
6.8 No Third Party Rights. 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.
6.9 Assignment. This Agreement will be binding and
inure to the benefit of the parties hereto and their respective successors,
legal representatives and assigns, but this Agreement may not be assigned by
any party without the written consent of the other party.
6.10 Non-Exclusivity. Bagel Partners and ENBC
acknowledge and agree that each shall have the right to enter into service
agreements with other entities and that this Agreement is not an exclusive
contract, so long as such other service agreements do not in any way affect
ENBC's provision of Services or Bagel Partners' obligations to ENBC hereunder.
6.11 Captions and Headings. The captions and headings
in this Agreement are for convenience and reference only, and the
9
<PAGE> 10
words contained therein shall not be held or deemed to define, limit, describe,
explain, or modify, amplify, or add to the interpretation, construction, or
meaning of any provision, or the scope of intent, of this Agreement or to in
any way affect this Agreement.
6.12 Counterparts. This Agreement may be executed in
any number of counterparts, each of which, when so executed and delivered,
shall constitute an original and it shall not be necessary in making proof of
this Agreement to produce or account for more than one original counterpart
hereof.
10
<PAGE> 11
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first written above.
EINSTEIN/NOAH BAGEL
PARTNERS, L.P.
By: Einstein/Noah Bagel Partners, Inc.
Its: General Partner
By:
----------------------------------
Name: Jeffrey L. Butler
Title: President
EINSTEIN/NOAH BAGEL CORP.
By:
----------------------------------
Name: Paul A. Strasen
Title: Senior Vice President
11
<PAGE> 1
EXHIBIT 10.6
EXECUTION COPY
================================================================================
AMENDED AND RESTATED
SECURED CREDIT AGREEMENT
dated as November 21, 1997
among
EINSTEIN/NOAH BAGEL CORP.,
THE LENDERS NAMED HEREIN,
BANK OF AMERICA NATIONAL
TRUST AND SAVINGS ASSOCIATION
as Agent and Issuing Lender,
and
GENERAL ELECTRIC CAPITAL CORPORATION
as Co-Agent
================================================================================
<PAGE> 2
TABLE OF CONTENTS
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ARTICLE I DEFINITIONS AND ACCOUNTING TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1. Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2. Accounting Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE II AMOUNT AND TERMS OF THE LOANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.1. Loan Commitment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.2. Borrowing Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.3. Funding Reliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.4. Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
2.5. Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
2.6. Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
2.7. Prepayments; Reduction of Commitment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
2.8. Mandatory Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
2.9. Method of Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
2.10. Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
2.11. Sharing of Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
2.12. Increased Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
2.13. Change in Rate of Return . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
2.14. Basis for Determining Interest Rate Inadequate
or Unfair . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
2.15. Changes in Law Rendering Certain Loans Unlawful . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
2.16. Funding Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
2.17. Right of Lenders to Fund Through Other Offices . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
2.18. Discretion of Lenders as to Manner of Funding . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
2.19. Mitigation of Circumstances; Replacement of
Affected Lender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
2.20. Conclusiveness of Statements; Survival of
Provisions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
ARTICLE IIA THE LETTERS OF CREDIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
2.1A LC Commitment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
2.2A Request for Issuance of Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
2.3A Expiration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
2.4A Participation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
2.5A Notification of Demand for Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
2.6A Funding by Issuing Lender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
2.7A NonConforming Demand For Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
2.8A Return of Letter of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
2.9A Reimbursement Agreement of the Borrower . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
2.10A Funding By Lenders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
2.11A Return of Funds Related to NonConforming
Demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
2.12A Obligation to Reimburse for or Participate in
Letter of Credit Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
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2.13A Mandatory Payment to Agent of LC Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
2.14A Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
2.15A Voluntary Reduction of the LC Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
2.16A Cash Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
2.17A Making of Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
ARTICLE III CONDITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
3.1. Condition Precedent to Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
3.2. Conditions Precedent to All Loans and Letters of
Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
ARTICLE IV REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
4.1. Incorporation, Good Standing, and Due
Qualification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
4.2. Corporate Power and Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
4.3. Legally Enforceable Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
4.4. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
4.5. Other Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
4.6. Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
4.7. No Defaults on Outstanding Judgments or Orders . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
4.8. Governmental and Regulatory Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
4.9. Ownership and Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
4.10. Subsidiaries etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
4.11. ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
4.12. Hazardous Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
4.13. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
4.14. Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
4.15. Investment Company Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
4.16. Public Utility Holding Company Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
4.17. Pledged Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
4.18. Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
4.19. Financed Franchisee/Subsidiary Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
4.20. Collateral Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
4.21. Solvency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
ARTICLE V AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
5.1. Maintenance of Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
5.2. Maintenance of Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
5.3. Maintenance of Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
5.4. Conduct of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
5.5. Maintenance of Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
5.6. Compliance With Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
5.7. Right of Inspection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
5.8. Reporting Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
5.9. Environmental Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
5.10. Notes, Certificates and Other Collateral. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
5.11. Financing Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
5.12. Subsidiary Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
5.13. Credit Usage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
5.14. Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
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5.15. Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
ARTICLE VI NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
6.1. Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
6.2. Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
6.3. Mergers, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
6.4. Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
6.5. Sale and Leaseback . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
6.6. Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
6.7. Sale of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
6.8. Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
6.9. Guaranties, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
6.10. Transactions With Affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
6.11. Subsidiary, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
6.12. Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
6.13. Financed Franchisee Loan Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
6.14. Subordinated Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
6.15. Use of Proceeds; Margin Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
6.16. Take or Pay Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
6.17. Credit Agreement Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
ARTICLE VII FINANCIAL COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
7.1. Net Store Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
7.2. Senior Indebtedness to System EBITDAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
7.3. Total Overhead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
7.4. Proforma Store Fixed Charge Coverage Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
7.5. Proforma System Fixed Charge Coverage Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
ARTICLE VIII EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
8.1. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
8.2. Effect of Event of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
ARTICLE IX THE AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
9.1. Authorization and Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
9.2. Liability of the Agent to the Lenders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
9.3. Bank of America and Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
9.4. Lender Credit Decision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
9.5. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
9.6. Successor Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
9.7. Duties of the Co-Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
ARTICLE X MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
10.1. Waivers and Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
10.2. Notices, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
10.3. No Waiver; Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
10.4. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
10.5. Assignments and Participations; Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
10.6. Costs, Expenses, and Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
10.7. Right of Setoff . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
10.8. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
</TABLE>
- iii -
<PAGE> 5
<TABLE>
<CAPTION>
Page
----
<S> <C>
10.9. Severability of Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
10.10. Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
10.11. SUBMISSION TO JURISDICTION; WAIVER OF VENUE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
10.12. General Indemnity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
10.13. WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
10.14. SERVICE OF PROCESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
10.15. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
10.16. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
10.17. Reaffirmation, Restatement and Waivers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
</TABLE>
- iv -
<PAGE> 6
SCHEDULES
Schedule 1.1(A) Requirements for Financed Franchisee Loan Documents
Schedule 1.1(B) Percentages
Schedule 1.1(C) Existing Letter of Credit
Schedule 4.6 Litigation
Schedule 4.10 Subsidiaries, etc.
Schedule 4.14 Existing Debt
Schedule 4.17 Pledged Collateral
Schedule 4.18 Real Property
Schedule 4.19 Financed Franchisee Information
Schedule 6.1 Liens
Schedule 6.2 Permitted Debt
Schedule 6.9 Permitted Guaranties
EXHIBITS
EXHIBIT A-1 Form of Revolving Note (Section 2.6)
EXHIBIT A-2 Form of Term Note (Section 2.6)
EXHIBIT B Form of Borrowing Request (Section 2.2(1))
EXHIBIT C Form of Continuation/Conversion Notice (Section 2.2(2))
EXHIBIT D Form of Opinion of Counsel for the Borrower and the
Subsidiaries (Section 3.1)
EXHIBIT E Form of Guaranty (Section 3.1)
EXHIBIT F-1 Form of Security Agreement (Section 1.1)
EXHIBIT F-2 Form of Trademark Security Agreement (Section 1.1)
EXHIBIT F-3 Form of Collateral Assignment Servicing Agreements (Section 1.1)
EXHIBIT G Form of Pledge Agreement (Section 1.1)
EXHIBIT H Form of Collateral Assignment of Lease (Section 1.1)
EXHIBIT I Form of Landlord's Consent (Section 1.1)
EXHIBIT J Form of Collateral Assignment of Loan (Section 1.1)
EXHIBIT K Form of BCI Subordination Agreement (Section 1.1)
EXHIBIT L Form of Affirmation and Amendment (Section 1.1)
EXHIBIT M Form of Compliance Certificate (Section 5.8(4))
- v -
<PAGE> 7
AMENDED AND RESTATED
SECURED CREDIT AGREEMENT
THIS AMENDED AND RESTATED SECURED CREDIT AGREEMENT dated as of
November 21, 1997, among EINSTEIN/NOAH BAGEL CORP., a Delaware corporation (the
"Borrower"), the lenders whether as original signatories or pursuant to Section
10.5 party hereto (herein, together with any assignees thereof, collectively
called the "Lenders" and each individually called a "Lender"), GENERAL ELECTRIC
CAPITAL CORPORATION, as coagent for the Lenders (herein in such capacity,
together with any successors thereto in such capacity, called the "Co-Agent'")
and BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION (as successor by
merger to Bank of America Illinois) (together with any successor thereto, "Bank
of America"), as agent for the Lenders (herein in such capacity, together with
any successors thereto in such capacity, called the "Agent") and as Issuing
Lender (as hereinafter defined).
WHEREAS, the Borrower, the Agent, the Issuing Lender and the
Lenders are parties to that certain Secured Credit Agreement dated as of May
17, 1996 (as heretofore amended or modified, the "Original Credit Agreement")
pursuant to which the Lenders made Revolving Loans to, and issued Letters of
Credit for the account of the Borrower from time to time;
WHEREAS, the Borrower, the Agent, the Co-Agent, the Issuing
Lender and the Lenders now desire to amend and restate the Original Credit
Agreement to, among other things, (i) extend the Termination Date of the
Agreement, (ii) provide for the Term Loan, (iii) amend certain covenants and
(iv) make certain other changes to the Original Credit Agreement.
NOW, THEREFORE, in consideration of the mutual promises herein
contained and for other good and valuable consideration, the parties hereto
agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
Section 1.1. Defined Terms. As used in this Agreement the
following terms have the following meanings (terms defined in the singular to
have the same meaning when used in the plural and vice versa):
"Affected Lender" - See Section 2.15.
"Affirmation and Amendment" means the Affirmation and
Amendment of Loan Documents substantially in the form of Exhibit
- 1 -
<PAGE> 8
L, to be delivered by the Borrower and its Subsidiaries under the terms of this
Agreement.
"Affiliate" means any Person other than a Financed Franchisee:
(1) which directly or indirectly controls, or is controlled by, or is under
common control with, the Borrower or a Subsidiary; (2) which directly or
indirectly beneficially owns or holds, at the time of determination,
outstanding shares representing ten percent (10%) or more of any class of
capital stock, partnership units or other equity interests of the Borrower or
any Subsidiary (including, on a fully diluted basis, any options, warrants and
other rights to acquire capital stock, partnership units or other equity
interests which are exercisable at the time of determination, but excluding any
options, warrants and other rights to acquire capital stock, partnership units
or other equity interests which are not then exercisable); or (3) ten percent
(10%) or more of the capital stock, partnership units or other equity interests
of which (calculated in accordance with the foregoing Clause (2)) is directly
or indirectly beneficially owned or held by the Borrower or a Subsidiary. For
purposes of this definition only, the term control means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of a Person, whether through the ownership of voting
securities, by contract, or otherwise; provided, that for purposes hereof, the
existence of a Franchise Agreement, Area Development Agreement or similar
agreement between the Borrower and a Person shall not, by itself, evidence that
such Person is controlled by the Borrower nor shall the Financed Franchisee
Loan Documents executed by a Franchisee evidence that such Franchisee is an
Affiliate of the Borrower prior to the acquisition by the Borrower of an equity
interest therein of in excess of ten percent (10%), whether such acquisition
occurs by conversion of debt, exercise of any equity option, or otherwise
(including acquisition by foreclosure following an acceleration under the
Financed Franchisee Loan Documents).
"Agent" - see Preamble.
"Agreement" means this Amended and Restated Secured Credit
Agreement, as amended, supplemented, modified, restated, refinanced, refunded
or renewed from time to time.
"Annualized Store EBITDAL" means, for each fiscal period of
the Borrower, (1) Store EBITDAL for such fiscal quarter divided by the number
of Retail Periods which occur in such fiscal quarter, multiplied by (2)
thirteen (13).
"Annualized System EBITDAL" means, for each fiscal quarter of
the Borrower, the product of (1) System EBITDAL for such fiscal quarter divided
by the number of Retail Periods which occur in such fiscal quarter, multiplied
by (2) thirteen (13).
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<PAGE> 9
"Applicable Margin" means with respect to Eurodollar Loans and
Floating Rate Loans, as the case may be, a margin as follows:
<TABLE>
<CAPTION>
Applicable Applicable Floating Rate
Eurodollar Rate Margin
Cash Flow Ratio Margin
<S> <C> <C>
Greater than or equal to 2.00:1 3.25% 0.50%
Greater than or equal to 1.50:1 2.75% 0.25%
but less than 2.00:1
Greater than or equal to 1.00:1 2.25% 0.00%
but less than 1.50:1
Less than 1.00:1 1.75% 0.00%
</TABLE>
The Applicable Margin with respect to Eurodollar Loans and
Floating Rate Loans, as the case may be, shall be adjusted (1) on the date on
or after the Revolving Loan Effective Date but prior to receipt by the Agent of
the certificate required pursuant to subsection 5.8(4) with respect to the
Borrower's first fiscal quarter, 1998 on which Revolving Loans shall be
available under Section 5.13 and (2) at all time thereafter on the first day of
the calendar month following receipt by the Agent of the certificate required
pursuant to subsection 5.8(4), in each case, based on the Cash Flow Ratio as of
the last day of the fiscal quarter most recently ended; it being understood
that if the Borrower fails to timely deliver the certificate in accordance with
subsection 5.8(4), then until five days following receipt of such certificate
by the Agent, the Applicable Margin shall be 3.25% with respect to Eurodollar
Loans and 0.50% with respect to Floating Rate Loans. It is hereby acknowledged
that as of the Restatement Effective Date, the Applicable Margin for Eurodollar
Loans is 3.25% and for Floating Rate Loans is 0.50%.
"Authorized Officer" means any one of the following officers
of the Borrower: Chairman, President and Chief Executive Officer, Vice
President or Chief Financial Officer.
"Bank of America" - see Preamble.
"BCI" means Boston Chicken, Inc., a Delaware corporation.
- 3 -
<PAGE> 10
"BCI Control Stock" means common stock of BCI registered with
the Securities and Exchange Commission which is acquired by the Borrower in
exchange for the issuance by the Borrower to BCI of the Borrower's common
stock.
"BCI Exempted Stock" means common stock of BCI registered with
the Securities and Exchange Commission which is issued to the Borrower in lieu
of funding a borrowing under the BCI Subordinated Debt with immediately
available funds.
"BCI Subordinated Debt" means the Debt incurred pursuant to an
Amended and Restated Loan Agreement dated as of May 17, 1996, as amended,
between the Borrower and BCI, as lender, pursuant to which BCI agreed to make
an unsecured loan to the Borrower in the maximum principal amount of
$50,000,000, as such Amended and Restated Loan Agreement is in effect on the
Restatement Effective Date.
"BCI Subordination Agreement" means a Subordination Agreement
executed by BCI with respect to the BCI Subordinated Debt in substantially the
form of Exhibit K.
"Beneficiary" means any beneficiary under any Letter of
Credit.
"Borrowing" means, on any Borrowing Date, a borrowing
hereunder consisting of Loans made to the Borrower at the same time by the
Lenders pursuant to Section 2. A Borrowing may be a Floating Rate Borrowing or
a Eurodollar Borrowing.
"Borrowing Date" means any Business Day specified in a notice
pursuant to Section 2.2 as a date on which the Borrower requests the Lenders to
make Loans hereunder.
"Borrowing Request" see Section 2.2.
"Business Day" means any day other than a Saturday, Sunday, or
other day on which commercial banks in Chicago, Illinois are authorized or
required to close under the laws of the State of Illinois.
"Capital Lease" means all leases which have been or should be
capitalized on the books of the lessee in accordance with GAAP.
"Cash Flow Ratio" - see Section 7.2.
"Change of Control" shall be deemed to have occurred at such
time after the Restatement Effective Date as (1) BCI, the officers and
directors of BCI, and the officers and directors of the Borrower shall fail to
own at, collectively in aggregate, at least 40% of the voting stock of the
Borrower, (2) BCI shall fail
- 4 -
<PAGE> 11
to own at lease 25% of the voting stock of the Borrower, (3) any Person or
group of Persons (within the meaning of Section 13 or 14 of the Exchange Act)
other than BCI, the officers and directors of BCI, or the officers and
directors of the Borrower, shall acquire at any time beneficial ownership
(within the meaning of Section 13 of the Exchange Act) of 10% or more of the
voting stock of the Borrower or (4) individuals who as of the date hereof
constitute the Borrower's Board of Directors (together with any new director
whose election or appointment was approved by a vote of or recommended by at
least a majority of the directors then still in office who either were
directors at the beginning of such period or whose election or nomination for
election was previously so approved), for any reason, cease to constitute a
majority of the directors at any time then in office. For purposes of this
definition, "Exchange Act" means the Securities and Exchange Act of 1934, and
regulations promulgated thereunder, all as amended from time to time.
"Co-Agent" - see Preamble.
"Code" means the Internal Revenue Code of 1986, as amended.
"Collateral" means all property which is subject to, or is to
be subject to, the Lien granted by each Security Agreement, each Trademark
Security Agreement, the Collateral Assignment of Servicing Agreements, the
Pledge Agreement, any Collateral Assignment of Lease, any Landlord's Consent,
any Collateral Assignment of Loan or any other Loan Documents.
"Collateral Assignment of Lease" means any Collateral
Assignment of Tenant's Rights in Lease in substantially the form of Exhibit H
to be delivered by the Borrower or a Subsidiary under the terms of the Original
Credit Agreement or to be delivered by the Borrower or a Subsidiary under the
terms of this Agreement, as the same may be amended, modified, reaffirmed or
restated from time to time, including, without limitation, as amended and
reaffirmed pursuant to the Affirmation and Amendment.
"Collateral Assignment of Loan" means a Collateral Assignment
of Loan Documentation in the form of Exhibit J delivered by the Borrower under
the terms of the Original Credit Agreement, as the same may be amended,
modified, reaffirmed or restated from time to time, including, without
limitation, as amended and reaffirmed pursuant to the Affirmation and
Amendment.
"Collateral Assignment of Servicing Agreements" means the
Collateral Assignment of Servicing Agreements in the form of Exhibit F-3,
delivered by the Borrower under the terms of the Original Credit Agreement, as
the same may be amended, modified, reaffirmed or restated from time to time,
including, without
- 5 -
<PAGE> 12
limitation, as amended and reaffirmed pursuant to the Affirmation and
Amendment.
"Collateral Documents" means each Security Agreement, each
Trademark Security Agreement, the Collateral Assignment of Servicing
Agreements, each Pledge Agreement, each Collateral Assignment of Lease and
Landlord's Consent, each Collateral Assignment of Loan and each mortgage or
deed of trust delivered from time to time in connection with this Agreement.
"Combined Overhead" means, for each fiscal period of the
Borrower, the sum of field operating overhead plus support center overhead
(exclusive of transaction costs, severance costs, store closing costs and
onetime non recurring charges), in each case, of the Borrower, its
Subsidiaries and the Financed Franchisees.
"Commitment" means, at any time as to any Lender, collectively
such Lender's Revolving Loan Commitment, Term Loan Commitment and LC Commitment
then in effect.
"Continuation/Conversion Notice" see Section 2.2.
"Debt" means with respect to any Person at any date, without
duplication: (1) indebtedness or liability for borrowed money, or for the
deferred purchase price of property or services (including trade obligations)
owed by such Person; (2) obligations of such Person as lessee under Financial
Leases; (3) current liabilities of such Person in respect of unfunded vested
benefits under any Plan; (4) obligations under letters of credit issued for the
account of such Person; (5) all obligations arising under bankers' acceptance
facilities issued for the account of such Person; (6) all guaranties by such
Person of the Debt or of operating leases of a third party, endorsements (other
than for collection or deposit in the ordinary course of business), and other
contingent obligations of such Person to purchase primarily for the purpose of
enabling a third party to make payment of Debt or payments with respect to
operating leases of such third party, to provide funds for payment of the Debt
or of operating leases of a third party, to supply funds to invest in a third
party, or otherwise to assure a creditor of a third party against loss with
respect to the Debt or operating leases of such third party; (7) obligations
secured by any Lien on property owned by such Person, whether or not the
obligations have been assumed; and (8) obligations in respect of Hedging
Agreements.
"Default" means any of the events specified in Section 8.1,
whether or not any requirement for the giving of notice, the lapse of time, or
both, or any other condition, has been satisfied.
- 6 -
<PAGE> 13
"Dollars" and the sign "$" shall mean lawful money of the
United States of America.
"Effective Date" means May 17, 1996.
"Environmental Laws" means any and all federal, state, local
laws, regulations, ordinances, rules, judgments, orders, decrees, permits,
concessions, grants, franchises, licenses, agreements or other governmental
restrictions relating to the environment or to emissions, discharges, releases
or threatened releases of pollutants, contaminants, chemicals, or industrial,
toxic or hazardous substances or wastes into the environment including, without
limitation, ambient air, surface water, ground water, or land, or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport, or handling of pollutants, contaminants, chemicals, or
industrial, toxic or hazardous substances or wastes.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, and the regulations and published
governmental interpretations thereof.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) which together with the Borrower would be treated as a single
employer under Section 4001 of ERISA.
"Eurocurrency Reserve Percentage" means, with respect to any
Eurodollar Loan for any Interest Period, a percentage (expressed as a decimal)
equal to the daily average during such Interest Period, as prescribed by the
Federal Reserve Board, for determining the aggregate maximum reserve
requirements (including all basic, supplemental, marginal and other reserves)
applicable to "Eurocurrency liabilities" pursuant to Regulation D or any other
then applicable regulation of the Federal Reserve Board which prescribes
reserve requirements applicable to "Eurocurrency liabilities," as defined in
Regulation D, as applicable to the class of banks of which the Agent is a
member. Without limiting the effect of the foregoing, the Eurocurrency Reserve
Percentage shall reflect any other reserves required to be maintained by the
Agent against (i) any category of liabilities that includes deposits by
reference to which the Eurodollar Rate (Reserve Adjusted) is to be determined,
or (ii) any category of extensions of credit or other assets that includes
Eurodollar Loan. For purposes of this Agreement, any Eurodollar Loan hereunder
shall be deemed to be "Eurocurrency liabilities," as defined in Regulation D,
and, as such, shall be deemed to be subject to such reserve requirements
without the benefit of, or credit for, proration, exceptions or offsets which
may be available to the Agent from time to time under Regulation D.
- 7 -
<PAGE> 14
"Eurodollar Loan" or "Eurodollar Borrowing" means any Loan
which bears interest at a rate determined by reference to the Eurodollar Rate
(Reserve Adjusted).
"Eurodollar Rate" means, with respect to any Eurodollar Loan
for any Interest Period, the rate per annum equal to the average (rounded
upward, if necessary, to the next higher 1/16 of 1%) rate per annum at which
Dollar deposits in immediately available funds are offered by the Lending
Office of the Agent two Business Days prior to the beginning of such Interest
Period to prime banks in the interbank eurodollar market as at or about the
relevant local time of such Lending Office, for delivery on the first day of
such Interest Period, for the number of days comprised therein and in an amount
equal or comparable to the amount of the Eurodollar Loan of the Agent for such
Interest Period. As used herein, "relevant local time" shall mean 11:00 A.M.,
London time, when the Lending Office of the Agent is located in Europe, or
10:00 A.M., New York time, when such Lending Office is located in North America
or otherwise outside of Europe.
"Eurodollar Rate (Reserve Adjusted)" means, with respect to
any Eurodollar Loan for any Interest Period, a rate per annum (rounded upward,
if necessary, to the nearest 1/100 of 1%) determined pursuant to the following
formula:
Eurodollar Rate = Eurodollar Rate
(Reserve Adjusted) 1-Eurocurrency
Reserve Percentage
"Event of Default" means any of the events specified in
Section 8.1; provided, that any requirement for the giving of notice, the lapse
of time, or both, or any other condition, has been satisfied.
"Existing Letters of Credit" means the letters of credit
issued by the Issuing Lender under the Original Credit Agreement prior to the
Restatement Effective Date which remain outstanding on the Restatement
Effective Date and listed on Schedule 1.1(C).
"Existing Revolving Loans" means, Revolving Loans made under
the Original Credit Agreement prior to the Restatement Effective Date.
"Existing Revolving Note" means the promissory note issued
under the Original Credit Agreement prior to the Restatement Effective Date.
"Federal Funds Rate" means at any time an interest rate per
annum equal to the weighted average of the rates for overnight Federal funds
transactions with members of the Federal
- 8 -
<PAGE> 15
Reserve System arranged by Federal funds brokers, as published for such day by
the Federal Reserve Bank of New York, or, if such rate is not so published for
any day which is a Business Day, the average of the quotations for such day for
such transactions received by the Issuing Lender from three Federal funds
brokers of recognized standing selected by it, it being understood that the
Federal Funds Rate for any day which is not a Business Day shall be the Federal
Funds Rate for the next preceding Business Day.
"Financed Franchisee" means any Franchisee (other than a
Subsidiary); provided that each such Person has duly executed and delivered
Financed Franchisee Loan Documents.
"Financed Franchisee Loan Documents" means loan documents
entered into between the Borrower, as lender, and a Franchisee, as borrower,
which, taken as a whole, meet each of the requirements set forth on Schedule
1.1(A).
"Financed Subsidiary" means any Subsidiary which (1) is a
Franchisee and (2) was formerly a Financed Franchisee.
"Financed Subsidiary Loan Documents" means loan documents
entered into between the Borrower, as lender, and a Financed Subsidiary, as
borrower, which provide for loans that are secured by a perfected Lien (subject
only to the types of Liens described in Clauses (1) through (11) of Section
6.1) on all of the assets of the Financed Subsidiary including, without
limitation, all real and personal property of such Financed Subsidiary and all
leasehold interests of such Financed Subsidiary (unless after such Financed
Subsidiary's best efforts (which shall not require unreasonable efforts) such
Financed Subsidiary is unable to obtain the consent of the respective landlord
for such leasehold to the extent such consent is required); it being understood
that such loan documents may permit the Borrower to subordinate the
indebtedness evidenced by such loan documents and its perfected Lien securing
such indebtedness to the loan and Lien of a third party lender (to the extent
such third party loan is permitted pursuant to Section 6.2(6)), provided, that
the Borrower shall not agree to subordinate to the loan and Lien of such third
party lender (a) any of its rights of payment from the Financed Subsidiary
arising with respect to royalties, leases or software or (b) prior to a payment
default under the indebtedness owed by such Financed Subsidiary to a third
party lender, the interest payments on the indebtedness evidenced by such loan
documents.
"Financial LC Commitment Fee" see Section 2.14A(1)(b).
"Financial Lease" means with respect to any Person at any
date, any Capital Lease of such Person and any operating
- 9 -
<PAGE> 16
lease of such Person entered into outside of the ordinary course of business.
"Financial Lease Debt" as of any date means (1) with respect
to any Capital Lease under which the Borrower or any of its Subsidiaries is the
lessee, the principal amount thereof as of such date as determined in
accordance with GAAP; and (2) with respect to any other Financial Lease under
which the Borrower or any of its Subsidiaries is the lessee, the present value
(using a market rate of interest) as of such date of all remaining rental
payments of the Borrower or such Subsidiary under such Financial Leases.
"Financial Lease Payments" means, for any period, all payments
made by the Borrower or any of its Subsidiaries with respect to Financial
Leases during such period.
"Financial Letter of Credit" means any Letter of Credit
determined by the Issuing Lender to be a "financial guaranty-type standby
letter of credit" as defined in footnote 13 to Appendix A to the Risk Based
Capital Guidelines issued by the Comptroller of the Currency.
"Fixtures" means all fixtures of the Borrower, each
Subsidiary, and each Financed Franchisee of every description and all
substitutions and replacements of any thereof which are not by law or by
contract the property of any landlord of real property to which such fixtures
are attached.
"Floating Rate" means the higher of (1) the rate of interest
announced by Bank of America from time to time at its Head Office as its
reference rate, which rate is not intended to be the lowest rate of interest
charged by Bank of America to its borrowers, and (2) the Federal Funds Rate
plus 1/2 of 1% per annum.
"Floating Rate Loan" or "Floating Rate Borrowing" means any
Loan which bears interest at a rate determined by reference to the Floating
Rate.
"Franchisee" means any Person (excluding the Borrower but
including any Subsidiary) who is party to a then existing Franchise Agreement,
Area Development Agreement or similar agreement with the Borrower or who is
otherwise authorized to operate a Store.
"GAAP" means generally accepted accounting principles in the
United States applied by the Borrower consistent with past practice (subject to
changes in accounting policies permitted by such generally accepted accounting
principles which have been or are contemporaneously disclosed in writing to
each Lender).
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<PAGE> 17
"Guaranty" means a guaranty issued by a Subsidiary in favor of
the Agent for the benefit of the Lenders in substantially the form of Exhibit
E, as the same may be amended, modified, reaffirmed or restated from time to
time, including, without limitation, with respect to Guaranties outstanding on
the Restatement Effective Date, as amended and reaffirmed pursuant to the
Affirmation and Amendment.
"Head Office" means the principal office of Bank of America at
231 South LaSalle Street, Chicago, IL 60697 or such other place as designated
by the Agent.
"Hedging Agreement" means any interest rate, currency or
commodity swap agreement, interest rate cap agreement, interest rate collar
agreement, or other agreement or arrangement designed to protect a Person
against fluctuations in interest rates, currency exchange rates or commodity
prices.
"Interest Period" see Section 2.4(3).
"Issuing Lender" means Bank of America, in its capacity as the
issuer of Letters of Credit for the Borrower's account pursuant to the terms of
this Agreement.
"Landlord's Consent" means a Landlord's Consent, in
substantially the form of Exhibit I.
"LC Administrative Fees" - see Section 2.14A(2).
"LC Application" means a letter of credit application in the
form then used by the Issuing Lender for the type of letter of credit requested
(with appropriate adjustments to indicate that any letter of credit issued
thereunder is to be issued pursuant to, and subject to the terms and conditions
of, this Agreement).
"LC Commitment" - see Section 2.1A.
"LC Commitment Fees" means collectively, the Financial LC
Commitment Fee and the Non-Financial LC Commitment Fee.
"LC Obligations" means any and all obligations of every
description of the Borrower in connection with the Letters of Credit issued
pursuant to this Agreement, including without limitation all reimbursement
obligations (whether absolute or contingent) under this Agreement, and all
obligations in respect of related fees or expenses.
"Lenders" or "Lender" shall have the meaning assigned to such
term in the Preamble.
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<PAGE> 18
"Lending Office" means, with respect to any Lender, any office
designated (whether or not notice is given to the Borrower) by such Lender in
its sole discretion as a Lending Office for purposes hereunder. A Lender may
designate separate Lending Offices for the purposes of making, maintaining or
continuing Floating Rate Loans, or Eurodollar Loans and, with respect to
Eurodollar Loans, such Lending Office may be a foreign branch or an affiliate
of such Lender or such Lender's holding company.
"Letters of Credit" - see Section 2.1A.
"Lien" means any mortgage, deed of trust, pledge, security
interest, hypothecation, assignment, deposit arrangement, encumbrance, lien
(statutory or other), or preference, priority, or other security agreement, or
preferential arrangement, charge, or encumbrance of any kind or nature
whatsoever (including, without limitation, any conditional sale or other title
retention agreement, any financing lease having substantially the same economic
effect as any of the foregoing, and the filing of any financing statement under
the Uniform Commercial Code or comparable law of any jurisdiction to evidence
any of the foregoing).
"Loan Documents" means this Agreement, the Notes, each
Guaranty, each LC Application, the BCI Subordination Agreement, the Collateral
Documents, the Affirmation and Amendment and all other agreements, instruments
and documents delivered from time to time to the Agent or the Issuing Lender
with respect to this Agreement or with respect to any liabilities arising in
connection herewith.
"Loans" mean, collectively, Revolving Loans and Term Loan and
"Loan" means any of the Revolving Loans and Term Loan.
"Margin Stock" means "margin stock" as such term is defined in
Regulation G, T, U or X of the Board of Governors of the Federal Reserve
System.
"Material Adverse Change" means a material adverse change in
the condition (financial or otherwise), business, operations or prospects of
the Borrower and its Subsidiaries, taken as a whole.
"Multiemployer Plan" means a Plan described in Section
4001(a)(3) of ERISA and covered by Title IV of ERISA which covers employees of
the Borrower or any ERISA Affiliate.
"Non-Financial LC Commitment Fee" - see Section 2.14A(1)(a).
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<PAGE> 19
"Non-Financial Letters of Credit" means any standby Letter of
Credit other than a Financial Letter of Credit.
"Notes" means, collectively, the Revolving Note and the Term
Note, and "Note" means either the Revolving Note or the Term Note.
"Original Credit Agreement" - see Preamble.
"PBGC" means the Pension Benefit Guaranty Corporation or any
entity succeeding to any or all of its functions under ERISA.
"Percentage" means as to any Lender the percentage set forth
opposite since Lender's name on Schedule 1.1(B).
"Person" means an individual, partnership, corporation,
business trust, joint stock company, trust, unincorporated association, joint
venture, governmental authority, or other entity of whatever nature.
"Plan" means any plan (as defined in Section 3(3) of ERISA and
covered by ERISA) established, maintained, or to which contributions have been
made by the Borrower or any ERISA Affiliate.
"Pledge Agreement" means any Pledge Agreement in substantially
the form of Exhibit G, delivered by the Borrower or a Subsidiary under the
terms of the Original Credit Agreement or this Agreement, as the same may be
amended, modified, reaffirmed or restated from time to time, including, without
limitation, as reaffirmed pursuant to the Affirmation and Amendment.
"Proforma Fixed Charges" means, as of any date of
determination, the cash interest expense (including all imputed interest
related to any Capital Lease) and principal payments projected to be incurred
by the Borrower and its consolidated Subsidiaries over the subsequent 13 Retail
Periods. For purposes of calculating cash interest expense with respect to any
indebtedness, multiply (a) the amount of indebtedness outstanding as of such
date by (b) the then applicable interest rate on such indebtedness on the date
of determination.
"Prohibited Transaction" means any non-exempt transaction set
forth in Section 406 of ERISA or Section 4975 of the Code.
"Reportable Event" means any of the events set forth in
Section 4043 of ERISA other than those events as to which the 30-day notice
period is waived under the regulations thereunder.
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<PAGE> 20
"Required Lenders" means Lenders whose aggregate Commitments
represent greater than 50% of the Percentages; provided, that: (1) Required
Lenders shall never be less than two Lenders; (2) for purposes of amending,
waiving or otherwise modifying the provisions of Article 7, Required Lenders
shall mean Lenders whose aggregate Percentages represent greater than 66 2/3%
of all Commitments; and (3) for purposes of waiving or curing an Event of
Default, changing the rate of interest or fees, amending any provisions of
Sections 10.6 or 10.12, amending this definition of "Required Lenders",
releasing Collateral (other than as may be permitted under the Loan Documents)
or extending the Termination Date of this Agreement, Required Lenders shall
mean all Lenders.
"Restatement Effective Date" - see Section 3.1.
"Retail Period" means any of the thirteen consecutive
four-week periods used by the Borrower for accounting purposes which begin on
or about the Monday after the last Sunday in December of each year and ending
on the last Sunday in December of the next year.
"Revolving Loan(s)" shall have the meaning assigned to such
term in Section 2.1(1).
"Revolving Loan Commitment" means, at any time as to any
Lender, obligations to make Revolving Loans to the Borrower pursuant to Section
2.1(1) in an aggregate amount, for each Lender, not to exceed such Lender's
Percentage of the Total Revolving Loan Commitment Amount then in effect.
"Revolving Loan Effective Date" means April 7, 1998.
"Revolving Note" shall have the meaning assigned to such term
in Section 2.6.
"Security Agreement" means any Security Agreement in
substantially the form of Exhibit F-1, delivered by the Borrower or a
Subsidiary under the terms of the Original Credit Agreement or this Agreement,
as the same may be amended, modified, reaffirmed or restated from time to time,
including, without limitation, as amended by the respective Amendment to
Security Agreement dated as of the Restatement Effective Date.
"Senior Indebtedness" means, at any time, the sum of (i) the
aggregate principal amount of Loans then outstanding plus (ii) the aggregate
face amount of Letters of Credit issued and outstanding or drawn and not
reimbursed.
"Significant Subsidiary" means a Subsidiary, including its
Subsidiaries, which meets either of the following conditions:
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<PAGE> 21
(1) The Borrower's and its other Subsidiaries' investments in
and advances to the Subsidiary exceed 10 percent of the total assets
of the Borrower and its Subsidiaries consolidated as of the end of the
most recently completed fiscal year; or
(2) The Borrower's and its other Subsidiaries' proportionate
share of the total assets (after intercompany eliminations) of the
Subsidiary exceeds 10 percent of the total assets of the Borrower and
its Subsidiaries consolidated as of the end of the most recently
completed fiscal year.
"Special Purpose Subsidiary" means any Subsidiary (which is
not a Franchisee): (1) of which the Borrower owns, directly or indirectly
through one or more intermediaries, or both, all of the issued and outstanding
voting stock, general partner's interests or other equity interests having
ordinary voting power to elect the board of directors or other managers of such
Subsidiary; (2) which has executed and delivered to the Agent a Guaranty and
all other documents which are set forth in Section 3.1(6); and (3) the only
assets of which are real property and leases of real property (in which such
Subsidiary is the landlord) to the extent permitted by Section 6.7; it is
acknowledged that Brackman Brothers, Inc., a Utah corporation, shall be deemed
a "Special Purpose Subsidiary".
"Store" means a bagel store operated under one of the
trademarks owned by the Borrower or any of its Subsidiaries.
"Store EBITDAL" means, for each fiscal period of the Borrower,
(1) the combined net revenue (i.e. gross revenue net of customer coupons and
discounts) generated by all Stores operated by the Borrower, its Subsidiaries
and each Financed Franchisee minus (2) the sum of (a) food and paper costs plus
(b) Store employee wages, salaries and benefit payments plus (c) other Store
operating, occupancy and advertising costs, in each case, of the Borrower, its
Subsidiaries and the Financed Franchisees.
"Subordinated Debt" means Debt of the Borrower (1) (a) which
is subordinated in priority of payment to the Debt of the Borrower under this
Agreement and the Notes in a manner consistent with the BCI Subordination
Agreement and (b) which shall not mature prior to the Termination Date (the
Lenders acknowledge that, (i) the BCI Subordinated Debt shall constitute
"Subordinated Debt", and (ii) any other Debt owed to BCI by the Borrower
existing as of the Restatement Effective Date and covered by the terms and
conditions of the BCI Subordination Agreement shall constitute "Subordinated
Debt"), and (2) pursuant to the Convertible Subordinated Debentures (the "2004
Subordinated Debt") due 2004 issued pursuant to the terms and conditions of a
certain Indenture (the "2004 Indenture") dated as
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<PAGE> 22
of May 29, 1997 between the Borrower and Bankers Trust Company, a banking
corporation duly organized and existing under the laws of the state of New
York, as trustee.
"Subsidiary" means, as to the Borrower, a Person (other than
an individual) of which shares of stock, partnership units or other equity
interests having ordinary voting power (other than shares having such power
only by reason of the happening of a contingency) to elect a majority of the
board of directors or other managers of such Person are at the time owned, or
the management of which is otherwise controlled, directly or indirectly through
one or more intermediaries, or both, by the Borrower, provided, however, that
"Subsidiary" shall not include any Person in which the Borrower does not own,
directly or indirectly through one or more intermediaries, an equity interest.
"Subsidiary Default" shall have the meaning assigned to such
term in Section 8.1(8).
"System EBITDAL" means for each fiscal period of the Borrower,
the Store EBITDAL for such fiscal period minus the Combined Overhead for such
fiscal period.
"Termination Date" means October 31, 2000.
"Term Loan(s)" shall have the meaning assigned to such term in
Section 2.1(2).
"Term Loan Commitment" means, at any time as to any Lender,
obligations to make a Term Loan to the Borrower pursuant to Section 2.1(2) in
an aggregate amount, for each Lender, not to exceed the respective amount set
forth opposite such Lender's name on Schedule 1.1(C) for such point in time.
"Term Note" shall have the meaning assigned to such term in
Section 2.6.
"Total Revolving Loan Commitment Amount" means, at any time,
the commitments of the Lenders to make Revolving Loans pursuant to Section
2.1(1), in the aggregate amount set forth on Schedule I, as the same may be
amended pursuant to Section 2.7(2).
"Total Term Loan Commitment Amount" means $30,000,000.
"Trademark Security Agreement" means any Trademark Security
Agreement substantially in the form of Exhibit F-2, to be delivered by the
Borrower or a Subsidiary under the terms of the Original Credit Agreement or
this Agreement, as the same may be amended, modified, reaffirmed or restated
from time to time, including, without limitation, as amended by the respective
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<PAGE> 23
Amendment to Trademark Security Agreement dated as of the Restatement Effective
Date.
"2004 Indenture" shall have the meaning assigned to such term
in the definition of "Subordinated Debt."
"2004 Subordinated Debt" shall have the meaning assigned to
such term in the definition of "Subordinated Debt."
"Type" - see Section 2.1(2). The Types of Loans or Borrowings
under this Agreement are: Floating Rate Loans or Borrowings and Eurodollar
Loans or Borrowings.
"Wholly-Owned Subsidiary" means any Subsidiary of which the
Borrower owns, directly or indirectly through one or more intermediaries, or
both, all of the issued and outstanding voting stock.
SECTION 1.2. Accounting Terms. All accounting terms not
specifically defined herein shall be construed in accordance with GAAP
consistent with that applied in the preparation of the financial statements
referred to in Section 4.4, and all financial data prepared by the Borrower and
submitted pursuant to this Agreement shall be prepared in accordance with such
principles except for the financial data submitted pursuant to Section 5.8(1)
and such other financial data which the Borrower expressly states has not been
prepared in accordance with such principles.
ARTICLE II
AMOUNT AND TERMS OF THE LOANS
SECTION 2.1. Loan Commitment.
(1) Revolving Loan Commitment. Subject to the terms and
conditions set forth in this Agreement and the other Loan Documents, each of
the Lenders, severally and for itself alone, agrees to make loans to the
Borrower on a revolving basis (herein collectively called the "Revolving
Loans," and individually called a "Revolving Loan") from time to time from the
Restatement Effective Date to but not including the Termination Date, at such
times and in an amount equal to such Lender's Percentage of such aggregate
amounts as the Borrower may request from all of the Lenders; provided, however,
the Lenders shall not make Revolving Loans prior to the Revolving Loan
Effective Date. The aggregate principal amount of Revolving Loans which any
Lender shall be committed to have outstanding to the Borrower, when added to
the amount of such Lender's participation in the Letters of Credit issued and
outstanding pursuant to Section 2.1A or drawn and not reimbursed pursuant to
Section 2.9A, shall not exceed at any time
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<PAGE> 24
such Lender's Percentage of the Total Revolving Loan Commitment Amount then in
effect. The aggregate principal amount of all Revolving Loans which all the
Lenders shall be committed to have outstanding to the Borrower, when added to
the aggregate face amount of Letters of Credit issued and outstanding pursuant
to Section 2.1A or drawn and not reimbursed pursuant to Section 2.9A, shall not
at any one time exceed the Total Revolving Loan Commitment Amount then in
effect. In the event the aggregate outstanding principal balance of all
Revolving Loans plus the aggregate face amount of Letters of Credit issued and
outstanding or drawn and not reimbursed at any one time exceeds the Total
Revolving Loan Commitment Amount, the Borrower shall, unless all the Lenders
shall otherwise consent, without notice or demand of any kind, immediately make
such repayments of the Revolving Loans or pledge cash collateral to the Agent
(pursuant to documentation reasonably satisfactory to the Required Lenders, the
Issuing Lender and the Agent) in an amount equal to such excess or take such
other actions as shall be necessary to eliminate such excess. All Revolving
Loans shall be repaid by the Borrower on the Termination Date, unless paid or
payable sooner pursuant to the provisions of this Agreement.
(2) (a) Term Loan Commitment. Each of the Lenders, severally
and for itself alone, agrees to make a loan (herein collectively called the
"Term Loan") to the Borrower on the Restatement Effective Date in such Lender's
Percentage of the Total Term Loan Commitment Amount. Each Lender shall provide
to the Agent such Lender's Percentage of the Term Loan and the Agent shall
disburse the Term Loan in one drawing on the Restatement Effective Date. The
foregoing commitment of each Lender is herein called its "Term Loan Commitment"
and for all Lenders the "Term Loan Commitments."
(b) The Term Loan shall be paid in 12 quarterly installments,
with such installments payable on the first day of each March, June, September
and December commencing with March 1, 1998 and on the Termination Date, with
each installment being payable in such Lender's Percentage of the following
amounts:
Aggregate
Date of Installment Quarterly Installment Amount
------------------- ----------------------------
3/1/98 $1,500,000
6/1/98 $1,500,000
9/1/98 $1,500,000
12/1/98 $1,500,000
3/1/99 $1,500,000
6/1/99 $1,500,000
9/1/99 $1,500,000
12/1/99 $1,500,000
3/1/00 $1,500,000
6/1/00 $1,500,000
9/1/00 $1,500,000
10/31/00 $13,500,000
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<PAGE> 25
Notwithstanding the foregoing, the payment on October 31, 2000 shall be in an
amount sufficient to pay in full the Term Loan and all obligations related
thereto.
(3) Various Types of Loans. Each Revolving Loan shall be,
and the Term Loan may be divided into tranches which are, either a Floating
Rate Loan or a Eurodollar Loan (each being herein called a "Type" of Loan), as
the Borrower shall specify in the related Borrowing Request or
Continuation/Conversion Notice pursuant to Section 2.2. Eurodollar Loans
having the same Interest Period are sometimes called a "Group" or collectively
"Groups". Floating Rate Loans and Eurodollar Loans may be outstanding at the
same time, provided that (a) in the case of Eurodollar Loans, not more than ten
(10) different Interest Periods shall be outstanding at any one time for all
such Loans, and (b) the Borrower shall specify Loans and Interest Periods such
that no payment or prepayment of any principal on any Loan shall result in a
breakage of any Interest Period. All borrowings, conversions and repayments of
Loans shall be effected so that each Lender will have a pro rata share
(according to its Percentage) of all Types and Groups of Revolving Loans and
the Term Loan, as applicable.
SECTION 2.2. Borrowing Procedure.
(1) Any Authorized Officer of the Borrower may request a
Revolving Loan on behalf of the Borrower on any Business Day after the
Effective Date and prior to the Termination Date and the Term Loan on behalf of
the Borrower on the Restatement Effective Date in United States dollars by
giving the Agent telephonic, telex or facsimile notice (which notice shall be
irrevocable once given and shall be promptly confirmed in writing if given
telephonically) in the form of Exhibit B ("Borrowing Request") or such other
form as shall be acceptable to the Agent. Each Borrowing Request must be
received by the Agent prior to 10:00 A.M., Chicago time, on the proposed date
of such Borrowing (which must be a Business Day) in the case of Floating Rate
Loans and prior to 12:00 Noon, Chicago time, three (3) Business Days prior to
the proposed date of such Borrowing (which must be a Business Day) in the case
of Eurodollar Loans and in each case shall specify (a) the principal amount of
such Borrowing, (b) the proposed date of Borrowing (which must be a Business
Day), (c) the Type of Borrowing and (d) in the case of a Eurodollar Borrowing,
the initial Interest Period for such Borrowing. Promptly upon receipt of such
Borrowing Request, the Agent shall advise each Lender thereof. On the date of
a proposed Borrowing, each Lender shall provide the Agent at the Head Office
with immediately available funds in an amount equal to such Lender's
Percentage, of the principal amount of the proposed Borrowing specified in the
Borrowing Request. Each Floating Rate Loan
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<PAGE> 26
which is a Revolving Loan shall be in a principal amount of $100,000 or an
integral multiple thereof (or such lesser amount equal to the unadvanced
portion of the Total Revolving Loan Commitment Amount available under Section
2.1(1)); each Eurodollar Loan which is a Revolving Loan shall be in a principal
amount of $500,000 or an integral multiple of $250,000 (or such lesser amount
equal to the unadvanced portion of the Total Revolving Loan Commitment Amount
available under Section 2.1(1)). All Borrowings shall be pro rata among the
Lenders in accordance with their respective Commitments. Not later than 1:00
P.M., Chicago time, on the proposed date of Borrowing specified in the
Borrowing Request, subject to the satisfaction of the applicable conditions
precedent set forth in Article III hereof, the Agent shall make the proceeds of
each Revolving Loan available to the Borrower by causing an amount of
immediately available funds equal to the principal amount of such Revolving
Loan to be credited to the account of the Borrower at Bank of America unless
otherwise required pursuant to the terms of this Agreement.
(2) Conversion and Continuation of Loans. Subject to Section
2.16, the Borrower may, by delivery to the Agent of a notice
("Continuation/Conversion Notice") in the form of Exhibit C attached hereto
with appropriate insertions, before 10:00 A.M., Chicago time, three (3)
Business Days (or in the case of Clause (i) below, one (1) Business Day) prior
to conversion or continuation, convert or continue Loans as follows: (i)
convert Eurodollar Loans into Floating Rate Loans, (ii) convert Floating Rate
Loans into Eurodollar Loans, and (iii) continue a Eurodollar Loan into a
subsequent Interest Period of the same duration or of any other duration
permitted hereunder, subject to the following:
(a) the Interest Period applicable to any Eurodollar Loan
resulting from a conversion shall be specified by the Borrower in the
Continuation/ Conversion Notice delivered pursuant to this Section;
provided, that if no such Interest Period shall be specified, the
Borrower shall be deemed to have selected an Interest Period of one
month's duration. If the Borrower shall not have given timely notice
to continue any Eurodollar Loan into a subsequent Interest Period and
shall not otherwise have given notice to convert such Eurodollar Loan,
such Eurodollar Loan unless repaid pursuant to the terms hereof shall
automatically be converted into a Floating Rate Loan;
(b) if less than all Revolving Loans at the time outstanding
shall be converted or continued, such conversion or continuation shall
be made pro rata among the Lenders, as applicable, in accordance with
the respective principal amounts of Revolving Loans of such Type (and
having the same Interest Period) held by such Lenders immediately
prior to such conversion or continuation;
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<PAGE> 27
(c) in the case of a conversion or continuation of the Term
Loan (or a tranche therof) or of less than all Revolving Loans, the
aggregate principal amount of such Loans converted or continued shall
be not less than $500,000 or any larger integral multiple of $250,000;
(d) if any Eurodollar Loan is converted at a time other than
the last day of an Interest Period applicable thereto, the Borrower
shall at the time of conversion pay any loss or expense (including,
without limitation, breakage losses and expenses) associated therewith
pursuant to Section 2.16;
(e) any portion of a Eurodollar Loan required to be paid on
any principal payment date occurring in less than one month after the
end of the then-current Interest Period applicable to such Loan shall
be automatically converted at the end of such Interest Period into a
Floating Rate Loan.
Notwithstanding the foregoing, so long as any Default or Event of Default shall
exist, no Loans shall be converted to or continued as Eurodollar Loans.
SECTION 2.3. Funding Reliance. Unless the Agent shall have
been notified by telephone, confirmed in writing, by any Lender by 9:00 A.M.
(or 12:00 Noon with respect to Floating Rate Loans), Chicago time, on the day
of a Borrowing that such Lender will not make available the amount which would
constitute its Percentage of such Borrowing on the date specified therefor, the
Agent may assume, subject to the satisfactory fulfillment by the Borrower of
the conditions precedent set forth in Article III, that such Lender has made
such amount available to the Agent and, in reliance upon such assumption, make
available to the Borrower a corresponding amount. If and to the extent that
such Lender shall not have made such amount available to the Agent, such Lender
and the Borrower severally agree to repay the Agent forthwith on demand the sum
of (1) such corresponding amount together with interest thereon, for each day
from the date the Agent made such amount available to the Borrower to the date
such amount is repaid to the Agent (a) by such Lender, at the Federal Funds
Rate from time to time in effect, or (b) by the Borrower, at the interest rate
applicable at the time to the Loans comprising such borrowing, plus (2) a
compensatory amount equal to $200.
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<PAGE> 28
SECTION 2.4. Interest.
(1) Interest Rates. With respect to each Loan, the Borrower
hereby promises to pay interest on the unpaid principal amount thereof for the
period commencing on the date of such Loan until such Loan is paid in full, as
follows:
(a) At all times while such Loan is a Floating Rate Loan, at
a rate per annum equal to the Floating Rate from time to time in
effect plus the Applicable Margin for Floating Rate Loans; and
(b) At all times while such Loan is a Eurodollar Loan, for
each Interest Period, at a rate per annum equal to the Eurodollar Rate
(Reserve Adjusted) applicable to such Interest Period, plus the
Applicable Margin for Eurodollar Loans.
(2) Interest Payment Dates. Accrued interest on each
Floating Rate Loan shall be due and payable quarterly in arrears on the first
Business Day of each of March, June, September and December of each year and at
maturity. Accrued interest on each Eurodollar Loan shall be payable on the
last day of each Interest Period relating to such Loan and at maturity. After
maturity, accrued interest on all Loans shall be payable on demand.
(3) Interest Periods. Each "Interest Period" for a
Eurodollar Loan shall commence on the date such Eurodollar Loan was made or
converted from a Loan of a different Type, or on the expiration of the
immediately preceding Interest Period for such Eurodollar Loan, and shall end
on the date which is 1, 2 or 3 months thereafter, as the Borrower may specify
pursuant to Section 2.2(1) or (2) hereof. Each "Interest Period" for a
Eurodollar Loan which would otherwise end on a day which is not a Business Day
shall end on the next succeeding Business Day (unless such next succeeding
Business Day is the first Business Day of a calendar month, in which case such
Interest Period shall end on the next preceding Business Day).
(4) Setting and Notice of Rates. The applicable Eurodollar
Rate for each Interest Period shall be determined by the Agent, and notice
thereof shall be given by the Agent promptly to the Borrower and each Lender.
Each determination of the applicable Eurodollar Rate by the Agent shall be
conclusive and binding upon the parties hereto, in the absence of demonstrable
error. If the Agent is unable to determine such a rate, the provisions of
Section 2.14 shall apply. The Agent shall, upon written request of the
Borrower or any Lender, deliver to the Borrower or such Lender a statement
showing the computations used by the Agent in determining any applicable
Eurodollar Rate hereunder.
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<PAGE> 29
(5) Default Interest. Any principal payments on the Loans
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).
SECTION 2.5. Fees. (1) Unused Commitment Fee. The Borrower
agrees to pay to the Agent, for the benefit of the Lenders, a nonrefundable
unused commitment fee at the rate of .50% per annum on the average daily amount
by which the Total Revolving Loan Commitment Amount exceeds the outstanding
Revolving Loans plus the undrawn face amount of the Letters of Credit, for the
period commencing on the Revolving Loan Effective Date and continuing to but
not including the Termination Date, payable quarterly in arrears on the first
Business Day of March, June, September and December of each year and at
maturity, payable to the Agent for the account of each Lender in accordance
with such Lender's Percentage.
(2) Agent's Fee. The Borrower agrees to pay to the Agent
such fees provided for in the Letter Agreement dated October 29, 1997.
SECTION 2.6. Notes. (1) Revolving Note. The Revolving Loans
of each Lender under the Original Credit Agreement were evidenced by the
Existing Revolving Note. After the Restatement Effective Date, the Loans of
each Lender shall be evidenced by, and repaid with interest in accordance with,
a single replacement Revolving Note dated the Restatement Effective Date (or
such other date as shall be satisfactory to the Agent) substantially the form
of Exhibit A1 duly completed, in the principal amount of Forty Million Dollars
($40,000,000.00), payable to the Agent for the benefit of the Lenders (the
"Revolving Note"). The Agent is hereby authorized by the Borrower and each
Lender to endorse on the schedule attached to the Revolving Note the amount of
each Revolving Loan and of each payment of principal received by the Agent on
account of the Revolving Loans, which endorsement shall, in the absence of
demonstrable error, be conclusive as to the outstanding balance of the
Revolving Loans made by the Lenders; provided, however, that the failure to
make such notation with respect to any Revolving Loan or payment shall not
limit or otherwise affect the obligations of the Borrower or the Lender under
this Agreement or the Revolving Note.
(2) Term Note. The Term Loan made by the Lenders under this
Agreement shall be evidenced by, and repaid with interest in accordance with, a
single promissory note of the Borrower in substantially the form of Exhibit A-2
duly completed, in the
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principal amount of Thirty Million Dollars ($30,000,000.00), payable to the
Agent for the benefit of the Lenders (the "Term Note"). The Agent is hereby
authorized by the Borrower and each Lender to endorse on the schedule attached
to the Term Note the amount of each payment of principal received by the Agent
on account of the Term Loan, which endorsement shall, in the absence of
demonstrable error, be conclusive as to the outstanding balance of the Term
Loan made by the Lenders; provided, that the failure to make such notation with
respect to any payment shall not limit or otherwise affect the obligations of
the Borrower or the Lender under this Agreement or the Term Note.
SECTION 2.7. Prepayments; Reduction of Commitment. (1) The
Borrower may prepay at any time the Loans in whole or in part without premium
or penalty with accrued interest to the date of such prepayment on the amount
prepaid; provided, that (a) any prepayment of a Eurodollar Loan shall be made
subject to the Borrower's payment obligations set forth in Section 2.16, (b)
each partial prepayment shall be in a principal amount not less than twenty-
five thousand Dollars ($25,000) and (c) the Borrower has given notice to the
Agent of such prepayment no later than 11:00am the day of such prepayment. In
the event of any prepayments of Revolving Loans, such amounts prepaid may be
reborrowed hereunder to the extent outstanding amounts hereunder shall not
exceed the Total Revolving Loan Commitment Amount or such lesser amount as
required pursuant to Section 5.13 at such time and Term Loan repaid may not be
reborrowed.
(2) The Borrower shall have the right, at any time from
time to time, without premium or penalty, to permanently reduce the Total
Revolving Loan Commitment Amount hereunder; provided, that any such reduction
in the Total Revolving Loan Commitment Amount shall reduce the Revolving Loan
Commitment of each Lender pro rata based on its Percentage; and provided
further, that no such reduction shall reduce the Total Revolving Loan
Commitment Amount to an amount less than the sum of the then outstanding
Revolving Loans and the aggregate face amount of Letters of Credit issued and
outstanding pursuant to Section 2.1A (other than Letters of Credit with respect
to which the Borrower has pledged cash collateral to the Agent) or drawn and
not reimbursed pursuant to Section 2.9A. The right of the Borrower to
voluntarily reduce the Total Revolving Loan Commitment Amount shall be
exercisable by delivery of written notice (including by facsimile) or
telephonic notice (thereafter promptly confirmed in writing) to the Agent prior
to 12:00 noon, Chicago time, at least two Business Days prior to the proposed
reduction in the Total Revolving Loan Commitment Amount, which notice shall
specify the amount by which the Borrower proposes to reduce the Total Revolving
Loan Commitment Amount and the proposed date of such reduction.
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SECTION 2.8. Mandatory Prepayments. (1) The Borrower shall
promptly prepay Revolving Loans in an aggregate principal amount equal to the
excess, if any, of the Revolving Loans then outstanding plus the aggregate face
amount of Letters of Credit issued and outstanding or drawn and not reimbursed
over the Total Revolving Loan Commitment Amount or such lesser amount as
required by Section 5.13.
(2) If the Borrower or any Subsidiary shall at any time or
from time to time sell, lease, assign, transfer, or otherwise dispose of any of
its now owned or hereafter acquired assets pursuant to Section 6.7(6), then (i)
the Borrower shall promptly notify the Agent of such proposed disposition
(including the amount of the estimated net proceeds to be received by the
Company or such Subsidiary in respect thereof) and (ii) promptly upon, and in
no event later than 5 days after, receipt by the Borrower or the Subsidiary of
the net proceeds of such disposition, the Borrower shall prepay any Revolving
Loans then outstanding in an aggregate amount equal to the amount of such net
proceeds.
SECTION 2.9. Method of Payment. The Borrower shall make each
payment under this Agreement and under the Notes not later than 12:00 Noon,
Chicago time, on the date when due in lawful money of the United States to the
Agent for the account of the Lenders pro rata according to their respective
Percentages. The Agent shall promptly remit to each Lender its pro rata share
(based on its Percentage) of all such payments received in collected funds by
the Agent for the benefit of such Lender. The Borrower hereby authorizes the
Agent, if and to the extent payment is not made when due under this Agreement
or under the Notes, to charge from time to time against any account of the
Borrower with the Agent any amount so due. Whenever any payment to be made
under this Agreement or under the Notes shall be stated to be due on a day that
is not a Business Day, such payment shall be made on the next succeeding
Business Day, and such extension of time in such case shall be included in the
computation of the payment of interest. All payments under Sections 2.12, 2.13
and 2.16 shall be made by the Borrower directly to the Lender or Lenders
entitled thereto. All interest payable hereunder shall be calculated on the
basis of a year of 360 days for the actual number of days lapsed; provided,
that, interest with respect to Floating Rate Loans and fees shall be calculated
on the basis of a year of 365 (or 366 as applicable) days for the actual number
of days lapsed.
SECTION 2.10. Use of Proceeds. The proceeds of the Revolving
Loans and the Term Loan shall be used by the Borrower for general corporate
purposes, including the payment of fees and expenses arising under any of the
Loan Documents. The Borrower will not, directly or indirectly, use any part of
such proceeds for the purpose of purchasing or carrying any Margin Stock or to
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extend credit to any Person for the purpose of purchasing or carrying any such
Margin Stock.
SECTION 2.11. Sharing of Payments.
(1) If any Lender shall obtain any payment or other recovery
(whether voluntary, involuntary, by application of offset or
otherwise) on account of any Loan in excess of its pro rata share
(based on its Percentage) of payments and other recoveries obtained by
all Lenders of Loans on account of principal of and interest on Loans,
such Lender shall purchase from the other Lenders such participations
in the Loans as shall be necessary to cause such purchasing Lender to
share the excess payment or other recovery ratably with each of them;
provided, that if all or any portion of the excess payment or other
recovery is thereafter recovered from such purchasing Lender, the
purchase shall be rescinded and each Lender which has sold a
participation to the purchasing Lender shall repay to the purchasing
Lender the purchase price to the ratable extent of such recovery
together with an amount equal to such selling Lender's ratable share
(according to the proportion of (a) the amount of such selling
Lender's required repayment to the purchasing Lender to (b) the total
amount so recovered from the purchasing Lender) of any interest or
other amount paid or payable by the purchasing Lender in respect of
the total amount so recovered.
(2) The Borrower agrees that any Lender so purchasing a
participation from another Lender pursuant to Section 2.11(1) may, to
the fullest extent permitted by law, exercise all of its rights of
payment with respect to such participation as fully as if such Lender
were the direct creditor of the Borrower in the amount of such
participation. If under any applicable bankruptcy, insolvency or
other similar law, any Lender receives a secured claim in lieu of a
setoff pursuant to Section 10.7, such Lender shall, to the extent
practicable, exercise its rights in respect to such secured claim in a
manner consistent with the rights of the Lenders entitled under this
Section to share in the benefits of any recovery of such secured
claim.
SECTION 2.12. Increased Costs. If after the date hereof, (1)
Regulation D of the Board of Governors of the Federal Reserve System, or (2)
the adoption of any applicable law, rule or regulation, or any change therein,
or any change in the interpretation or administration thereof by any
governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by any
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Lender (or any Lending Office of such Lender) with any request or directive
(whether or not having the force of law) or any such authority, central bank or
comparable agency,
(a) shall subject any Lender (or any Lending Office of such
Lender) to any tax, duty or other charge with respect to its
Eurodollar Loans or its obligation to make Eurodollar Loan, its LC
Obligations or its obligation to issue Letters of Credit, or shall
change the basis of taxation of payments to any Lender of the
principal of or interest on its Eurodollar Loans or any other amounts
due under this Agreement in respect of its Eurodollar Loans or its
obligation to make Eurodollar Loans or its LC Obligations (except for
changes in the rate of tax on the overall gross or net income of such
Lender or its Lending Office); or
(b) shall impose, modify or deem applicable any reserve
(including, without limitation, any reserve imposed by the Board of
Governors of the Federal Reserve System, but excluding any reserve
included in the determination of interest rates pursuant to Section
1), special deposit or similar requirement against assets of, deposits
with or for the account of, or credit extended by, any Lender (or any
Lending Office of such Lender); or
(c) shall impose on any Lender (or its Lending Office) any
other condition affecting its Eurodollar Loans or the LC Obligations;
and the result of any of the foregoing is to increase the cost to (or in the
case of Regulation D referred to above, to impose a cost on) such Lender (or
any Lending Office of such Lender) of making or maintaining any Eurodollar
Loan, any Letter of Credit or the LC Commitment or to reduce the amount of any
sum received or receivable by such Lender (or the Lending Office or such
Lender) under this Agreement or under its Loans with respect thereto, then upon
demand by such Lender (which demand shall be made within 45 days after such
Lender has actual knowledge of such additional cost or reduced sum receivable
and shall be accompanied by a statement setting forth the basis of such
demand), the Borrower shall pay directly to such Lender such additional amount
or amounts as will reimburse such Lender for such increased cost or such
reduction.
SECTION 2.13. Change in Rate of Return. If, after the date
hereof, any change in, or the introduction, adoption, effectiveness,
interpretation, reinterpretation or Phase-in of, any law or regulation,
directive, guideline, decision or request (whether or not having the force of
law) of any court, central bank, regulator or other governmental authority
affects or would
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affect the amount of capital required or expected to be maintained by any
Lender or any person controlling such Lender, and such Lender reasonably
determines that the rate of return on its or such controlling person's capital
as a consequence of its Commitments or the Loans or the Letters of Credit made
by such Lender is reduced to a level below that which such Lender or such
controlling person could have achieved but for the occurrence of any such
circumstance, then, in any such case the Borrower shall, upon demand by such
Lender (which demand shall be made within 45 days after such Lender has actual
knowledge of such increase in capital or reduction in rate of return) pay
directly to such Lender additional amounts sufficient to compensate such Lender
or such controlling person for such reduction in rate of return. A statement
of such Lender as to any such additional amount or amounts shall be prepared in
good faith (including calculations thereof in reasonable detail) and shall, in
the absence of manifest error, be conclusive and binding on the Borrower. In
determining such amount, such Lender may use any method of averaging and
attribution that it shall deem reasonably applicable. Each Lender shall notify
the Borrower of any event of which it has knowledge, occurring after the date
hereof, which will entitle such Lender to compensation pursuant to this Section
2.13.
SECTION 2.14. Basis for Determining Interest Rate Inadequate
or Unfair. If with respect to any Interest Period:
(1) the Agent is advised by any Lender that deposits in
Dollars (in the applicable amounts) are not being offered to such
Lender in the relevant market for such Interest Period, or the Agent
otherwise determines (which determination shall be binding and
conclusive on all parties) that by reason of circumstances affecting
the interbank eurodollar market adequate and reasonable means do not
exist for ascertaining the applicable Eurodollar Rate; or
(2) any Lender advises the Agent that the Eurodollar Rate
(Reserve Adjusted), as determined by the Agent, will not adequately
and fairly reflect the cost to such Lender of maintaining or funding
such Loans for such Interest Period, or that the making or funding of
Eurodollar Loans has become impracticable as a result of an event
occurring after the date of this Agreement which in the opinion of
such Lender materially changes such Loans,
then, so long as such circumstances shall continue: (a) the Agent shall
promptly notify the other parties thereof, (b) no Lender shall be under any
obligation to make or convert into Eurodollar Loan, and (c) on the last day of
the then current Interest Period for Eurodollar Loans, such Eurodollar Loans
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shall, unless then repaid in full, automatically convert to Floating Rate
Loans. If conditions subsequently change so that the foregoing conditions no
longer exist, the Agent in the case of Clause (1) or such Lender in the case of
Clause (2) will promptly notify the Borrower and the Lenders thereof, and upon
the receipt of such notice, the obligations of all Lenders to make or continue
Eurodollar Loan shall be reinstated.
SECTION 2.15. Changes in Law Rendering Certain Loans
Unlawful. In the event, after the date hereof, that any change in (including
the adoption of any new) applicable laws or regulations, or any change in the
interpretation of applicable laws or regulations by any governmental or other
regulatory body charged with the administration thereof, should make it
unlawful for a Lender or the Lending Office of such Lender ("Affected Lender")
to make, maintain or fund Eurodollar Loans, then (a) the Affected Lender shall
promptly notify each of the other parties hereto, (b) the obligation of all
Lenders to make or convert into Eurodollar Loans shall, upon the effectiveness
of such event, be suspended for the duration of such unlawfulness, and (c) on
the last day of the current Interest Period for each Eurodollar Loan (or, in
any event, if the Affected Lender so requests, on such earlier date as may be
required by the relevant law, regulation or interpretation), such Eurodollar
Loan shall, unless then repaid in full, automatically convert to Floating Rate
Loans. If conditions subsequently change so that the foregoing conditions no
longer exist, such Lender will promptly notify the Borrower and the other
Lenders thereof, and upon the receipt of such notice, the obligations of all
Lenders to make or continue Eurodollar Loans shall be reinstated.
SECTION 2.16. Funding Losses. The Borrower hereby agrees
that upon demand by any Lender (which demand shall be accompanied by a
statement setting forth the basis for the calculations of the amount being
claimed) the Borrower will indemnify such Lender against any net loss or
expense which such Lender may sustain or incur (including, without limitation,
any net loss or expense incurred by reason of the liquidation or reemployment
of deposits or other funds acquired by such Lender to fund or maintain
Eurodollar Loans), as reasonably determined by such Lender, as a result of (a)
any payment or prepayment or conversion of any Eurodollar Loan of such Lender
on a date other than the last day of an Interest Period for such Eurodollar
Loan, or (b) any failure of the Borrower to borrow or convert any Loans on a
date specified therefor in a Borrowing Request or Continuation/Conversion
Notice pursuant to this Agreement. For this purpose, all notices to the Agent
pursuant to this Agreement shall be deemed to be irrevocable.
SECTION 2.17. Right of Lenders to Fund Through Other Offices.
Each Lender may, if it so elects, fulfill its Commitment as to any Eurodollar
Loan by causing its Lending
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Office to make such Loan, provided that in such event for the purposes of this
Agreement, such Eurodollar Loan shall be deemed to have been made by such
Lender and the obligation of the Borrower to repay such Eurodollar Loan shall
nevertheless be to such Lender and shall be deemed held by it, to the extent of
such Eurodollar Loan, for the account of such branch or affiliate.
SECTION 2.18. Discretion of Lenders as to Manner of Funding.
Notwithstanding any provision of this Agreement to the contrary, each Lender
shall be entitled to fund and maintain its funding of all or any part of its
Loans in any manner it sees fit, it being understood, however, that for the
purposes of this Agreement all determinations hereunder shall be made as if
such Lender had actually funded and maintained each Eurodollar Loan during each
Interest Period for such Loan through the purchase of deposits having a
maturity corresponding to such Interest Period and bearing an interest rate
equal to the Eurodollar Rate, for such Interest Period.
SECTION 2.19. Mitigation of Circumstances; Replacement of
Affected Lender. (1) Each Lender shall promptly notify the Borrower and the
Agent of any event of which it has knowledge which will result in, and will
promptly thereafter use all reasonable commercial efforts available to it (and
not, in such Lender's good faith judgment, otherwise disadvantageous to such
Lender) to mitigate or avoid, (i) any obligation by the Borrower to pay any
amount pursuant to Section 2.12 or 2.13 or (ii) the occurrence of any
circumstances of the nature described in Section 2.14 or 2.15 (and, if any
Lender has given notice of any such event described in Clause (i) or (ii) above
and thereafter such event ceases to exist, such Lender shall promptly so notify
the Borrower and the Agent). Without limiting the foregoing, each Lender will
designate a different Lending Office if such designation will avoid (or reduce
the cost to the Borrower of) any event described in Clause (i) or (ii) of the
preceding sentence and such designation will not, in such Lender's reasonable
judgment, be otherwise materially disadvantageous to such Lender.
(2) At any time any Lender is an Affected Lender, the Borrower may
replace such Affected Lender as a party to this Agreement with one or more
other bank(s) or financial institution(s) reasonably satisfactory to the Agent,
such bank(s) or financial institution(s) to have a Commitment in such amounts
as shall be reasonably satisfactory to the Agent (and upon notice from the
Borrower such Affected Lender shall assign, without recourse or warranty, its
Commitment, its Loans, and all of its other rights and obligations hereunder to
such replacement bank(s) or other financial institution(s) for a purchase price
equal to the sum of the principal amount of the Loans so assigned, all accrued
and unpaid interest thereon, its ratable share of all accrued and unpaid
nonuse fees, any amounts payable
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under Section 2.16 as a result of such Lender receiving payment of any
Eurodollar Loan prior to the end of an Interest Period therefor and all other
obligations owed to such Affected Lender hereunder).
SECTION 2.20. Conclusiveness of Statements; Survival of
Provisions. Determinations and statements of any Lender pursuant to Sections
2.12, 2.13, 2.14, 2.15 or 2.16 shall be conclusive absent demonstrable error.
The provisions of Sections 2.12, 2.13 and 2.14 shall survive termination of
this Agreement.
ARTICLE IIA
THE LETTERS OF CREDIT
SECTION 2.1A LC Commitment. Subject to the terms and
conditions set forth in this Agreement and the other Loan Documents, the
Issuing Lender agrees for itself and the Lenders to issue from time to time
after the Revolving Loan Effective Date and before the Termination Date such
standby letters of credit (such letters of credit, together with Existing
Letters of Credit, being herein collectively called "Letters of Credit" and
individually a "Letter of Credit") as the Borrower may request, it being
understood that, pursuant to Section 2.4A, concurrently with the issuance of
each such Letter of Credit (or in the case of Existing Letters of Credit, on
the Effective Date) each Lender shall be deemed to have automatically purchased
from the Issuing Lender a participation in such Letter of Credit. The
aggregate face amount of all Letters of Credit issued and outstanding pursuant
to this Section 2.1A and all Letters of Credit drawn and not reimbursed
pursuant to Section 2.9A shall not at any one time exceed $5,000,000 (or such
reduced amount as may be fixed by the Borrower pursuant to Section 2.15A). The
foregoing commitment of each Lender is herein called its "LC Commitment" and
collectively the "LC Commitments."
SECTION 2.2A Request for Issuance of Letters of Credit. The
Borrower shall give the Agent and the Issuing Lender at least five (5) Business
Days' prior written notice of a request for issuance of each Letter of Credit,
each such request to be accompanied by an LC Application duly executed by the
Borrower and in all respects in form and substance satisfactory to the Agent
and the Issuing Lender, together with such other documentation as the Agent or
the Issuing Lender may reasonably request in support thereof. The Agent shall
promptly notify each Lender of the Borrower's request that such Letter of
Credit be issued.
SECTION 2.3A Expiration. Each Letter of Credit may expire
before, on or after the Termination Date; provided, that
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with respect to each Letter of Credit expiring after the Termination Date, the
Borrower hereby agrees to pledge cash collateral to the Agent, no later than
thirty (30) days prior to the Termination Date, in an amount, and pursuant to
documentation, reasonably satisfactory to the Issuing Lender and the Agent. If
the Borrower shall fail to pledge such cash collateral to the Agent, the
Lenders shall make Revolving Loans in an amount reasonably satisfactory to the
Issuing Lender and the Agent which shall be held as cash collateral with
respect to each such Letter of Credit.
SECTION 2.4A Participation. Concurrently with the issuance
of each Letter of Credit (or in the case of Existing Letters of Credit, on the
Effective Date), the Issuing Lender shall be deemed to have sold and
transferred to each other Lender, and each Lender shall be deemed irrevocably
and unconditionally to have automatically purchased and received from the
Issuing Lender, without recourse or warranty, an undivided interest and
participation, to the extent of such other Lender's Percentage, in such Letter
of Credit and the Borrower's related LC Obligations.
SECTION 2.5A Notification of Demand for Payment. The Issuing
Lender shall promptly notify the Agent, who shall in turn promptly notify the
Borrower and each Lender of the amount of each demand for payment under a
Letter of Credit and of the date on which such payment is to be made.
SECTION 2.6A Funding by Issuing Lender. With respect to each
demand for payment pursuant to a Letter of Credit, the Issuing Lender shall,
promptly following its receipt thereof, examine all documents purporting to
represent such demand to ascertain that the same appear on their face to be in
conformity with the terms and conditions of such Letter of Credit. If the
Issuing Lender determines that a demand for payment under a Letter of Credit
conforms to the terms and conditions of such Letter of Credit, then the Issuing
Lender shall make payment to the Beneficiary in accordance with the terms of
such Letter of Credit.
SECTION 2.7A Non-Conforming Demand For Payment. If, after
examination of a demand for payment under a Letter of Credit, the Issuing
Lender shall have determined that such demand does not conform to the terms and
conditions of such Letter of Credit, then the Issuing Lender shall, as soon as
reasonably practicable, give notice to the related Beneficiary and to the
Borrower to the effect that demand was not in accordance with the terms and
conditions of such Letter of Credit, stating the reasons therefor and that the
relevant document is being held at the disposal of the Beneficiary or is being
returned to the Beneficiary, as the Issuing Lender may elect. The Beneficiary
may attempt to correct any such non-conforming demand for payment
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under such Letter of Credit if, and to the extent that, the Beneficiary is
entitled (without regard to the provisions of this sentence) and able to do so.
SECTION 2.8A Return of Letter of Credit. With respect to
each Letter of Credit, the Issuing Lender shall have the right, provided the
Issuing Lender is not then in default under such Letter of Credit by reason of
its having wrongfully failed to honor a demand for payment previously made by a
Beneficiary under such Letter of Credit, to require such Beneficiary to
surrender such Letter of Credit to the Issuing Lender on the stated expiration
date. The Borrower agrees, if necessary, to use its best efforts to cause the
Beneficiary to surrender such Letter of Credit.
SECTION 2.9A Reimbursement Agreement of the Borrower. The
Borrower hereby unconditionally and irrevocably agrees to reimburse the Issuing
Lender for each payment or disbursement made by the Issuing Lender under a
Letter of Credit honoring a demand for payment made by the Beneficiary
thereunder, in each case on the date that such payment or disbursement is made.
Subject to Borrower's ability to satisfy the conditions precedent set forth in
Section 3.2, if any amount shall not be reimbursed by the Borrower on the date
of such payment or disbursement, the Borrower automatically shall be deemed to
have requested as of the immediately preceding Business Day a Floating Rate
Revolving Loan pursuant to Section 2.2 in the amount of such payment or
disbursement (which need not be in the principal amount of $100,000 or an
integral multiple thereof); provided, that if at the time of such request
Revolving Loans are not then available to the Borrower, such request shall not
be granted and the Borrower's reimbursement obligations set forth above shall
remain in place and shall accrue interest at the rate from time to time
applicable to Floating Rate Loans (including any default margin pursuant to
Section 2.4(5)).
SECTION 2.10A Funding By Lenders. If the Issuing Lender
makes any payment or disbursement under any Letter of Credit and the Borrower
has not reimbursed the Issuing Lender in full for such payment or disbursement
or a Revolving Loan in the amount of such payment or disbursement has not been
made pursuant to Section 2.9A, on the date on which payment is made under a
Letter of Credit, or if any reimbursement received by the Issuing Lender from
the Borrower is or must be returned or rescinded upon or during any bankruptcy
or reorganization of the Borrower or otherwise, each other Lender shall provide
the Agent, for the account of the Issuing Lender at the Head Office with
immediately available funds in an amount equal to such Lender's Percentage of
the amount of such payment or disbursement. If and to the extent any Lender
shall not have made such amount available to the Agent on any such date, such
Lender agrees to pay interest on such amount to the Agent, for the account of
the Issuing Lender,
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forthwith on demand for each day from and including the date on which such
payment was made to but excluding the date such amount is made available to the
Agent for the account of the Issuing Lender. Such interest shall be determined
at a rate per annum equal to the Federal Funds Rate from time to time in
effect, based upon a year of 360 days.
SECTION 2.11A Return of Funds Related to NonConforming
Demand. If the Issuing Lender does not disburse funds to the Beneficiary for
any reason after the Agent has received such funds from any Lender pursuant to
Section 2.10A, the Issuing Lender shall promptly return such funds to the
Agent, who shall promptly return such funds to such other Lenders, together
with interest on such funds from and including the date on which the Agent
received such funds to but excluding the day on which the Agent so returns such
funds to the other Lenders at the Federal Funds Rate for each such day, based
upon a year of 360 days.
SECTION 2.12A Obligation to Reimburse for or Participate in
Letter of Credit Payments. The Borrower's obligation to reimburse the Issuing
Lender for payments made by the Issuing Lender under any Letter of Credit
honoring a demand for payment by the Beneficiary thereunder, and each Lender's
obligation to participate in and make available to the Agent its Percentage of
such payments in accordance with this Agreement, shall be irrevocable, absolute
and unconditional under any and all circumstances including, without
limitation, any of the following circumstances:
(1) any lack of legality, validity, regularity or
enforceability of this Agreement, any Letter of Credit or any other
Loan Document;
(2) the existence of any claim, setoff, defense or other
right which the Borrower may have or have had at any time against any
Beneficiary, the Agent, the Issuing Lender any other Lender, any
transferee of any Letter of Credit (or any Person for whom any such
transferee may be acting) or any other Person, whether in connection
with this Agreement, any Letter of Credit, the transactions
contemplated herein or any unrelated transactions (including any
underlying transaction between the Borrower and the Beneficiary of any
Letter of Credit);
(3) any draft, certificate or any other document presented
under any Letter of Credit proving to be forged, fraudulent, invalid
or insufficient in any respect or any statement therein being untrue
or inaccurate in any respect;
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(4) the surrender or impairment of any security for the
performance or observance of any of the terms of any of the Loan
Documents;
(5) payment by the Issuing Lender under any Letter of Credit
against presentation of a draft or certificate or other document that
does not comply with the terms of such Letter of Credit unless such
payment by the Issuing Lender constituted gross negligence or willful
misconduct of the Issuing Lender; or
(6) the occurrence of any Default or Event of Default;
provided, however, that the Borrower shall not be obligated to reimburse the
Issuing Lender for, and no Lender shall be obligated to participate in, any
wrongful payment made by the Issuing Lender under any Letter of Credit as a
result of acts or omissions constituting gross negligence or willful misconduct
on the part of the Issuing Lender or any of its officers, employees or agents.
SECTION 2.13A Mandatory Payment to Agent of LC Obligations.
The Borrower agrees that, on any termination of the LC Commitments pursuant to
Section 2.15A or Section 8.2, it will pay to the Agent for the account of the
Issuing Lender and the other Lenders in Dollars and in same day funds an amount
equal to the amount of all LC Obligations, whether or not the related Letter of
Credit has been drawn (which amount shall be retained by the Agent in a
separate collateral account as security for the LC Obligations and the
outstanding principal amount of the Revolving Note, all interest thereon, and
all other amounts payable under this Agreement and the other Loan Documents)
plus the then aggregate accrued amount of unpaid fees arising under Section
2.14A.
SECTION 2.14A Fees. The Borrower agrees to pay the following
fees (all such fees being non-refundable):
(1) The Borrower agrees to pay to the Agent for the account
of each Lender a fee for each (a) Non-Financial Letter of Credit (the
"Non-Financial LC Commitment Fee"), from the date of issuance thereof
to the earlier to occur of the expiration or termination thereof or
the date of final and complete payment by the Agent thereunder, at a
rate per annum equal to one-half of the Applicable Margin with respect
to Eurodollar Loans times the aggregate outstanding face amount of
each such Non-Financial Letter of Credit, and (b) Financial Letter of
Credit (the "Financial LC Commitment Fee"), from the date of issuance
thereof to the earlier to occur of the expiration or termination
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thereof or the date of final and complete payment by the Agent
thereunder, at a rate per annum equal to the Applicable Margin with
respect to Eurodollar Loans times the aggregate outstanding face
amount of each such Financial Letter of Credit, such fees to be
payable in arrears on the last Business Day of each calendar quarter
(or at such other times as the Agent shall request, for any period
prior to such date or time for which such LC Commitment Fees shall not
have been theretofore paid).
(2) The Borrower agrees to pay to the Agent for the sole
account of the Issuing Lender, an issuance fee equal to .25% of the
face amount of each Letter of Credit, payable upon the issuance
thereof.
(3) The Borrower agrees to pay to the Issuing Lender such
other standard fees and amounts ("LC Administrative Fees") as the
Issuing Lender shall customarily require in connection with the
issuance, negotiation, processing and/or administration of Letters of
Credit in similar situations, such fees to be in addition to the fees
payable under Section 2.14A(1), with respect to the issuance and/or
negotiation of each Letter of Credit.
SECTION 2.15A Voluntary Reduction of the LC Commitments. The
Borrower may from time to time on at least two (2) Business Days' prior written
notice to the Agent permanently reduce the amount of the LC Commitments to an
amount not less than the maximum amount of the Letters of Credit then
outstanding or drawn and not reimbursed. The Borrower may at any time on like
notice terminate the LC Commitments upon payment to the Agent in accordance
with Section 2.13A of all LC Obligations (whether absolute or contingent) in
connection with the Letters of Credit.
SECTION 2.16A Cash Collateral. If, on any date, the
aggregate face amount of Letters of Credit issued and outstanding or drawn and
not reimbursed shall exceed the LC Commitments, the Borrower shall pledge cash
collateral to the Agent (pursuant to documentation reasonably satisfactory to
the Required Lenders, the Issuing Lender and the Agent) in an amount equal to
such excess.
SECTION 2.17A Making of Payments. Except as otherwise
provided, all payments (including those made pursuant to Section 2.14A or
Section 2.16A) in respect of the Letters of Credit shall be made by the
Borrower to the Agent for the account of the Lenders pro rata according to
their respective Percentages of the LC Obligations held by them. The Agent
shall promptly remit to each Lender its pro rata share (based on its
Percentage) of all
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such payments received in collected funds by the Agent for the benefit of such
Lender. The Borrower hereby authorizes the Agent, if and to the extent payment
is not made when due under this Agreement to charge from time to time against
any account of the Borrower with the Agent any amount so due. All such
payments shall be made to the Agent at its Head Office, not later than 12:00
Noon, Chicago time, on the date due; and funds received after that hour shall
be deemed to have been received by the Agent on the next following Business
Day. The Agent shall promptly remit to each Lender its pro rata share (based
on its Percentage) of all such payments received in collected funds by the
Agent for the account of such Lender.
ARTICLE III
CONDITIONS PRECEDENT
SECTION 3.1. Condition Precedent to Agreement. The terms and
provisions of this Agreement (including, without limitation, the Commitment of
each Lender hereunder) shall become effective (the "Restatement Effective
Date"), on such date upon which the Agent shall have received (i) for debt and
equity capital structuring and advisory services rendered by the Lenders, from
the Borrower for the account of each Lender in accordance with such Lender's
Percentage, a nonrefundable advisory fee of $2,800,000, fully earned upon
closing and paid pursuant to that certain Commitment Letter dated October 29,
1997 among the Agent, the Co-Agent, LaSalle National Bank and the Borrower and
(ii) each of the following, each dated the Restatement Effective Date and in
form and substance reasonably satisfactory to the Agent and its counsel and
each in sufficient number of signed counterparts (other than in the case of the
Notes) to provide one for each Lender:
(1) Revolving Note. The Revolving Note duly executed by the
Borrower;
(2) Term Note. The Term Note duly executed by the Borrower;
(3) Security Agreements. Amendments to the Security
Agreements duly executed by the Borrower and each Subsidiary, together
with duly executed amendments to existing UCC financing statements to
be filed under the Uniform Commercial Code of the chief executive
office of the Borrower and each Subsidiary, respectively;
(4) Trademark Security Agreements. Amendments to the
Trademark Security Agreements duly executed by the Borrower and each
Subsidiary;
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(5) [Reserved]
(6) Affirmation and Amendment. Affirmation and Amendment
executed by the Borrower and each Subsidiary;
(7) Subordination Agreement. (a) A reaffirmation of the BCI
Subordination Agreement duly executed by the Borrower and BCI; and (b)
an amendment to the the documentation evidencing BCI Subordinated Debt
duly executed by Borrower and BCI;
(8) Certificate of the Borrower. A certificate or
certificates of the Secretary or Assistant Secretary of the Borrower
certifying: (a) a copy of the Certificate of Incorporation of the
Borrower, as theretofore amended; (b) a copy of the bylaws of the
Borrower, as theretofore amended; (c) copies of all corporate action
taken by the Borrower, including resolutions of its board of
directors, authorizing the execution, delivery, and performance of the
Loan Documents by the Borrower and each other document to be delivered
pursuant to this Agreement and authorizing borrowings by each of the
Authorized Officers; and (d) the names and true signatures of the
officers of the Borrower authorized to sign the Loan Documents to
which it is a party and the other documents to be delivered by the
Borrower under this Agreement;
(9) Certified Charter and Good Standing. A certificate of the
due incorporation, legal existence and good standing of the Borrower in
its state of incorporation, issued by the appropriate authorities of
such jurisdiction, and certificates of Borrower's good standing and due
qualification to do business, issued by appropriate officials in any
states in which the failure to so quali[Cfy would result in a Material
Adverse Change;
(10) Certificate of each Subsidiary. A certificate or
certificates of the Secretary or Assistant Secretary of each Subsidiary
certifying: (a) a copy of the organizational documents of such
Subsidiary, as theretofore amended; (b) copies of all corporate or
partnership action of such Subsidiary taken by such Subsidiary,
authorizing the execution, delivery and performance by such Subsidiary
of the Loan Documents to which it is a party and each other document to
be delivered pursuant to this Agreement; and (c) the names and true
signatures of the officers of such Subsidiary authorized to sign the
Loan Documents to which it is a party and the other
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<PAGE> 45
documents to be delivered by such Subsidiary under this Agreement;
(11) Certified Charter and Good Standing. A certificate
of the due organization, legal existence and good standing of each
Subsidiary in its state of organization, issued by the appropriate
authorities of such jurisdiction, and certificates of such
Subsidiary's good standing and due qualification to do business,
issued by appropriate officials in any states in which the failure to
so qualify would result in a Material Adverse Change;
(12) Opinion of counsel for Borrower and its Subsidiaries.
An opinion of Holme Roberts & Owen LLP, counsel for the Borrower and
its Subsidiaries, in substantially the form of Exhibit D and as to
such other matters as the Agent and its counsel may reasonably
request;
(13) Fees. Evidence of payment of fees, costs and expenses
due and payable in connection with this Agreement (including, without
limitation such fees, costs and expenses payable to the Agent and its
Affiliates); and
(14) Miscellaneous. Such other approvals, opinions or
documents as the Agent may reasonably request.
SECTION 3.2. Conditions Precedent to All Loans and Letters of
Credit. The obligation of the Lenders to make each Loan (including the initial
Loans) and of the Issuing Lender to issue Letters of Credit shall be subject to
the further conditions precedent that on the date of such Loan or Letter of
Credit:
(1) The following statements shall be true:
(a) The representations and warranties contained in
Article IV of this Agreement are correct in all material
respects on and as of the date of such Loan or Letter of Credit
as though made on and as of such date (except to the extent
such representations and warranties expressly refer to an
earlier date);
(b) No Default or Event of Default has occurred and
is continuing, or would result from the borrowing of such Loan
or the issuance of such Letter of Credit; and
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<PAGE> 46
(c) Borrower is in compliance with the provisions of
Section 5.13 hereof.
The acceptance by the Borrower of the proceeds of such Loan or the
issuance of such Letter of Credit shall constitute a representation
and warranty by the Borrower that on the date of such Loan or the
issuance of such Letter of Credit (both immediately before and after
giving effect to such Loan or the issuance of such Letter of Credit)
the statements set forth in this Section 3.2(1) are true and correct.
(2) The Agent or the Issuing Lender shall have received such
other approvals, opinions, or documents as the Agent or the Issuing
Lender may reasonably request.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Lenders that:
SECTION 4.1. Incorporation, Good Standing, and Due
Qualification. The Borrower and each of its Subsidiaries: (1) is a
corporation or partnership, as the case may be, duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization or formation; (2) has the corporate or partnership power and
authority, as the case may be, and has all material governmental licenses,
authorizations, consents and approvals necessary to own its assets and to
transact the business in which it is now engaged or proposed to be engaged; and
(3) is duly qualified as a foreign corporation or partnership, as the case may
be, and in good standing under the laws of each other jurisdiction in which the
failure to so qualify would result in a Material Adverse Change.
SECTION 4.2. Corporate Power and Authority. The execution,
delivery, and performance by the Borrower and each Subsidiary of each of the
Loan Documents to which it is a party have been duly authorized by all
necessary corporate action and do not and will not (1) contravene or conflict
with the organizational documents of the Borrower or such Subsidiary; (2)
violate any provision of, or cause the Borrower or such Subsidiary to be in
default under, any law, rule, regulation (including, without limitation,
Regulation U of the Board of Governors of the Federal Reserve System), order,
writ, judgment, injunction, decree, determination, or award currently in effect
having applicability to the Borrower or such Subsidiary; (3) result in a breach
of, or constitute a default under, any material indenture or loan or credit
agreement or any other
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<PAGE> 47
material agreement, lease, or instrument to which the Borrower or such
Subsidiary is a party or by which it or its properties may be bound or
affected; or (4) result in, or require, the creation or imposition of any Lien
(except as permitted pursuant to Section 6.1), upon or with respect to any of
the properties now owned or hereafter acquired by the Borrower or such
Subsidiary.
SECTION 4.3. Legally Enforceable Agreement. This Agreement
is, and each of the other Loan Documents will be, legal, valid, and binding
obligations of the Borrower and each of the Subsidiaries (to the extent they
are parties to such Loan Documents) enforceable against the Borrower and such
Subsidiary (as applicable) in accordance with their respective terms, except to
the extent that such enforcement may be limited by applicable bankruptcy,
insolvency, and other similar laws affecting creditors' rights generally and by
general principles of equity.
SECTION 4.4. Financial Statements. The Borrower's audited
consolidated financial statements as at December 31, 1996, and the Borrower's
unaudited financial statements as at October 5, 1997, have been furnished to
each Lender. These financial statements have been prepared in conformity with
GAAP and fairly present the financial condition of the Borrower and its
Subsidiaries as at such dates and the results of operations for the periods
then ended. The unaudited financial statements have been prepared in a manner
consistent (except for changes in accounting policies permitted by GAAP which
have been or are contemporaneously disclosed in writing to each Lender) with
the audited financial statements, except for the lack of normal year-end
accruals, reclassifications, and audit adjustments and financial statement
footnotes. Since the date of the most recent financial statements supplied to
each Lender pursuant to either Section 5.8(1), (2) or (3), whichever is the
most recently delivered, there has been no Material Adverse Change. No
information, exhibit, or report furnished by the Borrower to the Lenders in
connection with the negotiation of this Agreement, considered as a whole with
all other information, exhibits and reports furnished to the Lenders in
connection with the negotiation of this Agreement or any predecessor agreement,
if any, at the time it was furnished (and as modified or superseded by any
information, exhibits and reports subsequently furnished to the Lenders),
contained any material misstatement of fact or omitted to state a material fact
necessary to make the statements contained therein, in light of the
circumstances in which they were made, not materially misleading; provided,
that notwithstanding anything else contained in this Agreement, the Borrower
makes no representation, warranty, or guaranty as to (1) any financial
projections furnished to the Lenders (it being understood that such financial
projections have been prepared by management of the Borrower on the basis of
assumptions which such management believed were reasonable as of the date of
such financial projections in light of the historical financial
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performance of the business of the Borrower and of current and reasonably
foreseeable business conditions) or (2) any information supplied by Franchisees
or contained in analyst reports or other reports prepared by third parties or
derived therefrom unless in the case of this Clause (2) the Borrower has actual
knowledge at the time such information is delivered to the Lenders that such
information contains a material misstatement of fact or omits to state a
material fact necessary to make the statements contained therein, in light of
the circumstances under which they were made, not materially misleading.
SECTION 4.5. Other Agreements. Neither the Borrower nor any
Subsidiary is a party to any material indenture, loan, or credit agreement, or
to any material lease or other agreement or instrument, or subject to any
charter or corporate restriction which would be breached or accelerated by
entering into the Loan Documents or which would have a material adverse effect
on the ability of the Borrower to carry out its obligations under the Loan
Documents. Neither the Borrower nor any Subsidiary is in default in any
respect in the performance, observance, or fulfillment of any of the
obligations, covenants, or conditions contained in any agreement or instrument
which would result in a Material Adverse Change.
SECTION 4.6. Litigation. Except as set forth on Schedule
4.6, there is no pending or (to the Borrower's knowledge) threatened action or
proceeding against or affecting the Borrower or any Subsidiary before any
court, governmental agency, or arbitrator, which, in any one case or in the
aggregate, is material to the Borrower and its Subsidiaries, taken as a whole,
or would adversely affect the ability of the Borrower or any Subsidiary (as
applicable) to perform their respective obligations under any Loan Documents
(to the extent a party thereto, and other than with respect to any Subsidiary's
ability to perform its payment obligations thereunder due to the financial
wherewithal of such Subsidiary).
SECTION 4.7. No Defaults on Outstanding Judgments or Orders.
To the best of the Borrower's knowledge, the Borrower and its Subsidiaries have
satisfied all material final judgments, and neither the Borrower nor any
Subsidiary is in default with respect to any final judgment, writ, injunction,
decree, rule, or regulation of any court, arbitrator, or federal, state,
municipal, or other governmental authority, commission, board, bureau, agency,
or instrumentality, domestic or foreign, which default would result in a
Material Adverse Change.
SECTION 4.8. Governmental and Regulatory Approvals. No
authorizations, approvals or consents of, and no filings or registrations with,
any governmental or regulatory authority or agency are necessary for the
execution, delivery or performance by the Borrower or any Subsidiary, as the
case may be, of the
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Loan Documents to which it is a party or for the validity or enforceability
thereof.
SECTION 4.9. Ownership and Liens. The Borrower and each
Subsidiary has title to, or valid leasehold interests in, all of its material
properties and assets, real and personal, and none of the properties and assets
owned by the Borrower or any Subsidiary and none of their leasehold interests
is subject to any Lien, except, in each case, such as may be permitted pursuant
to Section 6.1 of this Agreement.
SECTION 4.10. Subsidiaries etc. Schedule 4.10 sets forth as
of the Restatement Effective Date of this Agreement a true and correct list of
all capital stock, partnership units or other equity interests of any Person
owned or otherwise held (including capital stock, partnership units or other
equity interests held as collateral) by the Borrower and its Subsidiaries and
indicates whether such capital stock, partnership units or other equity
interests are owned or held in some other capacity by the Borrower or such
Subsidiary.
SECTION 4.11. ERISA. The Borrower and the ERISA Affiliates
are in compliance in all material respects with the applicable provisions of
ERISA.
SECTION 4.12. Hazardous Materials. The Borrower and each of
its Subsidiaries have obtained all permits, licenses and other authorizations
which are required under all Environmental Laws, except to the extent failure
to have any such permit, license or authorization would not result in a
Material Adverse Change. The Borrower and each of its Subsidiaries are in
compliance with the terms and conditions of all such permits, licenses and
authorizations, and are also in compliance with all other limitations,
restrictions, conditions, standards, prohibitions, requirements, obligations,
schedules and timetables contained in any applicable Environmental Law or in
any regulation, code, plan, order, decree, judgment, injunction, notice or
demand letter issued, entered, promulgated or approved thereunder, except to
the extent that any such failure to comply would not result in a Material
Adverse Change.
There have been no material environmental investigations,
studies, audits, tests, reviews or other analyses conducted by or which are in
the possession of the Borrower or any of its Subsidiaries in relation to any
property or facility now or previously owned or leased by the Borrower or any
of its Subsidiaries which have not been made available to the Lenders.
The Borrower has informed the Lenders in writing of all
material non-compliance of the Borrower and each of its Subsidiaries with the
terms and conditions of all (1) permits, licenses or authorizations required
under all Environmental Laws
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and (2) other limitations, restrictions, conditions, standards, prohibitions,
requirements, obligations, schedules and timetables contained in any applicable
Environmental Law or in any applicable regulation, code, plan, order, decree,
judgment, injunction notice or demand letter issued, entered, promulgated or
approved thereunder.
SECTION 4.13. Taxes. The Borrower and each Subsidiary have
filed all material tax returns (federal, state, and local) required to be filed
and have paid all taxes, assessments, and governmental charges and levies
thereon which it is aware are due, including interest and penalties, except to
the extent the validity thereof is being contested in good faith and by
appropriate proceedings.
SECTION 4.14. Debt. As of the Restatement Effective Date,
Schedule 4.14 sets forth a complete and correct list of all credit agreements,
indentures, purchase agreements, guaranties, Capital Leases, and other
investments, agreements, and arrangements currently in effect providing for or
relating to extensions of credit (including agreements and arrangements for the
issuance of letters of credit or for bankers' acceptance financing) in respect
of which the Borrower or any Subsidiary is in any manner directly or
contingently obligated; and the maximum principal or face amounts of the credit
in question, which are outstanding and which can be outstanding, are correctly
stated, and all Liens of any nature given or agreed to be given as security
therefor are correctly described or indicated in such Schedule.
SECTION 4.15. Investment Company Act. Neither the Borrower
nor any of its Subsidiaries is an "investment company," or a company
"controlled" by an "investment company," within the meaning of the Investment
Company Act of 1940, as amended.
SECTION 4.16. Public Utility Holding Company Act. Neither
the Borrower nor any of its Subsidiaries is 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.
SECTION 4.17. Pledged Collateral. Schedule 4.17 sets forth
as of the Restatement Effective Date (and as of the date of delivery pursuant
to Section 5.8(6) of any subsequent Schedule 4.17) a true and correct list of
the following information:
(a) All capital stock, partnership units or other equity
interests of any Person owned by the Borrower and its Subsidiaries (on
which Schedule the Borrower has indicated by an asterisk ("*") any
capital stock, partnership units or other equity interest owned by the
Borrower or a Subsidiary which is not subject to a
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perfected Lien in favor of the Agent pursuant to the Pledge
Agreement);
(b) Any Debt owed by each Person to the Borrower or any
Subsidiary which is evidenced by a promissory note or other instrument
(on which Schedule the Borrower has indicated by an asterisk ("*")
those promissory notes or other instruments which have not been
delivered to the Agent pursuant to a Pledge Agreement).
SECTION 4.18. Real Property. Schedule 4.18 hereto sets
forth, as of the Friday immediately preceding the Restatement Effective Date
(and as of the Friday immediately preceding any date of delivery pursuant to
Section 5.8(6) of any subsequent Schedule 4.18), a complete and accurate list
of the addresses of each parcel of real property owned or leased by the
Borrower or any Subsidiary (on which Schedule the Borrower has indicated by an
asterisk ("*") (i) any real property owned by the Borrower or a Subsidiary
which is not subject to a mortgage and (ii) any real property leased by the
Borrower or a Subsidiary which has not been collaterally assigned to the Agent
pursuant to a Collateral Assignment of Lease).
SECTION 4.19. Financed Franchisee/Subsidiary Information.
Schedule 4.19 hereto sets forth, as of the Restatement Effective Date (and as
of the date of delivery pursuant to Section 5.8(6) of any subsequent Schedule
4.19), a true and complete list of the following information:
(a) All Financed Franchisee Loan Documents and Financed
Subsidiary Loan Documents then in effect between the Borrower and any
Franchisee or Subsidiary;
(b) Any Liens granted by each Person to the Borrower or
any Subsidiary to secure Debt covered by the foregoing clause (1) and
the filing offices in which the Borrower has filed Financing
Statements (UCC-1's), mortgages or deeds of trust to perfect such
Liens and the acknowledgement numbers or other recording information
of such Financing Statements, mortgages or deeds of trust.
SECTION 4.20. Collateral Documents. (a) The provisions of
each of the Collateral Documents are effective to create in favor of the Agent,
a legal, valid and enforceable security interest in all right, title and
interest of the Borrower and its Subsidiaries in the collateral described
therein; and proper financing statements have been delivered to the Agent for
filing in the offices in all of the jurisdictions listed in the schedule to the
Security Agreements.
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(b) Each mortgage when delivered will be effective to grant to the
Agent, a legal, valid and enforceable Lien on all the right, title and interest
of the mortgagor under such mortgage in the mortgaged property described
therein. When each such mortgage is duly recorded in the offices listed on the
schedule to such mortgage and the mortgage recording fees and taxes in respect
thereof are paid and compliance is otherwise had with the formal requirements
of state law applicable to the recording of real estate mortgages generally,
each such mortgaged property, subject to the encumbrances and exceptions to
title set forth therein and except as noted in the title policies delivered to
the Agent in connection therewith, will be subject to a legal, valid,
enforceable and perfected first priority Lien.
(c) All representations and warranties of the Borrower and any of
its Subsidiaries party thereto contained in the Collateral Documents are true
and correct in all material respects, except to the extent any relate solely to
an earlier date.
SECTION 4.21. Solvency. As of the Restatement Effective
Date, the Borrower and each Subsidiary is Solvent.
ARTICLE V
AFFIRMATIVE COVENANTS
Unless otherwise consented to in writing by the Required
Lenders, so long as any of the Notes shall remain unpaid or the Lenders shall
have any Commitment under this Agreement or any Letter of Credit remains
outstanding or any LC Obligations remain unpaid, the Borrower will:
SECTION 5.1. Maintenance of Existence. Except as otherwise
permitted by Section 6.3, preserve and maintain, and cause each Subsidiary to
preserve and maintain, its corporate, partnership or other legal entity
existence, as the case may be, and good standing in the jurisdiction of its
organization or formation, and qualify and remain qualified, and cause each
Subsidiary to qualify and remain qualified, as a foreign corporation,
partnership or other legal entity, as the case may be, in each jurisdiction in
which the failure to so qualify would result in a Material Adverse Change.
SECTION 5.2. Maintenance of Records. Keep, and cause each
Subsidiary to keep, adequate records and books of account.
SECTION 5.3. Maintenance of Properties. Maintain, keep, and
preserve, and cause each Subsidiary to maintain, keep, and preserve, all of its
material properties (tangible and intangible) necessary or useful in the proper
conduct of its business in good working order and condition, ordinary wear and
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tear excepted; provided, however, the Borrower and each Subsidiary may close
Stores in the ordinary course of business, in which event the Borrower shall
give prompt written notice to the Agent.
SECTION 5.4. Conduct of Business. Continue, and cause each
Subsidiary to continue (unless causing to so continue would constitute a breach
of fiduciary duty), to engage in the operation of Stores and/or in the
franchising of Stores to other Persons (and other matters and operations
incidental to the foregoing, including, but not limited to the production of
bagels, cream cheese and other related food products, the holding of real
estate or leasehold interests for Store locations, commissaries and production
facilities and the distribution of Store supplies or inventory items), and no
other line of business; provided, that after each acquisition by the Borrower
or a Subsidiary of preexisting operating assets, the Borrower or such
Subsidiary, as the case may be, shall have a reasonable period of time in which
to dispose of any assets so acquired which do not relate, and are not being
converted, to the operation of Stores or the franchising of Stores to other
Persons (and other matters and operations incidental to the foregoing).
SECTION 5.5. Maintenance of Insurance. Maintain, and cause
each Subsidiary to maintain, insurance with commercially reasonable and
reputable insurance companies or associations in such amounts and covering such
risks as are usually carried by companies engaged in the same or a similar
business and similarly situated, which insurance may provide for reasonable
deductibility from coverage thereof.
SECTION 5.6. Compliance With Laws. Comply, and cause each
Subsidiary to comply, in all material respects with all material applicable
laws, rules, regulations, and orders, such compliance to include, without
limitation, paying before the same become delinquent all taxes, assessments,
and governmental charges imposed upon it or upon its property except to the
extent the validity thereof is being contested in good faith and by appropriate
proceedings.
SECTION 5.7. Right of Inspection. At any reasonable time and
from time to time, permit the Agent and the Lenders or any agent or
representative thereof to examine and make copies of and abstracts from the
records and books of account of, and visit the properties of, the Borrower and
any Subsidiary, and to discuss the affairs, finances, and accounts of the
Borrower and any Subsidiary with any of their respective officers, directors
and employees and the Borrower's independent accountants.
SECTION 5.8. Reporting Requirements. Furnish to the Agent
and the Co-Agent (and any Lender which requests any of the following
documents):
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(1) Retail Period financial statements. As soon as available
and in any event within twenty (20) days after the end of each Retail
Period of the Borrower (or in the case of the last Retail Period of
each fiscal quarter of the Borrower, within thirty (30) days after the
end of such Retail Period), consolidated and consolidating balance
sheets of the Borrower and its Subsidiaries as at the end of such
Retail Period, consolidated and consolidating statements of operations
of the Borrower and its Subsidiaries for the period commencing at the
end of the previous fiscal year and ending with the end of such Retail
Period and for the period commencing at the end of the previous Retail
Period and ending with the end of such Retail Period, and consolidated
and consolidating statements of cash flows of the Borrower and its
Subsidiaries for the portion of the fiscal year ended with the last
day of such Retail Period and for the period commencing at the end of
the previous Retail Period and ending with the end of such Retail
Period, all in reasonable detail and for statements of operations,
stating in comparative form the respective budget figures for the
corresponding period, and a "flash" report of sales by week by unit in
the most complete form as previously delivered to the Agent;
(2) Quarterly financial statements. As soon as available and
in any event within fortyfive (45) days after the end of each of the
first three fiscal quarters of each fiscal year of the Borrower,
consolidated and consolidating balance sheets of the Borrower and its
Subsidiaries as at the end of such fiscal quarter, consolidated and
consolidating statements of operations of the Borrower and its
Subsidiaries for the period commencing at the end of the previous
fiscal year and ending with the end of such fiscal quarter,
consolidated and consolidating statements of cash flows of the
Borrower and its Subsidiaries for the portion of the fiscal year ended
with the last day of such fiscal quarter and combined statements of
operations of the Borrower, its Subsidiaries and the Financed
Franchisees, all in reasonable detail and stating in comparative form
the respective consolidated, consolidating or combined figures for the
corresponding date and period in the previous fiscal year and, in the
case of the consolidated and consolidating statements, certified by
the Chief Financial Officer or any Vice President of the Borrower (in
his or her capacity as such, without personal liability therefor) as
being prepared consistent with the Borrower's audited annual financial
statements (subject to year-end adjustments and changes
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<PAGE> 55
in accounting policies permitted by GAAP which have been disclosed in
writing to the Lenders);
(3) Annual financial statements. As soon as available and in
any event within ninety (90) days after the end of each fiscal year of
the Borrower, a consolidated and consolidating balance sheet of the
Borrower and its Subsidiaries as at the end of such fiscal year,
consolidated and consolidating statements of operations of the
Borrower and its Subsidiaries for such fiscal year, consolidated and
consolidating statements of cash flows of the Borrower and its
Subsidiaries for such fiscal year and combined statements of
operations of the Borrower, its Subsidiaries and the Financed
Franchisees, all in reasonable detail and stating in comparative form
the respective consolidated, consolidating or combined figures for the
corresponding date and period in the prior fiscal year and, in the
case of the consolidated and consolidating statements, all prepared in
accordance with GAAP and as to the consolidated statements accompanied
by an opinion thereon reasonably acceptable to the Required Lenders by
Arthur Andersen & Co. or other independent accountants selected by the
Borrower and reasonably acceptable to the Required Lenders;
(4) Certificate of No Default. Together with the financial
statements furnished by the Borrower under the preceding Clauses (2)
and (3), a duly completed compliance certificate in the form of
Exhibit M signed by the Chief Financial Officer or any Vice President
of the Borrower (in his or her capacity as such, and without personal
liability therefor);
(5) Accountant's reports. (a) Simultaneously with the
delivery of the annual financial statements referred to in Section
5.8(3), a certificate of the independent public accountants who
audited such statements to the effect that, in making the examination
necessary for the audit of such statements, they have obtained no
knowledge of any condition or event which constitutes a Default or
Event of Default, or if such accountants shall have obtained knowledge
of any such condition or event, specify in such certificate each such
condition or event of which they have knowledge and the nature and
status thereof; and (b) promptly upon receipt thereof, copies of any
reports submitted to the Borrower or any Significant Subsidiary by
independent certified public accountants in connection with
examination of the financial
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<PAGE> 56
statements of the Borrower or any Significant Subsidiary made by such
accountants;
(6) Updated Schedules. As soon as reasonably available in
final form and in any event within forty-five (45) days after the end
of each fiscal quarter of the Borrower (or if requested in writing by
any Agent within forty-five (45) days after the end of each Retail
Period), updated Schedules 4.17, 4.18 and 4.19 hereto which updated
schedules shall be deemed as of the date of delivery to amend and
restate (a) the previously delivered Schedules 4.17, 4.18 and 4.19 in
their entirety, (b) in the case of Schedule 4.17, Attachment I to the
Pledge Agreement in its entirety, (c) in the case of Schedule 4.18,
Schedule I to the Security Agreement in its entirety and (d) in the
case of Schedule 4.19, Schedule I to the Collateral Assignment of Loan
in its entirety;
(7) Notice of litigation. Promptly after the commencement
thereof, notice of all actions, suits, and proceedings before any
court or governmental department, commission, board, bureau, agency,
or instrumentality, domestic or foreign, affecting the Borrower or any
Subsidiary, which, in any one case or in the aggregate, are material
to the Borrower and its Subsidiaries taken as a whole, or adversely
affect the ability of the Borrower to perform its obligations under
the Loan Documents;
(8) Notice of Defaults and Events of Default. As soon as
possible and in any event within three (3) Business Days after the
Borrower becomes aware of the occurrence of any Default or Event of
Default, a written notice setting forth the details of such Default or
Event of Default and the action which is proposed to be taken by the
Borrower with respect thereto;
(9) ERISA reports. Promptly after the filing or receiving
thereof, copies of all substantive reports, including annual reports,
and notices which the Borrower or any Subsidiary files with or
receives from the PBGC or the U.S. Department of Labor under ERISA;
and as soon as possible and in any event within thirty (30) days after
the Borrower or any Subsidiary knows or has reason to know that any
Reportable Event or Prohibited Transaction has occurred with respect
to any Plan or that the PBGC or the Borrower or any Subsidiary has
instituted or will institute proceedings under Title IV of ERISA to
terminate any Plan, the Borrower will deliver to the Agent a
certificate of the Chief
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<PAGE> 57
Financial Officer or Vice President - Finance of the Borrower (in his
or her capacity as such and with no personal liability therefor)
setting forth details as to such Reportable Event or Prohibited
Transaction or Plan termination and the action the Borrower proposes
to take with respect thereto;
(10) Reports to other creditors. Promptly after the
furnishing thereof, copies of any material statement or report
furnished to any other creditor (other than BCI) of the Borrower
pursuant to the terms of any indenture, loan, or credit or similar
agreement and not otherwise required to be furnished to the Agent or
the Lenders pursuant to any other clause of this Section 5.8;
(11) Proxy statements, etc. Promptly after the sending or
filing thereof, copies of all proxy statements, financial statements,
and reports which the Borrower or any Subsidiary sends to its
stockholders, and copies of all regular, periodic, and special
reports, and all registration statements which the Borrower or any
Subsidiary files with the Securities and Exchange Commission (or any
governmental authority which may be substituted therefor) or with any
national securities exchange;
(12) Financed Franchisee Loan Documents. Promptly after
the execution and delivery (a) by a Financed Franchisee of any
Financed Franchisee Loan Documents, copies of such Financed Franchisee
Loan Documents and (b) by a Financed Subsidiary of any Financed
Subsidiary Loan Documents, copies of such Financed Subsidiary Loan
Documents;
(13) Financed Franchisee and Financed Subsidiary financial
statements. As soon as available and in any event within thirty (30)
days after the end of each of the first three fiscal quarters of each
fiscal year of each Financed Franchisee and each Financed Subsidiary,
and as soon as available and in any event within ninety (90) days
after the end of each fiscal year of each Financed Franchisee and each
Financed Subsidiary, balance sheets of each such Financed Franchisee
and each such Financed Subsidiary as at the end of such fiscal quarter
or fiscal year, statements of operations of each such Financed
Franchisee and each such Financed Subsidiary for the period commencing
at the end of the previous fiscal year and ending with the end of such
fiscal quarter or fiscal year, and statements of cash flows of each
such Financed Franchisee and each such Financed Subsidiary for the
portion of the fiscal year
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<PAGE> 58
ended with the last day of such fiscal quarter or fiscal year, all in
reasonable detail and stating in comparative form the respective
figures for the corresponding date and period in the previous fiscal
year and either (A) certified by the Chief Financial Officer or Vice
President - Finance of the Borrower (in his or her capacity as such,
without personal liability therefor) as being, to the best of such
officer's knowledge, prepared in accordance with GAAP or (B) certified
to the Lenders by the chief financial officer or treasurer of such
Financed Franchisee or Financed Subsidiary as accurate, subject to
changes resulting from normal, recurring yearend adjustments; and
(14) General information. Such other information respecting
the condition or operations, financial or otherwise, of the Borrower
or any Subsidiary as the Agent or any Lender may from time to time
reasonably request.
SECTION 5.9. Environmental Laws. Use and operate, and cause
each Subsidiary to use and operate, all of its facilities and properties in
material compliance with all Environmental Laws, keep all necessary permits,
approvals, certificates, licenses and other authorizations relating to
environmental matters in effect and remain in material compliance therewith,
and handle all hazardous substances in material compliance with all applicable
Environmental Laws, except to the extent the failure to comply with the
foregoing would not result in a Material Adverse Change; and provide such
information and certifications which the Agent or any Lender may reasonably
request from time to time to evidence compliance with this Section.
SECTION 5.10. Notes, Certificates and Other Collateral.
Deliver to the Agent promptly and in no event more than ten (10) Business Days
after receipt (a) all promissory notes and other instruments evidencing any
Debt owed by any Financed Franchisee or Financed Subsidiary to the Borrower or
any Subsidiary, and (b) all certificates (together with duly executed undated
blank stock powers; or in the case of uncertificated securities, registration
of pledges or appropriate financing statements (UCC-1's), to the extent
required by applicable law) evidencing capital stock, partnership units or
other equity interests of any Subsidiary, which are owned by the Borrower or
any Subsidiary; and, simultaneously with the delivery of such promissory notes,
instruments or certificates, an updated Attachment 1 to the Pledge Agreement
indicating, as appropriate, such Person as a "Pledged Note Issuer" and/or a
"Pledged Share Issuer" (as such terms are defined in the Pledge Agreement).
All such promissory notes, instruments and certificates shall be held by the
Agent in accordance with, and subject to, the Pledge
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<PAGE> 59
Agreement; provided, that the Agent shall take such action with respect to the
foregoing promissory notes, instruments and certificates as the Borrower or
such Subsidiary may reasonably instruct so long as such action is either (x) in
the case of promissory notes or instruments, mandatory pursuant to the
documentation by which the Borrower or such Subsidiary holds such promissory
notes or instruments or (y) is consistent with the terms of this Agreement and
the other Loan Documents.
SECTION 5.11. Financing Statements. As soon as reasonably
practicable after the delivery pursuant to Section 5.8(6) of a subsequent
Schedule 4.18 setting forth addresses of real property owned or leased by the
Borrower or any Subsidiary which are located in jurisdictions for which the
Borrower or such Subsidiary, as the case may be, has not then provided to the
Agent financing statements (UCC-1's), deliver to the Agent financing statements
(UCC-1's) for filing in such jurisdictions duly executed by the Borrower or
Subsidiary, as the case may be, listing the Borrower or such Subsidiary, as the
case may be, as debtor, and the Agent, as secured party, and setting forth a
description of collateral reasonably acceptable to the Agent.
SECTION 5.12. Subsidiary Defaults. Upon the occurrence of
any Subsidiary Default, allow the Agent to participate in any negotiations
conducted between the affected Subsidiary and the lender of the affected
indebtedness.
SECTION 5.13. Credit Usage.
(1) At the time of each incurrence, and after giving
effect thereto, of Debt under the Agreement during any fiscal period
set forth below (but only at such times and at no other times)
demonstrate to the Agent that the ratio of (a) Senior Indebtedness
outstanding immediately after such incurrence to (b) Annualized System
EBITDAL, for the fiscal quarter then most recently ended for which
financial statements have been delivered to the Agent pursuant to
Section 5.8, does not exceed the ratio set forth below opposite such
fiscal period:
<TABLE>
<CAPTION>
Fiscal Period(s) Ratio
--------------- -----
<S> <C>
Q1 1998 2.75:1.00
Q2 1998 2.75:1.00
Q3 1998 2.25:1.00
Q4 1998 2.00:1.00
Fiscal 1999 1.75:1.00
Fiscal 2000 1.50:1.00
</TABLE>
; provided, that for purposes of calculating the Annualized System
EBITDAL (i) for the Borrower's first fiscal quarter,
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<PAGE> 60
1998, the financial information from the first Retail Period in such
fiscal quarter shall not be used and such fiscal quarter shall be
deemed to consist of only three Retail Periods and (ii) for the period
commencing on the Revolving Loan Effective Date and ending on the date
upon which the Borrower delivers to the Agent the compliance
certificate required pursuant to Section 5.8(4) with respect to the
Borrower's first fiscal quarter, 1998, the financial information for
the first three Retail Periods of 1998 shall be deemed to constitute a
fiscal quarter.
(2) In the event the Borrower receives any proceeds from the
incurrence of Debt under this Agreement on a day when, after giving
effect to such incurrence, the ratio set forth in the preceding clause
was exceeded, the Borrower shall repay to the Agent proceeds from the
incurrence of such Debt in an amount sufficient to cause compliance
with such ratio as of the date of such incurrence, such repayment to
be made promptly, but in no event later than 5 Business Days of
written notice from the Agent requiring such repayment.
SECTION 5.14. Real Property.
(1) Within ninety (90) days of the Restatement Effective
Date, deliver to the Agent with respect to each of the parcels of real
property referenced on the initial Schedule 4.18 hereto as leased by
the Borrower or any Subsidiary and designated with an asterisk ("*")
(and not designated as "grandfathered"), each of the documents set
forth in clause (4) below; provided, that the Agent may decline to
accept such documents if in its determination a parcel is or may have
been in violation of any Environmental Laws.
(2) Within ninety (90) days of the date on which a Financed
Franchisee becomes a Financed Subsidiary, deliver to the Agent (a)
with respect to each of the parcels of real property owned by such
Financed Subsidiary on such date, each of the documents set forth in
clause (3) below and (b) with respect to each of the parcels of real
property leased by such Financed Subsidiary on such date, each of the
documents set forth in clause (4) below; provided, that the Agent may
decline to accept such documents if in its determination a parcel is
or may have been in violation of any Environmental Laws.
(3) Mortgages or deeds of trust, as appropriate, in form and
substance reasonably acceptable to the Agent duly executed by the
Borrower or the Subsidiary, as the case may be, together with:
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<PAGE> 61
(a) where required by applicable state law, a
separate environmental indemnity agreement;
(b) to the extent requested by the Agent, an ALTA
loan title insurance policy (or marked-up title insurance
commitment) issued by a title company reasonably acceptable to
the Agent with respect to such parcels and any access or
similar easements appurtenant thereto specified by the Agent,
which policy or commitment shall (i) insure the priority of
such mortgage or deed of trust as a valid and enforceable
first lien, subject only to Liens permitted by Section 6.1 and
such matters that are acceptable to the Agent in its
reasonable judgment, (b) contain such endorsements and
affirmative coverages as the Agent shall reasonably require,
including without limitation where available, comprehensive,
doing business, usury, tiein, last dollar, contiguity (if
appropriate) and revolving credit endorsements where
available, and (c) delete, where possible, any general survey
exception and/or provide affirmative coverage over any matter
that a current ALTA survey of such parcel would disclose;
(c) where available, a Phase I environmental audit
with respect to such parcel (and such further environmental
audits or evidence of the absence of hazardous wastes as the
Agent reasonably shall deem necessary), which audit must be
satisfactory in the Agent's sole discretion as to form and
substance, together with a reliance letter for the benefit of
Agent from the environmental consultant performing such audit;
(d) such Uniform Commercial Code financing
statements or statements of termination, release or partial
release with respect to the fixtures encumbered by such
mortgages as the Agent may reasonably require;
(e) such environmental disclosure documents,
mortgage tax affidavits or allocation statements, or such
other documents as the Agent may reasonably request; and
(f) evidence of insurance to the extent required by
the mortgages or deed of trust.
(4) Collateral Assignment of Lease duly executed by the
Borrower or the Subsidiary, as the case may be, (unless despite the
reasonable efforts of the Borrower or such Subsidiary, as the case may
be, such Collateral Assignment has not been consented to by the
landlord,
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<PAGE> 62
where such consent is required by such lease) together with:
(a) such financing statements as the Agent shall
reasonably request as necessary to perfect the Agent's
security interest in all Fixtures and leasehold improvements
duly executed by the Borrower or such Subsidiary, as the case
may be;
(b) Landlord's Consent executed by the landlord
thereof (unless despite the reasonable efforts the Borrower or
such Subsidiary, as the case may be, such Landlord's Consent
cannot be obtained or unless otherwise waived by the Agent),
which Landlord's Consent, if any, shall be delivered to the
Agent; and
(c) such other documentation as shall be necessary in
the reasonable determination of the Agent to effect the
assignment of the rights, title and interest of the Borrower
or such Subsidiary, as the case may be, in and to such leased
real property.
SECTION 5.15. Further Assurances. Promptly upon request by
the Agent or the Required Lenders, the Borrower shall (and shall cause any of
its Subsidiaries to) do, execute, acknowledge where necessary, deliver, record,
re-record, file, re-file, register and re-register, any and all such further
acts, deeds, conveyances, security agreements, mortgages, assignments, estoppel
certificates, financing statements and continuations thereof, termination
statements, notices of assignment, transfers, certificates, assurances and
other instruments as the Agent or such Required Lenders, as the case may be,
may reasonably require from time to time in order (i) to carry out more
effectively the intent and purposes of this Agreement or any other Collateral
Document, (ii) to subject to the Liens created by any of the Collateral
Documents any of the properties, rights or interests covered by any of the
Collateral Documents, and (iii) to perfect and maintain the validity,
effectiveness and priority of any of the Collateral Documents and the Liens
intended to be created thereby.
ARTICLE VI
NEGATIVE COVENANTS
From and after the date hereof, so long as any of the Notes
shall remain unpaid or any Lender shall have any Commitment under this
Agreement or any Letter of Credit remains outstanding or any LC Obligations
remain unpaid, the Borrower will not:
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<PAGE> 63
SECTION 6.1. Liens. Create, incur, assume, or suffer to
exist, or permit any Subsidiary to create, incur, assume, or suffer to exist
(unless failure to so permit would constitute a breach of fiduciary duty), any
Lien upon or with respect to any of its properties, now owned or hereafter
acquired, except:
(1) Liens in existence on the Restatement Effective Date and
described in Schedule 6.1;
(2) As to property which is Collateral, any Liens in favor
of the Agent arising under the Collateral Documents;
(3) Liens securing obligations of a Subsidiary to the
Borrower or a Wholly-Owned Subsidiary;
(4) Liens for taxes or assessments or other government
charges or levies if not yet due and payable or, if due and payable,
if they are being contested in good faith by appropriate proceedings
and for which appropriate reserves are maintained;
(5) Liens imposed by law, such as mechanics', repairmen's,
materialmen's, landlords', warehousemen's, and carriers' Liens, and
other similar Liens, securing obligations incurred in the ordinary
course of business which are not past due for more than thirty (30)
days or which are being contested in good faith by appropriate
proceedings and for which appropriate reserves have been established;
(6) Liens under workmen's compensation, unemployment
insurance, social security, or similar legislation;
(7) Liens, deposits, or pledges to secure the performance of
bids, tenders, contracts (other than contracts for the payment of
money), leases (permitted under the terms of this Agreement), public
or statutory obligations, surety, stay, appeal, indemnity, performance
or other similar bonds, or other similar obligations arising in the
ordinary course of business;
(8) Judgment and other similar Liens arising in connection
with court proceedings, provided, that the execution or other
enforcement of such Liens is effectively stayed and the claims secured
thereby are being actively contested in good faith and by appropriate
proceedings;
(9) Easements, rights-of-way, restrictions, and other similar
encumbrances which, in the aggregate, do not materially interfere with
the occupation, use, and
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<PAGE> 64
enjoyment by the Borrower or any Subsidiary of the property or assets
encumbered thereby in the normal course of its business or materially
impair the value of the property subject thereto;
(10) Liens securing Debt of the types permitted by Clauses
(6) of Section 6.2;; and
(11) Purchase money Liens on any property owned or hereafter
acquired or the assumption of any Lien on property existing at the
time of such acquisition, or a Lien incurred in connection with any
conditional sale or other title retention agreement or a Capital
Lease, provided, that:
(a) Any property subject to any of the foregoing is
acquired by the Borrower or any Subsidiary in the ordinary
course of its respective business and the Lien on any such
property is created contemporaneously with or prior to such
acquisition;
(b) The obligation secured by any Lien so created,
assumed, or existing shall not exceed ninety percent (90%) of
the lesser of cost or fair market value as of the time of
acquisition of the property covered thereby to the Borrower or
Subsidiary acquiring the same;
(c) Each such Lien shall attach only to the property so
acquired and fixed improvements thereon; and
(d) The Debt of the Borrower which is secured by
such Liens plus the Debt of all Subsidiaries secured by such
Liens arising after such Persons become Subsidiaries shall not
exceed at any time outstanding in the aggregate $500,000;
and the Agent shall promptly execute and deliver to the Borrower all
documents reasonably requested by the holder of such purchase money
Lien in order to release any existing Liens in favor of the Agent on
any assets to be subject to such purchase money Lien.
SECTION 6.2. Debt. Create, incur, assume, or suffer to
exist, or permit any Subsidiary to create, incur, assume, or suffer to exist,
any Debt, except:
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<PAGE> 65
(1) Debt of the Borrower under this Agreement or the Notes;
(2) Debt described in Schedule 6.2, but no renewals,
extensions, or refinancings thereof;
(3) Accounts payable to trade creditors for goods or services
which are not aged more than ninety (90) days from billing date
incurred in the ordinary course of business and paid within the
specified time, unless contested in good faith and by appropriate
proceedings;
(4) Debt of any Subsidiary to the Borrower provided such Debt
complies with any applicable requirements set forth in Section 6.8;
(5) Debt of the Borrower arising with respect to Borrower's
commitment to provide funds to any Financed Franchisee or to any
Financed Subsidiary so long as such commitment to provide funds
complies with the requirements set forth in Section 6.8;
(6) Debt which constitutes indebtedness for borrowed money
owed by a Financed Franchisee to a Person other than the Borrower
which indebtedness is in existence on the date such Financed
Franchisee becomes a Financed Subsidiary, and any renewal, extension
or refinancing of such Debt, provided, that as of and after giving
effect to such Financed Franchisee becoming a Financed Subsidiary no
Default or Event of Default shall exist or be continuing, and provided
further, that the outstanding principal amount of such Debt shall at
no time exceed the principal amount of such Debt outstanding on the
date such Financed Franchisee becomes a Financed Subsidiary;
(7) Debt which is secured by Liens of the type described in
Clause (11) of Section 6.1;
(8) Debt of the type permitted by Sections 6.4 and 6.9;
(9) the BCI Subordinated Debt, the 2004 Subordinated Debt and
other Subordinated Debt, provided, that (a) after giving effect to the
incurrence of such Subordinated Debt, no Default or Event of Default
shall exist or be continuing and (b) if such Subordinated Debt had
been incurred on the last day of the most recent fiscal period for
which financial statements have been delivered to the Agent pursuant
to Section 5.8(2) or (3), no Default or Event
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<PAGE> 66
of Default arising under Article VII would have existed;
(10) Debt incurred in connection with Hedging Agreements
entered into by the Borrower or any Subsidiary;
(11) The Debt described as item 8 on Schedule 4.14, provided,
that such Debt may only be repaid (a) by the issuance of common stock
of the Borrower or (b) in cash if after the Restatement Effective Date
but prior to such payment the Borrower has received in cash marketing
support funds from its vendors in an aggregate amount of not less than
the principal amount of such Debt; and
(12) Unsecured Debt not of the type described in the
foregoing Clauses (1) through (11) in an aggregate principal amount
not to exceed at any one time $2,500,000.
SECTION 6.3. Mergers, Etc. Merge or consolidate with, or
sell, assign, lease, liquidate, dissolve or otherwise dispose of (whether in
one transaction or in a series of transactions) all or substantially all of its
assets (whether now owned or hereafter acquired) to any Person, or acquire all
or substantially all of the assets or the business of any Person, or permit any
Subsidiary to do so, except that:
(1) any Subsidiary may merge into or consolidate with or
transfer assets to the Borrower or a Wholly-Owned Subsidiary,
provided, that in the case of a Subsidiary which is a Special Purpose
Subsidiary the only assets of the Subsidiary so merged, consolidated
or transferred shall be assets of the type permitted pursuant to the
definition of "Special Purpose Subsidiary";
(2) any Wholly-Owned Subsidiary may be dissolved;
(3) the Borrower or any Subsidiary may acquire all or
substantially all of the assets or the business of any Person,
provided that in the case of a Special Purpose Subsidiary the only
assets so acquired shall be of a type permitted pursuant to the
definition of "Special Purpose Subsidiary", and provided further, that
as of and after giving effect to such acquisition no Default or Event
of Default shall exist or be continuing;
(4) the Borrower may acquire capital stock, partnership units
or other equity interests of a Financed Franchisee or a Subsidiary in
compliance with Clause (2) of Section 6.8; and
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<PAGE> 67
(5) any Financed Subsidiary may merge into or consolidate
with or transfer assets to any other Financed Subsidiary.
SECTION 6.4. Leases. Create, incur, assume, or suffer to
exist, or permit any Subsidiary to create, incur, assume, or suffer to exist,
any obligation as lessee for the rental or hire of any real or personal
property, except:
(1) operating leases of personal property and Capital Leases
which do not give rise to any Lien except those permitted by Section
6.1 and leases which would be Capital Leases except that because of
their immateriality GAAP does not require them to be capitalized on
the books of the lessee;
(2) leases existing on the date of this Agreement and any
extensions or renewals thereof;
(3) any leases of real property entered into after the
Effective Date on which the Borrower or a Franchisee operates or plans
to operate a Store or which the Borrower or any Subsidiary uses or
intends to use for office space, commissary or production facilities
or similar purposes; provided, that (a) subject to the provisions of
Clauses (1) and (2) of Section 5.15, with respect to any leases to
which the Borrower or any Subsidiary is a party and the term of which
exceeds six months, the Borrower or such Subsidiary, as the case may
be, shall have theretofore delivered to the Agent each of the
documents set forth in Clause (4) of Section 5.15 and (b) within one
year from the rent commencement date for such lease, the Borrower or a
Franchisee shall be operating a Store, office, commissary or
production facility on the premises covered by such lease unless the
operation of such Store is delayed due to local zoning, licensing or
permitting issues, acts of God or other matters which are not within
the control of the Borrower or Franchisee, as the case may be; and
(4) leases between the Borrower and any Subsidiary or between
any Subsidiaries.
SECTION 6.5. Sale and Leaseback. Sell, transfer, or
otherwise dispose of, or permit any Subsidiary to sell, transfer, or otherwise
dispose of, any real or personal property or fixtures to any Person and
thereafter directly or indirectly lease back the same or similar property.
SECTION 6.6. Dividends. Declare or pay, or permit any of its
Subsidiaries (other than any of its Wholly-Owned
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Subsidiaries) to declare or pay, any dividends; or purchase, redeem, retire, or
otherwise acquire for value any of its capital stock now or hereafter
outstanding; or make any distribution of assets to its stockholders as such
whether in cash, assets, or obligations of the Borrower; or allocate or
otherwise set apart any sum for the payment of any dividend or distribution on,
or for the purchase, redemption, or retirement of, any shares of its capital
stock; or make any other distribution by reduction of capital or otherwise in
respect of any shares of its capital stock; or permit any of its Subsidiaries
to do any of the foregoing or to purchase or otherwise acquire for value any
stock of the Borrower or another Subsidiary (other than a Wholly-Owned
Subsidiary); except that (i) the Borrower may declare and deliver dividends and
make distributions payable solely in capital stock of the Borrower, (ii) any
Subsidiaries of the Borrower may redeem shares of its capital stock held by a
shareholder (other than the Borrower) solely in exchange for the cancellation
of Debt owed by such shareholder to such Subsidiary, (iii) the Borrower may
purchase from any Financed Subsidiary capital stock of the Borrower required to
be delivered to optionees under stock option plans of such Financed Subsidiary
assumed by the Borrower for a purchase price not to exceed the exercise price
of such options, such price to be payable solely by cancellation of Debt of the
Financed Subsidiary to the Borrower, and (iv) any Subsidiary of the Borrower
which is organized in a form which requires it to pass through its income and
losses to its equity holders for Federal income tax purposes may declare and
pay dividends in amounts not to exceed its Permitted Tax Distributions,
provided, that both before and after giving effect to such Permitted Tax
Distribution no Default or Event of Default shall have occurred and be
continuing. For the purposes of this Section 6.6, "Permitted Tax Distribution"
means, with respect to any Subsidiary for any taxable year, the maximum
aggregate amount of Federal and applicable state taxes which would be payable
for such taxable year by the shareholders of such Subsidiary with respect to
income or losses of such Subsidiary calculated at the maximum Federal and
applicable state income tax rates then in effect, without reference to the
actual income tax returns of such shareholders.
SECTION 6.7. Sale of Assets. Sell, lease, assign, transfer,
or otherwise dispose of, or permit any Subsidiary to sell, lease, assign,
transfer, or otherwise dispose of, any of its now owned or hereafter acquired
assets (including, without limitation, shares of stock and indebtedness of
Subsidiaries, receivables, and leasehold interests), except:
(1) for assets sold, leased, assigned, transferred or
otherwise disposed of in the ordinary course of business;
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<PAGE> 69
(2) for the sale or other disposition of assets no longer
used or useful in the conduct of its business;
(3) that (a) the Borrower may convey to Noah's New York
Bagels, Inc. a ninety-nine percent participating interest in the Debt
of Noah's Pacific, L.L.C. evidenced by the Financed Franchisee Loan
Documents executed by Noah's Pacific, L.L.C. in favor of the Borrower
and (b) any Subsidiary may sell, lease, assign, or otherwise transfer
its assets to the Borrower or any Wholly-Owned Subsidiary unless in
the case of a Subsidiary which is a Special Purpose Subsidiary, such
assets are not of a type permitted pursuant to the definition of
"Special Purpose Subsidiary";
(4) that the Borrower or any Subsidiary may sell, lease,
assign or otherwise transfer to a Franchisee any real property,
leasehold interests or personal property associated with the operation
of Stores, offices, commissaries or production facilities; provided
that such sale, lease, assignment or transfer is on commercially
reasonable terms negotiated at arms' length and that after giving
effect to such sale, lease, assignment or transfer no Default or Event
of Default shall exist or be continuing;
(5) for any issuances or sales of the capital stock,
partnership units or other equity interests of any Subsidiary or other
Person permitted pursuant to Section 6.11;
(6) for other dispositions by the Borrower or any Subsidiary
not of the type described in the foregoing Clauses (1) through (5)
provided that the aggregate amount of all such dispositions shall not
exceed $1,000,000 during the term of this Agreement and the net
proceeds of such dispositions are applied pursuant to Section 2.8(2);
and
(7) the Borrower may sell the BCI Exempted Stock and the BCI
Control Stock in accordance with Clause (5) of Section 6.8;
and in the case of any such sale, assignment, transfer or other disposition of
title, the Agent shall promptly execute, at the Borrower's expense, all
documents reasonably necessary to release any Lien in favor of the Agent on the
disposed assets.
SECTION 6.8. Investments. Make, or permit any Subsidiary to
make, any loan or advance to any Person, or
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<PAGE> 70
purchase or otherwise acquire, or permit any Subsidiary to purchase or
otherwise acquire, any capital stock, obligations, or other securities of, make
any capital contribution to, or otherwise invest in or acquire any interest in
any Person except:
(1) loans and advances made by the Borrower to (a) Financed
Franchisees; provided, that (i) the initial loans or advances to any
Financed Franchisee are or have been made pursuant to Financed
Franchisee Loan Documents in which the Agent for the benefit of the
Lenders shall have been granted a security interest pursuant to, and
which Financed Franchisee Loan Documents are subject to the terms of,
the Collateral Assignment of Loan, (ii) such loans or advances are
evidenced by promissory notes duly pledged to the Agent under the
Pledge Agreement, (iii) all such loans and advances to Financed
Franchisees shall be secured in the manner described in paragraph (3)
of Schedule 1.1(A), (iv) all Liens in favor of the Borrower securing
such loans and advances are duly perfected within 30 days of the
initial loan or advance to such Financed Franchisee, and (v) the
aggregate principal amount of all loans and advances made by the
Borrower to any Financed Franchisee under the Financed Franchisee Loan
Documents shall not exceed at any time an amount equal to the products
of four (4) multiplied by the aggregate amount of all capital
contributions theretofore made to such Financed Franchisee; (b)
Financed Subsidiaries; provided, that (i) such loans and advances are
made pursuant to Financed Subsidiary Loan Documents in which the Agent
for the benefit of the Lenders shall have been granted a security
interest pursuant to, and which Financed Subsidiary Loan Documents are
subject to the terms of, the Collateral Assignment of Loan, (ii) such
loans or advances are evidenced by promissory notes pledged to the
Agent for the benefit of the Lenders pursuant to the Pledge Agreement
and (iii) all Liens in favor of the Borrower securing such loans and
advances are duly perfected prior to the initial loan or advance
thereunder and which Liens shall be assigned to the Agent for the
benefit of the Lenders following the written request of the Agent to
the Borrower which request may be made at any time; and (c)
Guarantors; provided, that such loans and advances are evidenced by
promissory notes pledged to the Agent for the benefit of the Lenders
pursuant to the Pledge Agreement;
(2) the acquisition by the Borrower of the capital stock,
partnership units or other equity interests of any Financed
Franchisees, Financed Subsidiaries or Subsidiary; provided, that (a)
in the case of a
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<PAGE> 71
Financed Franchisee such Financed Franchisee is not then in default of
any payment amount in aggregate in excess of $50,000 to the Borrower
under the respective Financed Franchisee Loan Documents and (b) as of
and after giving effect to such acquisition no Default or Event of
Default shall exist or be continuing;
(3) loans and advances made by the Borrower to an employee,
which loans and advances need not be pledged to the Agent pursuant to
the Pledge Agreement; provided, that such loans and advances are (a)
consistent with past practices and (b) do not exceed an aggregate
principal amount at any one time outstanding of $100,000 with respect
to such employee or of $250,000 with respect to all employees of the
Borrower;
(4) strategic investments consisting of purchases or other
acquisitions of capital stock, obligations or other securities of any
Person or capital contributions to or other investments or
acquisitions of any interest in any Person made by the Borrower solely
in exchange for its capital stock, as approved by the Board of
Directors of the Borrower, provided, that such strategic investments
are reasonably related to the Borrower's existing business at the time
of such investment;
(5) the acquisition of BCI Exempted Stock and BCI Control
Stock provided such stock is not owned for more than fifteen (15)
Business Days;
(6) direct obligations of (or obligations fully guaranteed or
insured by) the United States or any agency thereof with maturities of
one year or less from the date of acquisition held in accounts
maintained with any Lender;
(7) certificates of deposit with maturities of one year or
less from the date of acquisition issued by any commercial bank having
capital and surplus in excess of One Hundred Million Dollars
($100,000,000) held in accounts maintained with any Lender;
(8) commercial paper and variable and fixed rate notes issued
by any commercial bank having capital and surplus in excess of One
Hundred Million Dollars ($100,000,000) held in accounts maintained
with any Lender;
(9) commercial paper and variable rate notes issued by, or
guaranteed by, any industrial or financial company with a short term
commercial paper
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<PAGE> 72
rating of at least A-2 or the equivalent thereof by Standard & Poor's
Corporation or at least P-2 or the equivalent thereof by Moody's
Investors Service, Inc., and in each case maturing within one year
after the date of acquisition held in accounts maintained by any
Lender;
(10) stock, obligations, or securities received in settlement
of debts (created in the ordinary course of business) owing to the
Borrower or any Subsidiary;
(11) unsecured loans or advances made by any Subsidiary to the
Borrower;
(12) loans or advances not otherwise permitted by the
foregoing Clauses (1) through (11) in an aggregate principal amount
not to exceed at any one time $1,500,000; and
(13) (a) the Borrower may make a capital contribution to
Noah's New York Bagels, Inc. of the participating interest described
in Clause (3)(a) of Section 6.7, (b) Noah's New York Bagels, Inc. may
fund its obligations to the Borrower from time to time with respect to
the participating interest described in Clause (3)(a) of Section 6.7
and (c) the Borrower may make capital contributions from time to time
to Noah's New York Bagels, Inc. to permit Noah's New York Bagels, Inc.
to fund its obligations referenced in the immediately preceding Clause
(12)(b).
SECTION 6.9. Guaranties, Etc. Assume, guarantee, endorse, or
otherwise be or become directly or contingently responsible or liable, or
permit any Subsidiary to assume, guarantee, endorse, or otherwise be or become
directly or contingently responsible or liable for obligations of any Person
(including, but not limited to, an agreement to purchase any obligation, stock,
assets, goods, or services primarily for the purpose of enabling such Person to
make payment of such obligations, or to supply or advance any funds, assets,
goods, or services primarily for such purpose, or to maintain or cause such
Person to maintain a minimum working capital or net worth, or otherwise to
assure the creditors of any Person against loss), except:
(1) guaranties by endorsement of negotiable instruments for
deposit or collection or similar transactions in the ordinary course
of business;
(2) guaranties in existence on the Restatement Effective Date
and described in Schedule 6.9;
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<PAGE> 73
(3) primary liability for leases transferred to Financed
Franchisees in accordance with Clause (4) of Section 6.7;
(4) other guaranties of the lease payments of Franchisees and
guaranties of Franchisee's liabilities arising under Hedging
Agreements to which such Franchisee is a party, provided, that as of
the date such guaranty is issued and after giving effect to such
guaranty, the sum of the aggregate amount of payments due under all
such leases described in this Clause (4) during the twelvemonth
period succeeding such date plus 20% of the aggregate notional amount
as of such date of all such Hedging Agreements shall not exceed
$1,000,000; and
(5) guaranties of Debt permitted solely by Clauses (10) and
(12) of Section 6.2.
SECTION 6.10. Transactions With Affiliate. Enter into any
transaction, including, without limitation, the purchase, sale, or exchange of
property or the rendering of any service, with any Financed Franchisee or
Affiliate, or permit any Subsidiary to enter into any transaction, including,
without limitation, the purchase, sale, or exchange of property or the
rendering of any service, with any Financed Franchisee or Affiliate, except
pursuant to the reasonable requirements of the Borrower's or such Subsidiary's
business and upon fair and reasonable terms not materially less favorable to
the Borrower or such Subsidiary than similar transactions entered into with a
Person not a Financed Franchisee or Affiliate; provided that, the foregoing
shall not prohibit any transaction effected in accordance with the respective
Financed Franchisee Loan Documents or the respective Financed Subsidiary Loan
Documents.
SECTION 6.11. Subsidiary, Etc.
(1) Create, acquire or otherwise permit to exist any
Subsidiaries other than: (a) Special Purpose Subsidiaries; (b) Financed
Subsidiaries; (c) Wholly-Owned Subsidiaries acquired in conformity with Section
6.8; provided, that (x) the equity interests owned directly or indirectly by
the Borrower are pledged to the Agent for the benefit of the Lenders pursuant
to the Pledge Agreement and (y) each such Subsidiary shall have executed
Guaranties in favor of the Agent and, subject to Clause (2) of Section 5.15,
shall have granted to the Agent for the benefit of the Lenders a perfected
security interest in all of such Subsidiary's assets pursuant to such
Collateral Documents as may be reasonably required by the Agent;
(2) Sell or otherwise dispose of any shares of the capital
stock, partnership units or other equity interests of any
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<PAGE> 74
Subsidiary or other Person or permit any Subsidiary to issue any additional
shares of its capital stock, partnership units or other equity interest, other
than: (a) in connection with stock splits, stock dividends or similar
issuances, (b) directors qualifying shares, (c) shares, partnership units or
other units issued (i) for fair consideration, (ii) to the Borrower upon
exercise of the Borrower's conversion rights, options, first refusal rights or
preemptive rights provided in the Financed Franchisee Loan Documents or
otherwise, or (iii) to employees of such Subsidiary upon exercise of employee
stock, unit or other equity options; provided, that in the case of the
foregoing Clause (c)(iii), at the time such options are granted the exercise
price is not less than the fair market value of such stock, unit or other
equity interest and, provided, further that after giving effect to the issuance
of stock, units or other equity interest upon exercise of such options, the
issuer would continue to be a Subsidiary, or (d) pursuant to a merger of one
Subsidiary into another Subsidiary that would be permitted under Section 6.3.
SECTION 6.12. Real Property. Purchase or otherwise acquire,
or permit any Subsidiary to purchase or otherwise acquire, title to any real
property (excluding leasehold improvements) without the prior written consent
of the Required Lenders, except that (1) the Borrower, any Financed Subsidiary
or any Special Purpose Subsidiary may purchase or acquire real property on
which Stores, offices, commissaries or production facilities are to be
operated, (2) the Borrower or any Subsidiary may purchase or acquire real
property to be used for office space or similar purposes, and (3) the Borrower,
any Financed Subsidiary and any Special Purpose Subsidiary may purchase or
acquire real property in connection with an acquisition permitted pursuant to
Clause (3) of Section 6.3; provided, that in each case, (i) subject to the
provisions of Clauses (1) and (2) of Section 5.15, concurrently with such
acquisition, the Agent shall have received each of the documents set forth in
Clause (3) of Section 5.15 and (ii) at no time shall the book value of all real
property owned by the Borrower on a consolidated basis (less the book value of
any leasehold improvements thereon) exceed an aggregate amount equal to one
percent (1%) of the Borrower's then total consolidated assets.
SECTION 6.13. Financed Franchisee Loan Documents. Amend,
modify or otherwise waive in any respect the terms, conditions or provisions of
any Financed Franchisee Loan Document if but for such amendment, modification
or waiver and any previous amendments, modifications or waivers, the Financed
Franchisee party to such Financed Franchisee Loan Documents would have
outstanding payment defaults aggregate in excess of $50,000 thereunder or if
such amendment, modification or waiver would otherwise cause such documents to
no longer meet each of the requirements set forth on Schedule 1.1(A).
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<PAGE> 75
SECTION 6.14. Subordinated Debt. Make any payment or
prepayment with respect to any Subordinated Debt, except that (i) interest may
be paid on Subordinated Debt to the extent permitted by the terms of such
Subordinated Debt (including without limitation the BCI Subordination Agreement
or the 2004 Indenture if applicable), including without limitation the
subordination provisions thereof, and (ii) prior to an Event of Default,
Subordinated Debt and interest thereon may be converted into equity of the
Borrower or may be prepaid solely from the proceeds of a substantially
contemporaneous issuance of equity or Subordinated Debt of the Borrower;
provided, that within fifteen (15) Business Days of the receipt of any BCI
Exempted Stock, the Borrower may prepay principal of the BCI Subordinated Debt
by an amount equal to the net cash proceeds received from the disposition of
such BCI Exempted Stock.
SECTION 6.15. Use of Proceeds; Margin Regulations. Use (or
suffer or permit any Subsidiary to use) any portion of the Loan proceeds or any
Letter of Credit, directly or indirectly, (i) to purchase or carry Margin
Stock, (ii) to repay or otherwise refinance indebtedness of the Borrower or
others incurred to purchase or carry Margin Stock, (iii) to extend credit for
the purpose of purchasing or carrying any Margin Stock, or (iv) to acquire any
security in any transaction that is subject to Section 13 or 14 of the
Securities Exchange Act of 1934, and regulations promulgated thereunder. The
proceeds of the Loans and the Letters of Credit are to be used solely for the
purposes set forth in and permitted by Section 2.10.
SECTION 6.16. Take or Pay Contracts. Enter, and will not
permit any of its Subsidiaries to enter, into or be a party to any arrangement
for the purchase of materials, supplies, other property or services if such
arrangement by its express terms requires that payment be made by the Borrower
or such Subsidiary regardless of whether such materials, supplies, other
property or services are delivered or furnished to it.
SECTION 6.17. Credit Agreement Payments. Except as expressly
permitted hereby, at any time after the Restatement Effective Date make any
direct payment with respect to the Loans or the Commitments (including, without
limitation, any fees or commissions thereon) to any Person other than the Agent
without the consent of the Agent.
ARTICLE VII
FINANCIAL COVENANTS
From and after the date hereof, so long as any of the Notes
shall remain unpaid or any Lender shall have any Commitment
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<PAGE> 76
under this Agreement or any Letter of Credit remains outstanding or any LC
Obligations remain unpaid, the Borrower will:
SECTION 7.1. Net Store Revenue. Maintain as of the last day
of each fiscal quarter, an average weekly net revenue (i.e., gross revenue net
of customer coupons and discounts) during such fiscal quarter per Store for all
Stores (whether operated by the Borrower or a Franchisee) of not less than the
amount set forth below opposite such fiscal period:
<TABLE>
<CAPTION>
Fiscal Quarter/Year Covenant Level
------------------- --------------
<S> <C>
4th/1997, 1st/1998 $12,000
2nd, 3rd/1998 $12,300
4th/1998, 1st/1999 $12,600
2nd, 3rd, 4th/1999 and
1st/2000 $13,000
2nd/2000 $13,200
Thereafter $13,500
</TABLE>
SECTION 7.2. Senior Indebtedness to System EBITDAL. Maintain
as of the last day of each fiscal quarter of the Borrower occurring during the
fiscal periods set forth below, a ratio of (1) Senior Indebtedness as of such
date to (2) Annualized System EBITDAL for such fiscal quarter (the "Cash Flow
Ratio") of not greater than the ratio set forth below opposite the respective
fiscal period:
<TABLE>
<CAPTION>
Fiscal Quarter/Year Covenant Level
------------------- --------------
<S> <C>
2nd and 3rd/1998 2.50:1.00
4th/1998 2.25:1.00
fiscal 1999 2.00:1.00
fiscal 2000 1.75:1.00
</TABLE>
SECTION 7.3. Total Overhead. Maintain, as of the last day of
each fiscal quarter set forth below, a Combined Overhead of not greater than
the amount set forth below opposite such fiscal quarter:
<TABLE>
<CAPTION>
Fiscal Period(s) Covenant Level
---------------- --------------
<S> <C>
Q4/1997 $16,000,000
Q1/1998 $14,000,000
</TABLE>
SECTION 7.4. Proforma Store Fixed Charge Coverage Ratio.
Maintain, as of the last day of each fiscal quarter occurring during the
respective fiscal periods set forth below, a ratio of (1) Annualized Store
EBITDAL for such fiscal quarter to (2) Proforma Fixed Charges as of such date,
of not less than the ratio set forth below opposite such fiscal period:
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<PAGE> 77
<TABLE>
<CAPTION>
Fiscal Period(s) Covenant Level
---------------- --------------
<S> <C>
Q4/1997 2.25:1.00
Q1/1998 2.75:1.00
Q2/1998 3.25:1.00
</TABLE>
SECTION 7.5. Proforma System Fixed Charge Coverage Ratio.
Maintain, as of the last day of each fiscal quarter occurring during the
respective fiscal periods set forth below, a ratio of (1) Annualized System
EBITDAL for such fiscal quarter to (2) Proforma Fixed Charges, as of such date,
of not less than the ratio set forth below opposite such fiscal period:
<TABLE>
<CAPTION>
Fiscal Period(s) Covenant Level
---------------- --------------
<S> <C>
Q3/1998 1.50:1.00
Q4/1998 1.75:1.00
Q1 Q4 1999 2.00:1.00
Q1 Q4 2000 3.00:1.00
</TABLE>
ARTICLE VIII
EVENTS OF DEFAULT
SECTION 8.1. Events of Default. If any of the following
events ("Events of Default") shall occur:
(1) The Borrower should fail to pay (a) the principal of, or
interest or fee on, the Notes as and when due and payable and in the
case of interest or fees such failure shall continue for two (2)
Business Days or (b) any reimbursement obligation, interest or fee
with respect to any LC Obligation which is not satisfied by a deemed
disbursement of a Floating Rate Revolving Loan or otherwise as
provided under Section 2.9A and such failure shall continue for seven
(7) Business Days;
(2) Any representation or warranty made or deemed made
(pursuant to Sections 3.2(1)(a) or 5.8(6)) by the Borrower in this
Agreement or any other Loan Document or which is contained in any
certificate, document, opinion, or financial or other statement
furnished at any time under or in connection with any Loan Document
shall prove, in light of the circumstances under which it was made, to
have been incorrect in any material respect on or as of the date made
or deemed made;
(3) The Borrower or any Subsidiary shall fail to perform or
observe any term, covenant or agreement contained in Sections 2.3A,
6.3, 6.6, 6.9, 6.10, 6.12, 6.13, and 6.14 of this Agreement applicable
thereto;
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<PAGE> 78
(4) The Borrower or any Subsidiary shall fail to perform or
observe any term, covenant or agreement contained in Sections 6.1,
6.2, 6.5, 6.7, 6.8, 6.11, 7.1 through 7.5, 10.6 or 10.12 of this
Agreement and such failure shall continue for four (4) Business Days
after the earlier of discovery, notification or final calculation
thereof applicable thereto;
(5) The Borrower or any Subsidiary shall fail to perform or
observe any other term, covenant, or agreement contained in any Loan
Document applicable thereto (other than the Notes and those Sections
referenced in the foregoing Clauses (3) and (4)) on its part to be
performed or observed and such failure shall continue for fifteen (15)
Business Days following notice thereof from the Agent or the Required
Lenders;
(6) the Borrower or any Subsidiary shall (a) fail to make any
payment of principal, interest, premium, rents or fees with respect to
any indebtedness for borrowed money (other than the Notes) of the
Borrower or such Subsidiary in an amount in excess of $100,000, 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 indebtedness for borrowed money (other
than the Notes) of the Borrower or such Subsidiary in an amount in
excess of $500,000, 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, unless such failure to perform or observe shall
be waived by the holder of such indebtedness or Financial Lease Debt
without any material payment or other material accommodation on the
part of the Borrower or such Subsidiary; or any such indebtedness or
Financial Lease Debt shall be declared to be due and payable, or
required to be prepaid (other than by a regularly scheduled required
prepayment), prior to the stated maturity thereof;
[(7) THIS CLAUSE IS INTENTIONALLY RESERVED]
(8) The Borrower or any of its Significant Subsidiaries (a)
shall generally not, or shall be unable to, or shall admit in writing
its inability to pay its debts as such debts become due; or (b) shall
make an assignment for the benefit of creditors, petition or apply to
any tribunal for the appointment
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<PAGE> 79
of a custodian, receiver, or trustee for it or a substantial part of
its assets; or (c) shall 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; or (d) shall 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 sixty (60) days or more;
or (e) by any act or omission shall indicate its consent to, 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 (f) shall suffer any such custodianship, receivership,
or trusteeship to continue undischarged for a period of sixty (60)
days or more (the foregoing Events of Defaults set forth in this
Section 8.1(8) with respect to any Subsidiary, each a "Subsidiary
Default");
(9) Any Financed Franchisee shall fail to pay any sum owed to
the Borrower in connection with indebtedness for borrowed money
(including any interest or premium thereon) in an aggregate amount in
excess of $250,000 when due (whether by scheduled maturity, required
prepayment, acceleration, demand, or otherwise) and any
applicable grace period shall have expired;
(10) The Borrower shall fail to perform or observe any term,
covenant or agreement contained in Article VII of this Agreement as of
the end of the most recent fiscal period for which financial statements
have been delivered to the Lenders pursuant to Section 5.8(2) or (3),
as adjusted to reflect any loss, reserve, writeoffs or contingency for
any event described in this Section 8.1(10), as calculated on a
preliminary basis as of no later than the fifth Business Day following
the occurrence of any of the following events: Any Financed Franchisee
(a) shall generally not, or shall be unable to, or shall admit in
writing its inability to pay its debts as such debts become due; or (b)
shall 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; or (c) shall
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; or
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<PAGE> 80
(d) shall 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 sixty (60) days or more; (e) by any act or
omission shall indicate its consent to, 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 (f)
shall suffer any such custodianship, receivership, or trusteeship to
continue undischarged for a period of sixty (60) days or more;
(11) One or more judgments, decrees, or orders for the
payment of money in excess of $100,000 in the aggregate shall be
rendered against the Borrower or any of its Subsidiaries, and such
judgments, decrees, or orders shall continue unsatisfied and in effect
for a period of twenty (20) consecutive days without being vacated,
discharged, satisfied, escrowed, stayed or bonded pending appeal;
(12) Any of the following events occur or exist with respect
to the Borrower or any ERISA Affiliate: (a) any Prohibited Transaction
involving any Plan; (b) any Reportable Event with respect to any Plan;
(c) the filing under Section 4041 of ERISA of a notice of intent to
terminate any Plan or the termination of any Plan; (d) any event or
circumstance that might reasonably constitute grounds entitling the
PBGC to institute proceedings under Section 4042 of ERISA for the
termination of, or for the appointment of a trustee to administer, any
Plan, or the institution by the PBGC of any such proceedings; (e)
complete or partial withdrawal under Section 4201 or 4204 of ERISA from
a Multiemployer Plan or the reorganization, insolvency, or termination
of any Multiemployer Plan; and in each case above, such event or
condition, together with all other events or conditions, if any, would
be reasonably likely in the opinion of the Agent to subject the
Borrower to any tax, penalty, or other liability to a Plan, a
Multiemployer Plan, the PBGC, or otherwise (or any combination thereof)
which in the aggregate exceed $100,000 and such event or condition
remains unsatisfied after fifteen (15) Business Days from its initial
occurrence or results in a Lien (subject to Liens permitted under
Section 6.1) on Borrower's assets;
(13) Any Guaranty shall, at any time after its execution and
delivery and for any reason cease to be
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in full force and effect or shall be declared null and void, or the
validity or enforceability thereof shall be contested by the
respective Subsidiary, or the respective Subsidiary shall deny it has
any further liability or obligation under or shall fail to perform its
material obligations under such Guaranty (subject to any applicable
grace periods set forth therein);
(14) The BCI Subordination Agreement shall, at any time after
its execution and delivery and for any reason cease to be in full force
and effect or shall be declared null and void, or the validity or
enforceability thereof shall be contested by BCI, or BCI shall deny it
has any further liability or obligation under or shall fail to perform
its material obligations under the BCI Subordination Agreement; or
(15) With respect to any Security Agreement, Trademark
Security Agreement, Pledge Agreement, Collateral Assignment of
Servicing Agreements or Collateral Assignment of Loan:
(a) any such Collateral Document shall for any
reason cease to be valid and binding on or enforceable against
the Borrower or any Subsidiary party thereto or the Borrower
or any Subsidiary shall so state in writing or bring an action
to limit its obligations or liabilities thereunder; or
(b) such Collateral Documents shall for any reason
(other than pursuant to the terms thereto) cease to create a
valid security interest in the Collateral purported to be
covered thereby or such security interest shall for any reason
cease to be a perfected and first priority security interest
subject only to Permitted Liens (other than as a result of a
release).
(16) There shall occur a Material Adverse Change; or
(17) There shall occur a Change of Control.
SECTION 8.2. Effect of Event of Default. If any Event of
Default described in Section 8.1(8) shall occur, automatically the Commitment
of each of the Lenders and the agreement of the Issuing Lender to issue Letters
of Credit hereunder shall immediately terminate and the outstanding principal
amount of the Notes, all interest thereon and all other amounts payable under
this Agreement and the other Loan Documents shall become immediately due and
payable; and, in the case of any other Event
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of Default, the Agent may (or shall, upon the written request of the Required
Lenders), by notice to the Borrower, (1) declare the Commitment of each of the
Lenders and the agreement of the Issuing Lender to issue Letters of Credit to
be terminated, and (2) declare the outstanding principal amount of the Notes,
all interest thereon, and all other amounts payable under this Agreement and
the other Loan Documents to be forthwith due and payable, whereupon the Notes,
all such interest, and all such amounts shall become and be forthwith due and
payable, without presentment, demand, protest, or further notice of any kind,
all of which are hereby expressly waived by the Borrower. The Agent shall
promptly notify each Lender of such declaration, but failure to notify the
Lenders shall not impair the effect of such declaration.
ARTICLE IX
THE AGENT
SECTION 9.1. Authorization and Action. Each Lender hereby
(subject to Section 9.6) appoints and authorizes the Agent to take such action
as agent on its behalf and to exercise such powers to the extent provided
herein or in any document or instrument delivered hereunder or in connection
herewith, together with such other action as may be reasonably incidental
thereto (including, without limitation, the execution and delivery of any
releases and other instruments which the Agent is hereby authorized and
obligated to make in connection with any Collateral that is sold or otherwise
disposed of by the Borrower in accordance with the express terms and conditions
of this Agreement and the other Loan Documents). As to matters not expressly
provided for by this Agreement (including, without limitation, enforcement or
collection of this Agreement or any Loan Document) the Agent shall not be
required to exercise any discretion, but shall be required to act or to refrain
from acting (and shall be fully protected in so acting or refraining from
acting) upon the instructions of the Required Lenders and such instructions
shall be binding upon all Lenders. Under no circumstances shall the Agent be
required to take any action which exposes the Agent to personal liability or
which is contrary to this Agreement or to the Loan Documents or applicable law.
SECTION 9.2. Liability of the Agent to the Lenders. Neither
the Agent nor any of its directors, officers, agents or employees shall be
liable to any Lender for any action taken or omitted to be taken by it or them
under or in connection with this Agreement and the Loan Documents, except for
its or their own gross negligence or willful misconduct. Without limiting the
generality of the foregoing, the Agent (1) may treat any Lender as such until
the Agent receives an executed Assignment Agreement
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entered into between a Lender and an Assignee pursuant to Section 10.5 hereof;
(2) may consult with legal counsel (including counsel for the Borrower),
independent public accountants and other experts or consultants selected by it;
(3) shall not be liable for any action taken or omitted to be taken in good
faith by the Agent in accordance with the advice of counsel, accountants,
consultants or experts; (4) makes no warranty or representation to any Lender
and shall not be responsible to any Lender for any recitals, statements,
warranties or representations, whether written or oral, made in or in
connection with this Agreement or the Loan Documents; (5) shall not have any
duty to ascertain or to inquire as to the performance or observance of any of
the terms, obligations, covenants or conditions of this Agreement on the part
of the Borrower or to inspect the property (including, without limitation, any
books and records) of the Borrower; provided, that with respect to the
foregoing the Agent shall use reasonable efforts to perform the duties of an
administrative agent under a credit agreement of similar content and form; (6)
shall not be responsible to any Lender for the due execution, legality,
validity, enforceability, genuineness, sufficiency or value of this Agreement,
any Loan Document, any support or security, or any other document furnished in
connection with any of the foregoing; and (7) shall incur no liability under or
in respect of this Agreement or any Loan Document by action upon any written
notice, statement, certificate, order, telephone message, facsimile or other
document which the Agent believes in good faith to be genuine and correct and
to have been signed, sent or made by the proper Person.
SECTION 9.3. Bank of America and Affiliates. With respect to
Loans made by it Letters of Credit issued by it, Bank of America shall have the
same rights and powers under this Agreement and the other Loan Documents as any
other Lender and may exercise the same as though it were not the Agent or the
Issuing Lender; and the term "Lender" or "Lenders" shall, unless otherwise
expressly indicated, include Bank of America in its individual capacities.
Bank of America and its Affiliates may accept deposits from, lend money to, act
as trustee under indentures of, and generally engage in any kind of business
with, the Borrower and any of its Subsidiaries and any Person who may do
business with or own securities of the Borrower or any such Subsidiary, all as
if Bank of America was not the Agent or the Issuing Lender and without any duty
to account therefor to the Lenders.
SECTION 9.4. Lender Credit Decision. Each Lender
acknowledges that it has, independently and without reliance upon the Agent or
any other Lender and based on the financial statements referred to in Section
4.4 and such other documents and information as it has deemed appropriate, made
its own credit analysis and decision to enter into this Agreement. Each Lender
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also acknowledges that it will, independently and without reliance upon the
Agent or any other Lender and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit decisions
in taking or not taking action under this Agreement.
SECTION 9.5. Indemnification. The Lenders agree to indemnify
the Agent (to the extent not reimbursed by the Borrower), ratably according to
their Percentages, from and against any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind or nature whatsoever which may be imposed on,
incurred by, or assessed against the Agent in any way relating to or arising
out of this Agreement or the other Loan Documents, or any action taken or
omitted by the Agent under this Agreement or the other Loan Documents;
provided, that no Lender shall be liable for any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements resulting from the Agent's gross negligence or
willful misconduct; and provided further, that no Lender shall be liable for
any portion of any outofpocket expenses incurred by Agent which would
otherwise be paid by the Borrower hereunder but for Agent's waiver of such
expenses. Without limiting any of the foregoing, each Lender agrees to
reimburse the Agent promptly upon demand for its Percentage of any
out-of-pocket expenses (including reasonable counsel fees) incurred by the
Agent in connection with the preparation, execution, delivery, administration,
modification, amendment, waiver or enforcement (whether through negotiations,
legal proceedings or otherwise) of, or legal advice in respect of rights or
responsibilities under this Agreement or any other Loan Document to the extent
that the Agent is not reimbursed for such expenses by the Borrower. All
obligations provided for in this Section 9.5 shall survive termination of this
Agreement.
SECTION 9.6. Successor Agent. The Agent may resign at any
time by giving written notice thereof to the Lenders and the Borrower and may
be removed at any time with or without cause by the Required Lenders upon
thirty (30) days' prior written notice to the Agent. Upon any such resignation
or removal, the Required Lenders shall have the right to appoint a successor
Agent (which Agent shall be approved by the Borrower, which approval shall not
be unreasonably withheld). If no successor Agent shall have been so appointed
by the Required Lenders, and shall have accepted such appointment within 30
days after the retiring Agent's giving of notice of resignation or the Required
Lenders' removal of the retiring Agent, then the retiring Agent may, on behalf
of the Lenders, appoint a successor Agent (which Agent shall be approved by the
Borrower, which approval shall not be unreasonably withheld) which shall be
either a Lender or a commercial bank having a combined capital and surplus of
at least $250,000,000. Upon the acceptance of any appointment as Agent
hereunder by a
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<PAGE> 85
successor Agent, such successor Agent shall thereupon succeed to and become
vested with all the rights, powers, privileges and duties of the retiring
Agent, and the retiring Agent shall be discharged from its duties and
obligations in its capacity as Agent under this Agreement. After any retiring
Agent's resignation or removal hereunder as Agent, the provisions of this
Section 9 shall inure to its benefit as to any actions taken or omitted to be
taken by it while it was Agent under this Agreement.
SECTION 9.7. Duties of the Co-Agent. Notwithstanding any
other provision contained in this Agreement to the contrary, neither the
Co-Agent nor any of its assignees, in the capacity as Co-Agent, shall have any
duties or obligations with respect to this Agreement or any of the other Loan
Documents.
ARTICLE X
MISCELLANEOUS
SECTION 10.1. Waivers and Amendments. The provisions of this
Agreement and of each of the other Loan Documents may from time to time be
amended, modified or waived, if such amendment, modification or waiver is in
writing and consented to by the Borrower and the Required Lenders, and then
such waiver or consent shall be effective only in the specific instance and for
the specific purpose for which given and; provided, further, that no such
amendment, modification or waiver:
(a) which would modify any requirement hereunder that any
particular action be taken by all Lenders or by the Required Lenders,
shall be effective without the consent of each Lender;
(b) which would modify this Section 10.1, change the
definition of "Required Lenders," change any Percentage for any Lender
(except pursuant to an assignment agreement), reduce any fees, extend
the Termination Date, or subject any Lender to any additional
obligations, shall be effective without the consent of each Lender;
(c) which would extend the due date for, or reduce the amount
of, any payment or prepayment of principal of or interest on any Loan
or any Letter of Credit Obligation, shall be effective without the
consent of each Lender;
(d) which would affect adversely the interests, rights or
obligations of the Agent (in such capacity), shall be effective
without consent of the Agent; or
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<PAGE> 86
(e) shall release any Subsidiary from its obligations under
its respective Guaranty.
Upon the effectiveness of any consent, amendment, modification or waiver under
this Agreement, the Agent shall promptly give each Lender hereto written notice
(including a description) of such consent, amendment, modification or waiver.
SECTION 10.2. Notices, Etc. All notices and other
communications provided for under this Agreement and under the other Loan
Documents to which the Borrower is a party shall be in writing (including
telegraphic, telex or facsimile communication) and mailed or telecommunicated
or delivered to the address of the respective party as set forth on the
signature pages hereto (or, if applicable, the Supplemental Signature Pages, as
executed by such Party); or, as to each party, at such other address as shall
be designated by such party in a written notice to the other party complying as
to delivery with the terms of this Section 10.2. All such notices and
communications shall, when mailed or telecommunicated, be effective upon the
earlier of actual receipt, or one (1) Business Day after transmitted by telex
and the appropriate answerback received, transmitted by facsimile or delivered
to the telegraph company, respectively, addressed as aforesaid, except that
notices to the Agent pursuant to the provisions of Article II shall not be
effective until received by the Agent.
SECTION 10.3. No Waiver; Remedies. No failure on the part of
any party to exercise, and no delay in exercising, any right, power, or remedy
under any Loan Documents shall operate as a waiver thereof; nor shall any
single or partial exercise of any right under any Loan Documents preclude any
other or further exercise thereof or the exercise of any other right. The
remedies provided in the Loan Documents are cumulative and not exclusive of any
remedies provided by law.
SECTION 10.4. Successors and Assigns. This Agreement shall
be binding upon and inure to the benefit of the Borrower and the Lenders and
their respective successors and assigns, except that the Borrower may not
assign or transfer any of its rights under any Loan Document to which the
Borrower is a party without the prior written consent of the Agent and all the
Lenders and the rights of the Lenders to make assignments or grant
participations are subject to the provisions of Sections 10.5 and 10.6.
SECTION 10.5. Assignments and Participations; Information.
Each Lender may (without the Borrower's consent) grant participations in or
(subject to the consent of the Borrower, which consent shall not be
unreasonably withheld) sell, assign, transfer or otherwise dispose of, at any
time and from time to time hereafter, such Lender's rights, titles, interests,
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<PAGE> 87
remedies, powers and/or duties under this Agreement or any other Loan Document,
or of any portion of any thereof, (each Person to whom such participation is to
be made being herein referred to as a "Participant" and each Person to whom
such assignment, transfer or disposition is to be made being herein referred to
as an "Assignee"). Each Lender may furnish any information concerning Borrower
in the possession of such Lender from time to time to Assignees of the rights
and/or obligations of such Lender hereunder and to Participants in any Loan or
Letter of Credit (including prospective Assignees and Participants); provided,
that such Lender shall obtain Borrower's consent (which shall not be
unreasonably withheld) and a confidentiality agreement from such Assignee or
Participant in a form reasonably acceptable to the Borrower running to the
Borrower's benefit prior to disclosing any non-public information to any
prospective Participant or Assignee. Each Lender may furnish information in
response to credit inquiries consistent with general banking practice. Such
Lender shall promptly notify Borrower and Agent of such Lender's grant of any
participation in or sale, assignment, transfer or other disposition of this
Agreement or any other Loan Document, or of any portion of any thereof and in
connection with any sale or assignment shall pay to the Agent for the Agent's
account a non-refundable assignment fee equal to $2,500. Borrower shall use
its reasonable efforts (at no out-of-pocket cost to the Borrower) to assist
each Lender in its efforts to sell assignments and participations. In the case
of an assignment by a Lender of any portion of its Percentage hereunder,
following receipt by Agent of the foregoing notice and assignment fee, Schedule
1.1(B) hereto shall be deemed automatically amended to reflect such assignment
and the Agent shall promptly distribute to the Lenders a revised Schedule
1.1(B) as so amended.
Notwithstanding anything in the foregoing to the contrary, (1)
no Participant shall have any direct rights hereunder, (2) the Borrower, the
Agent, the Co-Agent, the Issuing Lender and the Lenders, other than the
assigning or selling Lender, shall deal solely with the assigning or selling
Lender and shall not be obligated to extend any rights or make any payment to,
or seek any consent of, the Participant, (3) no participation shall relieve the
assigning or selling Lender of any of its other obligations hereunder and such
Lender shall remain solely responsible for the performance thereof, and (4) no
Participant, other than an affiliate of the assigning or selling Lender, shall
be entitled to require such Lender to take or omit to take any action
hereunder, except that such Lender may agree with such Participant that such
Lender will not, without Participant's consent, take any action which would
adversely affect any principal, interest or fee in which the Participant has an
ownership or beneficial interest including, without limitation, extending the
due date for, or reducing the amount of, or waiving, any payment or prepayment
of principal or
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interest on any Loans, any reimbursement obligations with respect to Letters of
Credit or any fee payable hereunder or extend the Termination Date.
SECTION 10.6. Costs, Expenses, and Taxes. The Borrower
agrees to pay on demand all reasonable costs and expenses in connection with
the preparation, execution, delivery, filing, recording, and administration of
any of the Loan Documents, including, without limitation, the reasonable fees
and out-of-pocket expenses of counsel for the Agent and the Co-Agent, and local
counsel who may be retained by said counsel in connection with perfecting
security interests, with respect thereto, and all costs and expenses, if any,
in connection with the enforcement of any of the Loan Documents. In addition,
the Borrower shall pay any and all stamp and other taxes and fees payable or
determined to be payable in connection with the execution, delivery, filing,
and recording of any of the Loan Documents and the other documents to be
delivered under any such Loan Documents, and agrees to save each Lender
harmless from and against any and all liabilities with respect to or resulting
from any delay attributed to the Borrower in paying or omission to pay such
taxes and fees.
SECTION 10.7. Right of Setoff. Upon the occurrence and
during the continuance of any Event of Default, each Lender is hereby
authorized at any time and from time to time, without notice to the Borrower
(any such notice being expressly waived by the Borrower), to set off and apply
any and all deposits (general or special, time or demand, provisional or final)
at any time held and other indebtedness at any time owing by such Lender to or
for the credit or the account of the Borrower against any and all of the
obligations of the Borrower now or hereafter existing under this Agreement or
the Notes or any other Loan Document, irrespective of whether or not the Agent
shall have made any demand under this Agreement or the Notes or such other Loan
Document and although such obligations may be unmatured. Each Lender agrees
promptly to notify the Borrower after any such setoff and application;
provided, that the failure to give such notice shall not affect the validity of
such setoff and application. The rights of each Lender under this Section 10.7
are in addition to other rights and remedies (including, without limitation,
other rights of setoff) which the Lenders may have.
SECTION 10.8. Governing Law. This Agreement and the Notes
shall be governed by, and construed in accordance with, the laws of the State
of Illinois without regard to its conflict of laws provisions.
SECTION 10.9. Severability of Provisions. Any provision of
any Loan Document which is prohibited or unenforceable in any jurisdiction
shall, as to such jurisdiction, be ineffective to the extent of such
prohibition or
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<PAGE> 89
unenforceability without invalidating the remaining provisions of such Loan
Document or affecting the validity or enforceability of such provision in any
other jurisdiction.
SECTION 10.10. Headings. Article and Section headings in the
Loan Documents are included in such Loan Documents for the convenience of
reference only and shall not constitute a part of the applicable Loan Documents
for any other purpose.
SECTION 10.11. SUBMISSION TO JURISDICTION; WAIVER OF VENUE.
THE BORROWER, ON BEHALF OF ITSELF AND EACH SUBSIDIARY (A) HEREBY IRREVOCABLY
SUBMITS TO THE JURISDICTION OF ANY ILLINOIS STATE OR FEDERAL COURT SITTING IN
CHICAGO, ILLINOIS OVER ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS, AND THE BORROWER HEREBY IRREVOCABLY
AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND
DETERMINED IN SUCH ILLINOIS STATE OR FEDERAL COURT AND (B) AGREES NOT TO
INSTITUTE ANY LEGAL ACTION OR PROCEEDING AGAINST THE AGENT, THE COAGENT, ANY
LENDER OR THE DIRECTORS, OFFICERS, EMPLOYEES, AGENTS OR PROPERTY OF ANY
THEREOF, ARISING OUT OF OR RELATING TO THIS AGREEMENT, IN ANY COURT OTHER THAN
AS HEREINABOVE SPECIFIED IN THIS SECTION 10.11. THE BORROWER, ON BEHALF OF
ITSELF AND EACH SUBSIDIARY, HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY LAW, ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF
VENUE IN ANY SUCH ACTION OR PROCEEDING (WHETHER BROUGHT BY THE BORROWER, ANY
SUBSIDIARY, THE AGENT, THE COAGENT, ANY LENDER OR OTHERWISE) IN ANY COURT
HEREINABOVE SPECIFIED IN THIS SECTION 10.11 AS WELL AS ANY RIGHT IT MAY NOW OR
HEREAFTER HAVE, TO REMOVE ANY SUCH ACTION OR PROCEEDING, ONCE COMMENCED, TO
ANOTHER COURT ON THE GROUNDS OF FORUM NON CONVENIENS OR OTHERWISE. THE
BORROWER ON BEHALF OF ITSELF AND EACH SUBSIDIARY AGREES THAT A FINAL,
NONAPPEALABLE JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE
AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY
OTHER MANNER PROVIDED BY LAW.
SECTION 10.12. General Indemnity. In addition to the payment
of expenses pursuant to Section 10.6, Borrower agrees to indemnify, pay and
hold the Agent, the Issuing Lender, the Co-Agent and each Lender, and the
officers, directors, employees, agents, and affiliates of the Agent, the
Issuing Lender, the Co-Agent and each Lender (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
Agreement, any
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other Loan Document or any other agreements executed and delivered by the
Borrower in connection herewith, the Lenders' agreement to make the Loans
hereunder, the Issuing Lender's agreement to issue Letters of Credit, or the
use or intended use of the proceeds of any of the Loans or the LC Obligations
(the "indemnified liabilities"); provided, that Borrower shall have no
obligation to an Indemnitee hereunder with respect to indemnified liabilities
arising from the gross negligence or willful misconduct of such Indemnitee or
from any action between the Agent, the Issuing Lender, the Co-Agent or any
Lender against an officer, director or employee of the Agent, the Issuing
Lender, the Co-Agent, or such Lender. 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, the Borrower 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 10.12 shall survive satisfaction and
payment of Borrower's obligations hereunder and termination of this Agreement.
SECTION 10.13. WAIVER OF JURY TRIAL. THE BORROWER, THE
AGENT, THE CO-AGENT AND EACH OF THE LENDERS HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVE ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
COUNTERCLAIM CONCERNING ANY RIGHTS UNDER THIS AGREEMENT, ANY OTHER LOAN
DOCUMENT OR UNDER ANY OTHER DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE
FUTURE BE DELIVERED IN CONNECTION HEREWITH OR THEREWITH, OR ARISING FROM ANY
BANKING RELATIONSHIP EXISTING IN CONNECTION WITH THIS AGREEMENT, AND AGREE THAT
ANY SUCH ACTION, PROCEEDING OR COUNTERCLAIM SHALL BE TRIED BEFORE A COURT AND
NOT BEFORE A JURY; THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE AGENT
ENTERING INTO THIS AGREEMENT.
SECTION 10.14. SERVICE OF PROCESS. THE BORROWER, THE AGENT,
THE CO-AGENT, AND THE LENDERS HEREBY IRREVOCABLY CONSENT TO SERVICE OF PROCESS
BY MEANS OF CERTIFIED MAIL AT THE ADDRESS PROVIDED FOR IN SECTION 10.2.
NOTHING IN THIS AGREEMENT WILL AFFECT THE RIGHT OF THE LENDERS, THE AGENT, THE
CO-AGENT, OR THE BORROWER TO SERVE SERVICE OF PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW.
SECTION 10.15. Counterparts. This Agreement may be executed
in any number of separate counterparts, each of which, when so executed, shall
be deemed an original, and all of said counterparts taken together shall be
deemed to constitute but one and the same instrument.
SECTION 10.16. Entire Agreement. This Agreement, together
with the other Loan Documents, embodies the entire agreement and understanding
among the Borrower, the Lenders and
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the Agent, and supersedes all prior or contemporaneous agreements and
understandings of such Persons, verbal or written, relating to the subject
matter hereof and thereof.
SECTION 10.17. Reaffirmation, Restatement and Waivers. This
Agreement constitutes an amendment and restatement of the Original Credit
Agreement and the indebtedness evidenced by the Original Credit Agreement is
continuing indebtedness, and nothing herein shall be deemed to constitute a
payment, settlement or novation of the indebtedness evidenced by the Original
Credit Agreement except to the extent provided herein, or to release or
otherwise adversely affect any lien, mortgage or security interest securing
such indebtedness or any rights of the Agent or any Lender against any
guarantor, surety or other party primarily or secondarily liable for such
indebtedness.
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<PAGE> 92
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective officers thereunto duly
authorized, as of the date first above written.
EINSTEIN/NOAH BAGEL CORP.
By: /s/ PAUL A. STRASEN
------------------------------------
Name: Paul A. Strasen
Title: Senior Vice President
14123 Denver West Parkway
Golden, CO 80401
Telephone: (303) 202-3463
Facsimile: (303) 202-3490
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as Agent
By: /s/ DAVID A. JOHANSON
------------------------------------
Name: David A. Johanson
Title: Vice President
231 South LaSalle Street
Chicago, Illinois 60697
Attn: David Johanson
Telephone: (312) 828-7933
Facsimile: (312) 974-9102
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as a Lender,
and as Issuing Lender
By: /s/ MARCIA CLAUSEN
------------------------------------
Name: Marcia Clausen
Title: Managing Director
231 South LaSalle Street
Chicago, Illinois 60697
Attn: Marcia Clausen
Telephone: (312) 828-3782
Facsimile: (312) 828-1974
GENERAL ELECTRIC CAPITAL
CORPORATION, as Co-Agent
By: /s/ FRED MAURICE
------------------------------------
Name: Fred Maurice
Title: Senior Credit Analyst
777 Long Ridge Road
Bldg. A, 3rd Floor
Stamford, Connecticut 06927
Attn: Dan Gioia
Telephone: (203) 357-6245
Facsimile: (203) 316-7989
LASALLE NATIONAL BANK
By: /s/ JOHN C. THURSTON
------------------------------------
Name: John C. Thurston
Title: Assistant Vice President
120 South LaSalle Street
Chicago, Illinois 60602
Attn: John C. Thurston
Telephone: (312) 781-8665
Facsimile: (312) 750-6225
<PAGE> 93
SCHEDULE 1.1(B)
Percentages (Section 1.1)
<TABLE>
<CAPTION>
Percentage
----------
<S> <C>
Bank of America 28.57142857%
General Electric Capital 42.85714286%
Corporation
LaSalle National Bank 28.57142857%
Total: 100%
</TABLE>
<PAGE> 94
SCHEDULE 1.1(A)
Requirements for Financed Franchisee Loan Documents
(1) The Franchisee shall have granted to the Borrower a right
to negotiate with Franchisee with respect to, or a right to participate in, or
a right of first refusal on, future financings that do not include any
equity-type features and a preemptive right to participate in any financing of
the Franchisee that has any equity-type features on a fully-dilutedfp
basis;
(2) The Borrower shall have the right, but not the
obligation, to convert the indebtedness evidenced by such loan documents (the
"Franchisee Debt") into a majority of the voting stock, partnership units or
other equity interests of the Franchisee or to obtain such position through the
exercise of an equity option at the conversion price, or both; and
(3) As security for the Franchisee Debt, the Franchisee shall
have granted to the Borrower a first priority Lien (subject to the types of
Liens described in Clauses (4) through (11) of Section 6.1 of the Agreement,
without giving effect to Clause 11 (d) of such Section 6.1) on all of the
assets of the Franchisee, including, without limitation, all real and personal
property of such Franchisee and all leasehold interests of such Franchisee
which are entered into after May 17, 1996 (unless after Franchisee's best
efforts (which shall not require unreasonable efforts) Franchisee is unable to
obtain the consent of the respective landlord for such leasehold to the extent
such consent is required) which Liens shall be duly assigned to the Agent for
the benefit of the Banks following the written request of the Agent to the
Borrower which may be given at any time.
<PAGE> 95
SCHEDULE 1.1(B)
Existing Letters of Credit (Section 1.1)
<TABLE>
<CAPTION>
Beneficiary L/C # Amount
- ----------- ----- ------
<S> <C> <C>
Southtrust Bank of 7320960 $502,266.17
Georgia, N.A.
Charter Hurst, Ltd. 7321836 $40,000.00
</TABLE>
<PAGE> 96
EXHIBIT A-1
FORM OF REVOLVING NOTE
$40,000,000 November __, 1997
FOR VALUE RECEIVED, the undersigned promises to pay to the order of
Bank of America National Trust and Savings Association, in its capacity as
agent for the ratable benefit of the Lenders (as hereinafter defined) (the
"Agent") at its principal office in Chicago, Illinois, the principal amount of
FORTY MILLION DOLLARS ($40,000,000) or, if less, the aggregate unpaid principal
amount of all Revolving Loans (as defined in the Credit Agreement hereinafter
referenced) outstanding, as duly shown in the records of the Agent or, at the
Agent's option, on the schedule attached hereto (and any continuation thereof),
on the Termination Date.
The undersigned also promises to pay interest on the unpaid principal
amount hereof from time to time outstanding from the date hereof until maturity
(whether by acceleration or otherwise) and, after maturity, until paid, in
either event at the rates per annum and on the dates specified in the Credit
Agreement.
Payments of both principal and interest are to be made in lawful money
of the United States of America in immediately available funds.
This Note is the Revolving Note described in, and is subject to the
terms and provisions of, the Secured Credit Agreement, dated as of May 17, 1996
and as amended and restated by that certain Amended and Restated Secured Credit
Agreement dated as of November __, 1997 (as the same may at any time be
amended, restated, modified, supplemented or renewed from time to time, the
"Credit Agreement"), among the undersigned, the lenders who are or from time to
time become party thereto (the "Lenders"), General Electric Capital
Corporation, as Co-Agent, and Bank of America National Trust and Savings
Association, as Agent for the Lenders. Terms used herein and not otherwise
defined herein are used herein as defined in the Credit Agreement.
Reference is hereby made to the Credit Agreement for a statement of
the prepayment rights and obligations of the undersigned and for a statement of
the terms and conditions under which the due date of this Note may be
accelerated. Upon the occurrence of any Event of Default as specified in the
Credit
- 1 -
<PAGE> 97
Agreement, the principal balance hereof and the interest accrued hereon may be
declared to be forthwith due and payable, and any indebtedness of the Lenders
or other holder hereof to the undersigned may be appropriated and applied
hereon.
In addition to and not in limitation of the foregoing and the
provisions of the Credit Agreement, the undersigned further agrees, subject
only to any limitation imposed by applicable law, to pay all expenses,
including reasonable attorneys' fees and legal expenses, incurred by the holder
of this Note in endeavoring to collect any amounts payable hereunder which are
not paid when due, whether by acceleration or otherwise.
This Revolving Note is a restatement of the indebtedness evidenced by,
and is a replacement of, that certain Revolving Note of the Borrower dated May
17, 1996 in the face principal amount of $45,000,000 payable to the order of
the Agent, and nothing contained herein or in the Credit Agreement shall be
construed (i) to deem forgiven the unpaid principal amount of, or unpaid
accrued interest on, said Revolving Note outstanding at the time of its
replacement by this Revolving Note, or (ii) to release, cancel, terminate or
otherwise adversely affect all or any part of any lien, mortgage, deed of
trust, assignment, security interest or other encumbrance heretofore granted to
or for the benefit of the payee of said Revolving Note which has not otherwise
been expressly released.
All parties hereto, whether as makers, endorsers, or otherwise,
severally waive presentment for payment, demand, protest and notice of
dishonor.
* * * * *
- 2 -
<PAGE> 98
THIS NOTE SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY
THE INTERNAL LAWS OF THE STATE OF ILLINOIS, WITHOUT REGARD TO CONFLICTS OF LAW
PRINCIPLES.
EINSTEIN/NOAH BAGEL CORP.
By:
----------------------------
Name:
--------------------------
Title:
--------------------------
<PAGE> 99
Schedule attached to Revolving Note dated November __, 1997 of Einstein/Noah
Bagel Corp., payable to the order of Bank of America National Trust and Savings
Association in its capacity as Agent for the ratable benefit of the Lenders.
<TABLE>
<CAPTION>
Date of Loan, Interest
Continuation or Interest Amount of Rate Per Amount of Notation
Conversion Period Loan Annum Repayment Made By
- --------------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
</TABLE>
- 4 -
<PAGE> 100
TERM NOTE
$30,000,000 November 21, 1997
FOR VALUE RECEIVED, the undersigned promises to pay to the order of
Bank of America National Trust and Savings Association, in its capacity as
agent for the ratable benefit of the Lenders (as hereinafter defined) (the
"Agent") at its principal office in Chicago, Illinois, the principal amount of
THIRTY MILLION DOLLARS ($30,000,000) in accordance with the payment schedule
set forth in the Credit Agreement (hereinafter referenced).
The undersigned also promises to pay interest on the unpaid principal
amount hereof from time to time outstanding from the date hereof until maturity
(whether by acceleration or otherwise) and, after maturity, until paid, in
either event at the rates per annum and on the dates specified in the Credit
Agreement.
Payments of both principal and interest are to be made in lawful money
of the United States of America in immediately available funds.
This Note is the Term Note described in, and is subject to the terms
and provisions of that certain Amended and Restated Secured Credit Agreement
dated as of November 21, 1997 (as the same may at any time be amended,
restated, modified, supplemented or renewed from time to time, the "Credit
Agreement"), among the undersigned, the lenders who are or from time to time
become party thereto (the "Lenders"), General Electric Capital Corporation, as
Co-Agent, and Bank of America National Trust and Savings Association, as Agent
for the Lenders. Terms used herein and not otherwise defined herein are used
herein as defined in the Credit Agreement.
Reference is hereby made to the Credit Agreement for a statement of
the prepayment rights and obligations of the undersigned and for a statement of
the terms and conditions under which the due date of this Note may be
accelerated. Upon the occurrence of any Event of Default as specified in the
Credit Agreement, the principal balance hereof and the interest accrued hereon
may be declared to be forthwith due and payable, and any indebtedness of the
Lenders or other holder hereof to the undersigned may be appropriated and
applied hereon.
In addition to and not in limitation of the foregoing and the
provisions of the Credit Agreement, the undersigned further
- 5 -
<PAGE> 101
agrees, subject only to any limitation imposed by applicable law, to pay all
expenses, including reasonable attorneys' fees and legal expenses, incurred by
the holder of this Note in endeavoring to collect any amounts payable hereunder
which are not paid when due, whether by acceleration or otherwise.
All parties hereto, whether as makers, endorsers, or otherwise,
severally waive presentment for payment, demand, protest and notice of
dishonor.
* * * * *
- 6 -
<PAGE> 102
THIS NOTE SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY
THE INTERNAL LAWS OF THE STATE OF ILLINOIS, WITHOUT REGARD TO CONFLICTS OF LAW
PRINCIPLES.
EINSTEIN/NOAH BAGEL CORP.
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
<PAGE> 103
Schedule attached to Term Note dated November __, 1997 of Einstein/Noah Bagel
Corp., payable to the order of Bank of America National Trust and Savings
Association in its capacity as Agent for the ratable benefit of the Lenders.
<TABLE>
<CAPTION>
Date of Loan, Interest
Continuation or Interest Amount of Rate Per Amount of Notation
Conversion Period Loan Annum Repayment Made By
- --------------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
</TABLE>
- 8 -
<PAGE> 104
EXHIBIT B
FORM OF BORROWING REQUEST
Bank of America National Trust and Savings Association
individually and as Agent
for the Lenders
231 South LaSalle Street
Chicago, Illinois 60697
Attention: David Johanson
Ladies and Gentlemen:
This Borrowing Request is delivered to you pursuant to Section
2.2(1) of the Secured Credit Agreement, dated as of May 17, 1996 and as amended
and restated by that certain Amended and Restated Secured Credit Agreement
dated as of November __, 1997 (as the same may at any time be amended,
restated, modified, supplemented or renewed, the "Credit Agreement"), among
Einstein/Noah Bagel Corp., a Delaware corporation (the "Borrower"), the lenders
that are or from time to time become party thereto (the "Lenders"), the
Co-Agent, and Bank of America National Trust and Savings Association, as agent
for the Lenders (in such capacity, the "Agent"). Unless otherwise defined
herein, capitalized terms used herein have the meanings provided in the Credit
Agreement.
The Borrower hereby requests that a [Revolving][Term] Loan be
made in the aggregate principal amount of $______________ on __________ __,
19__ as a [Floating Rate Loan] [Eurodollar Loan having an Interest Period of
______ months].
The Borrower hereby certifies and warrants that on the date
the [Revolving][Term] Loan requested hereby is made, after giving effect to the
making of such [Revolving][Term] Loan:
(a) No Default or Event of Default has occurred and is
continuing or will result from the borrowing of such [Revolving][Term]
Loan.
(b) The representations and warranties of the Borrower
contained in the Credit Agreement are true and correct with the same
effect as though made on the date hereof (except to the extent such
representations and warranties expressly refer to an earlier date).
The Borrower agrees that if prior to the time of the
[Revolving][Term] Loan requested hereby any matter certified to herein by it
will not be true and correct at such time as if then made, it will immediately
so notify the Agent. Except to the extent, if any, that prior to the time of
the [Revolving][Term] Loan requested hereby the Agent shall receive written
notice to the contrary from the Borrower, each matter certified to herein
- 1 -
<PAGE> 105
shall be deemed once again to be certified as true and correct at the date of
such [Revolving][Term] Loan as if then made (except to the extent such
representations and warranties expressly refer to an earlier date).
Please make the proceeds of the [Revolving][Term] Loan
available in accordance with the instructions set forth on Annex I attached
hereto.
- 2 -
<PAGE> 106
The Borrower has caused this Borrowing Request to be executed
and delivered, and the certification and warranties contained herein to be
made, by an Authorized Officer this ____ day of _____________, 19__.
EINSTEIN/NOAH BAGEL CORP.
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
<PAGE> 107
ANNEX I
Instructions
- 4 -
<PAGE> 108
EXHIBIT C
FORM OF CONTINUATION/CONVERSION NOTICE
Bank of America National Trust
and Savings Association
individually and as Agent
for the Lenders
231 South LaSalle Street
Chicago, Illinois 60697
Attention: David Johanson
Ladies and Gentlemen:
This Continuation/Conversion Notice is delivered to you
pursuant to Section 2.2(2) of the Secured Credit Agreement, dated as of May 17,
1996 and as amended and restated by that certain Amended and Restated Secured
Credit Agreement dated as of November __, 1997 (as the same may be further
amended, restated, modified, supplemented or renewed from time to time, the
"Credit Agreement"), among Einstein/Noah Bagel Corp., a Delaware corporation
(the "Borrower"), the lenders that are or from time to time become party
thereto (the "Lenders"), the Co-Agent, and Bank of America National Trust and
Savings Association, as agent for the Lenders (in such capacity, the "Agent").
Unless otherwise defined herein, capitalized terms used herein have the
meanings provided in the Credit Agreement.
The Borrower hereby requests that on ___________, 19__,
(1) $_________ of the presently outstanding principal amount
of the [Revolving Loans][Term Loan] originally made on
_______, 19__,
(2) and all presently being maintained as [Floating Rate
Loans] [Eurodollar Loans],
(3) be [converted into] [continued as],
(4) [Floating Rate Loans] [Eurodollar Loans having an
Interest Period of _____ months] .
The Borrower hereby certifies and warrants that on the date
the conversion or continuation herein requested is made, after giving effect to
the making of such conversion or continuation no Default or Event of Default
has occurred and is continuing or will result from the conversion or
continuation herein requested.
Except to the extent, if any, that prior to the time of the
continuation or conversion requested hereby the Agent shall receive written
notice to the contrary from the Borrower, each
- 1 -
<PAGE> 109
matter certified to herein shall be deemed to be certified at the date of such
continuation or conversion as if then made.
The Borrower has caused this Continuation/Conversion Notice to
be executed and delivered, and the certification and warranties contained
herein to be made, by an Authorized Officer this ___ day of _________, 19__.
EINSTEIN/NOAH BAGEL CORP.
By:
------------------------------
Name:
------------------------------
Title:
------------------------------
- 2 -
<PAGE> 110
EXHIBIT D
FORM OF OPINION OF COUNSEL
[Attach copy of Opinion]
<PAGE> 111
EXHIBIT E
FORM OF GUARANTY
FOR VALUE RECEIVED and in consideration of any loan or other
financial accommodation heretofore or hereafter at any time made or granted to
Einstein/Noah Bagel Corp., a Delaware corporation (hereinafter called the
"Borrower"), by the lenders (the "Lenders") who are or may become party to that
certain Secured Credit Agreement, dated as of May 17, 1996 and as amended and
restated by that certain Amended and Restated Secured Credit Agreement dated as
of November __, 1997 (as the same may be further amended, restated, modified,
supplemented or renewed from time to time, the "Credit Agreement," capitalized
terms used herein and not otherwise defined herein have the respective meanings
assigned thereto in the Credit Agreement) among the Borrower, the Lenders, the
Co-Agent, and Bank of America National Trust and Savings Association, as agent
for the Lenders (herein, in such capacity, together with any successor thereto
in such capacity, called the "Agent"), the undersigned hereby unconditionally
guarantees the full and prompt payment when due, whether at stated maturity, by
required prepayment, declaration, demand, acceleration or otherwise (including
amounts that would become due but for the operation of the automatic stay under
section 362(a) of the Bankruptcy Code (11 U.S.C. Section 362(a)), and at all
times thereafter, of all obligations of the Borrower to the Lenders and the
Agent which arise out of or in connection with the Credit Agreement, the Notes
or the other Loan Documents howsoever created, arising or evidenced, whether
direct or indirect, joint or several, absolute or contingent, or now or
hereafter existing, or due or to become due (all such obligations being
hereinafter collectively called the "Liabilities"), and the undersigned further
agrees to pay all reasonable expenses (including attorneys' fees and legal
expenses) paid or incurred by the Lenders and the Agent in endeavoring to
collect the Liabilities, or any part thereof, and in enforcing this guaranty.
1. The undersigned agrees that, in the event of the
dissolution or insolvency of the Borrower, the undersigned or any Significant
Subsidiary, or the general failure to pay, or admission in writing of the
inability of the Borrower, the undersigned or any Significant Subsidiary to pay
debts as they become due, or an assignment by the Borrower, the undersigned or
any Significant Subsidiary for the benefit of creditors, or the institution of
any proceeding by or against the Borrower, the undersigned or any Significant
Subsidiary alleging that the Borrower, the undersigned or such Significant
Subsidiary is insolvent or unable to pay debts as they mature, and if such
event shall occur at a time when any of the Liabilities may not then be due and
payable, the undersigned will pay to the Agent for the benefit of the Lenders
forthwith the full amount which would be payable hereunder by the undersigned
if all Liabilities were then due and payable.
- 1 -
<PAGE> 112
2. To secure all obligations of the undersigned hereunder,
the Agent for the benefit of the Lenders shall have a lien upon and security
interest in (and may during the continuance of any Event of Default, without
demand or notice of any kind, at any time and from time to time when any amount
shall be due and payable by the undersigned hereunder, appropriate and apply
toward the payment of such amount, in such order of application as the Agent
may elect) any and all balances, credits, deposits, accounts or moneys of or in
the name of the undersigned now or hereafter maintained with the Agent or any
Lender and any and all property of every kind or description of or in the name
of the undersigned now or hereafter, for any reason or purpose whatsoever, in
the possession or control of, or in transit to, the Agent or the Lenders or any
agent or bailee for the Agent or the Lenders.
3. This guaranty shall in all respects be a continuing,
absolute and unconditional guaranty, and shall remain in full force and effect
(notwithstanding, without limitation, the dissolution of the undersigned) until
all of the Liabilities have been paid in full, subject to discontinuance as to
the undersigned only upon actual receipt by the Agent of written notice from
the undersigned, or any person duly authorized and acting on behalf of the
undersigned, of the discontinuance hereof as to the undersigned; provided,
however, that no such notice of discontinuance shall affect or impair any of
the agreements and obligations of the undersigned hereunder with respect to any
and all Liabilities existing prior to the time of actual receipt of such notice
by the Agent, any and all Liabilities created or acquired thereafter pursuant
to any previous commitments made by the Agent or the Lenders, any and all
extensions or renewals of any of the foregoing, any and all interest on any of
the foregoing, and any and all expenses paid or incurred by the Agent and the
Lenders in endeavoring to collect any of the foregoing and in enforcing this
guaranty against the undersigned; and all of the agreements and obligations of
the undersigned under this guaranty shall, notwithstanding any such notice of
discontinuance, remain fully in effect until all such Liabilities (including
any extensions or renewals of any thereof) and all such interest and expenses
shall have been paid in full.
4. The undersigned further agrees that, if at any time all or
any part of any payment theretofore applied by the Agent or the Lenders to any
of the Liabilities is or must be rescinded or returned by the Agent or the
Lenders for any reason whatsoever (including, without limitation, the
insolvency, bankruptcy or reorganization of the Borrower), such Liabilities
shall, for the purposes of this guaranty, to the extent that such payment is or
must be rescinded or returned, be deemed to have continued in existence,
notwithstanding such application by the Agent or the Lenders, and this guaranty
shall continue to be effective or be reinstated, as the case may be, as to such
Liabilities, all as though such application by the Agent or the Lenders had not
been made.
- 2 -
<PAGE> 113
5. The Agent may, from time to time, whether before or after
any discontinuance of this guaranty, at its sole discretion and without notice
to the undersigned, take any or all of the following actions: (a) retain or
obtain a security interest in any property to secure any of the Liabilities or
any obligation hereunder, (b) retain or obtain from another Person the primary
or secondary obligation of any obligor or obligors, in addition to the
undersigned, (c) extend or renew for one or more periods (whether or not longer
than the original period), or alter or exchange, any of the Liabilities, or
release or compromise any obligation of the undersigned hereunder with respect
to any of the Liabilities, (d) release its security interest in, or surrender,
release or permit any substitution or exchange for, all or any part of any
property securing any of the Liabilities or any obligation hereunder, and (e)
during the continuance of any Event of Default resort to the undersigned for
payment of any of the Liabilities, whether or not the Agent (i) shall have
resorted to any property securing any of the Liabilities or any obligation
hereunder or (ii) shall have proceeded against any other obligor primarily or
secondarily obligated with respect to any of the Liabilities (all of the
actions referred to in preceding clauses (i) and (ii) being hereby expressly
waived by the undersigned).
6. Any amounts received by the Agent from whatsoever source
on account of the Liabilities may be applied by it toward the payment of such
of the Liabilities, and in such order of application, as the Agent may from
time to time elect.
7. No payment made by or for the account of the undersigned
pursuant to this guaranty shall entitle the undersigned by subrogation or
otherwise to any payment by the Borrower or from or out of any property of the
Borrower and the undersigned shall not exercise any right or remedy against the
Borrower or any property of the Borrower by reason of any performance by the
undersigned of this guaranty. Until the indefeasible payment in full of the
Liabilities and termination of each Lender's Commitment, the undersigned
waives, to the fullest extent permitted by law, all rights of the undersigned
against the Borrower, arising out of any payment by the undersigned under this
guaranty, whether arising by way of any subrogation, contribution,
reimbursement or otherwise and agrees that, to the extent that any such rights
may not be waived under applicable law, it will contribute such rights to the
Borrower as a capital contribution concurrently with the arising of such
rights.
8. The undersigned hereby expressly waives: (a) notice of
the acceptance by the Agent of this guaranty, (b) notice of the existence or
creation or non-payment of all or any of the Liabilities, (c) presentment,
demand, notice of dishonor, protest and all other notices whatsoever, and (d)
all diligence in collection or protection of or realization upon the
Liabilities or any thereof, any obligation hereunder, or any security for or
guaranty of any of the foregoing.
- 3 -
<PAGE> 114
9. The Lenders may, from time to time, without notice to the
undersigned, assign or transfer any or all of the Liabilities or any interest
therein subject to Section 10.5 of the Credit Agreement; and, notwithstanding
any such assignment or transfer or any subsequent assignment or transfer
thereof, such Liabilities shall be and remain Liabilities for the purposes of
this guaranty, and each and every immediate and successive assignee or
transferee of any of the Liabilities or of any interest therein shall, to the
extent of the interest of such assignee or transferee in the Liabilities, be
entitled to the benefits of this guaranty to the same extent as if such
assignee or transferee were a Lender.
10. The undersigned hereby warrants to the Agent and the
Lenders that the undersigned now has and will continue to have independent
means of obtaining information concerning the affairs, financial condition and
business of the Borrower. The Agent and the Lenders shall not have any duty or
responsibility to provide the undersigned with any credit or other information
concerning the affairs, financial condition or business of the Borrower which
may come into the Agent's or the Lender's possession.
11. The undersigned hereby warrants and agrees that: (a) the
undersigned is a [corporation][partnership] duly existing and in good standing
under the laws of ______________ and the undersigned is duly qualified and in
good standing and authorized to do business in each jurisdiction where, because
of the nature of its activities or properties, such qualification is required,
(b) the undersigned has full power and authority to execute and deliver this
guaranty, (c) the execution, delivery and performance by the undersigned of
this guaranty are within the undersigned's powers, have been duly authorized by
all necessary action, have received all necessary governmental approval (if any
shall be required), and do not and will not contravene or conflict with any
provision of law or of the organizational documents of the undersigned or of
any agreement binding upon the undersigned, (d) this guaranty is the legal,
valid and binding obligation of the undersigned enforceable against the
undersigned in accordance with its terms, except as enforceability may be
limited by bankruptcy or other laws relating to or affecting creditors' rights
generally or by equitable principles, and (e) this guaranty will directly or
indirectly benefit the undersigned.
12. No delay on the part of the Agent in the exercise of any
right or remedy shall operate as a waiver thereof, and no single or partial
exercise by the Agent of any right or remedy shall preclude other or further
exercise thereof or the exercise of any other right or remedy; nor shall any
modification or waiver of any of the provisions of this guaranty be binding
upon the Agent except as expressly set forth in a writing duly signed and
delivered on behalf of the Agent for the benefit of the
- 4 -
<PAGE> 115
Lenders. No action of the Agent permitted hereunder shall in any way affect or
impair the rights of the Agent and the obligations of the undersigned under
this guaranty. For the purposes of this guaranty, Liabilities shall include
all obligations of the Borrower to the Agent and the Lenders, notwithstanding
any right or power of the Borrower or anyone else to assert any claim or
defense as to the invalidity or unenforceability of any such obligation, and no
such claim or defense shall affect or impair the obligations of the undersigned
hereunder. The obligations of the undersigned under this guaranty shall be
absolute and unconditional irrespective of any circumstance whatsoever which
might constitute a legal or equitable discharge or defense of the undersigned.
The undersigned hereby acknowledges that there are no conditions to the
effectiveness of this guaranty.
13. This guaranty shall be binding upon the undersigned, and
upon any successors and assigns of the undersigned.
14. THIS GUARANTY HAS BEEN DELIVERED AT CHICAGO, ILLINOIS,
AND SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE INTERNAL LAWS OF
THE STATE OF ILLINOIS WITHOUT GIVING EFFECT TO ITS PRINCIPLES OF CHOICE OF LAW.
WHEREVER POSSIBLE EACH PROVISION OF THIS GUARANTY SHALL BE INTERPRETED IN SUCH
MANNER AS TO BE EFFECTIVE AND VALID UNDER APPLICABLE LAW, BUT IF ANY PROVISION
OF THIS GUARANTY SHALL BE PROHIBITED BY OR INVALID UNDER SUCH LAW, SUCH
PROVISION SHALL BE INEFFECTIVE TO THE EXTENT OF SUCH PROHIBITION OR INVALIDITY,
WITHOUT INVALIDATING THE REMAINDER OF SUCH PROVISION OR THE REMAINING
PROVISIONS OF THIS GUARANTY.
15. The undersigned hereby irrevocably agrees that any legal
action or proceeding pertaining to this guaranty may be brought in the courts
of the State of Illinois, County of Cook, or of the United States of America
for the Northern District of Illinois. The undersigned hereby irrevocably
agrees that service of process in such action or proceeding may be made either
by mailing, by registered or certified mail, postage prepaid, a copy of the
summons or complaint, or other legal process in such action or proceeding to
the undersigned at the address shown on the signature page hereof. Service of
process in any such action or proceeding, effected as aforesaid, shall be
effective upon receipt by the undersigned and shall be deemed personal service
upon the undersigned and shall be legal and binding upon the undersigned for
all purposes. The undersigned hereby waives, to the fullest extent permitted
by law, any objection it may now or hereafter have to the laying of venue in
any such action or proceeding in any such court as well as any right it may now
or hereafter have to remove any such action or proceeding, once commenced, to
another court on the grounds of forum non conveniens or otherwise.
- 5 -
<PAGE> 116
16. THE UNDERSIGNED HEREBY EXPRESSLY WAIVES ANY RIGHT TO A
TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS (A)
UNDER THIS GUARANTY OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT
DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR (B)
ARISING FROM ANY BANKING RELATIONSHIP EXISTING IN CONNECTION WITH THIS
GUARANTY, AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A
COURT AND NOT BEFORE A JURY.
- 6 -
<PAGE> 117
SIGNED AND DELIVERED this ___ day of _______, 199_.
[GUARANTOR]
By:
-------------------------------------
Title:
----------------------------------
Address:
--------------------------------
--------------------------------
<PAGE> 118
EXHIBIT F-1
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (this "Agreement") is dated as of
___________, 199__ and is made by _________________, a _______________
corporation ("Grantor"), in favor of and for the benefit of Bank of America
National Trust and Savings Association, as Agent (the "Agent").
RECITALS
WHEREAS, [Grantor] [Einstein Bros. Bagels, Inc., a Delaware
corporation (the "Borrower")] has entered into that certain Secured Credit
Agreement dated as of May 17, 1996 as amended and restated by that certain
Amended and Restated Secured Credit Agreement dated as of November __, 1997
(said Credit Agreement, as it may hereafter be further amended, supplemented,
restated or otherwise modified from time to time, being the "Credit Agreement";
capitalized terms defined therein and not otherwise defined herein being used
herein as therein defined) with the Agent and the Co-Agent, the Issuing Lender
and the Lenders party thereto, pursuant to which the Lenders have agreed to
make Loans and other financial accommodations to the [Grantor] [Borrower],
subject to the terms and conditions of the Credit Agreement;
[WHEREAS, the Grantor will derive substantial direct and
indirect benefits from the making of the Loans under the Credit Agreement;]*/
WHEREAS, the Grantor desires to secure all obligations of the
[Borrower] [Grantor] now or hereafter existing under the Credit Agreement, and
the other Loan Documents;
WHEREAS, the Grantor desires to grant pledges and security
interests in its personal property in favor of the Lenders; and
WHEREAS, it is a condition precedent to the effectiveness of
the Credit Agreement, that the Grantor shall have granted the security interest
contemplated by this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, and in order to induce the Lenders to make Loans, the
parties hereto agree as follows:
__________________________________
*/ Insert for Subsidiary Security Agreements.
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SECTION 1. Grant of Security. The Grantor hereby assigns and
pledges to the Agent for the benefit of the Lenders, and hereby grants to the
Agent for the benefit of the Lenders, a security interest in, all of the
Grantor's right, title and interest in and to the following, in each case
whether now or hereafter existing or in which the Grantor now has or hereafter
acquires an interest and wherever the same may be located (the "Collateral") to
secure the Secured Obligations (as defined in Section 2):
(a) All equipment in all of its forms (including, but not
limited to, all machinery, all processing, distribution, selling, data
processing and office equipment, all furniture, fixtures, trade
fixtures and all other goods other than Inventory, and all parts
thereof and all accessions thereto) and all documents of title
representing any of the above (any and all such equipment, parts and
accessions being the "Equipment");
(b) All inventory in all of its forms, including, but not
limited to, (i) all goods held for sale or lease or to be furnished
under contracts of service or so leased or furnished, (ii) all raw
materials, work in process, finished goods, supplies and materials
used or consumed in the processing, packing, shipping, advertising,
selling, leasing, furnishing or production of such inventory or
otherwise used or consumed in the Grantor's business, (iii) goods in
which the Grantor has an interest in mass or a joint or other interest
or right of any kind, whether in the possession of the Grantor or of a
bailee or other Person for sale, storage, transit, processing, use or
otherwise, and (iv) goods which are returned to or repossessed or
shipped in transit by the Grantor and all additions and accessions
thereto and replacements thereof, (all such inventory, accessions and
products being the "Inventory");
(c) All rights and claims to the payment or receipt of money
or other forms of consideration of any kind, including, but not
limited to, any and all such rights and claims in, to and under, all
accounts, contracts (including without limitation all Hedging
Agreements), contract rights, chattel paper, instruments, general
intangibles, guaranties, credit agreements in which the Grantor acts
as lender, letters of credit, documents, drafts, acceptances, tax
refunds, rights to performance, judgments taken on any rights or
claims otherwise included in this clause (c) and all rights in, to and
under all security agreements, leases and other contracts securing or
otherwise relating to any such rights and claims to the payment or
receipt of
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money or other forms of consideration (any and all such rights and
claims to the payment or receipt of money or other forms of
consideration being the "Payment Rights," any and all such leases,
security agreements and other contracts being the "Related
Contracts");
(d) To the extent assignable, to the extent not included in
(c) above, all accounts, contracts, contract rights, chattel paper,
instruments, general intangibles, documents, rights to performance,
and judgements taken on any rights or claims otherwise included in
this clause (d);
(e) To the extent assignable, all books, records, ledger
cards, files, correspondence, computer programs, tapes, disks and
related data processing software (owned by the Grantor or in which it
has an interest) that at any time evidence or contain information
relating to any of the Collateral or are otherwise necessary or
helpful in the collection thereof or realization thereupon;
(f) All plant fixtures, business fixtures and other fixtures
and storage and office facilities, and all additions and accessions
thereto and replacements thereof and products thereof;
(g) all leases of real and personal property in which the
Grantor is lessee unless the lease related thereto restricts the
Grantor's right to grant a security interest therein;
(h) All now existing or hereafter acquired trademarks and
trademark applications and registrations (including, without
limitation, all of Grantor's rights, titles and interests in the
United States and throughout the world, in and to all of its currently
owned or hereafter acquired trademarks, registrations of trademarks
and applications for registration, together with the goodwill of the
business symbolized by such trademarks, and to all income, royalties,
damages and payments now and hereafter due and/or payable under or
based on such trademarks, and in and to all rights to sue, collect and
retain damages and payments for past and further infringements and
violations of the rights thereof), trade names, patent applications,
patents, copyrights, rights and interests in copyrights and works
protectable by copyright, trade secrets, inventions, designs,
franchises, customer lists, and other confidential information
relating to the business of the Grantor owned by the Grantor or held
by the Grantor pursuant to licenses, to the extent permitted by such
licenses, including, by way of illustration and not limitation, each
and every kind of
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know-how practice by the Grantor and its employees; the names and
addresses of, and credit and other business information concerning,
the Grantor's past, present or future customers as they may exist from
time to time; the prices at which the Grantor sells merchandise;
estimating and cost procedures; profit margins; policies and
procedures pertaining to the sale and design of equipment, components,
devices and services furnished by the Grantor; information concerning
suppliers and agents and franchises of the Grantor; and manner of
operation, business plans, pledges, projections, and all other
information of any kind or character, whether or not reduced in
writing, with respect to the conduct by the Grantor of its business
not generally known by the public;
(i) All deposit accounts of the Grantor, including, without
limitation, deposit accounts maintained with the Lenders;
(j) All proceeds of any and all of the foregoing Collateral
and, to the extent not otherwise included, all payments under
insurance (whether or not the Agent is the loss payee thereof), or any
indemnity, warranty or guaranty, payable by reason of loss or damage
to or otherwise with respect to any of the foregoing Collateral. For
purposes of this Agreement, the term "proceeds" includes whatever is
receivable or received when Collateral or proceeds are sold,
collected, exchanged or otherwise disposed of, whether such
disposition is voluntary or involuntary, and includes, without
limitation, all rights to payment, including returned premiums, with
respect to any insurance relating thereto.
Notwithstanding the foregoing, Collateral shall not include contractual rights
arising from the Agreement to Contribute Shares, dated February 17, 1995, among
the shareholders of Brackman Brothers, Inc. and Einstein Bros. Bagels Inc.
(f/k/a Progressive Bagel Concepts, Inc.).
SECTION 2. Security for Obligations. This Agreement secures
and the Collateral is collateral security for the prompt payment or performance
in full when due, whether at stated maturity, by acceleration or otherwise
(including the payment of amounts that would become due but for the operation
of the automatic stay under Section 362(a) of the Bankruptcy Code, 11 U.S.C.
Section 362(a)) of all obligations of every nature of the Borrower [and the
Grantor] now or hereafter existing under the Credit Agreement, the other Loan
Documents and any promissory note or other document or instrument delivered
pursuant thereto and all amendments, extensions or renewals thereof or hereof,
whether for principal, interest (including, without limitation,
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interest that, but for the filing of a petition in bankruptcy with respect to
the Grantor, would accrue on such obligations), fees, expenses or otherwise,
whether now existing or hereafter arising, voluntary or involuntary, whether or
not jointly owed with others, direct or indirect, absolute or contingent,
liquidated or unliquidated, and whether or not from time to time decreased or
extinguished and later increased, created or incurred and all or any portion of
such obligations that are paid, to the extent all or any part of such payment
is avoided or recovered directly or indirectly from the Agent or the Lenders as
a preference, fraudulent transfer or otherwise (all such obligations being the
"Underlying Debt"), and all obligations of every nature of the Grantor now or
hereafter existing under this Agreement (all such obligations of the Grantor,
together with the Underlying Debt, being the "Secured Obligations").
SECTION 3. The Grantor Remains Liable. Anything herein to
the contrary notwithstanding, (a) the Grantor shall remain liable under any
contracts and agreements included in the Collateral, to the extent set forth
therein, to perform all of its duties and obligations thereunder to the same
extent as if this Agreement had not been executed, (b) the exercise by the
Agent of any of the rights hereunder shall not release the Grantor from any of
its duties or obligations under the contracts and agreements included in the
Collateral and (c) the Agent shall not have any obligation or liability under
any contracts and agreements included in the Collateral by reason of this
Agreement, nor shall the Agent be obligated to perform any of the obligations
or duties of the Grantor thereunder or to take any action to collect or enforce
any claim for payment assigned hereunder by reason of this Agreement.
SECTION 4. Representations and Warranties. The Grantor
represents and warrants as follows:
(a) Binding Obligation. This Agreement is the legally valid
and binding obligation of the Grantor, enforceable against it in
accordance with its terms, except as enforcement may be limited by
bankruptcy, insolvency, reorganization, moratorium, or similar laws
relating to or limiting creditors' rights generally and to general
principles of equity.
(b) Location of Equipment and Inventory. All of the
Equipment and Inventory is located at the places specified in Schedule
I hereto.
(c) Delivery of Certain Collateral. All chattel paper and
notes and other instruments (excluding checks) comprising any and all
items of Collateral have been delivered to the Agent duly endorsed and
accompanied by duly executed instruments of transfer or assignment in
blank.
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(d) Payment Rights Valid. To the best of its knowledge, each
Payment Right constitutes the legally valid and binding obligation of
the party obligated to pay the same (the "Account Debtor"). Each such
Payment Right complies in all material respects with the provisions of
all applicable laws and regulations, whether federal, state or local,
applicable thereto (including, without limitation, any usury law, the
Federal Truth in Lending Act and Regulation C of the Federal Reserve
System). None of the Payment Rights is evidenced by a promissory
note, or other debt instrument other than a check, that has not been
delivered to the Agent (except to the extent any such promissory notes
are expressly excluded from the delivery requirements hereunder
pursuant to Section 5.10(a) of the Credit Agreement).
(e) Ownership of Collateral. Except for (i) the security
interest created by this Agreement, (ii) Liens otherwise permitted
under Section 6.1 of the Credit Agreement, and (iii) junior Liens on
property held as collateral by the Grantor pursuant to the Financed
Franchisee Loan Documents; provided that such junior Liens secure
purchase money Debt of the lienor, the Grantor owns the Collateral
free and clear of any Lien. Except such as may have been filed in
favor of the Agent relating to this Agreement or as otherwise
permitted under Section 6.1 of the Credit Agreement, no effective
financing statement or other instrument similar in effect covering all
or any part of the Collateral is on file in any filing or recording
office.
(f) Perfection. This Agreement creates a valid security
interest in the Collateral (subject to such Liens as are permitted by
the Credit Agreement), securing the payment of the Secured
Obligations.
(g) Governmental Authorizations. Other than those
authorizations and approvals which have been obtained or which may be
required upon the exercise by the Agent of its rights and remedies
hereunder (e.g., permits which must be renewed upon a change in
control), no authorization, approval or other action by, and no notice
to or filing with, any governmental authority or regulatory body is
required either (i) for the grant by the Grantor of the security
interest granted hereby or for the execution, delivery or performance
of this Agreement by the Grantor or (ii) for the perfection of the
Agent's rights and remedies hereunder (except as may have been taken
by or at the direction of the Grantor or except as stayed under
applicable law).
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(h) Other Information. All information heretofore, herein or
hereafter supplied to the Agent or any Lender by or on behalf of the
Grantor with respect to the Collateral is accurate and complete in all
material respects.
(i) Office Locations; Fictitious Names. The chief place of
business, the chief executive office and the office where the Grantor
keeps its books and records are as follows:
________________________________. The Grantor does not do business
under any trade-name or fictitious business name other than
"______________________".
(j) Incorporation of Credit Agreement Representations and
Warranties. Each representation and warranty of the Grantor set forth
in Article IV of the Credit Agreement is true and correct in all
material respects and such representations and warranties are hereby
incorporated herein by this reference with the same effect as though
set forth in their entirety herein.
(k) Consignments etc. None of the Inventory or Equipment is
stored with a bailee, warehouseman, consignee or similar third party.
SECTION 5. Further Assurances. (a) The Grantor agrees that
from time to time, at the expense of the Grantor, the Grantor will promptly
execute and deliver all further instruments and documents, and take all further
action, that may be reasonably necessary or desirable, or that the Agent may
reasonably request, in order to perfect and protect any security interest
granted or purported to be granted hereby or to enable the Agent to exercise
and enforce its rights and remedies hereunder with respect to any Collateral.
Without limiting the generality of the foregoing, the Grantor will: (i) at the
reasonable request of the Agent, mark conspicuously each of its records
pertaining to the Collateral, each chattel paper included in the Payment Rights
and each Related Contract with a legend, in form and substance satisfactory to
the Agent, indicating that such Collateral is subject to the security interest
granted hereby; (ii) if any Payment Right shall be evidenced by a promissory
note (except to the extent any such promissory note is expressly excluded from
the delivery requirements hereunder pursuant to Section 5.10(a) of the Credit
Agreement) or other instrument or chattel paper, deliver and pledge to the
Agent hereunder such note or instrument or chattel paper duly endorsed and
accompanied by duly executed instruments of transfer or assignment, all in form
and substance satisfactory to the Agent; (iii) at the reasonable request of the
Agent, deliver and pledge to the Agent for the benefit of the Lenders all
promissory notes and other instruments and all original counterparts of chattel
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paper constituting Collateral duly endorsed and accompanied by duly executed
instruments of transfer or assignment, all in form and substance satisfactory
to the Agent; (iv) execute and file such financing or continuation statements,
or amendments thereto, and such other instruments or notices, as may be
necessary or desirable, or as the Agent may request, in order to perfect and
preserve the security interests granted or purported to be granted hereby; (v)
at any reasonable time, upon demand by the Agent or any Lender exhibit
Collateral to and allow inspection of the Collateral by the Agent or any
Lender, or persons designated by the Agent or such Lender; and (vi) at the
Agent's request, appear in and defend any action or proceeding that may affect
the Grantor's title to or the Agent's security interest in the Collateral.
(b) The Grantor hereby authorizes the Agent to file one or
more financing or continuation statements, and amendments thereto, relative to
all or any part of the Collateral without the signature of the Grantor, to the
extent permitted under applicable law. A carbon, photographic or other
reproduction of this Agreement or a financing statement signed by the Grantor
shall be sufficient as a financing statement.
(c) The Grantor will furnish to the Agent and the Lenders
from time to time statements and schedules further identifying and describing
the Collateral and such other reports in connection with the Collateral as the
Agent may reasonably request, all in reasonable detail.
SECTION 6. Covenants of Grantor. The Grantor shall:
(a) Not use or permit any Collateral to be used unlawfully or
in violation of any provision of this Agreement, any policy of
insurance covering the Collateral or any applicable statute,
regulation or ordinance in such manner as could reasonably be expected
to result in a material adverse change in the condition (financial or
otherwise), business operations or prospects of the Grantor and its
Subsidiaries, taken as a whole;
(b) Notify the Agent of any change in the Grantor's name,
identity or corporate structure prior to such change;
(c) Give the Agent 30 days' prior written notice of any
change in the Grantor's chief place of business; and
(d) Pay promptly when due all property and other taxes,
assessments and governmental charges or levies imposed upon, and all
claims (including claims for labor, materials and supplies) against,
the Collateral,
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except to the extent the validity thereof is being contested in good
faith; provided that the Grantor shall in any event pay such taxes,
assessments, governmental charges or levies not later than five days
prior to the date of any proposed sale of which it receives due notice
under any judgment, writ or warrant of attachment entered or filed
against the Grantor as a result of the failure to make such payment.
SECTION 7. Special Covenants With Respect to Equipment and
Inventory. The Grantor shall:
(a) Keep the Equipment and Inventory (other than as may be
sold in the ordinary course of business) at the places therefor
specified on Schedule I hereto or, upon 30 days' prior written notice
to the Agent, at such other places in jurisdictions where the Agent
shall have had full and fair opportunity to take all action that may
be reasonably necessary or desirable or that the Agent may reasonably
request in order to perfect and protect any security interest granted
or purported to be granted hereby or to enable the Agent to exercise
and enforce its rights and remedies hereunder with respect to such
Equipment and Inventory;
(b) Cause the Equipment to be maintained and preserved in a
commercially reasonable condition, repair and working order, ordinary
wear and tear excepted, in accordance with the Grantor's past
practices, and shall forthwith, or in the case of any loss or damage
to any of the Equipment as quickly as practicable after the occurrence
thereof, make or cause to be made all repairs, replacements, and other
improvements in connection therewith that are necessary or desirable
to such end, in the ordinary course of business and in accordance with
the Grantor's past practices. The Grantor shall furnish to the Agent
simultaneously with the delivery of the financial statements in
accordance with Section 5.8(1) of the Credit Agreement a statement
respecting any material loss or damage to the Equipment, as a whole,
to the extent such material loss or damage is not otherwise reflected
in such financial statements;
(c) Maintain in accordance with the Grantor's past practices
commercially reasonable records of the Inventory, itemizing and
describing the kind, type and quantity of Inventory;
(d) If any Inventory is in possession or control of any of
the agents, bailees or processors of the Grantor and if the aggregate
book value of all such Inventory for all of the Grantor exceeds
$100,000 and
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in any event upon the occurrence and during the continuance of an
Event of Default, instruct such agent, bailee or processor to hold all
such Inventory for the account of the Agent and subject to the
instructions of the Agent; and
(e) Not store any Inventory or Equipment with a bailee,
warehouseman, consignee or similar third party without the Agent's
written consent, which will not be unreasonably withheld or delayed.
SECTION 8. Insurance. (a) The Grantor will maintain or cause
to be maintained, with commercially reasonable and reputable insurers,
insurance with respect to its properties and business and the properties and
business of its Subsidiaries against loss or damage of the kinds customarily
insured by corporations of established reputation engaged in the same or
similar businesses and similarly situated, of such types and in such amounts as
are customarily carried under similar circumstances by such other corporations.
Such insurance shall include, without limitation, property damage insurance and
liability insurance. Each policy for property damage insurance shall provide
for all losses (except for losses of less than $100,000 per occurrence) to be
paid jointly to the Agent and the Grantor. Each policy shall in addition (i)
name the Grantor and the Agent as insured parties thereunder (without any
representation or warranty by or obligation upon the Agent) as their interests
may appear, (ii) contain an agreement by the insurer that any loss in excess of
$100,000 thereunder shall be payable jointly to the Agent and the Grantor
notwithstanding any action, inaction or breach of representation or warranty by
the Grantor, (iii) have attached thereto a lender's loss payable endorsement or
its equivalent, in form and substance acceptable to the Agent, (iv) provide
that there shall be no recourse against the Agent or the Lenders for payment of
premiums or other amounts with respect thereto, and (v) provide that at least
30 days' prior written notice of cancellation, material amendment, reduction in
scope or limits of coverage or of lapse shall be given to the Agent by the
insurer. The Grantor shall, if so requested by the Agent, deliver to the Agent
original or duplicate policies of such insurance and, as often as the Agent may
reasonably request, but not more than once per fiscal quarter of the Grantor, a
report of one or more reputable insurance brokers with respect to such
insurance. Further, the Grantor shall, at the request of the Agent, duly
execute and deliver instruments of assignment of such insurance policies to
comply with the requirements of Section 5(a) and cause the respective insurers
to acknowledge notice of such assignment.
(b) Reimbursement under any liability insurance maintained by
the Grantor pursuant to this Section 8 may be paid directly to the Person who
shall have incurred liability covered by such insurance. In the case of any
loss involving damage to
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Equipment and Inventory when subsection (c) of this Section 8 is not
applicable, the Grantor may make or cause to be made the necessary repairs to
or replacements of such Equipment and Inventory, and if the Grantor so chooses
to repair or replace such Equipment any proceeds of insurance maintained by the
Grantor with respect thereto pursuant to this Section 8 shall be paid by the
Agent to the Grantor as reimbursement for the costs of such repairs or
replacements.
(c) Upon (i) the occurrence and during the continuance of any
Event of Default, or (ii) the actual or constructive total loss (in excess of
$50,000 per occurrence) of any Equipment, or Inventory to the extent such
Equipment or Inventory cannot be repaired or replaced, all insurance payments
in respect of such Equipment and Inventory shall be paid to and applied by the
Agent as specified in Section 17.
SECTION 9. Special Covenants With Respect to Payment Rights
and Related Contracts.
(a) The Grantor shall keep its chief place of business and
chief executive office and the office where it keeps its records concerning the
Payment Rights and Related Contracts at the location therefor specified in
Section 4 or, upon 30 days' prior written notice to the Agent, at such other
locations in a jurisdiction where the Agent has had full and fair opportunity
to take all action that may be reasonably necessary or desirable or that the
Agent may reasonably request in order to perfect and protect any security
interest granted or purported to be granted hereby or to enable the Agent to
exercise and enforce its rights and remedies hereunder with respect to such
Payment Rights and Related Contracts. The Grantor will hold and preserve such
records and will permit representatives of the Agent or any Lender at any time
during normal business hours to inspect and make abstracts from such records
and the Grantor agrees to render to the Agent or any Lender, at the Grantor's
cost and expense, such clerical and other assistance as may be reasonably
requested with regard thereto. Promptly upon the written request of the Agent,
the Grantor shall deliver to the Agent complete and correct copies of each
Related Contract.
(b) The Grantor shall, for not less than 5 years from the
date on which such Payment Right arose, maintain (i) complete records of each
Payment Right, including records of all payments received, credits granted and
merchandise returned and (ii) all material documentation relating thereto.
(c) The Grantor shall duly fulfill all obligations on its
part to be fulfilled under or in connection with the Payment Rights and the
Related Contracts and shall do nothing to impair the rights of the Agent
therein, provided the Grantor may declare a breach or default of any agreement
constituting or underlying
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the Payment Rights and Related Contracts to the extent a breach or default has
occurred.
(d) Except as otherwise provided in this subsection (d) of
this Section 9, the Grantor shall continue to collect, at its own expense, all
amounts due or to become due the Grantor under the Payment Rights and Related
Contracts. In connection with such collections, the Grantor may take (and, at
the Agent's direction, shall take) such action as may be necessary or advisable
to enforce collection of the Payment Rights; provided, however, that the Agent
shall have the right at any time, upon the occurrence and during the
continuance of an Event of Default and upon written notice to the Grantor of
its intention to do so, to notify the account debtors or obligors under any
Payment Rights of the assignment of such Payment Rights to the Agent and to
direct such account debtors or obligors to make payment of all amounts due or
to become due to the Grantor thereunder directly to the Agent and, upon such
notification and at the expense of the Grantor, to enforce collection of any
such Payment Rights and to adjust, settle or compromise the amount or payment
thereof, in the same manner and to the same extent as the Grantor might have
done. After receipt by the Grantor of the notice from the Agent referred to in
the proviso to the preceding sentence, (i) all amounts and proceeds (including
checks and other instruments) received by the Grantor in respect of the Related
Contracts and the Payment Rights shall be received in trust for the benefit of
the Agent hereunder, shall be segregated from other funds of any of the Grantor
and shall be forthwith paid over or delivered to the Agent in the same form as
so received (with any necessary endorsement) to be held as cash collateral and
applied as provided in Section 17, and (ii) the Grantor shall not adjust,
settle or compromise the amount or payment of any Payment Right, or release
wholly or partly any account debtor or obligor thereof, or allow any credit or
discount thereon.
SECTION 10. Deposit Accounts. Upon the occurrence and during
the continuance of an Event of Default, the Agent may exercise dominion and
control over, and refuse to permit further withdrawals (whether of money,
securities, instruments or other property) from deposit accounts maintained
with the Agent constituting part of the Collateral.
SECTION 11. License of Patents, Trademarks and Trade Names.
The Grantor hereby assigns (to the extent assignable), transfers, conveys to
the Agent effective upon the occurrence and during the continuance of any Event
of Default, the nonexclusive right and license to use all trademarks, trade
names, copyrights, patents or technical processes owned or used by the Grantor
that relate to the Collateral, together with any goodwill associated therewith,
all to the extent necessary to enable the Agent to use, possess and realize on
the Collateral and any successor or assign to enjoy the benefits of the
Collateral. This right and license shall inure to the benefit of all
successors, assigns and
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transferees of the Agent and its successors, assigns and transferees, whether
by voluntary conveyance, operation of law, assignment, transfer, foreclosure,
deed in lieu of foreclosure or otherwise. Such right and license is granted
free of charge, without requirement that any monetary payment whatsoever be
made to the Grantor.
SECTION 12. Transfers and Other Liens. The Grantor shall
not:
(a) Sell, assign (by operation of law or otherwise) or
otherwise dispose of any of the Collateral in any manner prohibited by
the Credit Agreement.
(b) Except for (i) the security interest created by this
Agreement, (ii) the Liens permitted under Section 6.1 of the Credit
Agreement, and (iii) junior Liens on property held as collateral by
the Grantor pursuant to the Financed Franchisee Loan Documents
(provided that such junior Liens secure purchase money Debt of the
lienor), create or suffer to exist any Lien upon or with respect to
any of the Collateral to secure the indebtedness or other obligations
of any person or entity.
SECTION 13. Agent Appointed Attorney-in-Fact. The Grantor
hereby irrevocably appoints the Agent the Grantor's attorney-in-fact, with full
authority in the place and stead of the Grantor and in the name of the Grantor,
the Agent or otherwise, from time to time upon the occurrence and continuation
of an Event of Default in the Agent's discretion to take any action and to
execute any instrument that the Agent may deem necessary or advisable to
accomplish the purposes of this Agreement, including, without limitation:
(a) to obtain and adjust insurance required to be maintained
by the Grantor or paid to the Agent pursuant to Section 8,
(b) to ask, demand, collect, sue for, recover, compound,
receive and give acquittance and receipts for moneys due and to become
due under or in respect of any of the Collateral,
(c) to receive, endorse, and collect any drafts or other
instruments, documents and chattel paper, in connection with clauses
(a) and (b) above,
(d) to file any claims or take any action or institute any
proceedings that the Agent may deem necessary or desirable for the
collection of any of the
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Collateral or otherwise to enforce the rights of the Agent with
respect to any of the Collateral,
(e) to pay or discharge taxes or Liens, levied or placed upon
or threatened against the Collateral, the legality or validity thereof
and the amounts necessary to discharge the same to be determined by
the Agent in its sole discretion, and such payments made by the Agent
to become obligations of the Grantor to the Agent, due and payable
immediately without demand,
(f) to sign and endorse any invoices, freight or express
bills, bills of lading, storage or warehouse receipts, drafts against
debtors, assignments, verifications and notices in connection with
accounts and other documents relating to the Collateral,
(g) generally to sell, transfer, pledge, make any agreement
with respect to or otherwise deal with any of the Collateral as fully
and completely as though the Agent were the absolute owner thereof for
all purposes, and to do, at the Agent's option and the Grantor's
expense, at any time, or from time to time, all acts and things that
the Agent deems necessary to protect, preserve or realize upon the
Collateral and the Agent's security interest therein, in order to
effect the intent of this Agreement, all as fully and effectively as
the Grantor might do.
SECTION 14. Agent May Perform. If the Grantor fails to
perform any agreement contained herein, the Agent may itself perform, or cause
performance of, such agreement, and the reasonable expenses of the Agent
incurred in connection therewith shall be payable by the Grantor under Section
18.
SECTION 15. Agent's Duties and Liabilities.
(a) The powers conferred on the Agent hereunder are solely to
protect its interest and the interests of the Lenders in the
Collateral and shall not impose any duty upon it to exercise any such
powers. Except for the safe custody of any Collateral in its
possession and the accounting for moneys actually received by it
hereunder, the Agent shall have no duty as to any Collateral or as to
the taking of any necessary steps to preserve rights against prior
parties or any other rights pertaining to any Collateral. The Agent
shall be deemed to exercise reasonable care in the custody and
preservation of such Collateral if such Collateral is accorded
treatment substantially equal to that which the Agent accords its own
property.
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<PAGE> 132
(b) The Agent shall not be liable to the Grantor (i) for any
loss or damage sustained by it, or (ii) for any loss, damage,
depreciation or other diminution in the value of any of the
Collateral, that may occur as a result of, in connection with or that
is in any way related to (x) any exercise by the Agent of any right or
remedy under this Agreement or (y) any other act of or failure to act
by the Agent, except to the extent that the same shall be determined
by a judgment of a court of competent jurisdiction to be the result of
acts or omissions on the part of the Agent constituting gross
negligence or willful misconduct.
(c) NO CLAIM MAY BE MADE BY THE GRANTOR AGAINST THE AGENT, OR
ANY LENDER OR THEIR RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES,
ATTORNEYS OR AGENTS FOR ANY SPECIAL, INDIRECT, OR CONSEQUENTIAL
DAMAGES IN RESPECT OF ANY BREACH OR WRONGFUL CONDUCT (WHETHER THE
CLAIM THEREFOR IS BASED ON CONTRACT, TORT OR DUTY IMPOSED BY LAW) IN
CONNECTION WITH, ARISING OUT OF OR IN ANY WAY RELATED TO THE
TRANSACTIONS CONTEMPLATED AND RELATIONSHIP ESTABLISHED BY THIS
AGREEMENT, OR ANY ACT, OMISSION OR EVENT OCCURRING IN CONNECTION
THEREWITH; AND THE GRANTOR HEREBY EXPRESSLY WAIVES, RELEASES AND
AGREES NOT TO SUE UPON ANY SUCH CLAIM FOR ANY SUCH DAMAGES, WHETHER OR
NOT ACCRUED AND WHETHER OR NOT KNOWN OR SUSPECTED TO EXIST IN ITS
FAVOR.
SECTION 16. Remedies. If any Event of Default shall have
occurred and be continuing, the Agent may exercise in respect of the
Collateral, (a) all the rights and remedies it has as a secured party on
default under the Uniform Commercial Code of the State of Illinois (the "Code")
(whether or not the Code applies to the affected Collateral), (b) all of the
rights and remedies provided for in this Agreement, the Credit Agreement and
any other agreement between the Grantor, the Lenders and the Agent, as
applicable, and (c) such other rights and the remedies as may be provided by
law or otherwise (such rights and remedies of the Agent to be cumulative and
non-exclusive). If an Event of Default shall have occurred and be continuing,
the Agent also may (i) require the Grantor to, and the Grantor hereby agrees
that it will at its expense and upon request of the Agent forthwith, assemble
all or part of Collateral as directed by the Agent and make it available to the
Agent at a place to be designated by the Agent that is reasonably convenient to
such parties, (ii) enter onto the property where any Collateral is located and
take possession thereof with or without judicial process, (iii) prior to the
disposition of the Collateral, store, process, repair or recondition the
Collateral or otherwise prepare the Collateral for disposition in any manner to
the extent the Agent deems appropriate, (iv) take possession of the Grantor's
premises or place custodians in exclusive control thereof, remain on such
premises and use the same and any equipment of the Grantor for
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<PAGE> 133
the purpose of completing any work in process, taking any actions described in
the preceding clause (iii) and collecting any Secured Obligation and (v)
without notice except as specified below, sell the Collateral or any part
thereof in one or more parcels at public or private sale of which the Grantor
has received reasonable notice, at any of the Agent's offices or elsewhere, for
cash, on credit or for future delivery, and at such price or prices and upon
such other terms as the Agent may deem commercially reasonable. The Grantor
agrees that, at least ten days' notice to the Grantor of the time and place of
any public sale or the time after which any private sale is to be made shall
constitute reasonable notification. The Agent shall not be obligated to make
any sale of Collateral regardless of notice of sale having been given. The
Agent may adjourn any public or private sale from time to time by announcement
at the time and place fixed therefor, and such sale may, without further
notice, be made at the time and place to which it was so adjourned.
The Agent may retain any directors, officers and employees of
the Grantor, in each case upon such terms as the Agent and any such person may
agree, notwithstanding the provisions of any employment, confidentiality or
non-disclosure agreement between any such person and the Grantor, and the
Grantor hereby waives its rights under any such agreement and consent to each
such retention.
SECTION 17. Application of Proceeds. Except as expressly
provided elsewhere in this Agreement, all proceeds received by the Agent in
respect of any sale of, collection from or other realization upon all or any
part of the Collateral may, in the discretion of the Agent, be held by the
Agent as Collateral for, and/or then, or at any other time thereafter applied,
in full or in part by the Agent against the Secured Obligations in the
following order of priority:
FIRST: To the payment of all reasonable costs and expenses of
such sale, collection or other realization and all other expenses,
liabilities and advances made or incurred by the Agent in connection
therewith and all amounts for which the Agent is entitled to
indemnification hereunder and all advances made by the Agent hereunder
for the account of the Grantor and for the payment of all costs and
expenses paid or incurred by the Agent in connection with the exercise
of any right or remedy hereunder, all in accordance with Section 18;
SECOND: To the ratable payment in full of the Secured
Obligations owing to the Lenders; and
THIRD: After payment in full of the amounts specified in the
preceding paragraphs, to the payment
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<PAGE> 134
to or upon the order of the Grantor, or whomsoever may be lawfully
entitled to receive the same or as a court of competent jurisdiction
may direct, of any surplus then remaining from such proceeds.
All applications of proceeds to the Secured Obligations shall
be applied to the payment of interest before application of payment to
principal.
SECTION 18. Indemnity and Expenses.
(a) The Grantor agrees to indemnify the Agent and Lenders
from and against any and all claims, losses and liabilities growing out of or
resulting from this Agreement (including, without limitation, enforcement of
this Agreement), except claims, losses or liabilities resulting from the
Agent's and/or any such Lender's, as the case may be, gross negligence or
willful misconduct.
(b) The Grantor will upon demand pay to the Agent and/or any
Lender, as the case may be, the amount of any and all reasonable expenses,
including the reasonable fees and disbursements of such Person's counsel and of
any experts and agents, that the Agent and/or any Lender, as the case may be,
may incur in connection with (i) the custody, preservation, use or operation
of, or the sale of, collection from, or other realization upon, any of the
Collateral after the occurrence of an Event of Default, (ii) the exercise or
enforcement of any of the rights of the Agent or any Lender, as the case may
be, hereunder after the occurrence of an Event of Default or (iii) the failure
by the Grantor to perform or observe any of the provisions hereof.
SECTION 19. Other Waivers by the Grantor, Etc.
The Grantor waives any right to require the Agent to (a)
proceed against any Person, including, without limitation, any Account Debtor;
(b) proceed against or exhaust any collateral held from any other Person; (c)
pursue any other remedy in the Agent's power; or (d) make or give any
presentments, demands for performance, notices of nonperformance, protests,
notices of protests or notices of dishonor in connection with any obligation or
evidences of indebtedness held by the Agent as collateral, or in connection
with any obligations or evidences of indebtedness that constitute in whole or
in part the Underlying Debt, or in connection with the creation of new or
additional indebtedness.
The Grantor waives any defense arising by reason of, and
agrees that the rights of the Agent and the obligations of the Grantor
hereunder shall be absolute and unconditional irrespective of, (a) any
disability or other defense of any other Person; (b) the unenforceability or
cessation from any cause whatsoever, other than the indefeasible payment in
full, of the
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<PAGE> 135
Underlying Debt; (c) the application by the Grantor of the proceeds of any
Underlying Debt for purposes other than the purposes represented by the Grantor
to the Agent or intended or understood by the Agent; (d) any right to deferral
or modification of the Grantor's obligations hereunder by reason of any
bankruptcy, reorganization, arrangement, moratorium or other debtor relief
proceeding; (e) to the fullest extent permitted by law, any defense or benefit
that may be derived from or afforded by law that limits the liability of or
exonerates guarantors or sureties; (f) any election of remedies by the Agent
that destroys the Grantor's subrogation rights or the Grantor's right to
proceed against any other Person for reimbursement, including without
limitation the loss of rights the Grantor may suffer by reason of any rights,
power or remedies of the Grantor in connection with any anti-deficiency laws or
any other laws limiting, qualifying or discharging the Underlying Debt; and (g)
any other circumstance that might otherwise constitute a defense available to,
or a discharge of, any other Person in respect of the Underlying Debt.
Until the indefeasible payment in full of all of the
liabilities and obligations under the Credit Agreement (including without
limitation the liabilities and payment obligations relating to the Loans) and
termination of each Lender's Commitment, the Grantor waives any right to
enforce any remedy that the Agent now has or may hereafter have against any
other Person, and waives any benefit of, or any right to participate in, any
security whatsoever now or hereafter held by the Agent.
SECTION 20. Waiver of Hearing. The Grantor expressly waives
any constitutional or other right to a judicial hearing prior to the time the
Agent takes possession or disposes of the Collateral as provided in Section 16
hereof.
SECTION 21. Waiver of Jury Trial. THE GRANTOR AND THE AGENT
HEREBY AGREE TO WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR
CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT. The scope of this
waiver is intended to be all-encompassing of any and all disputes that may be
filed in any court and that relate to the subject matter of this transaction,
including, without limitation, contract claims, tort claims, breach of duty
claims, and all other common law and statutory claims. The Grantor and the
Agent each acknowledge that this waiver is a material inducement for the
Grantor and the Agent to enter into a business relationship, that the Grantor
and the Agent have already relied on the waiver in entering into this Agreement
and that each will continue to rely on the waiver in their related future
dealings. The Grantor and the Agent further warrant and represent that each
has reviewed this waiver with its legal counsel, and that each knowingly and
voluntarily waives its jury trial rights following consultation with legal
counsel. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED
EITHER ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY
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<PAGE> 136
SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS
AGREEMENT. In the event of litigation, this Agreement may be filed as a
written consent to a trial by the court.
SECTION 22. Continuing Security Interest. This Agreement
shall create a continuing security interest in the Collateral and shall (a)
remain in full force and effect until the indefeasible payment in full of the
Secured Obligations and termination of each Lender's Commitment, (b) be binding
upon the Grantor, its successors and assigns and (c) inure, together with the
rights and remedies of the Agent hereunder, to the benefit of the Agent, the
Lenders and their respective successors, transferees and assigns. Upon the
indefeasible payment in full of the Secured Obligations and termination of each
Lender's Commitment, the security interest granted hereby shall terminate and
all rights to the Collateral shall revert to the Grantor. Upon any such
termination, the Agent will, at the Grantor's expense, execute and deliver to
the Grantor such documents as the Grantor shall reasonably request to evidence
such termination and shall terminate its financing statements with regard to
the Collateral wherever filed.
SECTION 23. Amendments; Etc. No amendment or waiver of any
provision of this Agreement nor consent to any departure by the Grantor
herefrom, shall in any event be effective unless the same shall be in writing
and signed by the Agent and the Grantor, and then such waiver or consent shall
be effective only in the specific instance and for the specific purpose for
which given.
SECTION 24. Notices, Etc. All notices and other
communications provided for under this Agreement shall be in writing (including
telegraphic, telex or facsimile communication) and mailed or telecommunicated
or delivered at the address of such party set forth in the Credit Agreement;
or, as to each party, at such other address as shall be designated by such
party in a written notice to the other party complying as to delivery with the
terms of this Section 24. All such notices and communications shall, when
mailed or telecommunicated, be effective upon the earlier of actual receipt or
three (3) Business Days after deposited in the mails, or one (1) Business Day
after transmitted by telex and the appropriate answerback received, transmitted
by facsimile or delivered to the telegraph company, respectively, addressed as
aforesaid.
SECTION 25. Consent to Jurisdiction and Service of Process.
Each of the Grantor and the Agent hereby submits to the nonexclusive
jurisdiction of the state courts of the State of Illinois and the federal
courts located in the Northern District of Illinois for all matters arising
under this Agreement and related documents. Service of process sufficient for
personal jurisdiction in any action against the Grantor in Illinois may be
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<PAGE> 137
made by registered or certified mail, return receipt requested, to the address
specified pursuant to Section 24.
SECTION 26. GOVERNING LAW; TERMS. THIS AGREEMENT SHALL BE
GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE
INTERNAL LAWS OF THE STATE OF ILLINOIS WITHOUT REGARD TO CONFLICTS OF LAW
PRINCIPLES. Unless otherwise defined herein or in the Credit Agreement, terms
used in Article 9 of the Code as in effect in the State of Illinois are used
herein as therein defined.
SECTION 27. Headings. Section and subsection headings in
this Agreement are included herein for convenience of reference only and shall
not constitute a part of this Agreement or be given any substantive effect.
SECTION 28. Severability. In case any provision in or
obligation under this Agreement shall be invalid, illegal or unenforceable in
any jurisdiction, the validity, legality and enforceability of the remaining
provisions or obligations, or of such provision or obligation and in any other
jurisdiction, shall not in any way be affected or impaired thereby.
SECTION 29. No Other Writing. This writing is intended by
the Grantor and the Agent as the final expression of this Agreement and is also
intended, together with the Credit Agreement (and the other Exhibits thereto,
including the Notes) as a complete and exclusive statement of the terms of
their agreement with respect to the matters covered hereby. No course of
dealing, course of performance or trade usage, and no parol evidence of any
nature, shall be used to supplement or modify and terms of this Agreement.
There are no conditions to the full effectiveness of this Agreement.
SECTION 30. Counterparts. This Agreement may be executed in
one or more counterparts, each of which when so executed shall be deemed an
original, but all such counterparts together shall constitute but one and the
same instrument.
SECTION 31. Confidentiality. Prior to an Event of Default,
to the extent any of the Collateral constitutes or consists of trade secrets or
other confidential or proprietary information of the Borrower, Agent, Lenders
and any party acquiring the Collateral upon the exercise of the remedies
provided in this Agreement, shall not use or disclose such Collateral in any
manner inconsistent with the business of the Borrower, and shall maintain and
preserve the confidentiality thereof to the extent necessary to maintain such
Collateral as trade secrets under the Uniform Trade Secrets Act and similar
statues and rules of law pertaining to trade secrets and confidential and
proprietary information.
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<PAGE> 138
SECTION 32. Rights Exercisable. Notwithstanding anything else
to the contrary herein, Agent's rights hereunder are limited to whatever rights
Grantor has with respect to the Collateral.
* * * * *
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<PAGE> 139
IN WITNESS WHEREOF, the Grantor and the Agent have caused this
Agreement to be duly executed and delivered by their respective officers
thereunto duly authorized as of the date first above written.
----------------------------------
By:
------------------------------
Title:
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as Agent
By:
-------------------------------
Title:
<PAGE> 140
SCHEDULE I
TO SECURITY AGREEMENT*/
Locations of Equipment:
Each of the locations set forth on Schedule 4.18 of the Credit
Agreement (other than those locations designated by an "*" on such
Schedule 4.18) as owned or leased by the Grantor.
Locations of Inventory:
Each of the locations set forth on Schedule 4.18 of the Credit
Agreement (other than those locations designated by an "*" on such
Schedule 4.18) as owned or leased by the Grantor.
- -----------------
*/ Modify as appropriate.
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<PAGE> 141
EXHIBIT F-2
TRADEMARK SECURITY AGREEMENT
THIS TRADEMARK SECURITY AGREEMENT (this "Agreement") is dated
as of ______, 199_ and is made by ___________________, a _____________
corporation ("Grantor"), in favor of and for the benefit of Bank of America
National Trust and Savings Association, as Agent (the "Agent").
RECITALS
WHEREAS, [Grantor] [Einstein Bros. Bagels, Inc., a Delaware
corporation (the "Borrower")] has entered into that certain Secured Credit
Agreement dated as of May 17, 1996 as amended and restated by that certain
Amended and Restated Secured Credit Agreement dated as of November __, 1997
(said Credit Agreement, as it may hereafter be further amended, supplemented,
restated or otherwise modified from time to time, being the "Credit Agreement";
capitalized terms defined therein and not otherwise defined herein being used
herein as therein defined) with the Agent and the Co-Agent, the Issuing Lender
and the Lenders party thereto, pursuant to which the Lenders have agreed to
make Loans and other financial accommodations to the [Grantor] [Borrower],
subject to the terms and conditions of the Credit Agreement;
[WHEREAS, the Grantor will derive substantial direct and
indirect benefits from the making of the Loans under the Credit Agreement;
and]*/
WHEREAS, to secure the repayment of all amounts under the
Credit Agreement and other Loan Documents, Grantor has granted to the Agent for
the benefit of the Lenders a valid security interest in and to all of its now
existing and hereafter acquired general intangibles, including, without
limitation, all of its now existing and hereafter arising trade secrets,
patents and patent applications, trademarks and trademark applications,
tradenames, and copyrights.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, and in order to
__________________________________
*/ Insert for Subsidiary Agreements.
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<PAGE> 142
induce the Lenders to make Loans, the parties hereto agree as follows:
1. To secure the payment and performance of all indebtedness
and other obligations and liabilities of [Borrower and] Grantor to the Lenders
of every kind and description, whether direct or indirect, absolute or
contingent, primary or secondary, due or to become due, now existing or
hereafter arising under or in connection with the Credit Agreement and other
Loan Documents, Grantor hereby grants to the Agent for the benefit of the
Lenders a valid, enforceable security interest in all of Grantor's rights,
titles and interests in the United States and throughout the world, in and to
all of its currently owned or hereafter acquired trademarks, registrations of
trademarks and applications for registration, together with the goodwill of the
business symbolized by such trademarks, including without limitation, those
United States trademark registrations and applications for trademark
registrations on Schedule A attached hereto and made a part hereof, and to all
income, royalties, damages and payments now and hereafter due and/or payable
under or based on such trademarks, and in and to all rights to sue, collect and
retain damages and payments for past and future infringements and violation of
the rights thereof (hereinafter all of the foregoing trademarks, registrations
of trademarks and applications for trademark registrations are sometimes
individually and/or collectively referred to as the "Trademarks").
2. Grantor warrants and represents to and covenants with the
Agent that except as disclosed to the Agent and the Banks in a letter dated as
of the date of this Agreement:
(a) Grantor is the present owner of the entire right, title
and interest in and to the Trademarks that are the subject of
registrations on Schedule A, and, to the best of its knowledge, has
good and indefeasible title thereto.
(b) Except pursuant to Area Development Agreements, Franchise
Agreements, and similar agreements and as otherwise disclosed in
writing by Grantor to the Agent, the Trademarks (excluding non-United
States Trademarks) are free and clear of all security interests,
liens, claims and encumbrances, except those permitted by the Credit
Agreement.
(c) Except pursuant to Area Development Agreements, Franchise
Agreements and similar agreements and as otherwise disclosed in
writing by Grantor to the Agent, Grantor has not granted any license,
rights and privileges in or to the Trademarks to any party, except the
Agent.
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<PAGE> 143
(d) To the best of Grantor's knowledge, Grantor may use the
Trademarks that are the subject of registrations on Schedule A free
and clear of the infringement of the rights of others.
(e) Except as otherwise disclosed in writing by Grantor to
the Agent, Grantor has no outstanding threats of action and has not
commenced and is not about to commence any suit or action against
others in connection with the violation or enforcement of the rights
of Grantor in the Trademarks.
(f) The Trademarks on Schedule A constitute all of the United
States registrations and applications for the Trademarks owned by
Grantor.
(g) Grantor has not and will not make any agreement or
assignment in conflict with this Agreement.
3. To the best of Grantor's knowledge, the trademark
applications have been duly and properly filed, and the trademark registrations
filed and issued, and the Trademarks which are the subject of registrations on
Schedule A are valid and enforceable.
4. Grantor shall not take any action, nor permit any action
to be taken by others subject to Grantor's control, including licensees, or
fail to take any action regarding any matter of which the Grantor has
knowledge, which would affect the validity and enforcement of the Trademarks,
or impair the value of the Trademarks or the goodwill of the business
associated therewith, except Grantor may discontinue or abandon the use of the
Trademarks and any applications and registrations therefor it determines in
accordance with its reasonable business judgment, such discontinuance or
abandonment is desirable or necessary.
5. Subject to the other provisions of this Agreement, Grantor
shall assume and continue, at its own cost and expense, through counsel of its
own choice and acceptable to the Agent, full and complete responsibility for
the prosecution, issuance, enforcement, maintenance, renewal or any other
actions in connection with the Trademarks.
6. Grantor promptly shall notify the Agent, in writing, of
any material suit, action or proceeding brought against it relating to,
concerned with or affecting the Trademarks or infringement of another
trademark, and shall, on written request, deliver to the Agent a copy of all
pleadings, papers, orders or decrees theretofore and thereafter filed in any
such suit, action or proceeding, and shall keep the Agent fully advised in
writing of the progress of any such suit.
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<PAGE> 144
7. Grantor shall provide the Agent semi-annually with a
listing of all new applications for trademarks (together with a listing of the
issuance of registrations on any previous applications), which new applications
and issued trademark registrations shall be subject to the terms and conditions
of the Credit Agreement and this Agreement and come within the term
"Trademarks" as set forth herein. Grantor shall, together with the list,
provide the Agent, on written request, with duly executed documents in a form
acceptable to counsel for the Agent and suitable for recording, which documents
grant a valid enforceable security interest to the Agent for the benefit of the
Lenders as in Paragraph 1 hereof, and subject to all the terms of this
Agreement and the Credit Agreement.
8. Grantor shall provide the Agent, at least annually, with a
complete status report of all the Trademarks, and upon written request by the
Agent, shall deliver to counsel for the Agent copies of any trademark
applications and other non-privileged documents concerned with or related to
the adoption, use, prosecution, protection, maintenance, renewal, enforcement
or issuance of the Trademarks.
9. In order to protect and continue the goodwill of the
business associated with and symbolized by the Trademarks, and to avoid
deception to the public as to the nature and quality of the goods on which the
Trademarks are employed by Grantor, Grantor shall conduct its business in
accordance with the requirements of production, quality and service of the
goods in the market as in the past, and shall at all times use its reasonable
best efforts to maintain the quality of the goods sold or distributed on which
the Trademarks are employed commensurate with at least the same or better
quality and past practices of Grantor.
10. The occurrence of either of the following shall
constitute an Event of Default under this Agreement: (a) if Grantor shall fail
or neglect to perform, keep or observe any material term, provision, condition,
covenant, warranty or representation contained in this Agreement which is
required to be performed, kept or observed by Grantor, and the same is not
cured within 15 Business Days after written notice thereof from the Agent to
Grantor; or (b) occurrence of an Event of Default under the Credit Agreement.
Grantor hereby appoints and designates the Agent its sole attorney to take any
such action after an Event of Default as the Agent deems necessary under the
circumstances, and Grantor shall pay all fees and expenses in connection with
such action by its attorney so appointed and designated.
11. From and after an Event of Default hereunder and the
continuance thereof, the Agent may grant licenses, rights or other privileges
in, or otherwise take whatever action with respect to the Trademarks that the
Agent deems necessary or
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<PAGE> 145
appropriate under the circumstances. In addition, from and after an Event of
Default hereunder and during the continuance thereof, the Agent shall have all
of the rights, remedies and benefits of a secured party under applicable law,
including without limitation, all of the rights, remedies and benefits of a
secured party under the Uniform Commercial Code, whether or not the Uniform
Commercial Code is applicable.
12. Should any part or provision of this Agreement be held
unenforceable or conflicting with the law of any jurisdiction the validity of
the remaining parts or provisions hereof shall not be affected thereby.
13. Grantor agrees, on written request by the Agent, now and
during the term of this Agreement to do all such acts as may be necessary or
appropriate in order to carry out the intent and purpose of this Agreement, and
to protect the interest of the Lenders in the Trademarks.
14. The term of this Agreement shall correspond to the term
of the Credit Agreement and this Agreement shall remain in full force and
effect until the Credit Agreement is terminated or cancelled in accordance with
the terms thereof.
15. Upon payment in full of all obligations of the Grantor
arising under or in connection with the Credit Agreement and other Loan
Documents and the termination of each of the Lender's Commitment thereunder,
the Agent agrees to release and take such further action as may be necessary of
advisable to evidence such release and termination of its security interest set
forth herein.
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<PAGE> 146
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the day and year first above written.
-------------------------------
ATTEST:
By:
----------------------------
Title:
-------------------------
- ------------------------
Secretary
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as Agent
By:
---------------------------
Title:
------------------------
<PAGE> 147
SCHEDULE A
<TABLE>
<CAPTION>
Trademarks
----------
Trademark Serial # Reg. # Date Issued
- --------- -------- --------- -----------
<C> <C> <C> <C>
</TABLE>
<TABLE>
<CAPTION>
Trademark Applications
----------------------
Trademark Serial # Date Applied For
- --------- -------- ----------------
<C> <C> <C>
</TABLE>
- 7 -
<PAGE> 148
EXHIBIT F-3
[Attached existing Collateral Assignment
of Servicing Agreements]
- 8 -
<PAGE> 149
EXHIBIT G
PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT (this "Pledge Agreement"), dated as of
______, 199_ made by __________________, a ________ corporation (the
"Pledgor"), in favor of Bank of America National Trust and Savings Association,
INC., as Agent (the "Agent").
W I T N E S S E T H:
WHEREAS, the Pledgor has entered into that certain Secured
Credit Agreement, dated as of May 17, 1996 as amended and restated by that
certain Amended and Restated Secured Credit Agreement dated as of November __,
1997 (said Credit Agreement, as it may hereafter be further amended,
supplemented, restated or otherwise modified from time to time, being the
"Credit Agreement"; capitalized terms defined therein and not otherwise defined
herein being used herein as therein defined) with the Agent and the Co-Agent,
the Issuing Lender and the Lenders party thereto, pursuant to which the Lenders
have agreed to make Loans (as defined herein) to the Pledgor, subject to the
terms and conditions of the Credit Agreement;
WHEREAS, as a condition precedent to the making of the Loans
by the Lenders under the Credit Agreement, the Pledgor is required to execute
and deliver this Pledge Agreement; and
WHEREAS, the Pledgor has duly authorized the execution,
delivery and performance of this Pledge Agreement;
NOW, THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, and in order to
induce the Lenders to make Loans to the Pledgor pursuant to the Credit
Agreement, the Pledgor agrees, for the benefit of the Lenders, as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Certain Terms. The following terms when used in
this Pledge Agreement, including its preamble and recitals, shall have the
following meanings (such definitions to be equally applicable to the singular
and plural forms thereof):
"Agent" is defined in the preamble.
"Collateral" is defined in Section 2.1.
"Credit Agreement" is defined in the first recital.
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"Distributions" means all stock dividends, liquidating
dividends, shares of stock resulting from (or in connection with the exercise
of) stock splits, reclassifications, warrants, options, non-cash dividends, and
other distributions (whether similar or dissimilar to the foregoing) on or with
respect to any Pledged Shares or other shares of capital stock constituting
Collateral, but shall not include Dividends.
"Dividends" means cash dividends and cash distributions with
respect to any Pledged Shares made out of capital surplus.
"Lenders" is defined in the first recital.
"Pledge Agreement" is defined in the preamble.
"Pledged Affiliate Shares" means all shares of capital stock
or other equity interest of any Pledged Share Issuer with respect to which the
Pledgor is record owner and which are delivered by the Pledgor to the Agent as
Pledged Property hereunder, and all of the certificates and instruments
representing such shares of capital stock or other equity interest.
"Pledged Debtor Shares" means all shares of capital stock or
other equity interest of any Pledged Share Issuer with respect to which the
Pledgor has been granted a Lien to secure certain Debt owed by some third party
Person to the Pledgor and which are delivered to the Agent as Pledged Property
hereunder, all of the certificates and instruments representing such shares of
capital stock or other equity interest.
"Pledged Note Issuer" means each Person identified in Item A
of Attachment 1 (hereto as such Attachment 1 shall be updated by any substitute
Attachment 1 delivered by Pledgor pursuant to Section 5.10 of the Credit
Agreement) as the issuer of the Pledged Note identified opposite the name of
such Person.
"Pledged Notes" means all promissory notes of any Pledged Note
Issuer which are delivered by the Pledgor to the Agent as Pledged Property
hereunder, as such promissory notes, in accordance with Section 4.5, are
amended, modified, or supplemented from time to time and together with any
promissory note of any Pledged Note Issuer taken in extension or renewal
thereof or substitution therefor.
"Pledged Property" means all Pledged Shares, all Pledged
Notes, and all other pledged shares of capital stock or promissory notes, all
other securities, all assignments of any amounts due or to become due, all
other instruments which are now being delivered by the Pledgor to the Agent or
may from time to time hereafter be delivered by the Pledgor to the Agent for
the purpose of pledge under this Pledge Agreement or any other Loan Document,
and all proceeds of any of the foregoing.
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"Pledged Share Issuer" means each Person identified in Item B
of Attachment 1 hereto (as such Attachment 1 shall be updated by any substitute
Attachment 1 delivered by Pledgor pursuant to Section 5.10 of the Credit
Agreement) as the issuer of the Pledged Shares identified opposite the name of
such Person.
"Pledged Shares" means all Pledged Affiliate Shares and all
Pledged Debtor Shares; provided, however Pledged Shares shall not include stock
issued by the Pledgor.
"Pledgor" is defined in the preamble.
"Secured Obligations" is defined in Section 2.2.
"U.C.C." means the Uniform Commercial Code as in effect in the
State of Illinois, as the same may be amended from time to time.
SECTION 1.2 Credit Agreement Definitions. Unless otherwise
defined herein or the context otherwise requires, terms used in this Pledge
Agreement, including its preamble and recitals, have the meanings provided in
the Credit Agreement.
SECTION 1.3 U.C.C. Definitions. Unless otherwise defined
herein or the context otherwise requires, terms for which meanings are provided
in the U.C.C. are used in this Pledge Agreement, including its preamble and
recitals, with such meanings.
ARTICLE II
PLEDGE
SECTION 2.1 Grant of Security Interest. The Pledgor hereby
pledges, hypothecates, assigns, charges, mortgages, delivers, and transfers to
the Agent for the benefit of the Lenders, and hereby grants to the Agent for
the benefit of the Lenders, a continuing security interest in, all of the
following property (the "Collateral"):
(a) all promissory notes of each Pledged Note Issuer
identified in Item A of Attachment 1 hereto (as such Attachment I
shall be updated by any substitute Attachment I delivered by Pledgor
pursuant to Section 5.10 of the Credit Agreement);
(b) all other Pledged Notes issued from time to time;
(c) all Pledged Shares identified in Item B of Attachment 1
hereto (as such Attachment I shall be
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updated by any substitute Attachment I delivered by Pledgor pursuant
to Section 5.10 of the Credit Agreement);
(d) all other Pledged Shares issued from time to time;
(e) all other Pledged Property, whether now or hereafter
delivered to the Agent in connection with this Pledge Agreement;
(f) all Dividends, Distributions, interest, and other
payments and rights with respect to any Pledged Property to which
Pledgor is entitled or entitled to receive a security interest; and
(g) all proceeds of any of the foregoing.
SECTION 2.2 Security for Obligations. This Pledge Agreement
secures the payment in full of all obligations of every nature of the Pledgor
now or hereafter existing under the Credit Agreement, the Notes and each other
Loan Document, whether for principal, interest, costs, fees, expenses, or
otherwise (all such obligations of the Pledgor being the "Secured
Obligations").
SECTION 2.3 Delivery of Pledged Property; Registration of
Pledge, Transfer, etc. All certificates or instruments representing or
evidencing any Collateral, including all Pledged Shares and all Pledged Notes
(except to the extent any such Pledged Notes are expressly excluded from the
delivery requirements hereunder pursuant to Section 5.10(a) of the Credit
Agreement), shall be delivered to and held by or on behalf of the Agent
pursuant hereto, shall be in suitable form for transfer by delivery, and shall
be accompanied by all necessary instruments of transfer or assignment, duly
executed in blank. Prior to the delivery thereof to the Agent, such
certificates or instruments shall be held by the Pledgor separate and apart
from its other property and in express trust for the Agent. To the extent
Pledgor has such rights, the Agent shall have the right, at any time after a
Default shall have occurred and be continuing and without notice to the
Pledgor, to transfer to, or to register in the name of the Agent or any of its
nominees, any or all of the Pledged Affiliate Shares, subject only to the
revocable rights of the Pledgor specified in clause (c) of Section 4.4. In
addition, to the extent Pledgor has such rights, the Agent shall have the right
at any time after a Default shall have occurred and be continuing to exchange
certificates or instruments representing or evidencing any Pledged Affiliate
Shares for certificates or instruments of smaller or larger denominations.
SECTION 2.4 Dividends and Interest. (a) In the event that
any Dividend to which Pledgor is entitled or entitled to
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receive a security interest is to be paid on any Pledged Share at a time when
no Event of Default has occurred and is continuing, and the proceeds of such
Dividend have not previously been required to be applied to any of the Secured
Obligations, such proceeds may be paid directly to the Pledgor.
(b) In the event that any payment of interest or principal to which Pledgor is
entitled or entitled to receive a security interest is to be paid on any
Pledged Note at a time when no Event of Default has occurred and is continuing,
and the proceeds of such payment have not previously been required to be
applied to any of the Secured Obligations, such proceeds may be paid directly
to the Pledgor.
SECTION 2.5 Continuing Security Interest; Transfer of Note.
This Pledge Agreement shall create a continuing security interest in the
Collateral and shall
(a) remain in full force and effect until payment in full of
all Secured Obligations and the termination of all Commitments,
(b) be binding upon the Pledgor and its successors,
transferees and assigns, and
(c) inure to the benefit of the Agent, the Lenders and their
respective successors, transferees, and assigns.
Without limiting the foregoing clause (c), pursuant to the terms of the Credit
Agreement, the Lenders may assign, or otherwise transfer (in whole or in part)
their ratable portion of the Notes or any Loan held by them to any other Person
or entity, and such other Person or entity shall thereupon become vested with
all the benefits in respect thereof granted to the Lenders under any Loan
Document (including this Pledge Agreement) or otherwise. Upon the payment in
full of the Secured Obligations and the termination of each Lender's
Commitment, the security interest granted herein shall terminate and all rights
to the Collateral shall revert to the Pledgor. Upon any such termination, the
Agent will, at the Pledgor's sole expense, deliver to the Pledgor, without any
representations or warranties of any kind whatsoever, all certificates and
instruments representing or evidencing all Pledged Shares and all Pledged
Notes, together with all other Collateral held by the Agent hereunder, and
execute and deliver to the Pledgor, at the Pledgor's sole expense, such
documents as the Pledgor shall reasonably request to evidence such termination.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES
The Pledgor represents and warrants unto the Agent, as at the
date of each pledge and delivery hereunder (including each pledge and delivery
of Pledged Shares and each pledge and delivery of a Pledged Note) by the
Pledgor to the Agent of any Collateral, as follows:
SECTION 3.1 Ownership, No Liens, etc. The Pledgor is the
legal and beneficial owner of, and has good and marketable title to (and has
full right and authority to pledge and assign) all the Collateral (other than
Pledged Debtor Shares and Dividends, Distributions and Proceeds therefrom),
free and clear of all liens, security interests, options, or other charges or
encumbrances, except any lien or security interest permitted under Section 6.1
of the Credit Agreement. The Pledgor has a valid, perfected, first priority
security interest in the Pledged Debtor Shares and all proceeds thereof,
subject to the exceptions set forth in Section 6.1 of the Credit Agreement.
SECTION 3.2 As to Pledged Shares. In the case of any Pledged
Affiliate Shares constituting such Collateral, all of such Pledged Affiliate
Shares are duly authorized and validly issued, fully paid, and non-assessable.
SECTION 3.3 As to Pledged Notes. To the best of Pledgor's
knowledge, in the case of each Pledged Note, all of such Pledged Notes have
been duly authorized, executed, endorsed, issued and delivered (except to the
extent any such Pledged Notes are expressly excluded from the delivery
requirements hereunder pursuant to Section 5.10(a) of the Credit Agreement),
and are the legal, valid and binding obligation of the issuers thereof
enforceable against such issuers in accordance with their respective terms,
except as enforcement may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws relating to or limiting creditors' rights and to
general principles of equity. None of the Pledged Notes are in default with
respect to the obligor's payment obligation.
SECTION 3.4 Authorization, Approval, etc. Except as may have
been obtained, no authorization, approval, or other action by, and no notice to
or filing with, any governmental authority, regulatory body or any other Person
is required either
(a) for the pledge by the Pledgor of any Collateral pursuant
to this Pledge Agreement or for the execution, delivery, and
performance of this Pledge Agreement by the Pledgor, or
(b) for the exercise by the Agent of the voting or other
rights provided for in this Pledge Agreement,
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or, except with respect to any Pledged Shares, as may be required in
connection with a disposition of such Pledged Shares by laws affecting
the offering and sale of securities generally, the remedies in respect
of the Collateral pursuant to this Pledge Agreement.
ARTICLE IV
COVENANTS
SECTION 4.1 Protect Collateral; Further Assurances, etc. The
Pledgor will not sell, assign, transfer, pledge, or encumber in any other
manner the Collateral (except (i) in favor of the Agent hereunder, and (ii)
prior to an Event of Default, in connection with the exercise of any remedy the
Pledgor has against any third party borrower which has pledged such Collateral
to the Pledgor as security). The Pledgor will warrant and take reasonable
action to defend the right and title herein granted unto the Agent in and to
the Collateral (and all right, title, and interest represented by the
Collateral) against the claims and demands of all Persons whomsoever. The
Pledgor agrees that at any time, and from time to time, at the expense of the
Pledgor, the Pledgor will promptly execute and deliver all further instruments,
and take all further action, that may be necessary or desirable, or that the
Agent may reasonably request, in order to perfect and protect any security
interest granted or purported to be granted hereby or to enable the Agent to
exercise and enforce its rights and remedies hereunder with respect to any
Collateral.
SECTION 4.2 Stock Powers, etc. The Pledgor agrees that all
Pledged Shares (and all other shares of capital stock constituting Collateral)
delivered by the Pledgor pursuant to this Pledge Agreement will be accompanied
by duly executed undated blank stock powers, or other equivalent instruments of
transfer acceptable to the Agent. The Pledgor will, from time to time upon the
request of the Agent, promptly deliver to the Agent such stock powers,
instruments, and similar documents, satisfactory in form and substance to the
Agent, with respect to the Collateral as the Agent may reasonably request and
will, from time to time upon the request of the Agent after the occurrence of
any Event of Default and during the continuance thereof to the extent of any
right to do such, promptly transfer any Pledged Affiliate Shares into the name
of any nominee designated by the Agent.
SECTION 4.3 Continuous Pledge. Subject to Section 2.4, the
Pledgor will, at all times, keep pledged to the Agent pursuant hereto all
Pledged Shares and all other shares of capital stock constituting Collateral,
all Dividends and Distributions with respect thereto to which the Pledgor is
entitled, or entitled to receive a security interest in, all
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Pledged Notes, all proceeds received by the Agent or the Pledgor with respect
to the Pledged Notes, and all other Collateral and other securities,
instruments, proceeds, and rights from time to time received by or
distributable to the Pledgor in respect of any Collateral.
SECTION 4.4 Voting Rights; Dividends, etc. The Pledgor
agrees to deliver (properly endorsed where required hereby or requested by the
Agent) to the Agent:
(a) after an Event of Default shall have occurred and be
continuing, promptly upon receipt thereof by the Pledgor and without
any request therefor by the Agent, all Dividends and Distributions (to
which the Pledgor is entitled or entitled to receive a security
interest therein) and all interest, all other cash payments, and all
proceeds of the Collateral, all of which shall be held by the Agent as
additional Collateral for use in accordance with Section 6; and
(b) after an Event of Default shall have occurred and be
continuing, promptly upon request of the Agent, such proxies and other
documents as may be necessary to allow the Agent to exercise any
voting power to which the Pledgor is entitled with respect to any
share of capital stock (including Pledged Shares) constituting
Collateral;
provided, however, that unless an Event of Default shall have occurred and be
continuing, the Pledgor shall be entitled:
(c) to exercise, in its reasonable judgment, but in a manner
which would not have a material adverse effect on the value of the
Pledged Shares, and in a manner not inconsistent with the terms of the
Credit Agreement or any other Loan Document (including this Pledge
Agreement) the voting power and all other incidental rights of
ownership with respect to any Pledged Shares or other shares of
capital stock constituting Collateral (subject to the Pledgor's
obligation to deliver to the Agent such Pledged Shares and other
shares in pledge hereunder); and
(d) to the prompt receipt of all Dividends in accordance with
Section 2.4.
All Dividends, Distributions, interest, cash payments, and proceeds which may
at any time and from time to time be held by the Pledgor but which the Pledgor
is then obligated to deliver to the Agent, shall, until delivery to the Agent,
be held by the Pledgor separate and apart from its other property in trust for
the Agent. The Agent agrees that unless an Event of Default shall have
occurred and be continuing, the Agent shall, upon the
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written request of the Pledgor, promptly deliver such proxies and other
documents, if any, as shall be reasonably requested by the Pledgor which are
necessary to allow the Pledgor to exercise any voting power to which the
Pledgor is entitled with respect to any share of capital stock (including
Pledged Shares) constituting Collateral; provided, however, that no vote shall
be cast, or consent, waiver, or ratification given, or action taken by the
Pledgor that would impair any Collateral or be inconsistent with or violate any
provision of the Credit Agreement or any other Loan Document (including this
Pledge Agreement).
SECTION 4.5 Additional Undertakings. The Pledgor will not,
without the prior written consent of the Agent, which will not be unreasonably
withheld or delayed:
(a) enter into any agreement materially amending,
supplementing, or waiving any provision of any Pledged Note (including
any underlying instrument pursuant to which such Pledged Note is
issued) or compromising or releasing or extending the time for payment
of any obligation of the maker thereof, provided that the Pledgor may
exercise its rights to convert debt or exercise options for equity in
any Financed Franchisee at any time permitted by the Credit Agreement;
or
(b) take or omit to take any action the taking or the
omission of which would result in any material impairment or
alteration of any obligation of the maker of any Pledged Note or other
instrument constituting Collateral.
ARTICLE V
THE AGENT
SECTION 5.1 Agent Appointed Attorney-in-Fact. The Pledgor
hereby irrevocably appoints the Agent the Pledgor's attorney-in-fact, with full
authority in the place and stead of the Pledgor and in the name of the Pledgor
or otherwise, from time to time upon the occurrence and during the continuance
of a Default in the Agent's discretion, to take any action and to execute any
instrument which the Agent may deem necessary or advisable to accomplish the
purposes of this Pledge Agreement, including without limitation:
(a) to ask, demand, collect, sue for, recover, compromise,
receive and give acquittance and receipts for moneys due and to become
due under or in respect of any of the Collateral;
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(b) to receive, endorse, and collect any drafts or other
instruments, documents and chattel paper, in connection with clause
(a) above; and
(c) to file any claims or take any action or institute any
proceedings which the Agent may deem necessary or desirable for the
collection of any of the Collateral or otherwise to enforce the rights
of the Agent with respect to any of the Collateral.
SECTION 5.2 Agent May Perform. If the Pledgor fails to
perform any agreement contained herein, the Agent may itself perform, or cause
performance of, such agreement, and the expenses of the Agent incurred in
connection therewith shall be payable by the Pledgor pursuant to Section 6.3.
SECTION 5.3 Reasonable Care. The Agent is required to
exercise reasonable care in the custody and preservation of any of the
Collateral in its possession; provided, however, the Agent shall be deemed to
have exercised reasonable care in the custody and preservation of any of the
Collateral, if it takes such action for that purpose as the Pledgor reasonably
requests in writing at times other than upon the occurrence and during the
continuance of any Event of Default, but failure of the Agent to comply with
any such request at any time shall not in itself be deemed a failure to
exercise reasonable care.
ARTICLE VI
REMEDIES
SECTION 6.1 Certain Remedies. If any Event of Default shall
have occurred and be continuing:
(a) The Agent may exercise in respect of the Collateral, in
addition to other rights and remedies provided for herein or otherwise
available to it, all the rights and remedies of a secured party on
default under the U.C.C. (whether or not the U.C.C. applies to the
affected Collateral) and also may sell the Collateral or any part
thereof after reasonable notice to the Pledgor in one or more parcels
at public or private sale or broker's board, at any of the Agent's
offices or elsewhere, for cash, on credit or for future delivery, and
upon such other terms as the Agent may deem commercially reasonable.
The Pledgor agrees that the Agent or any Lender shall be entitled to
bid for or purchase any or all of the Collateral at any such sale.
The Pledgor agrees that at least ten days' notice to the Pledgor of
the time and place of any public sale or the time after which any
private sale is to be made shall constitute reasonable notification.
The Agent
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shall not be obligated to make any sale of Collateral regardless of
notice of sale having been given. The Agent may adjourn any public or
private sale from time to time by announcement at the time and place
fixed therefor, and such sale may, without further notice, be made at
the time and place to which it was so adjourned.
(b) The Agent may (to the extent Pledgor could do so or has
done so)
(i) transfer all or any part of the Collateral into
the name of the Agent or its nominee, with or without
disclosing that such Collateral is subject to the lien and
security interest hereunder,
(ii) notify the parties obligated on any of the
Collateral to make payment to the Agent of any amount due or
to become due thereunder,
(iii) enforce collection of any of the Collateral by
suit or otherwise, and surrender, release or exchange all or
any part thereof, or compromise or extend or renew for any
period (whether or not longer than the original period) any
obligations of any nature of any party with respect thereto,
(iv) endorse any checks, drafts, or other writings
in the Pledgor's name to allow collection of the Collateral,
(v) take control of any proceeds of the Collateral,
and
(vi) execute (in the name, place and stead of the
Pledgor) endorsements, assignments, stock powers and other
instruments of conveyance or transfer with respect to all or
any of the Collateral.
SECTION 6.2 Application of Proceeds. Except as expressly
provided elsewhere in this Agreement, all proceeds received by the Agent in
respect of any sale of, collection from or other realization upon all or any
part of the Collateral may, in the discretion of the Agent, be held by the
Agent as Collateral for, and/or then, or at any other time thereafter applied,
in full or in part by the Agent against the Secured Obligations in the
following order of priority:
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FIRST: To the payment of all reasonable costs and expenses of
such sale, collection or other realization and all other expenses,
liabilities and advances made or incurred by the Agent in connection
therewith and all amounts for which the Agent is entitled to
indemnification hereunder and all advances made by the Agent hereunder
for the account of the Pledgor and for the payment of all costs and
expenses paid or incurred by the Agent in connection with the exercise
of any right or remedy hereunder, all in accordance with Section 6.3;
SECOND: To the ratable payment in full of the Secured
Obligations owing to the Lenders; and
THIRD: After payment in full of the amounts specified in the
preceding paragraphs, to the payment to or upon the order of the
Pledgor, or whomsoever may be lawfully entitled to receive the same or
as a court of competent jurisdiction may direct, of any surplus then
remaining from such proceeds.
All applications of proceeds to the Secured Obligations shall
be applied to the payment of interest before application of payment to
principal.
SECTION 6.3 Indemnity and Expenses. The Pledgor hereby
indemnifies and holds harmless the Agent and the Lenders from and against any
and all claims, losses, and liabilities growing out of or resulting from this
Pledge Agreement (including enforcement of this Pledge Agreement), except
claims, losses, or liabilities resulting from the Agent's and/or any such
Lender's, as the case may be, gross negligence or willful misconduct. Upon
demand, the Pledgor will pay to the Agent and/or any Lender, as the case may
be, the amount of any and all reasonable expenses, including the reasonable
fees and disbursements of its counsel and of any experts and agents, which the
Agent and/or any Lender, as the case may be, may incur in connection with:
(a) the administration of this Pledge Agreement, the Credit
Agreement and each other Loan Document;
(b) the custody, preservation, use, or operation of, or the
sale of, collection from, or other realization upon, any of the
Collateral;
(c) the exercise or enforcement of any of the rights of the
Agent or any Lender, as the case may be, hereunder; or
(d) the failure by the Pledgor to perform or observe any of
the provisions hereof.
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SECTION 6.4 Rights Exercisable. Notwithstanding anything
else to the contrary herein, Agent's rights hereunder are limited to whatever
rights Pledgor has with respect to the Collateral.
ARTICLE VII
MISCELLANEOUS PROVISIONS
SECTION 7.1 Loan Document. This Pledge Agreement is a Loan
Document executed pursuant to the Credit Agreement and shall (unless otherwise
expressly indicated herein) be construed, administered and applied in
accordance with the terms and provisions thereof, including Article IX thereof.
SECTION 7.2 Amendments, etc. No amendment to or waiver of
any provision of this Pledge Agreement nor consent to any departure by the
Pledgor herefrom shall in any event be effective unless the same shall be in
writing and signed by the Agent, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
it is given.
SECTION 7.3 Obligations Not Affected. The obligations of the
Pledgor under this Pledge Agreement shall remain in full force and effect
without regard to, and shall not be impaired or affected by:
(a) any amendment or modification or addition or supplement
to the Credit Agreement, any Note, any other Loan Document, any
instrument delivered in connection therewith, or any assignment or
transfer thereof;
(b) any exercise, non-exercise, or waiver by the Agent of any
right, remedy, power, or privilege under or in respect of, or any
release of any guaranty or collateral provided pursuant to, this
Pledge Agreement, the Credit Agreement, or any other Loan Document;
(c) any waiver, consent, extension, indulgence, or other
action or inaction in respect of this Pledge Agreement, the Credit
Agreement, or any other Loan Document or any assignment or transfer of
any thereof; or
(d) any bankruptcy, insolvency, reorganization,arrangement,
readjustment, composition, liquidation, or the like, of the Pledgor or
any other Person, whether or not the Pledgor shall have notice or
knowledge of any of the foregoing.
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SECTION 7.4 Protection of Collateral. The Agent may from
time to time, at its option, perform any act which the Pledgor agrees hereunder
to perform and which the Pledgor shall fail to perform after being requested in
writing so to perform (it being understood that no such request need be given
after the occurrence and during the continuance of an Event of Default) and the
Agent may from time to time take any other action which the Agent reasonably
deems necessary for the maintenance, preservation or protection of any of the
Collateral or of its security interest therein.
SECTION 7.5 Notices, Etc. All notices and other
communications provided for under this Pledge Agreement shall be in writing
(including telegraphic, telex or facsimile communication) and mailed or
telecommunicated or delivered at the address of such party set forth in the
Credit Agreement; or, as to each party, at such other address as shall be
designated by such party in a written notice to the other party complying as to
delivery with the terms of this Section 7.5. All such notices and
communications shall, when mailed or telecommunicated, be effective upon actual
receipt, or one (1) Business Day after transmitted by telex and the appropriate
answerback received, transmitted by facsimile or delivered to the telegraph
company, respectively, addressed as aforesaid.
SECTION 7.6 Section Captions. Section captions used in this
Pledge Agreement are for convenience of reference only, and shall not affect
the construction of this Pledge Agreement.
SECTION 7.7 Severability. Wherever possible each provision
of this Pledge Agreement shall be interpreted in such manner as to be effective
and valid under applicable law, but if any provision of this Pledge Agreement
shall be prohibited by or invalid under such law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of
this Pledge Agreement.
Section 7.8 LAW. THIS PLEDGE AGREEMENT HAS BEEN DELIVERED AT
CHICAGO, ILLINOIS, AND SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY
THE INTERNAL LAWS OF THE STATE OF ILLINOIS WITHOUT GIVING EFFECT TO ITS
PRINCIPLES OF CHOICE OF LAW.
SECTION 7.9 Submission to Jurisdiction. Pledgor hereby
irrevocably agree that any legal action or proceeding pertaining to this Pledge
Agreement may be brought in the courts of the State of Illinois, County of
Cook, or of the United States of America for the Northern District of Illinois.
The Pledgor hereby irrevocably agrees that service of process in such action or
proceeding may be made either by mailing, by registered or certified mail,
postage prepaid, a copy of the summons or complaint, or other legal process in
such action or proceeding to
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the Pledgor at the address specified pursuant to Section 7.5. Service of
process in any such action or proceeding, effected as aforesaid, shall be
effective upon receipt by the Pledgor or such agent and shall be deemed
personal service upon the Pledgor and shall be legal and binding upon the
Pledgor for all purposes, notwithstanding any failure by the Pledgor's agent to
forward copies of such process to the Pledgor. The Pledgor hereby waives, to
the fullest extent permitted by law, any objection it may now or hereafter have
to the laying of venue in any such action or proceeding in any such court as
well as any right it may now or hereafter have to remove any such action or
proceeding, once commenced, to another court on the grounds of forum non
conveniens or otherwise.
- 15 -
<PAGE> 164
IN WITNESS WHEREOF, the parties hereto have caused this Pledge
Agreement to be duly executed and delivered by their respective officers
thereunto duly authorized as of the day and year first above written.
-------------------------------
By
---------------------------
Title:
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as
Agent
By
---------------------------
Title:
<PAGE> 165
ATTACHMENT 1
to
Pledge Agreement
Pledged Notes
See items described on part (1) "Debt" of Schedule 4.17 of the Credit
Agreement, which is incorporated herein by this reference.
Item B. Pledged Shares
See items described on part (3) "Capital Stock, Partnership Interests or Other
Equity Interests" of Schedule 4.17 of the Credit Agreement, which is
incorporated herein by this reference.
- 17 -
<PAGE> 166
EXHIBIT H
COLLATERAL ASSIGNMENT OF TENANT'S RIGHTS IN LEASE
THIS COLLATERAL ASSIGNMENT OF TENANT'S RIGHTS IN LEASE (this
"Assignment") is made as of the ___ day of ___________, 199_ by
__________________, a Delaware corporation ("Borrower"), to BANK OF AMERICA
NATIONAL TRUST AND SAVINGS ASSOCIATION, as Agent for the Lenders (herein,
together with its successors and assigns in such capacity, called "Agent").
W I T N E S S E T H:
WHEREAS, Lenders now and from time to time hereafter shall make loans,
advances and/or financial accommodations to or for the benefit of Borrower
pursuant to a certain Secured Credit Agreement dated as of May 17, 1996 as
amended and restated by that certain Amended and Restated Secured Credit
Agreement dated as of November __, 1997 among Borrower, Lenders, Co-Agent, and
Agent (said Credit Agreement, as it may hereafter be further amended,
supplemented, restated or otherwise modified from time to time, is referred to
as the "Credit Agreement"; terms used herein and not otherwise defined herein
shall have the meaning assigned thereto in the Credit Agreement); and
WHEREAS, Borrower has entered into a commercial lease with [-]
("Landlord") dated [-] for occupancy of the property commonly known as [-] and
legally described on Exhibit A attached hereto and made a part hereof (the
"Premises") (which lease, together with all renewals, amendments, or
replacements, all of the Borrower's rights and remedies thereunder, and all
proceeds payable under any policy of insurance covering loss resulting from
untenantability caused by destruction or damage to the Premises, is hereinafter
referred to as the "Lease"). The Lease is additional security for all of
Borrower's obligations to Agent or Lenders arising under or in connection with
the Credit Agreement and the other Loan Documents (the "Liabilities").
NOW, THEREFORE, for and in consideration of the foregoing premises and
for other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, the parties hereto hereby agree as follows:
1. The Assignment. In order to induce Lenders to make advances under the
Credit Agreement and as additional security for the payment of the Liabilities
and for the performance and observance of all the agreements contained herein,
in the Credit Agreement and in the other Loan Documents, Borrower does hereby
set over, and transfer to Agent, upon the terms and conditions hereinafter
contained, a continuing collateral security interest in the Lease, together
with all the right, title and interest of Borrower therein and thereto, to have
and to hold the same unto Agent, its successors and assigns, forever, or for
such shorter period as hereinafter may be indicated, as additional security for
the payment of the Liabilities and for the performance and observance of all
the agreements contained in the Credit Agreement.
2. Warranties, Representations and Covenants. Borrower hereby covenants,
represents, warrants and agrees as follows:
A. At all times, but not more than two times per year unless
there has been an Event of Default, Agent shall have the right to verify the
validity, amount of or any other matter relating to the Lease, by mail,
telephone, telegraph or otherwise, in the name of Borrower, Agent, any or all
of the Lenders, a nominee of Agent, or any or all of said names, all in
accordance with the terms and conditions of the Lease.
B. Unless Agent notifies Borrower in writing that it dispenses
with any one or more of the following requirements, Borrower shall: (i) inform
Agent, in writing, of any assertion of any material defaults, claims, offsets
or counterclaims under the Lease; and (ii) not permit or agree to any
- 1 -
<PAGE> 167
termination or surrender, or to any material extension, settlement or amendment
or modification of, the Lease.
C. The Lease is in full force and effect; a complete and correct
copy of the Lease has been furnished to Agent; Borrower is the lessee under the
Lease and has good right to collaterally assign its interest in the same
(subject, however, to the rights, if any, of the Landlord to consent to such
collateral assignment); no other person, firm or corporation has any right,
title or interest therein except as expressly set forth herein; and Borrower
has not previously sold, assigned, transferred, mortgaged or pledged its
interest in the Lease to any other person or entity, except for any subleases
described in Schedule 2C hereto.
D. Borrower has and shall: (i) observe, perform and discharge,
duly and punctually, all the obligations, terms, covenants, conditions and
warranties of the Lease, on the part of Borrower to be kept, observed and
performed, if any such failure to keep, observe or perform could result in the
termination of the Lease; and (ii) give prompt notice to Agent of any failure
on the part of Borrower to observe, perform and discharge same. Borrower has
and shall: (i) appear in and defend any action or proceeding arising under,
occurring out of, or in any manner connected with the Lease or the obligations,
duties or liabilities of Borrower and/or Landlord thereunder; (ii) upon request
by Agent, will do so in the name and behalf of Agent but at the expense of
Borrower; and (iii) pay all costs and expenses of Agent, including reasonable
attorneys' fees in any action or proceeding in which Agent may appear.
E. Borrower has entered or will enter into occupancy of the
Premises in accordance with the terms and conditions of the Lease; to the best
of Borrower's knowledge, Landlord is not in default in performing or complying
with any of its obligations under the Lease to the best of Borrower's
knowledge; Landlord has completed, or will complete within the time period
provided in the Lease, all improvements required by the terms of the Lease; and
to the best of Borrower's knowledge, the Premises are, or will be within the
due course of construction completion, open for the use of Borrower, its
customers, employees and invitees.
F. Neither Lenders nor Agent shall not be liable in any way for
any injury or damage to person or property sustained by any person or persons,
firm or corporation in or about the Premises nor shall Lenders or Agent assume
any obligation, duty or liability under the Lease.
G. Borrower hereby agrees to indemnify and hold Agent and Lenders
harmless of, from and against any and all liability, loss, damage or expense
which Agent or Lenders may or might incur by reason of this Agreement. Should
Agent or Lenders incur any such liability, loss, damage or expense, the amount
thereof (including reasonable attorneys' fees) shall be payable by Borrower
immediately upon demand, shall bear interest (at the rate due on monies after a
default) from the date of payment by Agent or Lenders thereof until repaid by
Borrower, and shall be secured hereby.
H. The failure of Agent to avail itself of any of the terms,
covenants and conditions of this Assignment for any period of time or at any
time or times, shall not be construed or deemed to be a waiver by Agent of any
of its rights and remedies hereunder. The rights and remedies of Agent under
this Assignment are and shall be cumulative and in addition to any and all
rights and remedies available to Agent or Lenders under the Credit Agreement.
I. Upon payment in full of all of the Liabilities, this
Assignment shall become and be void and of no further effect, and Agent shall,
upon demand by Borrower, execute a release to be filed of record.
J. This Assignment was executed and delivered in, and, except as
otherwise specifically stated in any given paragraph hereof, shall be governed
- 2 -
<PAGE> 168
as to validity, interpretation, construction, effect and in all other respects
by the laws and decisions of the State of Illinois.
3. Power of Attorney. Upon the occurrence of an Event of Default under
the terms of the Credit Agreement, Borrower further irrevocably appoints Agent
as Borrower's attorney-in-fact to exercise any or all of Borrower's rights in,
to, and under the Lease and to do any or all other acts, in Borrower's name or
in the Agent's own name, that Borrower could do under the Lease, with the same
force and effect as if this Assignment had not been made.
4. Exercise of Rights. Upon the occurrence of an Event of Default under
the terms of the Credit Agreement, Agent, in its sole discretion, may do any
one or more of the following, subject to the terms and conditions contained in
the Lease:
A. Enter upon, take possession of, manage and operate the
Premises or any part thereof pursuant to the terms and conditions of the Lease,
and Borrower agrees to surrender possession of the same.
B. If such Event of Default under the Credit Agreement occurs due
to Borrower's default under the Lease, Agent may cure any such default under
the Lease within the curative times provided in the Lease, or any longer period
granted to Agent by Landlord.
C. Exercise any and all rights and remedies afforded to Agent or
Lenders under the Credit Agreement, the other Loan Documents and the Uniform
Commercial Code and any and/all other applicable provisions of law, including
the right to sell Borrower's interest in the Lease at a public or private sale.
5. Successors and Assigns. This Agreement shall inure to the benefit of
and be binding on Borrower and Agent and the successors and assigns of each.
- 3 -
<PAGE> 169
IN WITNESS WHEREOF, this Agreement has been duly exercised the day and
year first above written.
, a corporation
------------ -----------
By:
-----------------------------------
Its President
-----------
Attest:
-------------------------------
Its Secretary
-----------
[CORPORATE SEAL]
STATE OF ILLINOIS )
) SS:
COUNTY OF ____________________)
I, the undersigned, a Notary Public in and for said County, in the
State aforesaid, DO HEREBY CERTIFY that ______________________________,
personally known to me to be the __________ President of _________________, a
__________ corporation, and ______________________________, personally known to
me to be the __________ Secretary of said corporation, and personally known to
me to be the same persons whose names are subscribed to the foregoing
instrument, appeared before me this day in person and severally acknowledged
that as such __________ President and __________ Secretary, they signed, sealed
and delivered said instrument as __________ President and __________ Secretary
of said corporation, and caused the corporate seal of said corporation to be
affixed thereto, pursuant to authority, given by the Board of Directors of said
corporation as their free and voluntary act, and as the free and voluntary act
and deed of said corporation, for the uses and purposes therein set forth.
Given under my hand and official seal, this _____ day of [-], 19[-].
- -------------------------------
Notary Public
My Commission Expires:
---------------------
This Instrument Prepared In Chicago, Illinois By
and After Recording Return To:
[-]
McDermott, Will & Emery
227 West Monroe Street
Chicago, Illinois 60606
<PAGE> 170
EXHIBIT A
[ATTACHED TO AND MADE A PART OF A COLLATERAL ASSIGNMENT OF TENANT'S RIGHTS IN
LEASE DATED [-] BETWEEN __________________ AND BANK OF
AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, AS AGENT
FOR LENDERS]
STORE NO:
ADDRESS:
PERMANENT TAX INDEX NUMBER:
LEGAL DESCRIPTION:
- 5 -
<PAGE> 171
EXHIBIT I
LANDLORD'S CONSENT
THIS LANDLORD'S CONSENT (this "Agreement") is executed and delivered
by [-] ("Landlord") to BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION,
as Agent for Lenders (herein, together with its successors and assigns in such
capacity, called "Agent"), with reference to the following facts:
A. _________________, a ______________ corporation ("Borrower"),
is the lessee under a Lease Agreement dated [-] (which lease, together with all
renewals, amendments or replacements, is referred to as the "Lease") concerning
the property commonly known as [-] and legally described on Exhibit A attached
hereto and made a part hereof (the "Premises").
B. Borrower, certain financial institutions (the "Lenders"), and
Agent have entered into a Secured Credit Agreement dated as of May 17, 1996 as
amended and restated by that certain Amended and Restated Secured Credit
Agreement dated as of November __, 1997 (which agreement, together with all
renewals, amendments or replacements, is referred to as the "Credit Agreement";
terms used herein and not otherwise defined herein shall have the meaning
assigned thereto in the Credit Agreement) providing for Lenders to lend money
to or for the benefit of Borrower. To secure Borrower's obligations to Lenders
under the Loan Documents ("Borrower's Liabilities"), Borrower has granted to
Agent a first priority security interest in and to all inventory, equipment,
furnishings, fixtures, books and records now owned or hereafter acquired by
Borrower (the "Collateral"), all or some of which is now or hereafter may be
located at the Premises.
For valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, Landlord covenants and agrees with Agent as follows:
1. Landlord waives all rights which Landlord now has, or
hereafter may have, under the laws of the State of [-] or by virtue of the
Lease or Borrower's occupation of the Premises, to levy or distrain for rent or
for any monetary obligation arising by reason of default under the Lease, or to
assert any lien, right, claim or title to the Collateral. Landlord
acknowledges that Agent's security interest in the Collateral pursuant to the
Loan Documents is superior to any lien, right, claim or title which Landlord
now has or hereafter may have or assert in or to the Collateral.
2. For purposes of this Agreement, Landlord agrees that the
Collateral shall consist of all of the Borrower's removable personal property
on or about the Premises, which shall not be deemed fixtures. Collateral shall
not include any leasehold improvements which are permanently attached to the
Premises or which are owned by Landlord.
3. If Borrower defaults under the Loan Documents, Agent may
remove the Collateral or any part thereof from the Premises in accordance with
the terms and conditions of the Loan Documents or statutory law without
objection or interference by Landlord and in such case Landlord will make no
claim or demand against the Collateral, provided that the Agent shall (i)
restore any part of the Premises which may be damaged by such removal to
substantially the same condition as existed immediately prior to such damage,
and (ii) comply with all reasonable rules and regulations generally applicable
to Landlord's tenants at the Premises with respect to the times and methods for
the removal of the Collateral. In the event of any such default by Borrower,
Landlord agrees that, at Agent's option, the Collateral may remain at the
Premises for a period not exceeding one (1) month following the default,
provided Agent pays rent to Landlord for the Premises at the same rate imposed
upon Borrower.
4. If Borrower defaults in the payment or performance of any
obligations under the Lease and Landlord serves notice thereof, Landlord shall
give Agent written notice thereof and twenty (20) days after the date of such
notice to cure the same on behalf of Borrower. Written notice shall be
delivered to Agent by
- 1 -
<PAGE> 172
registered or certified mail, postage prepaid, at 231 South LaSalle Street,
Chicago, Illinois 60697, Attn: David Johanson, Vice President.
5. Landlord acknowledges that, concurrently herewith, Borrower is
assigning to Agent Borrower's interest in the Lease pursuant to a Collateral
Assignment of Tenant's Rights in Lease. Landlord represents that the Lease is
in full force and effect and that, as of the date hereof, Borrower is not in
default thereunder nor, to Landlord's knowledge, has any event occurred which,
with the passage of time or the giving of notice or both, would constitute an
event of default thereunder. Landlord consents to such assignment and agrees
that upon written notice from Agent that a default has occurred under any of
the Loan Documents, all rights under the Lease otherwise exercisable by
Borrower may be exercised by Agent. Until a default under the Loan Documents
has occurred and Agent has agreed to assume the obligations of Borrower under
the Lease, Landlord shall look solely to Borrower for payment of all sums due
under the Lease and for compliance with the terms and provisions of the Lease.
6. Agent may, without affecting the validity of this Agreement,
extend, amend or in any way modify the terms of payment or performance of any
of Borrower's Liabilities, without the consent of Landlord and without giving
notice thereof to Landlord.
7. This Agreement shall inure to the benefit of the successors
and assigns of Agent and shall be binding upon the heirs, personal
representatives, successors and assigns of Landlord.
8. This Agreement shall be governed by the internal laws of the
State where the Premises are located without reference to principles of choice
of law.
9. Neither this Agreement nor Agent's security interest in the
Collateral shall be deemed a mortgage of or lien upon Landlord's fee title to
the Premises.
- 2 -
<PAGE> 173
IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered as of the day and year first above written.
-------------------------------------
(Landlord)
If corporation: By:
--------------------------------
Its President
-----------
[CORPORATE SEAL] Attest:
-----------------------------
Its Secretary
-----------
If partnership: By:
--------------------------------
Its General Partner
If individual:
--------------------------------------
Print Name:
--------------------------
--------------------------------------
Print Name:
--------------------------
This Instrument Prepared In Chicago, Illinois By
and After Recording Return To:
[-]
McDermott, Will & Emery
227 West Monroe Street
Chicago, Illinois 60606
- 3 -
<PAGE> 174
PARTNERSHIP ACKNOWLEDGEMENT
State of ____________________)
) ss.
County of ___________________)
I, __________________________, a Notary Public in and for said County,
in the State aforesaid, do hereby certify that ____________________________,
personally known to me to be a general partner of _________________________, a
____________________ partnership, and personally known to me to be the same
person whose name is subscribed to the foregoing instrument, appeared before me
this day in person and severally acknowledged that he signed and delivered the
said instrument as a partner of said partnership, pursuant to due power and
authority, as his free and voluntary act ad as the free and voluntary act and
deed of said partnership, for the uses and purposes therein set forth.
Given under my hand and seal this _____ day of _____________________, 19_____.
---------------------------------
Notary Public
My Commission Expires:
--------------------------
<PAGE> 175
CORPORATE ACKNOWLEDGEMENT
State of ____________________)
) ss.
County of ___________________)
I, __________________________, a Notary Public in and for said County,
in the State aforesaid, do hereby certify that ____________________________,
personally known to me to be the __________ President of __________________, a
____________________ corporation, and personally known to me to be the same
person whose name is subscribed to the foregoing instrument, appeared before me
this day in person and severally acknowledged that as such officer he signed
and delivered the said instrument, and caused the corporate seal to be affixed
thereto, pursuant to authority given by the Board of Directors of said
corporation, as his free and voluntary act and as the free and voluntary act
and deed of said corporation, for the purposes therein set forth.
Given under my hand and seal this _____ day of ______________________, 19_____.
-------------------------------------
Notary Public
My Commission Expires:
------------------------
<PAGE> 176
INDIVIDUAL ACKNOWLEDGEMENT
State of ____________________)
) ss.
County of ___________________)
I, __________________________, a Notary Public in and for said County,
in the State aforesaid, do hereby certify that ____________________________,
personally known to me to be the same person(s) whose name(s) is/are subscribed
to the foregoing instrument, appeared before me this day in person and
acknowledged that he/she signed and delivered said instrument as his/her free
and voluntary act and deed for the purposes therein set forth.
Given under my hand and seal this _____ day of_______________________, 19_____.
---------------------------------
Notary Public
My Commission Expires:
-------------------------
<PAGE> 177
Exhibit A
LEGAL DESCRIPTION OF PREMISES
STORE NO:
ADDRESS:
PERMANENT TAX INDEX NUMBER:
LEGAL DESCRIPTION:
- 7 -
<PAGE> 178
EXHIBIT J
[Attach existing Collateral Assignment of Loan]
- 1 -
<PAGE> 179
EXHIBIT K
[Attach existing Subordination Agreement, as amended]
- 1 -
<PAGE> 180
EXHIBIT L
- 2 -
<PAGE> 181
Exhibit M
FORM OF
CERTIFICATE OF COMPLIANCE
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION,
as Agent for the Lenders (the "Agent")
This certificate (the "Certificate") is delivered to you
pursuant to Section 5.8(4) of the Secured Credit Agreement dated as of May 17,
1996 as amended and restated by the Amended and Restated Secured Credit
Agreement, dated as of November __, 1997 (as amended or modified, the "Credit
Agreement"), among EINSTEIN/NOAH BAGEL CORP., a Delaware corporation (the
"Borrower"), the lenders that are or from time to time become party thereto
(the "Lenders"), the Co-Agent, and the Agent. Unless otherwise defined herein,
capitalized terms used herein have the meanings provided in the Credit
Agreement.
The undersigned hereby certifies and warrants to the Agent
that he is an officer of the Borrower authorized to execute this Certificate on
behalf of the Borrower and further certifies and warrants to the Agent on
behalf of the Borrower that:
(a) The representations and warranties contained in Article IV of the
Credit Agreement and in each other Loan Document are correct in all
material respects on and as of the date of this Certificate as though
made on and as of such date, except to the extent that such
representations and warranties expressly relate to an earlier date (in
which case such representations and warranties shall be true and
correct in all material respects on and as of such earlier date);
(b) No Default or Event of Default has occurred and is continuing; and
(c) Attached hereto are true and correct computations of the ratios
and financial restrictions required under Article VII of the Credit
Agreement.
- 3 -
<PAGE> 182
IN WITNESS WHEREOF, the Borrower has caused this Certificate to be
executed and delivered and the certifications and warranties contained herein
to be made, by its ____________________ this ___ day of ________, 19__.
EINSTEIN/NOAH BAGEL CORP.
By:
-----------------------------
Its:
-----------------------------
- 4 -
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report on
the financial statements of Alamo Bagels, L.P. (and to all references to our
Firm) included in or made a part of this current report on Form 8-K.
Denver, Colorado
December 5, 1997
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report on
the financial statements of BCE West Bagels, L.L.C. (and to all references to
our Firm) included in or made a part of this current report on Form 8-K.
Denver, Colorado
December 5, 1997
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report on
the financial statements of Colonial Bagels, L.P. (and to all references to our
Firm) included in or made a part of this current report on Form 8-K.
Denver, Colorado
December 5, 1997
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report on
the financial statements of Finest Bagels, L.L.C. (and to all references to our
Firm) included in or made a part of this current report on Form 8-K.
Denver, Colorado
December 5, 1997
<PAGE> 1
EXHIBIT 23.5
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report on
the financial statements of Great Lakes Bagels, L.L.C. (and to all references
to our Firm) included in or made a part of this current report on Form 8-K.
Denver, Colorado
December 5, 1997
<PAGE> 1
EXHIBIT 23.6
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report on
the financial statements of Gulfstream Bagels, L.P. (and to all references to
our Firm) included in or made a part of this current report on Form 8-K.
Denver, Colorado
December 5, 1997
<PAGE> 1
EXHIBIT 23.7
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report on
the financial statements of Liberty Foods, L.L.C. (and to all references to our
Firm) included in or made a part of this current report on Form 8-K.
Denver, Colorado
December 5, 1997
<PAGE> 1
EXHIBIT 23.8
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report on
the financial statements of Mayfair Bagels, L.L.C. (and to all references to our
Firm) included in or made a part of this current report on Form 8-K.
Denver, Colorado
December 5, 1997
<PAGE> 1
EXHIBIT 23.9
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report on
the financial statements of Noah's Bay Area Bagels, L.L.C. (and to all
references to our Firm) included in or made a part of this current report on
Form 8-K.
Denver, Colorado
December 5, 1997
<PAGE> 1
EXHIBIT 23.10
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report on
the financial statements of Noah's Pacific, L.L.C. (and to all references to our
Firm) included in or made a part of this current report on Form 8-K.
Denver, Colorado
December 5, 1997
<PAGE> 1
EXHIBIT 23.11
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report on
the financial statements of Philly Rose, L.P. (and to all references to our
Firm) included in or made a part of this current report on Form 8-K.
Denver, Colorado
December 5, 1997
<PAGE> 1
EXHIBIT 99.1
ACQUIRED BUSINESSES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
ALAMO BAGELS, L.P.
Report of Independent Public Accountants.................... F-5
Financial Statements:
Balance Sheet as of December 29, 1996..................... F-6
Statement of Operations for the period from October 11,
1996 (inception) through December 29, 1996............. F-7
Statement of Partners' Capital for the period from October
11, 1996 (inception) through December 29, 1996......... F-8
Statement of Cash Flows for the period from October 11,
1996 (inception) through December 29, 1996............. F-9
Notes to Financial Statements............................. F-10
Statements of Operations for the period from October 11,
1996 (inception) through December 29, 1996 and for the
period from December 30, 1996 through April 20, 1997
(merger)............................................... F-15
Statements of Cash Flows for the period from October 11,
1996 (inception) through December 29, 1996 and for the
period from December 30, 1996 through April 20, 1997
(merger)............................................... F-16
Notes to Unaudited Financial Statements................... F-17
BCE WEST BAGELS, L.L.C.
Report of Independent Public Accountants.................... F-19
Financial Statements:
Balance Sheet as of December 29, 1996..................... F-20
Statement of Operations for the fiscal year ended December
29, 1996............................................... F-21
Statement of Members' Equity for the fiscal year ended
December 29, 1996...................................... F-22
Statement of Cash Flows for the fiscal year ended December
29, 1996............................................... F-23
Notes to Financial Statements............................. F-24
Statements of Operations for the fiscal year ended
December 29, 1996, for the three quarters ended October
6, 1996 and for the period from December 30, 1996
through April 20, 1997 (merger)........................ F-29
Statements of Cash Flows for the fiscal year ended
December 29, 1996, for the three quarters ended October
6, 1996 and for the period from December 30, 1996
through April 20, 1997 (merger)........................ F-30
Notes to Unaudited Financial Statements................... F-31
COLONIAL BAGELS, L.P.
Report of Independent Public Accountants.................... F-33
Financial Statements:
Balance Sheet as of December 29, 1996..................... F-34
Statement of Operations for the period from June 5, 1996
(inception) through December 29, 1996.................. F-35
Statement of Partners' Capital for the period from June 5,
1996 (inception) through December 29, 1996............. F-36
Statement of Cash Flows for the period from June 5, 1996
(inception) through December 29, 1996.................. F-37
Notes to Financial Statements............................. F-38
Balance Sheets at December 29, 1996 and October 5, 1997... F-43
Statements of Operations for the period from June 5, 1996
(inception) through December 29, 1996, for the period
from June 5, 1996 (inception) through October 6, 1996
and for the three quarters ended October 5, 1997....... F-44
Statements of Cash Flows for the period from June 5, 1996
(inception) through December 29, 1996, for the period
from June 5, 1996 (inception) through October 6, 1996
and for the three quarters ended October 5, 1997....... F-45
Notes to Unaudited Financial Statements................... F-46
FINEST BAGELS, L.P.
Report of Independent Public Accountants.................... F-48
Financial Statements:
Balance Sheet as of December 29, 1996..................... F-49
Statement of Operations for the fiscal year ended December
29, 1996............................................... F-50
Statement of Members' Equity for the fiscal year ended
December 29, 1996...................................... F-51
Statement of Cash Flows for the fiscal year ended December
29, 1996............................................... F-52
Notes to Financial Statements............................. F-53
Statements of Operations for the fiscal year ended
December 29, 1996, for the three quarters ended October
6, 1996 and for the two quarters ended July 13, 1997
(merger)............................................... F-58
Statements of Cash Flows for the fiscal year ended
December 29, 1996, for the three quarters ended October
6, 1996 and for the two quarters ended July 13, 1997
(merger)............................................... F-59
Notes to Unaudited Financial Statements................... F-60
</TABLE>
F-1
<PAGE> 2
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
GREAT LAKES BAGELS, L.P.
Report of Independent Public Accountants.................... F-62
Financial Statements:
Balance Sheet as of December 29, 1996..................... F-63
Statement of Operations for the period from June 16, 1996
(inception) through December 29, 1996.................. F-64
Statement of Members' Equity for the period from June 16,
1996 (inception) through December 29, 1996............. F-65
Statement of Cash Flows for the period from June 16, 1996
(inception) through December 29, 1996.................. F-66
Notes to Financial Statements............................. F-67
Balance Sheets at December 29, 1996 and October 5, 1997... F-72
Statements of Operations for the period from June 16, 1996
(inception) through December 29, 1996, for the period
from June 16, 1996 (inception) through October 6, 1996
and for the three quarters ended October 5, 1997....... F-73
Statements of Cash Flows for the period from June 16, 1996
(inception) through December 29, 1996, for the period
from June 16, 1996 (inception) through October 6, 1996
and for the three quarters ended October 5, 1997....... F-74
Notes to Unaudited Financial Statements................... F-75
GULFSTREAM BAGELS, L.P.
Report of Independent Public Accountants.................... F-77
Financial Statements:
Balance Sheet as of December 29, 1996..................... F-78
Statement of Operations for the period from March 25, 1996
(inception) through December 29, 1996.................. F-79
Statement of Partners' Capital for the period from March
25, 1996 (inception) through December 29, 1996......... F-80
Statement of Cash Flows for the period from March 25, 1996
(inception) through December 29, 1996.................. F-81
Notes to Financial Statements............................. F-82
Balance Sheets at December 29, 1996 and October 5, 1997... F-87
Statements of Operations for the period from March 25,
1996 (inception) through December 29, 1996, for the
period from March 25, 1996 (inception) through October
6, 1996 and for the three quarters ended October 5,
1997................................................... F-88
Statements of Cash Flows for the period from March 25,
1996 (inception) through December 29, 1996, for the
period from March 25, 1996 (inception) through October
6, 1996 and for the three quarters ended October 5,
1997................................................... F-89
Notes to Unaudited Financial Statements................... F-90
LIBERTY FOODS, L.L.C.
Report of Independent Public Accountants.................... F-92
Financial Statements:
Balance Sheet as of December 29, 1996..................... F-93
Statement of Operations for the period from April 17, 1996
(inception) through December 29, 1996.................. F-94
Statement of Members' Equity for the period from April 17,
1996 (inception) through December 29, 1996............. F-95
Statement of Cash Flows for the period from April 17, 1996
(inception) through December 29, 1996.................. F-96
Notes to Financial Statements............................. F-97
Statements of Operations for the period from April 17,
1996 (inception) through December 29, 1996, for the
period from April 17, 1996 (inception) through October
6, 1996 and for the period from December 30, 1996
through April 20, 1997 (merger)........................ F-102
Statements of Cash Flows for the period from April 17,
1996 (inception) through December 29, 1996, for the
period from April 17, 1996 (inception) through October
6, 1996 and for the period from December 30, 1996
through April 20, 1997 (merger)........................ F-103
Notes to Unaudited Financial Statements................... F-104
MAYFAIR BAGELS, L.P.
Report of Independent Public Accountants.................... F-106
Financial Statements:
Balance Sheet as of December 29, 1996..................... F-107
Statement of Operations for the period from April 1, 1996
(inception) through December 29, 1996.................. F-108
Statement of Members' Equity for the period from April 1,
1996 (inception) through December 29, 1996............. F-109
Statement of Cash Flows for the period from April 1, 1996
(inception) through December 29, 1996.................. F-110
Notes to Financial Statements............................. F-111
Statements of Operations for the period from April 1, 1996
(inception) through December 29, 1996, for the period
from April 1, 1996 (inception) through October 6, 1996
and for the two quarters ended July 13, 1997
(merger)............................................... F-117
</TABLE>
F-2
<PAGE> 3
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Statements of Cash Flows for the period from April 1, 1996
(inception) through December 29, 1996, for the period
from April 1, 1996 (inception) through October 6, 1996
and for the two quarters ended July 13, 1997
(merger)............................................... F-118
Notes to Unaudited Financial Statements................... F-119
NOAH'S BAY AREA BAGELS, L.L.C.
Report of Independent Public Accountants.................... F-121
Financial Statements:
Balance Sheet as of December 29, 1996..................... F-122
Statement of Operations for the period from July 15, 1996
(inception) through December 29, 1996.................. F-123
Statement of Members' Equity for the period from July 15,
1996 (inception) through December 29, 1996............. F-124
Statement of Cash Flows for the period from July 15, 1996
(inception) through December 29, 1996.................. F-125
Notes to Financial Statements............................. F-126
Statements of Operations for the period from July 15, 1996
(inception) through December 29, 1996, for the period
from July 15, 1996 (inception) through October 6, 1996
and for the two quarters ended July 13, 1997
(merger)............................................... F-131
Statements of Cash Flows for the period from July 15, 1996
(inception) through December 29, 1996, for the period
from July 15, 1996 (inception) through October 6, 1996
and for the two quarters ended July 13, 1997
(merger)............................................... F-132
Notes to Unaudited Financial Statements................... F-133
NOAH'S PACIFIC, L.L.C.
Report of Independent Public Accountants.................... F-135
Financial Statements:
Balance Sheet as of December 29, 1996..................... F-136
Statement of Operations for the period from June 17, 1996
(inception) through December 29, 1996.................. F-137
Statement of Members' Equity for the period from June 17,
1996 (inception) through December 29, 1996............. F-138
Statement of Cash Flows for the period from June 17, 1996
(inception) through December 29, 1996.................. F-139
Notes to Financial Statements............................. F-140
Balance Sheets at December 29, 1996 and October 5, 1997... F-145
Statement of Operations for the period from June 17, 1996
(inception) through December 29, 1996, for the period
from June 17, 1996 (inception) through October 6, 1996
and for the three quarters ended October 5, 1997....... F-146
Statement of Cash Flows for the period from June 17, 1996
(inception) through December 29, 1996, for the period
from June 17, 1996 (inception) through October 6, 1996
and for the three quarters ended October 5, 1997....... F-147
Notes to Unaudited Financial Statements................... F-148
PHILLY ROSE, L.P.
Report of Independent Public Accountants.................... F-150
Financial Statements:
Balance Sheet as of December 29, 1996..................... F-151
Statement of Operations for the period from April 18, 1996
(inception) through December 29, 1996.................. F-152
Statement of Partners' Capital for the period from April
18, 1996 (inception) through December 29, 1996......... F-153
Statement of Cash Flows for the period from April 18, 1996
(inception) through December 29, 1996.................. F-154
Notes to Financial Statements............................. F-155
Statements of Operations for the period from April 18,
1996 (inception) through December 29, 1996, for the
period from April 18, 1996 (inception) through October
6, 1996 and for the period from December 30, 1996
through June 15, 1997 (merger)......................... F-160
Statements of Cash Flows for the period from April 18,
1996 (inception) through December 29, 1996, for the
period from April 18, 1996 (inception) through October
6, 1996 and for the period from December 30, 1996
through June 15, 1997 (merger)......................... F-161
Notes to Unaudited Financial Statements................... F-162
SUNBELT BAGELS, L.L.C.
Financial Statements:
Balance Sheet at October 5, 1997.......................... F-164
Statements of Operations for the period from March 24,
1997 (inception) through October 5, 1997............... F-165
Statements of Cash Flows for the period from March 24,
1997 (inception) through October 5,
1997................................................... F-166
Notes to Unaudited Financial Statements................... F-167
</TABLE>
F-3
<PAGE> 4
ALAMO BAGELS, L.P.
FINANCIAL STATEMENTS
AS OF DECEMBER 29, 1996
TOGETHER WITH REPORT OF INDEPENDENT
PUBLIC ACCOUNTANTS
F-4
<PAGE> 5
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of Alamo Bagels, L.P.:
We have audited the accompanying balance sheet of Alamo Bagels, L.P. (a
Delaware limited partnership) as of December 29, 1996 and the related statements
of operations, partners' capital and cash flows for the period from inception
(October 11, 1996) through December 29, 1996. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Alamo Bagels, L.P. as of
December 29, 1996 and the results of its operations and its cash flows for the
period from inception (October 11, 1996) through December 29, 1996, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Denver, Colorado
March 18, 1997
F-5
<PAGE> 6
ALAMO BAGELS, L.P.
BALANCE SHEET
AS OF DECEMBER 29, 1996
<TABLE>
<S> <C>
ASSETS
Current Assets:
Cash...................................................... $ 62,136
Inventories............................................... 80,152
Prepaid expenses and other current assets................. 288,424
----------
Total current assets.............................. 430,712
Property, Equipment and Other Related Assets, net........... 5,179,234
Costs in Excess of Net Assets Acquired, net................. 545,388
Notes Receivable............................................ 300,000
Other Assets, net........................................... 803,174
----------
Total assets...................................... $7,258,508
==========
LIABILITIES AND PARTNERS' CAPITAL
Current Liabilities:
Accounts payable.......................................... $ 883,045
Accrued expenses.......................................... 160,640
----------
Total current liabilities......................... 1,043,685
Convertible Debt............................................ 3,377,513
Commitments (Note 8)
Partners' Capital........................................... 2,837,310
----------
Total liabilities and partners' capital........... $7,258,508
==========
</TABLE>
The accompanying notes to the financial statements are an integral part of this
statement.
F-6
<PAGE> 7
ALAMO BAGELS, L.P.
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM OCTOBER 11, 1996 (INCEPTION)
THROUGH DECEMBER 29, 1996
<TABLE>
<S> <C>
Revenue..................................................... $ 304,688
Costs and Expenses:
Cost of products sold..................................... 131,173
Salaries and benefits..................................... 298,297
General and administrative................................ 424,524
---------
Total costs and expenses.......................... 853,994
---------
Loss from Operations........................................ (549,306)
Interest Expense............................................ (15,846)
---------
Net Loss.................................................... $(565,152)
=========
</TABLE>
The accompanying notes to the financial statements are an integral part of this
statement.
F-7
<PAGE> 8
ALAMO BAGELS, L.P.
STATEMENT OF PARTNERS' CAPITAL
FOR THE PERIOD FROM OCTOBER 11, 1996 (INCEPTION)
THROUGH DECEMBER 29, 1996
<TABLE>
<CAPTION>
GENERAL PARTNER LIMITED PARTNER
------------------ ---------------------- TOTAL
UNITS AMOUNT UNITS AMOUNT AMOUNT
------- -------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balances, inception..................... -- $ -- -- $ -- $ --
Units issued for capital
contributions......................... 400,000 400,000 3,000,000 3,000,000 3,400,000
Non-employee stock option expense....... -- 2,462 -- -- 2,462
Net loss................................ -- (66,123) -- (499,029) (565,152)
------- -------- --------- ---------- ----------
Balances, December 29, 1996............. 400,000 $336,339 3,000,000 $2,500,971 $2,837,310
======= ======== ========= ========== ==========
</TABLE>
The accompanying notes to the financial statements are an integral part of this
statement.
F-8
<PAGE> 9
ALAMO BAGELS, L.P.
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM OCTOBER 11, 1996 (INCEPTION)
THROUGH DECEMBER 29, 1996
<TABLE>
<S> <C>
Cash Flows from Operating Activities:
Net loss.................................................. $ (565,152)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization.......................... 76,185
Non-employee stock option expense...................... 2,462
Changes in assets and liabilities, excluding effects from
acquisition:
Inventories............................................ (80,152)
Prepaid expenses and other current assets.............. (288,424)
Accounts payable and accrued expenses.................. 1,043,685
Other assets........................................... (803,187)
-----------
Net cash used in operating activities............. (614,583)
Cash Flows from Investing Activities:
Purchase of property, equipment and other related
assets................................................. (1,472,558)
Purchase of net assets from ENBC.......................... (4,328,236)
-----------
Net cash used in investing activities............. (5,800,794)
Cash Flows from Financing Activities:
Proceeds from issuance of partnership units............... 3,100,000
Proceeds from convertible debt............................ 6,767,513
Repayment on convertible debt............................. (3,390,000)
-----------
Net cash provided by financing activities......... 6,477,513
-----------
Net Increase in Cash........................................ 62,136
Cash, inception............................................. --
-----------
Cash, end of period......................................... $ 62,136
===========
Supplemental Disclosure of Cash Flow Information:
Interest paid............................................. $ 8,869
===========
Supplemental Disclosure of Noncash Financing Activities:
Partnership units issued in exchange for notes
receivable............................................. $ 300,000
===========
</TABLE>
The accompanying notes to the financial statements are an integral part of this
statement.
F-9
<PAGE> 10
ALAMO BAGELS, L.P.
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 29, 1996
(1) DESCRIPTION OF BUSINESS
Alamo Bagels, L.P. (the "Partnership") owns and operates retail food
service establishments under franchise agreements with Einstein/Noah Bagel Corp.
("ENBC"), to open and operate stores under the Einstein Bros. Bagels brand name.
The Einstein Bros. Bagels concept is designed to combine the authentic tastes of
a bagel bakery with the atmosphere of a neighborhood coffee shop, offering
products including fresh-baked bagels, proprietary cream cheeses, specialty
coffees and teas, and creative sandwiches. The Partnership was formed on October
11, 1996.
The Partnership has an Area Development Agreement ("ADA") with ENBC,
granting it the right to open 110 stores in portions of Texas. The ADA requires
the Partnership to complete the store development by December 31, 2000. The
Partnership had 6 stores open at December 29, 1996. Pursuant to the franchise
agreements, the Partnership is required to make periodic royalty payments based
on net revenue, and pay franchise, real estate development, software license,
software maintenance and other support service fees on a per store basis. The
Partnership is also required to make advertising fund contributions to national
and local advertising funds.
For the period from October 11, 1996 (inception) through December 29, 1996,
the Partnership had a net loss of $565,152 and negative working capital of
$612,973. The Partnership is currently in a state of rapid expansion as it
continues to open stores in accordance with its ADA. The Partnership's ability
to continue this expansion is contingent upon management's ability to raise
additional equity and/or obtain additional financing. Management of the
Partnership believes it will be able to continue to raise such equity and obtain
such additional financing required to satisfy its ADA.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fiscal Year
The Partnership's fiscal year is the 52/53-week period ending on the last
Sunday of December.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market
and consist of food, paper products and supplies.
Property, Equipment and Other Related Assets
Property, equipment and other related assets are stated at cost less
accumulated depreciation and amortization. The provision for depreciation and
amortization has been calculated using the straight-line method. These assets
are depreciated and amortized over the following useful lives:
<TABLE>
<S> <C>
Buildings and improvements.................................. 5-15 years
Equipment and software...................................... 3-8 years
Furniture and fixtures...................................... 7-15 years
ADA and franchise fees...................................... 15 years
Preopening costs............................................ 1 year
</TABLE>
Property, equipment and other related asset additions include acquisitions
of buildings, equipment, software, leasehold improvements and major improvements
to existing stores. Additions also include costs incurred in the development and
construction of new stores, including real estate development and franchise fees
paid to ENBC. Expenditures for maintenance and repairs are charged to expense as
incurred.
F-10
<PAGE> 11
ALAMO BAGELS, L.P.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Preopening costs consist primarily of salaries and other incremental direct
expenses relating to the set up, initial stocking, training and general store
management activities incurred prior to the opening of new stores. Amortization
begins on the date the store is opened.
Costs in Excess of Net Assets Acquired
The excess purchase price over the fair value of net assets acquired is
being amortized on a straight-line basis over 15 years.
Notes Receivable
The Partnership has received notes receivable from certain unit holders in
exchange for their partner units. In general, these notes are due within three
years of issuance, bear interest at the prime rate and are collateralized by the
partner units.
Revenue Recognition
Revenue is recognized in the period in which related food and beverage
products are sold.
Income Taxes
The Partnership is considered a flow-through entity for federal and state
income tax purposes. Any taxable income or loss is reported by the partners on
their individual tax returns in accordance with the Partnership's Operating
Agreement.
Allocation of Profits, Losses and Distributions
Profits and losses of the Partnership for any fiscal year are allocated to
the partners in proportion to their units; provided, however, that all items of
income, gain, loss or deductions related to the exercise of options granted
pursuant to any option plan (Note 7) shall be allocated to the partner
exercising the option.
Distributions shall be made at such times and in such amounts as may be
determined by the General Partner, subject to compliance with the covenants set
forth in the Partnership's secured loan agreement (Note 5). The General Partner
shall cause the Partnership to make distributions on an annual basis to each
partner in an amount equal to the estimated tax liability of the partner
resulting from the operations of the Partnership. Distributions shall be made to
the partners in proportion to their units held.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
F-11
<PAGE> 12
ALAMO BAGELS, L.P.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(3) SUPPLEMENTAL FINANCIAL STATEMENT DATA
<TABLE>
<CAPTION>
DECEMBER 29,
1996
------------
<S> <C>
Property, equipment and other related assets:
Buildings and improvements................................ $2,668,090
Furniture, fixtures, equipment and software............... 1,866,614
ADA and franchise fees.................................... 550,000
Preopening costs.......................................... 162,179
----------
5,246,883
Less accumulated depreciation and amortization............ (67,649)
----------
Total property, equipment and other related
assets, net...................................... $5,179,234
==========
Costs in excess of net assets acquired...................... $ 553,910
Less accumulated amortization............................. (8,522)
----------
Total costs in excess of net assets acquired,
net.............................................. $ 545,388
==========
Other assets:
Prepaid franchise fees.................................... $ 795,000
Organization costs, net of accumulated amortization of
$14.................................................... 3,868
Other assets.............................................. 4,306
----------
Total other assets, net........................... $ 803,174
==========
</TABLE>
(4) PURCHASE OF NET ASSETS FROM ENBC
On October 11, 1996, the Partnership paid to ENBC a total of $2,693,000
consisting of the net tangible assets of 14 sites for approximately $2,139,000
and costs in excess of net assets acquired of approximately $554,000. In
addition, the Partnership paid approximately $1,635,000 for certain rights and
fees to develop future stores. The transaction has been accounted for under the
purchase method of accounting. The pro forma effect of this transaction is not
significant to the accompanying financial statements.
(5) CONVERTIBLE DEBT
The Partnership has entered into a secured loan agreement (the "Agreement")
with ENBC, which provides ENBC the right to convert all or a portion of the loan
into units of partners' capital at $1.12 per unit. The specified percentage of
partners' capital to be acquired on conversion is dependent on the amount of
financing to be provided in relation to the total capital and rights
outstanding, but would constitute at least a majority of the capital of the
Partnership on a fully diluted basis in the event all of the loan was converted.
The loan may be converted by ENBC at any time subsequent to October 1998,
subject to the Partnership completing 80% of its development schedule, and up to
October 2004, or at any time upon the Partnership being in default on the loan.
Additionally, during this same time period, to the extent the loan is not fully
drawn or has been drawn and repaid, ENBC has the option to acquire, at the loan
conversion price, as defined, the amount of additional units it could have
acquired by conversion of the loan had it been fully drawn. The loan is
collateralized by substantially all of the assets of the Partnership and a
pledge of the voting members' capital of the Partnership. The Agreement contains
various restrictive covenants including restricting cash dividends and limiting
additional indebtedness. The Partnership was in compliance with all such
covenants at December 29, 1996.
Interest is based upon the reference rate of the Bank of America Illinois
(8.25% as of December 29, 1996) plus 1%. Interest-only payments are required
through October 1999, at which time the loan converts to
F-12
<PAGE> 13
ALAMO BAGELS, L.P.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
an amortizing term loan payable through October 2004, with a final balloon
payment. The Agreement provides for a line of credit of $12,400,000 with
$3,377,513 drawn as of December 29, 1996.
As of December 29, 1996, principal maturities were as follows:
<TABLE>
<S> <C>
1997............................................. $ --
1998............................................. --
1999............................................. 77,943
2000............................................. 337,751
2001............................................. 337,751
Thereafter....................................... 2,624,068
----------
$3,377,513
==========
</TABLE>
(6) PARTNERS' CAPITAL
The holders of certain of the limited partnership units have the right to
require the Partnership to redeem all of the limited partnership units at a
pre-determined formula price ("Put Price") based on the store level cash flow of
the Partnership in the event that (i) ENBC acquires a majority interest in the
Partnership pursuant to the exercise of its conversion or option rights under
the Agreement; (ii) ENBC does not consent to the Partnership's request to
undertake a firm commitment underwritten public offering after ENBC's conversion
and option rights under its agreement with the Partnership have expired
unexercised; or (iii) ENBC does not consent to the Partnership's request to
terminate its development and franchise agreements with ENBC after ENBC's
conversion and option rights under its loan agreement with the Partnership have
expired unexercised. In the event the Partnership does not redeem the limited
partnership units when required to do so, ENBC will be obligated to purchase
these units at the same price applicable to the Partnership.
(7) EMPLOYEE UNIT OPTION PLANS
A maximum of 1,942,000 voting units are available for grant to employees
and certain non-employees pursuant to the 1996 Unit Option Plan (the "Option
Plan"). The option price is equal to the fair market value on the date of grant,
as determined by the General Partner. All unit options granted under the Option
Plan are exercisable up to 10 years from the date of grant. The options
generally vest at a rate of 10% at the end of the first year, an additional 20%
at the end of the second year, an additional 30% at the end of the third year
and the balance at the end of the fourth year from the date of grant.
The Partnership accounts for the employee options using the intrinsic value
based method under which no compensation cost has been recognized in accordance
with Statement of Financial Accounting Standards No. 123, "Accounting for Stock
Based Compensation". If a fair value based method had been adopted, the
Partnership's pro forma net loss would have been $567,614 for the period ended
December 29, 1996.
Non-employee options are accounted for using a fair value approach which
resulted in $2,462 of compensation expense for the period ended December 29,
1996.
F-13
<PAGE> 14
ALAMO BAGELS, L.P.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes stock option activity and the related
weighted average exercise price of the options.
<TABLE>
<CAPTION>
1996
-------------------
UNITS PRICE
---------- -----
<S> <C> <C>
Outstanding, beginning of period............................ -- --
Granted................................................... 1,210,000 $1.00
Exercised................................................. -- --
Forfeited................................................. -- --
Expired................................................... -- --
----------
Outstanding, end of period.................................. 1,210,000 $1.00
==========
Exercisable, end of period.................................. 30,000 $1.00
==========
Weighted average fair value of options granted.............. $ 0.29
==========
</TABLE>
At December 29, 1996, the weighted average remaining contractual life of
the options is 9.75 years.
The fair value of each option is estimated on the date of grant using the
minimum value option pricing model with the following weighted average
assumptions used for 1996 grants: risk-free interest rate of 6.72%; expected
life of 5 years.
(8) COMMITMENTS
The Partnership leases store premises under various noncancelable operating
lease agreements. Lease terms are generally five years with two or three
five-year renewal options. Most of the leases contain escalation clauses and
common area maintenance charges.
The following is a schedule of future minimum rental payments which are
required under operating leases that have initial or remaining noncancelable
lease terms in excess of one year as of December 29, 1996:
<TABLE>
<S> <C>
1997.............................................. $ 575,966
1998.............................................. 587,680
1999.............................................. 590,655
2000.............................................. 598,870
2001.............................................. 534,461
Thereafter........................................ 3,702,478
----------
$6,590,110
==========
</TABLE>
Total rent expense under operating leases, including common area
maintenance charges, was approximately $84,000 for the period from October 11,
1996 (inception) through December 29, 1996.
The Partnership obtains a majority of its produce and other supplies from a
limited number of vendors. Management believes that, if necessary, the
Partnership would be able to replace any of its sources of supply with other
vendors without a disruption in service.
(9) SUBSEQUENT EVENT
On February 24, 1997, the Partnership purchased 10 stores and their related
net tangible assets from Bagel Boulevard Cafe America, Inc. for approximately
$5,536,000, which was paid by the delivery of 231,023 shares of common stock of
ENBC. The transaction has been accounted for under the purchase method of
accounting.
F-14
<PAGE> 15
ALAMO BAGELS, L.P.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE PERIOD FROM FOR THE PERIOD FROM
OCTOBER 11, 1996 DECEMBER 30, 1996
(INCEPTION) THROUGH THROUGH APRIL 20,
DECEMBER 29, 1996 1997 (MERGER)
------------------- -------------------
(UNAUDITED)
<S> <C> <C>
Revenue................................................... $ 304,688 $ 2,734,932
Costs and Expenses:
Cost of products sold................................... 131,173 1,037,771
Salaries and benefits................................... 298,297 1,580,698
General and administrative.............................. 424,524 1,664,916
--------- -----------
Total costs and expenses........................ 853,994 4,283,385
--------- -----------
Loss from Operations...................................... (549,306) (1,548,453)
Other Income (Expense):
Interest expense, net................................... (15,846) (220,547)
Other income............................................ -- 626
--------- -----------
Total other expense............................. (15,846) (219,921)
--------- -----------
Net Loss.................................................. $(565,152) $(1,768,374)
========= ===========
</TABLE>
The accompanying notes to the financial statements are an integral part of these
statements.
F-15
<PAGE> 16
ALAMO BAGELS, L.P.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE PERIOD FROM FOR THE PERIOD FROM
OCTOBER 11, 1996 DECEMBER 30, 1996
(INCEPTION) THROUGH THROUGH APRIL 20,
DECEMBER 29, 1996 1997 (MERGER)
------------------- -------------------
(UNAUDITED)
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss................................................ $ (565,152) $ (1,768,374)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Depreciation and amortization........................ 76,185 285,923
Non-employee option expense.......................... 2,462 4,924
Changes in assets and liabilities, excluding effects
from acquisitions:
Inventories........................................ (80,152) (139,027)
Accounts receivable................................ -- (3,383)
Accounts payable and accrued expenses.............. 1,043,685 588,352
Prepaid expenses and other current assets.......... (288,424) 326,867
Other assets and liabilities....................... (803,187) 2,493,531
----------- ------------
Net cash provided by (used in) operating
activities.................................... (614,583) 1,788,813
Cash Flows from Investing Activities:
Purchase of property and equipment...................... (1,472,558) (4,417,766)
Purchase of ENBC stock.................................. -- (486,906)
Acquisition of Bagel Boulevard.......................... -- (5,536,250)
Purchase of net assets from ENBC........................ (4,328,236) --
----------- ------------
Net cash used in investing activities........... (5,800,794) (10,440,922)
Cash Flows from Financing Activities:
Proceeds from issuance of partnership units............. 3,100,000 400,000
Proceeds from convertible debt.......................... 6,767,513 9,934,903
Repayment of convertible debt........................... (3,390,000) (912,416)
----------- ------------
Net cash provided by financing activities....... 6,477,513 9,422,487
----------- ------------
Net Increase in Cash and Cash Equivalents................. 62,136 770,378
Cash and Cash Equivalents, beginning of period............ -- 62,136
----------- ------------
Cash and Cash Equivalents, end of period.................. $ 62,136 $ 832,514
=========== ============
</TABLE>
The accompanying notes to the financial statements are an integral part of these
statements.
F-16
<PAGE> 17
ALAMO BAGELS, L.P.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The financial statements have been prepared by Alamo Bagels, L.P. (the
"Partnership") and are unaudited except for the Statement of Operations for the
Period from October 11, 1996 (inception) through December 29, 1996 and the
Statement of Cash Flows for the Period from October 11, 1996 (inception) through
December 29, 1996 and the notes related thereto. The financial statements have
been prepared in accordance with the instructions under Regulation S-X for
interim financial statements and, therefore, do not necessarily include all
information and footnotes required by generally accepted accounting principles.
In the opinion of the Partnership, all adjustments (consisting only of normal
recurring adjustments) necessary to present fairly the Partnership's financial
position, results of operations and cash flows as of April 20, 1997 and for all
periods presented have been made. The statements are subject to audit
adjustment. A description of the Partnership's accounting policies and other
financial information are included in the audited financial statements included
elsewhere herein.
2. ACQUISITION OF BAGEL BOULEVARD CAFE AMERICA, INC.
On February 24, 1997, the Partnership acquired certain assets and assumed
certain lease liabilities of Bagel Boulevard Cafe America, Inc. and affiliates
("Bagel Boulevard") for cash and securities with a total value of approximately
$5,536,000. The acquisition was accounted for as a purchase. Bagel Boulevard's
operations are not material in relation to the Partnership's financial
statements and pro forma information has therefore not been provided.
3. MERGER WITH FINEST BAGELS, L.P.
On April 20, 1997, the Partnership was acquired by Finest Bagels, L.P.,
another area developer of Einstein/Noah Bagel Corp.
F-17
<PAGE> 18
BCE WEST BAGELS, L.L.C.
FINANCIAL STATEMENTS
AS OF DECEMBER 29, 1996
TOGETHER WITH REPORT OF INDEPENDENT
PUBLIC ACCOUNTANTS
F-18
<PAGE> 19
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Members of BCE West Bagels, L.L.C.:
We have audited the accompanying balance sheet of BCE West Bagels, L.L.C.
(a Delaware limited liability company) as of December 29, 1996, and the related
statements of operations, members' equity and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of BCE West Bagels, L.L.C. as
of December 29, 1996, and the results of its operations and its cash flows for
the year then ended, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Denver, Colorado
March 18, 1997
F-19
<PAGE> 20
BCE WEST BAGELS, L.L.C.
BALANCE SHEET
AS OF DECEMBER 29, 1996
<TABLE>
<S> <C>
ASSETS
Current Assets:
Cash...................................................... $ 2,671
Inventories............................................... 848,349
Prepaid expenses and other current assets................. 267,556
-----------
Total current assets.............................. 1,118,576
Property, Equipment and Other Related Assets, net........... 24,966,281
Costs in Excess of Net Assets Acquired, net................. 304,328
Notes Receivable............................................ 500,000
Other Assets, net........................................... 1,282,840
-----------
Total assets...................................... $28,172,025
===========
LIABILITIES AND MEMBERS' EQUITY
Current Liabilities:
Accounts payable.......................................... $ 1,204,865
Accrued expenses.......................................... 1,492,536
-----------
Total current liabilities......................... 2,697,401
Convertible Debt............................................ 24,354,648
Commitments (Note 8)
Members' Equity............................................. 1,119,976
-----------
Total liabilities and members' equity............. $28,172,025
===========
</TABLE>
The accompanying notes to the financial statements are an integral part of this
statement.
F-20
<PAGE> 21
BCE WEST BAGELS, L.L.C.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 29, 1996
<TABLE>
<S> <C>
Revenue..................................................... $22,951,364
Costs and Expenses:
Cost of products sold..................................... 9,914,669
Salaries and benefits..................................... 9,604,318
General and administrative................................ 11,073,758
-----------
Total costs and expenses.......................... 30,592,745
-----------
Loss from Operations........................................ (7,641,381)
Other Income (Expense):
Interest expense.......................................... (1,279,400)
Interest income........................................... 51,753
-----------
Total other expense............................... (1,227,647)
-----------
Net Loss.................................................... $(8,869,028)
===========
</TABLE>
The accompanying notes to the financial statements are an integral part of this
statement.
F-21
<PAGE> 22
BCE WEST BAGELS, L.L.C.
STATEMENT OF MEMBERS' EQUITY
FOR THE YEAR ENDED DECEMBER 29, 1996
<TABLE>
<CAPTION>
VOTING NONVOTING
MEMBERS' CAPITAL MEMBERS' CAPITAL
------------------- ------------------------
UNITS AMOUNT UNITS AMOUNT TOTAL
------- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balances, December 31, 1995....... 125,000 $ 90,240 1,750,000 $ 1,263,364 $ 1,353,604
Units issued for net assets
acquired..................... 375,000 233,300 1,750,000 1,088,733 1,322,033
Units issued for capital
contributions................ -- -- 7,250,000 7,250,000 7,250,000
Non-employee stock option
expense...................... -- 63,367 -- -- 63,367
Net loss........................ -- (394,179) -- (8,474,849) (8,869,028)
------- --------- ---------- ----------- -----------
Balances, December 29, 1996....... 500,000 $ (7,272) 10,750,000 $ 1,127,248 $ 1,119,976
======= ========= ========== =========== ===========
</TABLE>
The accompanying notes to the financial statements are an integral part of this
statement.
F-22
<PAGE> 23
BCE WEST BAGELS, L.L.C.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 29, 1996
<TABLE>
<S> <C>
Cash Flows from Operating Activities:
Net loss.................................................. $ (8,869,028)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization.......................... 2,618,410
Non-employee option expense............................ 63,367
Changes in assets and liabilities, excluding effects from
acquisition:
Inventories............................................ (608,800)
Prepaid expenses and other current assets.............. (100,662)
Accounts payable and accrued expenses.................. (312,929)
Other assets and liabilities........................... 507,289
------------
Net cash used in operating activities............. (6,702,353)
Cash Flows from Investing Activities:
Purchase of property, equipment and other related
assets................................................. (21,645,756)
Proceeds from sale of property, plant and equipment....... 396,770
Purchase of ENBC common stock............................. (548,650)
------------
Net cash used in investing activities............. (21,797,636)
Cash Flows from Financing Activities:
Proceeds from convertible debt............................ 35,556,262
Payments on convertible debt.............................. (14,740,000)
Proceeds from issuance of member units.................... 7,250,000
------------
Net cash provided by financing activities......... 28,066,262
------------
Net Decrease in Cash........................................ (433,727)
Cash, beginning of year..................................... 436,398
------------
Cash, end of year........................................... $ 2,671
============
Supplemental Disclosure of Cash Flow Information:
Interest paid............................................. $ 1,235,614
============
Supplemental Disclosure of Noncash Financing Activities:
Units issued for net assets acquired...................... $ 1,322,033
============
</TABLE>
The accompanying notes to the financial statements are an integral part of this
statement.
F-23
<PAGE> 24
BCE WEST BAGELS, L.L.C.
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 29, 1996
(1) DESCRIPTION OF BUSINESS
BCE West Bagels, L.L.C. (the "Company", formerly known as BCE SLC Bagels,
L.L.C.) owns and operates retail food service establishments under franchise
agreements with Einstein/Noah Bagel Corp. ("ENBC") under the Einstein Bros.
Bagels brand name. The Einstein Bros. Bagels concept is designed to combine the
authentic tastes of a bagel bakery with the atmosphere of a neighborhood coffee
shop, offering products including fresh-baked bagels, proprietary cream cheeses,
specialty coffees and teas, and creative sandwiches. The Company was formed on
November 26, 1995, under the Delaware Limited Liability Act.
The Company has an Area Development Agreement ("ADA") with ENBC, granting
it the right to open 107 stores in portions of Arizona, New Mexico, Colorado,
Nevada, Texas, Idaho, Nebraska, Wyoming, Montana and Utah. The ADA requires the
Company to complete the store development by December 30, 1998. The Company had
48 stores open at December 29, 1996. Pursuant to the franchise agreements, the
Company is required to make periodic royalty payments based on net revenue, and
pay franchise, real estate development, software license, software maintenance
and other support service fees on a per store basis. The Company is also
required to make advertising fund contributions to national and local
advertising funds.
For the year ended December 29, 1996, the Company had a net loss of
$8,869,028 and negative working capital of $1,578,825. The Company is currently
in a state of rapid expansion as it continues to open stores in accordance with
its ADA. The Company's ability to continue this expansion is contingent upon
management's ability to raise additional equity and/or obtain additional
financing. Management of the Company believes it will be able to continue to
raise such equity and obtain such additional financing required to satisfy its
ADA.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fiscal Year
The Company's fiscal year is the 52/53-week period ending on the last
Sunday of December.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market
and consist of food and paper products.
Investment in ENBC Common Stock
The Company owns 85,050 shares of ENBC common stock which are considered
restricted securities, and, as a result, are reflected at historical cost of
$548,650 in the accompanying balance sheet. At December 29, 1996, the fair value
of similar unrestricted shares of ENBC was approximately $2,541,000.
Property, Equipment and Other Related Assets
Property, equipment and other related assets are stated at cost less
accumulated depreciation and amortization. The provision for depreciation and
amortization has been calculated using the straight-line method. These assets
are depreciated and amortized over the following useful lives:
<TABLE>
<S> <C>
Buildings and improvements.................................. 5-15 years
Equipment and software...................................... 3-8 years
Furniture and fixtures...................................... 7-15 years
ADA and franchise fees...................................... 15 years
Preopening costs............................................ 1 year
</TABLE>
F-24
<PAGE> 25
BCE WEST BAGELS, L.L.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Property, equipment and other related asset additions include acquisitions
of buildings, equipment, software, leasehold improvements and major improvements
to existing stores. Additions also include costs incurred in the development and
construction of new stores, including real estate development and franchise fees
paid to ENBC. Expenditures for maintenance and repairs are charged to expense as
incurred.
Preopening costs consist primarily of salaries and other incremental direct
expenses relating to the set up, initial stocking, training and general store
management activities incurred prior to the opening of new stores. Amortization
begins on the date the store is opened.
Costs in Excess of Net Assets Acquired
The excess purchase price over the fair value of net assets acquired is
being amortized on a straight-line basis over 15 years.
Notes Receivable
The Company has received notes receivable from certain unit holders in
exchange for their member units. In general, these notes are due within three
years of issuance, bear interest at the prime rate and are collateralized by the
members' units.
Revenue Recognition
Revenue is recognized in the period in which related food and beverage
products are sold.
Income Taxes
The Company is considered a flow-through entity for federal and state
income tax purposes. Any taxable income or loss is reported by the members on
their individual tax returns in accordance with the Company's Operating
Agreement.
Allocation of Profits, Losses and Distributions
Profits and losses of the Company for any fiscal year are allocated to the
members in proportion to their units; provided, however, that all items of
income, gain, loss or deductions related to the exercise of options granted
pursuant to any option plan (Note 7) shall be allocated to the member exercising
the option.
Distributions shall be made at such times and in such amounts as may be
determined by the Manager, subject to compliance with the covenants set forth in
the Company's secured loan agreement (Note 5). The Manager shall cause the
Company to make distributions on an annual basis to each member in an amount
equal to the estimated tax liability of the member resulting from the operations
of the Company. Distributions shall be made to members in proportion to their
units held.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
F-25
<PAGE> 26
BCE WEST BAGELS, L.L.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(3) SUPPLEMENTAL FINANCIAL STATEMENT DATA
<TABLE>
<S> <C>
Property, equipment and other related assets:
Buildings and improvements................................ $11,992,995
Furniture, fixtures, equipment and software............... 11,368,733
ADA and franchise fees.................................... 2,200,212
Preopening costs............................................ 1,997,226
-----------
27,559,166
Less accumulated depreciation and amortization............ (2,592,885)
-----------
Total property, equipment and other related
assets, net...................................... $24,966,281
===========
Costs in excess of net assets acquired...................... $ 327,333
Less accumulated amortization............................. (23,005)
-----------
Total costs in excess of net assets acquired,
net.............................................. $ 304,328
===========
Other assets:
Prepaid franchise fees...................................... $ 305,000
Investment in ENBC common stock............................. 548,650
Organization costs, net of accumulated amortization of
$22,432................................................... 92,029
Other assets................................................ 337,161
-----------
Total other assets, net........................... $ 1,282,840
===========
</TABLE>
(4) NET ASSETS ACQUIRED IN EXCHANGE FOR MEMBER UNITS
In January 1996, the Company acquired the net assets of BCE West Bagels,
L.L.C. in exchange for member units issued. The net assets acquired are
reflected at predecessor cost due to common control of the entities.
Simultaneously, the Company changed its name to BCE West Bagels, L.L.C.
(5) CONVERTIBLE DEBT
The Company has entered into a secured loan agreement (the "Agreement")
with ENBC which provides ENBC the right to convert all or any portion of the
loan into voting member units. The conversion feature allows ENBC to convert all
or a portion of the loan into voting units of members' capital at $1.12 per
unit. The specified percentage of members' capital to be acquired on conversion
is dependent on the amount of financing to be provided in relation to the total
capital and rights outstanding, but would constitute at least a majority of the
capital of the Company on a fully diluted basis in the event all of the loan was
converted. The loan may be converted by ENBC at any time subsequent to December
1998, subject to the Company completing 80% of its development schedule, and up
to November 2003, or at any time upon the Company being in default on the loan.
Additionally, during this same time period, to the extent the loan is not fully
drawn or has been drawn and repaid, ENBC has the option to acquire, at the loan
conversion price, as defined, the amount of additional units it could have
acquired by conversion of the loan had it been fully drawn. The loan is
collateralized by substantially all of the assets of the Company and a pledge of
the voting members' capital of the Company. The Agreement contains various
restrictive covenants including restricting cash distributions and limiting
additional indebtedness. The Company was in compliance with all such covenants
at December 29, 1996.
Interest is based upon the reference rate of the Bank of America Illinois
(8.25% as of December 29, 1996) plus 1%. Interest-only payments are required
through October 1998, at which time the loan converts to an amortizing term loan
payable through November 2003, with a final balloon payment. The Agreement
provides for a line of credit of $43,000,000, with $24,354,648 drawn as of
December 29, 1996.
F-26
<PAGE> 27
BCE WEST BAGELS, L.L.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
As of December 29, 1996, principal maturities were as follows:
<TABLE>
<S> <C>
1997............................................ $ --
1998............................................ 374,687
1999............................................ 2,435,465
2000............................................ 2,435,465
2001............................................ 2,435,465
Thereafter...................................... 16,673,566
-----------
$24,354,648
===========
</TABLE>
(6) MEMBERS' EQUITY
The holders of the nonvoting units have the right to require the Company to
redeem all of the nonvoting units at a pre-determined formula price based on the
store level cash flow of the Company ("Put Price") in the event that (i) ENBC
acquires a majority interest in the Company pursuant to the exercise of its
conversion or option rights under the Agreement; (ii) ENBC does not consent to
the Company's request to undertake a firm commitment underwritten public
offering after ENBC's conversion and option rights under its Agreement with the
Company have expired unexercised; or (iii) ENBC does not consent to the
Company's request to terminate its development and franchise agreements with
ENBC after ENBC's conversion and option rights under its Agreement with the
Company have expired unexercised. In the event the Company does not redeem the
nonvoting units when required to do so, ENBC will be obligated to purchase these
units at the same price applicable to the Company.
(7) EMPLOYEE UNIT OPTION PLANS
A maximum of 3,738,000 voting units are available for grant to employees
and certain non-employees pursuant to the 1996 Unit Option Plan (the "Option
Plan"). The option price is equal to the fair market value on the date of grant,
as determined by the Manager. All unit options granted under the Option Plan are
exercisable up to 10 years from the date of grant. The options generally vest at
a rate of 10% at the end of the first year, an additional 20% at the end of the
second year, an additional 30% at the end of the third year and the balance at
the end of the fourth year from the date of grant.
The Company accounts for employee options using the intrinsic value based
method under which no compensation cost has been recognized in accordance with
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation". If a fair value based accounting method had been adopted, the
Company's pro forma net loss would have been $8,936,935 for the year ended
December 29, 1996.
Non-employee options are accounted for using a fair value approach which
resulted in $63,367 of compensation expense for the year ended December 29,
1996.
F-27
<PAGE> 28
BCE WEST BAGELS, L.L.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes stock option activity and the related
weighted average exercise price of the options:
<TABLE>
<CAPTION>
1996
-------------------
UNITS PRICE
---------- -----
<S> <C> <C>
Outstanding, beginning of period............................ -- --
Granted................................................... 2,108,000 $1.00
Exercised................................................. -- --
Forfeited................................................. -- --
Expired................................................... -- --
---------- -----
Outstanding, end of period.................................. 2,108,000 $1.00
========== =====
Exercisable, end of period.................................. 210,800 $1.00
========== =====
Weighted average fair value of options granted.............. $ 0.25
==========
</TABLE>
At December 29, 1996, the weighted average remaining contractual life of
the options is 9 years.
The fair value of each option is estimated on the date of grant using the
minimum value option pricing model with the following weighted average
assumptions used for 1996 grants: risk-free interest rate of 5.73%; expected
lives of 5 years.
In addition to the Option Plan, the Company has granted employees options
to purchase 85,050 shares of ENBC common stock at an exercise price of $6.59 per
share. At December 29, 1996, 303 shares have been purchased by the exercise of
such options. The remaining shares are reflected at historical cost (Note 2) in
the accompanying financial statements.
(8) COMMITMENTS
The Company leases store premises under various noncancelable operating
lease agreements. Lease terms are generally five years with two or three
five-year renewal options. Most of the leases contain escalation clauses and
common area maintenance charges.
The following is a schedule of future minimum rental payments which are
required under operating leases that have initial or remaining noncancelable
lease terms in excess of one year as of December 29, 1996:
<TABLE>
<S> <C>
1997............................................ $ 2,397,765
1998............................................ 2,415,572
1999............................................ 2,434,097
2000............................................ 2,408,544
2001............................................ 1,844,816
Thereafter...................................... 6,212,337
-----------
$17,713,131
===========
</TABLE>
Total rent expense under operating leases, including common area
maintenance charges, was approximately $1,640,000 for the year ended December
29, 1996.
The Company obtains a majority of its produce and other supplies from a
limited number of vendors. Management believes that, if necessary, the Company
would be able to replace any of its sources of supply with other vendors without
a disruption in service.
F-28
<PAGE> 29
BCE WEST BAGELS, L.L.C.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
FOR THE FOR THE THREE DECEMBER 30, 1996
YEAR ENDED QUARTERS ENDED THROUGH APRIL 20,
DECEMBER 29, 1996 OCTOBER 6, 1996 1997 (MERGER)
----------------- ---------------- -------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Revenue........................................ $22,951,364 $15,756,700 $11,630,649
Costs and Expenses:
Cost of products sold........................ 9,914,669 6,925,749 4,040,397
Salaries and benefits........................ 9,604,318 6,772,191 3,996,340
General and administrative................... 11,073,758 7,124,334 5,252,851
----------- ----------- -----------
Total costs and expenses............. 30,592,745 20,822,274 13,289,588
----------- ----------- -----------
Loss from Operations........................... (7,641,381) (5,065,574) (1,658,939)
Other Expense:
Interest expense, net........................ (1,227,647) (798,829) (741,095)
Other expense................................ -- (6,932) (317,269)
----------- ----------- -----------
Total other expense.................. (1,227,647) (805,761) (1,058,364)
----------- ----------- -----------
Net Loss....................................... $(8,869,028) $(5,871,335) $(2,717,303)
=========== =========== ===========
</TABLE>
The accompanying notes to the financial statements are an integral part of these
statements.
F-29
<PAGE> 30
BCE WEST BAGELS, L.L.C.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
FOR THE FOR THE THREE DECEMBER 30, 1996
YEAR ENDED QUARTERS ENDED THROUGH APRIL 20,
DECEMBER 29, 1996 OCTOBER 6, 1996 1997 (MERGER)
----------------- --------------- -------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss................................... $ (8,869,028) $ (5,871,335) $(2,717,303)
Adjustments to reconcile net loss to net
cash from (used in) operating
activities:
Depreciation and amortization........... 2,618,410 1,612,553 1,257,388
Non-employee option expense............. 63,367 -- 24,618
Changes in assets and liabilities,
excluding effects from acquisitions:
Inventories........................... (608,800) (567,117) (104,355)
Accounts receivable................... -- (62,284) (115,648)
Accounts payable and accrued
expenses........................... (312,929) 1,511,995 2,351,545
Prepaid expenses and other current
assets............................. (100,662) 126,792 99,121
Other assets and liabilities.......... 507,289 262,279 77,175
------------ ------------ -----------
Net cash provided by (used in)
operating activities............. (6,702,353) (2,987,117) 872,541
Cash Flows from Investing Activities:
Purchase of property and equipment......... (21,645,756) (17,371,052) (6,793,018)
Proceeds from sale of assets............... 396,770 -- --
Sale (purchase) of ENBC stock.............. (548,650) (550,650) 6,491
Purchase of other assets................... -- -- (107,300)
------------ ------------ -----------
Net cash used in investing
activities....................... (21,797,636) (17,921,702) (6,893,827)
Cash Flows from Financing Activities:
Proceeds from issuance of member units..... 7,250,000 3,750,000 --
Proceeds from convertible debt............. 35,556,262 26,091,011 10,755,692
Repayment of convertible debt.............. (14,740,000) (9,000,000) (4,095,000)
------------ ------------ -----------
Net cash provided by financing
activities....................... 28,066,262 20,841,011 6,660,692
------------ ------------ -----------
Net Increase (Decrease) in Cash and Cash
Equivalents................................ (433,727) (67,808) 639,406
Cash and Cash Equivalents, beginning of
period..................................... 436,398 436,398 2,671
------------ ------------ -----------
Cash and Cash Equivalents, end of period..... $ 2,671 $ 368,590 $ 642,077
============ ============ ===========
</TABLE>
The accompanying notes to the financial statements are an integral part of these
statements.
F-30
<PAGE> 31
BCE WEST BAGELS, L.L.C.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The financial statements have been prepared by BCE West Bagels, L.L.C. (the
"Company") and are unaudited except for the Statement of Operations for the Year
Ended December 29, 1996 and the Statement of Cash Flows for the Year Ended
December 29, 1996 and the notes related thereto. The financial statements have
been prepared in accordance with the instructions under Regulation S-X for
interim financial statements and, therefore, do not necessarily include all
information and footnotes required by generally accepted accounting principles.
In the opinion of the Partnership, all adjustments (consisting only of normal
recurring adjustments) necessary to present fairly the Partnership's financial
position, results of operations and cash flows as of April 20, 1997 and for all
periods presented have been made. The statements are subject to audit
adjustment. A description of the Partnership's accounting policies and other
financial information are included in the audited financial statements included
elsewhere herein.
2. MERGER WITH SUNBELT BAGELS, L.L.C.
On April 20, 1997, the Company was acquired by Sunbelt Bagels, L.L.C.,
another area developer of Einstein/Noah Bagel Corp.
F-31
<PAGE> 32
COLONIAL BAGELS, L.P.
FINANCIAL STATEMENTS
AS OF DECEMBER 29, 1996
TOGETHER WITH REPORT OF INDEPENDENT
PUBLIC ACCOUNTANTS
F-32
<PAGE> 33
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of Colonial Bagels, L.P.:
We have audited the accompanying balance sheet of Colonial Bagels, L.P. (a
Delaware limited partnership) as of December 29, 1996 and the related statements
of operations, partners' capital and cash flows for the period from inception
(June 5, 1996) through December 29, 1996. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Colonial Bagels, L.P. as of
December 29, 1996 and the results of its operations and its cash flows for the
period from inception (June 5, 1996) through December 29, 1996, in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Denver, Colorado
March 18, 1997
F-33
<PAGE> 34
COLONIAL BAGELS, L.P.
BALANCE SHEET
AS OF DECEMBER 29, 1996
<TABLE>
<S> <C>
ASSETS
Current Assets:
Cash...................................................... $ 14,762
Inventories............................................... 264,243
Prepaid expenses and other current assets................. 85,834
-----------
Total current assets.............................. 364,839
Property, Equipment and Other Related Assets, net........... 9,316,256
Costs in Excess of Net Assets Acquired, net................. 789,903
Notes Receivable............................................ 500,000
Other Assets, net........................................... 1,213,800
-----------
Total assets...................................... $12,184,798
===========
LIABILITIES AND PARTNERS' CAPITAL
Current Liabilities:
Accounts payable.......................................... $ 2,040,280
Accrued expenses.......................................... 535,701
-----------
Total current liabilities......................... 2,575,981
Convertible Debt............................................ 5,953,669
Other Liabilities........................................... 9,548
Commitments (Note 8)........................................
Partners' Capital........................................... 3,645,600
-----------
Total liabilities and partners' capital........... $12,184,798
===========
</TABLE>
The accompanying notes to the financial statements are an integral part of this
statement.
F-34
<PAGE> 35
COLONIAL BAGELS, L.P.
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM JUNE 5, 1996 (INCEPTION)
THROUGH DECEMBER 29, 1996
<TABLE>
<S> <C>
Revenue..................................................... $ 1,877,970
Costs and Expenses:
Cost of products sold..................................... 772,207
Salaries and benefits..................................... 1,754,831
General and administrative................................ 1,655,648
-----------
Total costs and expenses.......................... 4,182,686
-----------
Loss from Operations........................................ (2,304,716)
Other Income (Expense):
Interest expense.......................................... (71,345)
Interest income........................................... 6,094
-----------
Total other expense............................... (65,251)
Net Loss.................................................... $(2,369,967)
===========
</TABLE>
The accompanying notes to the financial statements are an integral part of this
statement.
F-35
<PAGE> 36
COLONIAL BAGELS, L.P.
STATEMENT OF PARTNERS' CAPITAL
FOR THE PERIOD FROM JUNE 5, 1996 (INCEPTION)
THROUGH DECEMBER 29, 1996
<TABLE>
<CAPTION>
GENERAL PARTNER LIMITED PARTNER
-------------------- ------------------------
AMOUNT UNITS AMOUNT UNITS TOTAL
--------- -------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Balances, inception................ $ -- -- $ -- -- $ --
Units issued for capital
contributions................. 500,000 500,000 5,500,000 5,500,000 6,000,000
Non-employee stock option
expense....................... 15,567 -- -- -- 15,567
Net loss......................... (197,418) -- (2,172,549) -- (2,369,967)
--------- -------- ----------- ---------- -----------
Balances, December 29, 1996........ $ 318,149 500,000 $ 3,327,451 5,500,000 $ 3,645,600
========= ======== =========== ========== ===========
</TABLE>
The accompanying notes to the financial statements are an integral part of this
statement.
F-36
<PAGE> 37
COLONIAL BAGELS, L.P.
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM JUNE 5, 1996 (INCEPTION)
THROUGH DECEMBER 29, 1996
<TABLE>
<S> <C>
Cash Flows from Operating Activities:
Net loss.................................................. $ (2,369,967)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization.......................... 229,998
Non-employee stock option expense...................... 15,567
Changes in assets and liabilities:
Inventories............................................ (264,243)
Prepaid expenses and other current assets.............. (85,834)
Accounts payable and accrued expenses.................. 2,009,838
Other assets and liabilities........................... 1,652
------------
Net cash used in operating activities............. (462,989)
Cash Flows from Investing Activities:
Purchase of property, equipment and other related
assets................................................. (8,633,686)
Purchase of net assets from ENBC.......................... (1,692,542)
Purchase of ENBC common stock............................. (649,690)
------------
Net cash used in investing activities............. (10,975,918)
Cash Flows from Financing Activities:
Proceeds from issuance of partner units................... 5,500,000
Proceeds from convertible debt............................ 11,265,215
Repayment of convertible debt............................. (5,311,546)
------------
Net cash provided by financing activities......... 11,453,669
------------
Net Increase in Cash........................................ 14,762
Cash, inception............................................. --
Cash, end of period......................................... $ 14,762
============
Supplemental Disclosure of Cash Flow Information:
Interest paid............................................. $ 74,986
============
Supplemental Disclosure of Noncash Financing Activities:
Partner units issued in exchange for notes receivable..... $ 500,000
============
</TABLE>
The accompanying notes to the financial statements are an integral part of this
statement.
F-37
<PAGE> 38
COLONIAL BAGELS, L.P.
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 29, 1996
(1) DESCRIPTION OF BUSINESS
Colonial Bagels, L.P. (the "Partnership"), a Delaware limited partnership
organized under the Delaware Revised Uniform Limited Partnership Act, as
amended, owns and operates retail food service establishments under franchise
agreements with Einstein/Noah Bagel Corp. ("ENBC"), under the Einstein Bros.
Bagels brand name. The Einstein Bros. Bagels concept is designed to combine the
authentic tastes of a bagel bakery with the atmosphere of a neighborhood coffee
shop, offering products including fresh-baked bagels, proprietary cream cheeses,
specialty coffees and teas, and creative sandwiches. The Partnership was formed
on June 5, 1996 and commenced operations on June 17, 1996.
The Partnership has an Area Development Agreement ("ADA") with ENBC,
granting it the right to open 112 stores in portions of Massachusetts,
Pennsylvania, Ohio, Rhode Island, New Hampshire and Vermont. The ADA requires
the Partnership to complete the store development by December 31, 2000. The
Partnership had 16 stores open at December 29, 1996. Pursuant to the franchise
agreements, the Partnership is required to make periodic royalty payments based
on net revenue, and pay franchise, real estate development, software license,
software maintenance and other support service fees on a per store basis. The
Partnership is also required to make advertising fund contributions to national
and local advertising funds.
For the period from June 5, 1996 (inception) through December 29, 1996, the
Partnership had a net loss of $2,369,967 and at December 29, 1996, had negative
working capital of $2,211,142. The Partnership is currently in a state of rapid
expansion as it continues to open stores in accordance with its ADA. The
Partnership's ability to continue this expansion is contingent upon management's
ability to raise additional equity and/or obtain additional financing.
Management of the Partnership believes it will be able to continue to raise such
equity and obtain such additional financing required to satisfy its ADA.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fiscal Year
The Partnership's fiscal year is the 52/53-week period ending on the last
Sunday of December.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market
and consist of food, paper products and supplies.
Investment in ENBC Common Stock
The Partnership owns 100,350 shares of ENBC common stock which are
considered restricted securities and, as a result, are reflected at historical
cost of $649,690 in the accompanying balance sheet. At December 29, 1996, the
fair market value of similar unrestricted shares of ENBC was approximately
$2,998,000.
F-38
<PAGE> 39
COLONIAL BAGELS, L.P.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Property, Equipment and Other Related Assets
Property, equipment and other related assets are stated at cost less
accumulated depreciation and amortization. The provision for depreciation and
amortization has been calculated using the straight-line method. These assets
are depreciated and amortized over the following useful lives:
<TABLE>
<S> <C>
Buildings and improvements.................................. 5-15 years
Equipment and software...................................... 3-8 years
Furniture and fixtures...................................... 7-15 years
ADA and franchise fees...................................... 15 years
Preopening costs............................................ 1 year
</TABLE>
Property, equipment and other related asset additions include acquisitions
of buildings, equipment, software, leasehold improvements and major improvements
to existing stores. Additions also include costs incurred in the development and
construction of new stores, including real estate development and franchise fees
paid to ENBC. Expenditures for maintenance and repairs are charged to expense as
incurred.
Preopening costs consist primarily of salaries and other incremental direct
expenses relating to the set up, initial stocking, training and general store
management activities incurred prior to the opening of new stores. Amortization
begins on the date the store is opened.
Costs in Excess of Net Assets Acquired
The excess purchase price over the fair value of net assets acquired is
being amortized on a straight-line basis over 15 years.
Notes Receivable
The Partnership has received notes receivable from certain unit holders in
exchange for their member units. In general, these notes are due within three
years of issuance, bear interest at the prime rate and are collateralized by the
member units.
Revenue Recognition
Revenue is recognized in the period in which related food and beverage
products are sold.
Income Taxes
The Partnership is not considered a taxable entity for federal or state
income tax purposes. Any taxable income or loss is reported by the partners on
their individual tax returns in accordance with the Partnership Agreement.
Allocation of Profits, Losses and Distributions
Profits and losses of the Partnership for any fiscal year are allocated to
the partners in proportion to their units; provided, however, that all items of
income, gain, loss or deductions related to the exercise of options granted
pursuant to any option plan (Note 7) shall be allocated to the partner
exercising the option.
Distributions shall be made at such times and in such amounts as may be
determined by the General Partner, subject to compliance with the covenants set
forth in the Partnership's secured loan agreement (Note 5). The General Partner
shall cause the Partnership to make distributions on an annual basis to each
partner in an amount equal to the estimated tax liability of the partner
resulting from the operations of the Partnership. Distributions shall be made to
the partners in proportion to their units held.
F-39
<PAGE> 40
COLONIAL BAGELS, L.P.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
(3) SUPPLEMENTAL FINANCIAL STATEMENT DATA
<TABLE>
<CAPTION>
DECEMBER 29,
1996
------------
<S> <C>
Property, equipment and other related assets:
Land, buildings and improvements.......................... $4,277,736
Furniture, fixtures, equipment and software............... 3,801,099
ADA and franchise fees.................................... 1,170,000
Preopening costs.......................................... 287,228
----------
9,536,063
Less accumulated depreciation and amortization............ (219,807)
----------
Total property, equipment and other related
assets, net...................................... $9,316,256
==========
Costs in excess of net assets acquired...................... $ 798,235
Less accumulated amortization............................. (8,332)
----------
Total costs in excess of net assets acquired,
net.............................................. $ 789,903
==========
Other assets:
Investment in ENBC common stock........................... $ 649,690
Prepaid franchise fees.................................... 530,000
Organization costs, net of accumulated amortization of
$1,859................................................. 26,213
Other assets.............................................. 7,897
----------
Total other assets, net........................... $1,213,800
==========
</TABLE>
(4) PURCHASE OF NET ASSETS FROM ENBC
On June 17, 1996, the Partnership paid to ENBC a total of $870,000
consisting of the net tangible assets of 8 unopened stores for approximately
$72,000 and costs in excess of net assets acquired of approximately $798,000. In
addition, the Partnership paid approximately $1,360,000 for certain rights and
fees to develop future stores. The transaction has been accounted for under the
purchase method of accounting. The pro forma effect of this transaction is not
significant to the accompanying financial statements.
(5) CONVERTIBLE DEBT
The Partnership has entered into a secured loan agreement (the "Agreement")
with ENBC which provides ENBC the right to convert all or any portion of the
loan into units of partners' capital at $1.12 per unit. The specified percentage
of partners' capital to be acquired on conversion is dependent on the amount of
financing to be provided in relation to the total capital and rights
outstanding, but would constitute at least a majority of the capital of the
Partnership on a fully diluted basis in the event all of the loan was converted.
The loan may be converted by ENBC at any time subsequent to June 17, 1998,
subject to the Partnership completing 80% of its development schedule and up to
June 2004, or at any time upon the Partnership being in default on the loan.
Additionally, during this same time period, to the extent the loan is not fully
drawn or has been drawn and repaid, ENBC has the option to acquire, at the loan
conversion price, as defined, the amount
F-40
<PAGE> 41
COLONIAL BAGELS, L.P.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
of additional units it could have acquired by conversion of the loan had it been
fully drawn. The loan is collateralized by substantially all of the assets of
the Partnership and a pledge of the general partners' capital of the
Partnership. The Agreement contains various restrictive covenants including
restricting cash distributions and limiting additional indebtedness. The
Partnership was in compliance with all such covenants as of December 29, 1996.
Interest is based upon the reference rate of the Bank of America Illinois
(8.25% as of December 29, 1996) plus 1%. Interest-only payments are required
through May 1999, at which time the loan converts to an amortizing term loan
payable through June 2004, with a final balloon payment. The Agreement provides
for a line of credit of $22,000,000 with $5,953,669 drawn as of December 29,
1996.
As of December 29, 1996, principal maturities were as follows:
<TABLE>
<S> <C>
1997............................................. $ --
1998............................................. --
1999............................................. 320,582
2000............................................. 595,367
2001............................................. 595,367
Thereafter....................................... 4,442,353
----------
$5,953,669
==========
</TABLE>
(6) PARTNERS' CAPITAL
The holders of certain of the limited partnership units have the right to
require the Partnership to redeem all of the limited partnership units at a
pre-determined formula price ("Put Price") based on the store level cash flow of
the Partnership in the event that (i) ENBC acquires a majority interest in the
Partnership pursuant to the exercise of its conversion or option rights under
the Agreement; (ii) ENBC does not consent to the Partnership's request to
undertake a firm commitment underwritten public offering after ENBC's conversion
and option rights under its agreement with the Partnership have expired
unexercised; or (iii) ENBC does not consent to the Partnership's request to
terminate its development and franchise agreements with ENBC after ENBC's
conversion and option rights under its loan agreement with the Partnership have
expired unexercised. In the event the Partnership does not redeem the limited
partnership units when required to do so, ENBC will be obligated to purchase
these units at the same price applicable to the Partnership.
(7) OPTION PLANS
A maximum of 2,000,000 general partnership units are available for grant to
employees and certain non-employees pursuant to the 1996 Unit Option Plan (the
"Option Plan"). The option price is equal to the fair market value on the date
of grant, as determined by the General Partner. All unit options granted under
the Option Plan are exercisable up to 10 years from the date of grant. The
options generally vest at a rate of 10% at the end of the first year, an
additional 20% at the end of the second year, an additional 30% at the end of
the third year and the balance at the end of the fourth year from the date of
grant.
The Partnership accounts for the employee options using the intrinsic value
method under which no compensation cost has been recognized in accordance with
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation." If a fair value based accounting method had been adopted, the
Partnership's pro forma net loss would have been $2,400,801 for the period ended
December 29, 1996.
Non-employee options are accounted for using a fair value approach which
resulted in $15,567 of compensation expense for the period ended December 29,
1996.
F-41
<PAGE> 42
COLONIAL BAGELS, L.P.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes stock option activity and the related
weighted average exercise price of the options:
<TABLE>
<CAPTION>
1996
-------------------
UNITS PRICE
---------- -----
<S> <C> <C>
Outstanding, beginning of period............................ -- --
Granted................................................... 1,135,000 $1.00
Exercised................................................. -- --
Forfeited................................................. -- --
Expired................................................... -- --
----------
Outstanding, end of period.................................. 1,135,000 $1.00
==========
Exercisable, end of period.................................. -- $1.00
==========
Weighted average fair value of options granted.............. $ 0.28
==========
</TABLE>
At December 29, 1996, the weighted average remaining contractual life of
the options is 9.5 years.
The fair value of each option is estimated on the date of grant using the
minimum value option pricing model with the following weighted average
assumptions used for 1996 grants: risk-free interest rate of 6.58%; expected
life of 5 years.
In addition to the Option Plan, the Partnership has granted employees
options to purchase 69,492 shares of ENBC common stock at an exercise price of
$6.59 per share. At December 29, 1996, no options have been exercised and the
shares are reflected at historical cost (Note 2) in the accompanying financial
statements.
(8) COMMITMENTS
The Partnership leases store premises under various noncancelable operating
lease agreements. Lease terms are generally five years with two or three
five-year renewal options. Most of the leases contain escalation clauses and
common area maintenance charges.
The following is a schedule of future minimum rental payments which are
required under operating leases that have initial or remaining noncancelable
lease terms in excess of one year as of December 29, 1996:
<TABLE>
<S> <C>
1997............................................. $ 825,585
1998............................................. 837,749
1999............................................. 847,683
2000............................................. 857,250
2001............................................. 758,886
Thereafter....................................... 2,176,926
----------
$6,304,079
==========
</TABLE>
Total rent expense under operating leases, including common area
maintenance charges, was approximately $242,000 for the period from June 5, 1996
(inception) through December 29, 1996.
The Partnership obtains a majority of its produce and other supplies from a
limited number of vendors. Management believes that, if necessary, the
Partnership would be able to replace any of its sources of supply with other
vendors without a disruption in service.
F-42
<PAGE> 43
COLONIAL BAGELS, L.P.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 29, OCTOBER 5,
1996 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 14,762 $ 295,649
Accounts receivable....................................... -- 171,539
Inventories............................................... 264,243 1,138,646
Prepaid expenses and other current assets................. 85,834 134,462
----------- -----------
Total current assets.............................. 364,839 1,740,296
----------- -----------
Property, Equipment and Other Related Assets, net........... 9,316,256 28,021,524
Costs in Excess of Net Assets Acquired, net................. 789,903 17,830,166
Notes Receivable............................................ 500,000 1,010,000
Other Assets, net........................................... 1,213,800 2,171,661
----------- -----------
Total assets...................................... $12,184,798 $50,773,647
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
Current Liabilities:
Accounts payable.......................................... $ 2,040,280 $ 2,221,574
Accrued expenses.......................................... 535,701 970,332
----------- -----------
Total current liabilities......................... 2,575,981 3,191,906
----------- -----------
Convertible Debt............................................ 5,953,669 42,486,139
Other Noncurrent Liabilities................................ 9,548 97,320
Commitments.................................................
Partners' Equity............................................ 3,645,600 4,998,282
----------- -----------
Total liabilities and partners' equity............ $12,184,798 $50,773,647
=========== ===========
</TABLE>
The accompanying notes to the financial statements are an integral part of these
statements.
F-43
<PAGE> 44
COLONIAL BAGELS, L.P.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE PERIOD
FROM FROM
JUNE 5, 1996 JUNE 5, 1996 THREE
(INCEPTION) THROUGH (INCEPTION) THROUGH QUARTERS ENDED
DECEMBER 29, 1996 OCTOBER 6, 1996 OCTOBER 5, 1997
------------------- ------------------- ---------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Revenue..................................... $ 1,877,970 $ 490,168 $ 17,386,793
Costs and Expenses:
Cost of products sold..................... 772,207 143,423 6,328,231
Salaries and benefits..................... 1,754,831 655,945 9,087,761
General and administrative................ 1,655,648 562,985 9,992,727
----------- ---------- ------------
Total costs and expenses.......... 4,182,686 1,362,353 25,408,719
----------- ---------- ------------
Loss from Operations........................ (2,304,716) (872,185) (8,021,926)
Other Income (Expense):
Interest expense, net..................... (65,251) (16,234) (1,734,647)
Other income, net......................... -- 155 5,599
----------- ---------- ------------
Total other expense............... (65,251) (16,079) (1,729,048)
----------- ---------- ------------
Net Loss.................................... $(2,369,967) $ (888,264) $ (9,750,974)
=========== ========== ============
</TABLE>
The accompanying notes to the financial statements are an integral part of these
statements.
F-44
<PAGE> 45
COLONIAL BAGELS, L.P.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM FOR THE PERIOD FROM
JUNE 5, 1996 JUNE 5, 1996 THREE
(INCEPTION) THROUGH (INCEPTION) THROUGH QUARTERS ENDED
DECEMBER 29, 1996 OCTOBER 6, 1996 OCTOBER 5, 1997
------------------- ------------------- ---------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss................................ $ (2,369,967) $ (888,264) $ (9,750,974)
Adjustments to reconcile net loss to net
cash from (used in) operating
activities:
Depreciation and amortization........ 229,998 57,479 2,551,264
Non-employee option expense.......... 15,567 -- 22,238
Gain on sale of assets
Changes in assets and liabilities,
excluding effects from
acquisitions:
Inventories........................ (264,243) (141,368) (563,641)
Accounts receivable................ -- -- 149,344
Accounts payable and accrued
expenses........................ 2,009,838 789,819 (1,008,418)
Prepaid expenses and other current
assets.......................... (85,834) (13,406) (18,205)
Other assets and liabilities....... 1,652 (623,119) 235,554
------------ ----------- ------------
Net cash used in operating
activities.................... (462,989) (818,859) (8,382,838)
Cash Flows from Investing Activities:
Purchase of property and equipment...... (8,633,686) (930,581) (14,849,485)
Sale (purchase) of ENBC stock........... (649,690) (649,690) 199,552
Purchase of net assets from ENBC........ (1,692,542) (1,692,542) --
------------ ----------- ------------
Net cash used in investing
activities.................... (10,975,918) (3,272,813) (14,649,933)
Cash Flows from Financing Activities:
Proceeds from issuance of partnership
units................................ 5,500,000 3,250,000 --
Proceeds from convertible debt.......... 11,265,215 3,902,917 28,090,494
Repayment of convertible debt........... (5,311,546) (3,061,245) (4,776,836)
------------ ----------- ------------
Net cash provided by financing
activities.................... 11,453,669 4,091,672 23,313,658
------------ ----------- ------------
Net Increase in Cash and Cash
Equivalents............................. 14,762 -- 280,887
Cash and Cash Equivalents, beginning of
period.................................. -- -- 14,762
------------ ----------- ------------
Cash and Cash Equivalents, end of
period.................................. $ 14,762 $ -- $ 295,649
============ =========== ============
</TABLE>
The accompanying notes to the financial statements are an integral part of these
statements.
F-45
<PAGE> 46
COLONIAL BAGELS, L.P.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The financial statements have been prepared by Colonial Bagels, L.P. (the
"Partnership") and are unaudited except for the Balance Sheet at December 29,
1996, the Statement of Operations for the Period from June 5, 1996 (inception)
through December 29, 1996 and the Statement of Cash Flows for the Period from
June 5, 1996 (inception) through December 29, 1996 and the notes related
thereto. The financial statements have been prepared in accordance with the
instructions under Regulation S-X for interim financial statements and,
therefore, do not necessarily include all information and footnotes required by
generally accepted accounting principles. In the opinion of the Partnership, all
adjustments (consisting only of normal recurring adjustments) necessary to
present fairly the Partnership's financial position, results of operations and
cash flows as of October 5, 1997 and for all periods presented have been made.
The statements are subject to audit adjustment. A description of the
Partnership's accounting policies and other financial information are included
in the audited financial statements included elsewhere herein.
2. MERGER WITH LIBERTY FOODS, L.L.C.
On April 20, 1997, the Partnership merged with Liberty Foods, L.L.C.,
another area developer of Einstein/Noah Bagel Corp., resulting in the
Partnership obtaining the rights to open an additional 150 stores in portions of
New York, New Jersey, Pennsylvania and Connecticut under the Einstein Bros.
Bagels brand, of which 19 stores were open at that date.
F-46
<PAGE> 47
FINEST BAGELS, L.L.C.
FINANCIAL STATEMENTS
AS OF DECEMBER 29, 1996
TOGETHER WITH REPORT OF INDEPENDENT
PUBLIC ACCOUNTANTS
F-47
<PAGE> 48
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Members of Finest Bagels, L.L.C.:
We have audited the accompanying balance sheet of Finest Bagels, L.L.C. (a
Delaware limited liability company) as of December 29, 1996 and the related
statements of operations, members' equity and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Finest Bagels, L.L.C. as of
December 29, 1996 and the results of its operations and its cash flows for the
year then ended, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Denver, Colorado
March 18, 1997
F-48
<PAGE> 49
FINEST BAGELS, L.L.C.
BALANCE SHEET
AS OF DECEMBER 29, 1996
<TABLE>
<S> <C>
ASSETS
Current Assets:
Cash...................................................... $ 226,185
Accounts receivable....................................... 368,991
Inventories............................................... 714,854
Prepaid expenses and other current assets................. 244,208
-----------
Total current assets.............................. 1,554,238
Property, Equipment and Other Related Assets, net........... 15,502,327
Costs in Excess of Net Assets Acquired, net................. 192,998
Notes Receivable............................................ 400,000
Other Assets, net........................................... 733,070
-----------
Total assets...................................... $18,382,633
===========
LIABILITIES AND MEMBERS' EQUITY
Current Liabilities:
Accounts payable.......................................... $ 1,482,079
Accrued expenses.......................................... 1,349,525
-----------
Total current liabilities......................... 2,831,604
Convertible Debt............................................ 14,163,196
Commitments (Note 8)
Members' Equity............................................. 1,387,833
-----------
Total liabilities and members' equity............. $18,382,633
===========
</TABLE>
The accompanying notes to the financial statements are an integral part of this
statement.
F-49
<PAGE> 50
FINEST BAGELS, L.L.C.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 29, 1996
<TABLE>
<S> <C>
Revenue..................................................... $16,237,783
Costs and Expenses:
Cost of products sold..................................... 5,317,374
Salaries and benefits..................................... 6,872,851
General and administrative................................ 6,967,883
-----------
Total costs and expenses.......................... 19,158,108
-----------
Loss from Operations........................................ (2,920,325)
Other Income (Expense):
Interest expense.......................................... (656,782)
Interest income........................................... 34,337
Other expense............................................. (108,797)
-----------
Total other expense............................... (731,242)
-----------
Net Loss.................................................... $(3,651,567)
===========
</TABLE>
The accompanying notes to the financial statements are an integral part of this
statement.
F-50
<PAGE> 51
FINEST BAGELS, L.L.C.
STATEMENT OF MEMBERS' EQUITY
FOR THE YEAR ENDED DECEMBER 29, 1996
<TABLE>
<CAPTION>
VOTING NON-VOTING
MEMBERS' CAPITAL MEMBERS' CAPITAL
------------------- -----------------------
UNITS AMOUNT UNITS AMOUNT TOTAL
------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balances, inception................ -- $ -- -- $ -- $ --
Units issued for capital
contributions................. 600,000 600,000 4,425,000 4,425,000 5,025,000
Non-employee stock option
expense....................... -- 14,400 -- -- 14,400
Net loss......................... -- (436,008) -- (3,215,559) (3,651,567)
------- --------- --------- ----------- -----------
Balances, December 29, 1996........ 600,000 $ 178,392 4,425,000 $ 1,209,441 $ 1,387,833
======= ========= ========= =========== ===========
</TABLE>
The accompanying notes to the financial statements are an integral part of this
statement.
F-51
<PAGE> 52
FINEST BAGELS, L.L.C.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 29, 1996
<TABLE>
<S> <C>
Cash Flows from Operating Activities:
Net loss.................................................. $ (3,651,567)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization.......................... 1,385,999
Non-employee stock option expense...................... 14,400
Changes in assets and liabilities, excluding effects from
acquisition:
Accounts receivable, net............................... (185,243)
Inventories............................................ (340,410)
Prepaid expenses and other current assets.............. (242,929)
Accounts payable and accrued expenses.................. 2,793,637
Other assets........................................... (231,270)
------------
Net cash used in operating activities............. (457,383)
Cash Flows from Investing Activities:
Purchase of property, equipment and other related
assets................................................. (10,045,515)
Purchase of net assets from ENBC, net of cash acquired.... (7,559,544)
Purchase of ENBC common stock............................. (499,569)
------------
Net cash used in investing activities............. (18,104,628)
Cash Flows from Financing Activities:
Proceeds from issuance of member units.................... 4,625,000
Proceeds from convertible debt............................ 21,183,200
Repayment on convertible debt............................. (7,020,004)
------------
Net cash provided by financing activities......... 18,788,196
------------
Net Increase in Cash........................................ 226,185
Cash, inception............................................. --
------------
Cash, end of year........................................... $ 226,185
============
Supplemental Disclosure of Cash Flow Information:
Interest paid............................................. $ 618,081
============
Supplemental Disclosure of Noncash Financing Activities:
Member units issued in exchange for notes receivable...... $ 400,000
============
</TABLE>
The accompanying notes to the financial statements are an integral part of this
statement.
F-52
<PAGE> 53
FINEST BAGELS, L.L.C.
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 29, 1996
(1) DESCRIPTION OF BUSINESS
Finest Bagels, L.L.C. (the "Company") owns and operates retail food service
establishments under franchise agreements with Einstein/Noah Bagel Corp.
("ENBC"), under the Einstein Bros. Bagels brand name. The Einstein Bros. Bagels
concept is designed to combine the authentic tastes of a bagel bakery with the
atmosphere of a neighborhood coffee shop, offering products including
fresh-baked bagels, proprietary cream cheeses, specialty coffees and teas, and
creative sandwiches. The Company also operates stores under the name of "Bagel &
Bagel" in the Kansas City area. The Company was formed on January 1, 1996, under
the Delaware Limited Liability Act.
The Company has an Area Development Agreement ("ADA") with ENBC, granting
it the right to open 68 new stores in portions of Kansas, Missouri, Minnesota
and Wisconsin. The ADA requires the Company to complete the store development by
December 27, 1998. The Company had 29 stores open at December 29, 1996, of which
10 had been acquired in 1996. Pursuant to the franchise agreements, the Company
is required to make periodic royalty payments based on net revenue, and pay
franchise, real estate development, software license, software maintenance and
other support service fees on a per store basis. The Company is also required to
make advertising fund contributions to national and local advertising funds.
For the year ended December 29, 1996, the Company had a net loss of
$3,651,567 and negative working capital of $1,277,366. The Company is currently
in a state of rapid expansion as it continues to open stores in accordance with
its ADA. The Company's ability to continue this expansion is contingent upon
management's ability to raise additional equity and/or obtain additional
financing. Management of the Company believes it will be able to continue to
raise such equity and obtain such additional financing required to satisfy its
ADA.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fiscal Year
The Company's fiscal year is the 52/53-week period ending on the last
Sunday of December.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market
and consist of food, paper products and supplies.
Investment in ENBC Common Stock
The Company owns 77,175 shares of ENBC common stock which are considered
restricted securities and, as a result, are reflected at historical cost of
$499,569 in the accompanying balance sheet. At December 29, 1996, the fair value
of similar unrestricted shares of ENBC was approximately $2,306,000.
Property, Equipment and Other Related Assets
Property, equipment and other related assets are stated at cost less
accumulated depreciation and amortization. The provision for depreciation and
amortization has been calculated using the straight-line method. These assets
are depreciated and amortized over the following useful lives:
<TABLE>
<S> <C>
Buildings and improvements.................................. 5-15 years
Equipment and software...................................... 3-8 years
Furniture and fixtures...................................... 7-15 years
ADA and Franchise fees...................................... 15 years
Preopening costs............................................ 1 year
</TABLE>
F-53
<PAGE> 54
FINEST BAGELS, L.L.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Property, equipment and other related asset additions include acquisitions
of buildings, equipment, software, leasehold improvements and major improvements
to existing stores. Additions also include costs incurred in the development and
construction of new stores, including real estate development and franchise fees
paid to ENBC. Expenditures for maintenance and repairs are charged to expense as
incurred.
Preopening costs consist primarily of salaries and other incremental direct
expenses relating to the set up, initial stocking, training and general store
management activities incurred prior to the opening of new stores. Amortization
begins on the date the store is opened.
Costs in Excess of Net Assets Acquired
The excess purchase price over the fair value of net assets acquired is
being amortized on a straight-line basis over 15 years.
Notes Receivable
The Company has received notes receivable from certain unit holders in
exchange for their member units. In general, these notes are due within three
years of issuance, bear interest at the prime rate and are collateralized by the
member units.
Revenue Recognition
Revenue is recognized in the period in which related food and beverage
products are sold.
Income Taxes
The Company is considered a flow-through entity for federal and state
income tax purposes. Any taxable income or loss is reported by the members on
their individual tax returns in accordance with the Company's Operating
Agreement.
Allocation of Profits, Losses and Distributions
Profits and losses of the Company for any fiscal year are allocated to the
members in proportion to their units; provided, however, that all items of
income, gain, loss or deductions related to the exercise of options granted
pursuant to any option plan (Note 7) shall be allocated to the member exercising
the option.
Distributions shall be made at such times and in such amounts as may be
determined by the Manager, subject to compliance with the covenants set forth in
the Company's secured loan agreement (Note 5). The Manager shall cause the
Company to make distributions on an annual basis to each member in an amount
equal to the estimated tax liability of the member resulting from the operations
of the Company. Distributions shall be made to the members in proportion to
their units held.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
F-54
<PAGE> 55
FINEST BAGELS, L.L.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(3) SUPPLEMENTAL FINANCIAL STATEMENT DATA
<TABLE>
<CAPTION>
1996
-----------
<S> <C>
Property, equipment and other related assets:
Buildings and improvements................................ $ 7,930,440
Furniture, fixtures, equipment, and software.............. 6,796,430
ADA and franchise fees.................................... 1,355,000
Preopening costs.......................................... 788,863
-----------
16,870,733
Less accumulated depreciation and amortization............ (1,368,406)
-----------
Total property, equipment and other related
assets, net...................................... $15,502,327
===========
Costs in excess of net assets acquired...................... $ 206,784
Less accumulated amortization............................. (13,786)
-----------
Total costs in excess of net assets acquired,
net.............................................. $ 192,998
===========
Other assets:
Prepaid franchise fees.................................... $ 195,000
Investment in ENBC common stock........................... 499,569
Organization costs, net of accumulated amortization of
$3,807................................................. 15,226
Other assets.............................................. 23,275
-----------
Total other assets, net........................... $ 733,070
===========
</TABLE>
(4) PURCHASE OF NET ASSETS FROM ENBC
On January 1, 1996, the Company paid to ENBC a total of $6,217,000
consisting of the net tangible assets of 10 stores for approximately $6,010,000
and costs in excess of net assets acquired of approximately $207,000. In
addition, the Company paid approximately $1,343,000 for certain rights and fees
to develop future stores. The transaction has been accounted for under the
purchase method of accounting.
(5) CONVERTIBLE DEBT
The Company has entered into a secured loan agreement (the "Agreement")
with ENBC which provides ENBC the right to convert all or any portion of the
loan into voting member units of members' capital at $1.12 per unit. The
specified percentage of members' capital to be acquired on conversion is
dependent on the amount of financing to be provided in relation to the total
capital and rights outstanding, but would constitute at least a majority of the
capital of the Company on a fully diluted basis in the event all of the loan was
converted. The loan may be converted by ENBC at any time subsequent to January
1998, subject to the Company completing 80% of its development schedule, and up
to January 2004, or at any time upon the Company being in default on the loan.
Additionally, during this same time period, to the extent the loan is not fully
drawn or has been drawn and repaid, ENBC has the option to acquire, at the loan
conversion price, as defined, the amount of additional units it could have
acquired by conversion of the loan had it been fully drawn. The loan is
collateralized by substantially all of the assets of the Company and a pledge of
the voting members' capital of the Company. The Agreement contains various
restrictive covenants including restricting cash distributions and limiting
additional indebtedness. The Company was in compliance with all such covenants
at December 29, 1996.
Interest is based upon the reference rate of the Bank of America Illinois (
8.25% as of December 29, 1996) plus 1%. Interest-only payments are required
through December 1998, at which time the loan converts
F-55
<PAGE> 56
FINEST BAGELS, L.L.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
to an amortizing term loan payable through December 2003, with a final balloon
payment. The Agreement provides for a line of credit of $18,500,000 with
$14,163,196 drawn as of December 29, 1996.
As of December 29, 1996, principal maturities were as follows:
<TABLE>
<S> <C>
1997............................................ $ --
1998............................................ --
1999............................................ 1,416,320
2000............................................ 1,416,320
2001............................................ 1,416,320
Thereafter...................................... 9,914,236
-----------
$14,163,196
===========
</TABLE>
(6) MEMBERS' EQUITY
The holders of the nonvoting units have the right to require the Company to
redeem all of the nonvoting units at a pre-determined formula price ("Put
Price") based on the store level cash flow of the Company in the event that (i)
ENBC acquires a majority interest in the Company pursuant to the exercise of its
conversion or option rights under the Agreement; (ii) ENBC does not consent to
the Company's request to undertake a firm commitment underwritten public
offering after ENBC's conversion and option rights under its agreement with the
Company have expired unexercised; or (iii) ENBC does not consent to the
Company's request to terminate its development and franchise agreements with
ENBC after ENBC's conversion and option rights under its loan agreement with the
Company have expired unexercised. In the event the Company does not redeem the
nonvoting units when required to do so, ENBC will be obligated to purchase these
units at the same price applicable to the Company.
(7) OPTION PLANS
A maximum of 2,671,000 voting units are available for grant to employees
and certain non-employees pursuant to the 1996 Common Unit Option Plan (the
"Option Plan"). The option price is equal to the fair market value on the date
of grant, as determined by the Manager. All unit options granted under the
Option Plan are exercisable up to 10 years from the date of grant. The options
generally vest at a rate of 10% at the end of the first year, an additional 20%
at the end of the second year, an additional 30% at the end of the third year
and the balance at the end of the fourth year from the date of grant.
The Company accounts for employee options using the intrinsic value based
method under which no compensation cost has been recognized in accordance with
Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation". If a fair value based accounting method had been adopted, the
Company's pro forma net loss would have been $3,781,798 for the year ended
December 29, 1996.
Non-employee options are accounted for using a fair value approach which
resulted in $14,400 of compensation expense for the year ended December 29,
1996.
F-56
<PAGE> 57
FINEST BAGELS, L.L.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes stock option activity and the related
weighted average exercise price of the options.
<TABLE>
<CAPTION>
1996
-------------------
UNITS PRICE
---------- -----
<S> <C> <C>
Outstanding, beginning of period............................ -- --
Granted................................................... 2,322,500 $1.00
Exercised................................................. -- --
Forfeited................................................. -- --
Expired................................................... -- --
----------
Outstanding, end of period.................................. 2,322,500 $1.00
==========
Exercisable, end of period.................................. 232,500 $1.00
==========
Weighted average fair value of options granted.............. $ 0.25
==========
</TABLE>
At December 29, 1996, the weighted average remaining contractual life of
the options is 9 years.
The fair value of each option is estimated on the date of grant using the
minimum value option pricing model with the following weighted average
assumptions used for 1996 grants: risk-free interest rate of 5.73%; expected
life of 5 years.
In addition to the Common Unit Option Plan, the Company has granted
employees options to purchase 45,823 shares of ENBC common stock at an exercise
price of $6.59 per share. At December 29, 1996, no options have been exercised
and the shares are reflected at historical cost (Note 2) in the accompanying
financial statements.
(8) COMMITMENTS
The Company leases store premises under various noncancelable operating
lease agreements. Lease terms are generally five years with two or three
five-year renewal options. Most of the leases contain escalation clauses and
common area maintenance charges.
The following is a schedule of future minimum rental payments which are
required under operating leases that have initial or remaining noncancelable
lease terms in excess of one year as of December 29, 1996:
<TABLE>
<S> <C>
1997............................................. $1,366,124
1998............................................. 1,351,759
1999............................................. 1,337,727
2000............................................. 1,066,915
2001............................................. 648,421
Thereafter....................................... 2,471,365
----------
$8,242,311
==========
</TABLE>
Total rent expense under operating leases, including common area
maintenance charges, was approximately $1,115,000 for the year ended December
29, 1996.
The Company obtains a majority of its produce and other supplies from a
limited number of vendors. Management believes that, if necessary, the Company
would be able to replace any of its sources of supply with other vendors without
a disruption in service.
F-57
<PAGE> 58
FINEST BAGELS, L.P.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE TWO
FOR THE FOR THE THREE QUARTERS ENDED
YEAR ENDED QUARTERS ENDED JULY 13, 1997
DECEMBER 29, 1996 OCTOBER 6, 1996 (MERGER)
----------------- --------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Revenue........................................ $16,237,783 $11,585,297 $17,291,682
Costs and Expenses:
Cost of products sold........................ 5,317,374 3,837,829 5,406,676
Salaries and benefits........................ 6,872,851 4,843,605 7,573,379
General and administrative................... 6,967,883 4,873,714 7,303,945
----------- ----------- -----------
Total costs and expenses............. 19,158,108 13,555,148 20,284,000
----------- ----------- -----------
Loss from Operations........................... (2,920,325) (1,969,851) (2,992,318)
Other Income (Expense):
Interest expense, net........................ (622,445) (424,681) (1,192,132)
Other income (expense)....................... (108,797) (3,431) 10,381
----------- ----------- -----------
Total other expense.................. (731,242) (428,112) (1,181,751)
----------- ----------- -----------
Net Loss....................................... $(3,651,567) $(2,397,963) $(4,174,069)
=========== =========== ===========
</TABLE>
The accompanying notes to the financial statements are an integral part of these
statements.
F-58
<PAGE> 59
FINEST BAGELS, L.P.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE TWO
FOR THE FOR THE THREE QUARTERS ENDED
YEAR ENDED QUARTERS ENDED JULY 13, 1997
DECEMBER 29, 1996 OCTOBER 6, 1996 (MERGER)
----------------- --------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss...................................... $ (3,651,567) $ (2,397,963) $ (4,174,069)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization.............. 1,385,999 879,161 1,684,682
Non-employee option expense................ 14,400 -- 11,104
Changes in assets and liabilities,
excluding effects from acquisitions:
Inventories.............................. (340,410) (160,251) (392,041)
Accounts receivable, net................. (185,243) (80,244) (18,387)
Accounts payable and accrued expenses.... 2,793,637 1,319,429 482,066
Prepaid expenses and other current
assets................................ (242,929) (82,445) 108,288
Other assets and liabilities............. (231,270) (348,503) (119,980)
------------ ------------ ------------
Net cash used in operating
activities.......................... (457,383) (870,816) (2,418,337)
Cash Flows from Investing Activities:
Purchase of property and equipment......... (10,045,515) (5,634,413) (7,554,627)
Sale (purchase) of ENBC stock.............. (499,569) (499,569) 236,475
Purchase of net assets from ENBC........... (7,559,544) (7,559,544) --
------------ ------------ ------------
Net cash used in investing
activities.......................... (18,104,628) (13,693,526) (7,318,152)
Cash Flows from Financing Activities:
Proceeds from issuance of partnership
units.................................... 4,625,000 4,625,000 2,000,000
Proceeds from convertible debt............. 21,183,200 16,917,122 17,759,741
Repayment of convertible debt.............. (7,020,004) (6,778,000) (9,813,203)
------------ ------------ ------------
Net cash provided by financing
activities.......................... 18,788,196 14,764,122 9,946,538
------------ ------------ ------------
Net Increase in Cash and Cash Equivalents..... 226,185 199,780 210,049
Cash and Cash Equivalents, beginning of
period..................................... -- -- 226,185
------------ ------------ ------------
Cash and Cash Equivalents, end of period...... $ 226,185 $ 199,780 $ 436,234
============ ============ ============
</TABLE>
The accompanying notes to the financial statements are an integral part of these
statements.
F-59
<PAGE> 60
FINEST BAGELS, L.P.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The financial statements have been prepared by Finest Bagels, L.P. (the
"Partnership") and are unaudited except for the Statement of Operations for the
Year Ended December 29, 1996 and the Statement of Cash Flows for the Year Ended
December 29, 1996 and the notes related thereto. The financial statements have
been prepared in accordance with the instructions under Regulation S-X for
interim financial statements and, therefore, do not necessarily include all
information and footnotes required by generally accepted accounting principles.
In the opinion of the Partnership, all adjustments (consisting only of normal
recurring adjustments) necessary to present fairly the Partnership's financial
position, results of operations and cash flows as of July 13, 1997 and for all
periods presented have been made. The statements are subject to audit
adjustment. A description of the Partnership's accounting policies and other
financial information are included in the audited financial statements included
elsewhere herein.
2. MERGER WITH ALAMO BAGELS, L.P.
On April 20, 1997, the Partnership merged with Alamo Bagels, L.P., another
area developer of Einstein/Noah Bagel Corp. ("ENBC"), in order to achieve
greater operating efficiencies. With this merger, the Partnership obtained the
rights to open an additional 110 stores in portions of Texas under the Einstein
Bros. Bagels brand.
3. MERGER WITH GREAT LAKE BAGELS, L.P.
On July 13, 1997, the Partnership was acquired by Great Lake Bagels, L.P.,
another area developer of ENBC.
F-60
<PAGE> 61
GREAT LAKES BAGELS, L.L.C.
FINANCIAL STATEMENTS
AS OF DECEMBER 29, 1996
TOGETHER WITH REPORT OF INDEPENDENT
PUBLIC ACCOUNTANTS
F-61
<PAGE> 62
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Members of Great Lakes Bagels, L.L.C.:
We have audited the accompanying balance sheet of Great Lakes Bagels,
L.L.C. (a Delaware limited liability company) as of December 29, 1996 and the
related statements of operations, members' equity and cash flows for the period
from inception (June 16, 1996) through December 29, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Great Lakes Bagels, L.L.C.
as of December 29, 1996 and the results of its operations and its cash flows for
the period from inception (June 16, 1996) through December 29, 1996, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Denver, Colorado
March 18, 1997
F-62
<PAGE> 63
GREAT LAKES BAGELS, L.L.C.
BALANCE SHEET
AS OF DECEMBER 29, 1996
<TABLE>
<S> <C>
ASSETS
Current Assets:
Cash...................................................... $ 146,330
Inventories............................................... 661,407
Prepaid expenses and other current assets................. 309,100
-----------
Total current assets.............................. 1,116,837
Property, Equipment and Other Related Assets, net........... 22,556,329
Costs in Excess of Net Assets Acquired, net................. 4,641,920
Notes Receivable............................................ 500,000
Other Assets, net........................................... 1,816,630
-----------
Total assets...................................... $30,631,716
===========
LIABILITIES AND MEMBERS' EQUITY
Current Liabilities:
Accounts payable.......................................... $ 1,901,915
Accrued expenses.......................................... 1,151,947
-----------
Total current liabilities......................... 3,053,862
Convertible Debt............................................ 21,391,233
Other Liabilities........................................... 73,599
Commitments (Note 8)........................................
Members' Equity............................................. 6,113,022
-----------
Total liabilities and members' equity............. $30,631,716
===========
</TABLE>
The accompanying notes to the financial statements are an integral part of this
statement.
F-63
<PAGE> 64
GREAT LAKES BAGELS, L.L.C.
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM JUNE 16, 1996 (INCEPTION)
THROUGH DECEMBER 29, 1996
<TABLE>
<S> <C>
Revenue..................................................... $11,374,335
Costs and Expenses:
Cost of products sold..................................... 4,317,566
Salaries and benefits..................................... 4,922,731
General and administrative................................ 5,631,269
-----------
Total costs and expenses.......................... 14,871,566
-----------
Loss from Operations........................................ (3,497,231)
Other Income (Expense):
Interest expense.......................................... (772,253)
Interest income........................................... 22,161
Other expense............................................. (149,355)
-----------
Total other expense............................... (899,447)
-----------
Net Loss.................................................... $(4,396,678)
===========
</TABLE>
The accompanying notes to the financial statements are an integral part of this
statement.
F-64
<PAGE> 65
GREAT LAKES BAGELS, L.L.C.
STATEMENT OF MEMBERS' EQUITY
FOR THE PERIOD FROM JUNE 16, 1996 (INCEPTION)
THROUGH DECEMBER 29, 1996
<TABLE>
<CAPTION>
VOTING NONVOTING
MEMBERS' EQUITY MEMBERS' EQUITY
------------------- ------------------------
UNITS AMOUNT UNITS AMOUNT TOTAL AMOUNT
------- --------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Balances, inception................... -- $ -- -- $ -- $ --
Units issued in exchange for net
assets contributed............... -- -- 6,500,000 6,500,000 6,500,000
Units issued for capital
contributions.................... 500,000 500,000 3,500,000 3,500,000 4,000,000
Non-employee stock option expense... -- 9,700 -- -- 9,700
Net loss............................ -- (209,366) -- (4,187,312) (4,396,678)
------- --------- ---------- ----------- -----------
Balances, December 29, 1996........... 500,000 $ 300,334 10,000,000 $ 5,812,688 $ 6,113,022
======= ========= ========== =========== ===========
</TABLE>
The accompanying notes to the financial statements are an integral part of this
statement.
F-65
<PAGE> 66
GREAT LAKES BAGELS, L.L.C.
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM JUNE 16, 1996 (INCEPTION)
THROUGH DECEMBER 29, 1996
<TABLE>
<S> <C>
Cash Flows from Operating Activities:
Net loss.................................................. $ (4,396,678)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization.......................... 1,426,800
Non-employee stock option expense...................... 9,700
Changes in assets and liabilities, excluding effects from
net assets contributed:
Inventories............................................ (211,647)
Prepaid expenses and other current assets.............. 53,991
Accounts payable and accrued expenses.................. 2,964,000
Other assets and liabilities........................... (830,241)
------------
Net cash used in operating activities............. (984,075)
Cash Flows from Investing Activities:
Purchase of property, equipment and other related
assets................................................. (11,233,628)
Proceeds from sale of assets.............................. 179,483
Purchase of ENBC common stock............................. (669,976)
------------
Net cash used in investing activities............. (11,724,121)
Cash Flows from Financing Activities:
Proceeds from issuance of member units.................... 3,500,000
Proceeds from convertible debt............................ 18,385,360
Repayments on convertible debt............................ (9,030,834)
------------
Net cash provided by financing activities......... 12,854,526
------------
Net Increase in Cash........................................ 146,330
Cash, inception............................................. --
------------
Cash, end of period......................................... $ 146,330
============
Supplemental Disclosure of Cash Flow Information:
Interest paid............................................. $ 792,746
============
Supplemental Disclosure of Noncash Investing and Financing
Activities:
Member units issued in exchange for net assets
contributed............................................ $ 6,500,000
============
Member units issued in exchange for notes receivable...... $ 500,000
============
</TABLE>
The accompanying notes to the financial statements are an integral part of this
statement.
F-66
<PAGE> 67
GREAT LAKES BAGELS, L.L.C.
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 29, 1996
(1) DESCRIPTION OF BUSINESS
Great Lakes Bagels, L.L.C. (the "Company") owns and operates retail food
service establishments under franchise agreements with Einstein/Noah Bagel Corp.
("ENBC"), under the Einstein Bros. Bagels brand name. The Einstein Bros. Bagels
concept is designed to combine the authentic tastes of a bagel bakery with the
atmosphere of a neighborhood coffee shop, offering products including
fresh-baked bagels, proprietary cream cheeses, specialty coffees and teas, and
creative sandwiches. The Company was formed on June 16, 1996 under the Delaware
Limited Liability Act, as amended.
The Company has an Area Development Agreement ("ADA") with ENBC, granting
it the right to open 197 stores in portions of Milwaukee, Madison, Chicago, and
Detroit. The ADA requires the Company to complete the store development by
December 31, 2000. The Company had 40 stores open at December 29, 1996. Pursuant
to the franchise agreements, the Company is required to make periodic royalty
payments based on net revenue, and pay franchise, real estate development,
software license, software maintenance and other support service fees on a per
store basis. The Company is also required to make advertising fund contributions
to national and local advertising funds.
For the period from June 16, 1996 (inception) through December 29, 1996,
the Company had a net loss of $4,396,678 and negative working capital of
$1,937,025. The Company is currently in a state of rapid expansion as it
continues to open stores in accordance with its ADA. The Company's ability to
continue this expansion is contingent upon management's ability to raise
additional equity and/or obtain additional financing. Management of the Company
believes it will be able to continue to raise such equity and obtain such
additional financing required to satisfy its ADA.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fiscal Year
The Company's fiscal year is the 52/53-week period ending on the last
Sunday of December.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market
and consist of food, paper products and supplies.
Investment in ENBC Common Stock
The Company owns 103,500 shares of ENBC common stock which are considered
restricted securities and, as a result, are reflected at historical cost of
$669,976 in the accompanying balance sheet. At December 29, 1996, the fair value
of similar unrestricted shares of ENBC was approximately $3,092,000.
Property, Equipment and Other Related Assets
Property, equipment and other related assets are stated at cost less
accumulated depreciation and amortization. The provision for depreciation and
amortization has been calculated using the straight-line method. These assets
are depreciated and amortized over the following useful lives:
<TABLE>
<S> <C>
Buildings and improvements.................................. 5-15 years
Equipment and software...................................... 3- 8 years
Furniture and fixtures...................................... 7-15 years
ADA and franchise fees...................................... 15 years
Preopening costs............................................ 1 year
</TABLE>
F-67
<PAGE> 68
GREAT LAKES BAGELS, L.L.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Property, equipment and other related asset additions include acquisitions
of buildings, equipment, software, leasehold improvements and major improvements
to existing stores. Additions also include costs incurred in the development and
construction of new stores, including real estate development and franchise fees
paid to ENBC. Expenditures for maintenance and repairs are charged to expense as
incurred.
Preopening costs consist primarily of salaries and other incremental direct
expenses relating to the set up, initial stocking, training and general store
management activities incurred prior to the opening of new stores. Amortization
begins on the date the store is opened.
Costs in Excess of Net Assets Acquired
The excess purchase price over the fair value of net assets acquired is
being amortized on a straight-line basis over 15 years.
Notes Receivable
The Company has received notes receivable from certain unit holders in
exchange for their member units. In general, these notes are due within three
years of issuance, bear interest at the prime rate and are collateralized by the
member units.
Revenue Recognition
Revenue is recognized in the period in which related food and beverage
products are sold.
Income Taxes
The Company is considered a flow-through entity for federal and state
income tax purposes. Any taxable income or loss is reported by the members on
their individual tax returns in accordance with the Company's Operating
Agreement.
Allocation of Profits, Losses and Distributions
Profits and losses of the Company for any fiscal year are allocated to the
members in proportion to their units; provided, however, that all items of
income, gain, loss or deductions related to the exercise of options granted
pursuant to any option plan (Note 7) shall be allocated to the member exercising
the option.
Distributions shall be made at such times and in such amounts as may be
determined by the Manager, subject to compliance with the covenants set forth in
the Company's secured loan agreement (Note 5). The Manager shall cause the
Company to make distributions on an annual basis to each member in an amount
equal to the estimated tax liability of the member resulting from the operations
of the Company. Distributions shall be made to the members in proportion to
their units held.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
F-68
<PAGE> 69
GREAT LAKES BAGELS, L.L.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(3) SUPPLEMENTAL FINANCIAL STATEMENT DATA
<TABLE>
<CAPTION>
1996
-----------
<S> <C>
Property, equipment and other related assets:
Land...................................................... $ 21,534
Buildings and improvements................................ 10,917,105
Furniture, fixtures, equipment, and software.............. 9,336,167
ADA and franchise fees.................................... 2,362,345
Preopening costs.......................................... 1,172,379
-----------
23,809,530
Less accumulated depreciation and amortization............ (1,253,201)
Total property, equipment and other related
assets, net..................................... $22,556,329
===========
Costs in excess of net assets acquired...................... $ 4,813,860
Less accumulated amortization............................. (171,940)
-----------
Total costs in excess of net assets acquired,
net............................................. $ 4,641,920
===========
Other assets:
Prepaid franchise fees.................................... $ 800,000
Investment in ENBC common stock........................... 669,976
Organization costs, net of accumulated amortization of
$3,152................................................. 40,914
Other assets.............................................. 305,740
-----------
Total other assets, net........................... $ 1,816,630
===========
</TABLE>
(4) CONTRIBUTION OF NET ASSETS
On June 16, 1996, Einstein Brothers America, L.P., a franchised area
developer of ENBC, contributed 26 stores and their related net tangible assets
in exchange for 6,500,000 units of nonvoting members capital. The transaction
has been accounted for under the purchase method of accounting, resulting in
approximately $4,814,000 of costs in excess of net assets acquired.
(5) CONVERTIBLE DEBT
The Company has entered into a secured loan agreement (the "Agreement")
with ENBC which provides ENBC the right to convert all or any portion of the
loan into voting units of members' capital at $1.12 per unit. The specified
percentage of members' capital to be acquired on conversion is dependent on the
amount of financing to be provided in relation to the total capital and rights
outstanding, but would constitute at least a majority of the capital of the
Company on a fully diluted basis in the event that all of the loan was
converted. The loan may be converted by ENBC at any time subsequent to June
1998, subject to the Company completing 80% of its development schedule, and up
to June 2004, or at any time upon the Company being in default on the loan.
Additionally, during this same time period, to the extent the loan is not fully
drawn or has been drawn and repaid, ENBC has the option to acquire, at the loan
conversion price, as defined, the amount of additional units it could have
acquired by conversion of the loan had it been fully drawn. The loan is
collateralized by substantially all of the assets of the Company and a pledge of
the voting members' capital of the Company. The Agreement contains various
restrictive covenants including restricting cash distributions and limiting
additional indebtedness. The Company was in compliance with all such covenants
as of December 29, 1996.
Interest is based upon the reference rate of the Bank of America Illinois
(8.25% as of December 29, 1996) plus 1%. Interest-only payments are required
through June 1999, at which time the loan converts to an
F-69
<PAGE> 70
GREAT LAKES BAGELS, L.L.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
amortizing term loan payable through June 2004, with a final balloon payment.
The Agreement provides for a line of credit of $40,000,000, with $21,391,233
drawn as of December 29, 1996.
As of December 29, 1996, principal maturities were as follows:
<TABLE>
<CAPTION>
<S> <C>
1997........................................... $ --
1998........................................... --
1999........................................... 1,151,837
2000........................................... 2,139,123
2001........................................... 2,139,123
Thereafter..................................... 15,961,150
-----------
$21,391,233
===========
</TABLE>
(6) MEMBERS' EQUITY
The holders of the nonvoting units have the right to require the Company to
redeem all of the nonvoting units at a pre-determined formula price ("Put
Price") based on the store level cash flow of the Company in the event that (i)
ENBC acquires a majority interest in the Company pursuant to the exercise of its
conversion or option rights under the Agreement; (ii) ENBC does not consent to
the Company's request to undertake a firm commitment underwritten public
offering after ENBC's conversion and option rights under its loan agreement with
the Company have expired unexercised; or (iii) ENBC does not consent to the
Company's request to terminate its development and franchise agreements with
ENBC after ENBC's conversion and option rights under its loan agreement with the
Company have expired unexercised. In the event the Company does not redeem the
nonvoting units when required to do so, ENBC will be obligated to purchase these
units at the same price applicable to the Company.
(7) OPTION PLANS
A maximum of 3,914,000 voting units are available for grant to employees
and certain non-employees pursuant to the 1996 Unit Option Plan (the "Option
Plan"). The option price is equal to the fair market value on the date of grant,
as determined by the Manager. All unit options granted under the Option Plan are
exercisable up to 10 years from the date of grant. The options generally vest at
a rate of 10% at the end of the first year, an additional 20% at the end of the
second year, an additional 30% at the end of the third year and the balance at
the end of the fourth year from the date of grant.
The Company accounts for employee options using the intrinsic value based
method under which no compensation cost has been recognized in accordance with
Statement of Financial Accounting Standard, No. 123, "Accounting for Stock Based
Compensation." If a fair value based accounting method had been adopted, the
Company's pro forma results of operations would have been $4,445,186 for the
period ended December 29, 1996.
Non-employee options are accounted for using a fair value approach which
resulted in $9,700 of compensation expense for the period ended December 29,
1996.
F-70
<PAGE> 71
GREAT LAKES BAGELS, L.L.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes stock option activity and the related
weighted average exercise price of the options.
<TABLE>
<CAPTION>
1996
------------------
UNITS PRICE
---------- -----
<S> <C> <C>
Outstanding, beginning of period............................ -- --
Granted................................................... 1,423,750 $1.00
Exercised................................................. -- --
Forfeited................................................. -- --
Expired................................................... -- --
---------
Outstanding, end of period.................................. 1,423,750 $1.00
=========
Exercisable, end of period.................................. -- $1.00
=========
Weighted average fair value of options granted.............. $ 0.28
=========
</TABLE>
At December 29, 1996, the weighted average remaining contractual life of
the options is 9.5 years.
The fair value of each option is estimated on the date of grant using the
minimum value option pricing model with the following weighted average
assumptions used for 1996 grants: risk-free interest rate of 6.58%; expected
life of 5 years.
In addition to the Common Unit Option Plan, the Company has granted
employees options to purchase 101,669 shares of ENBC common stock at an exercise
price of $6.59 per share. At December 29, 1996, no options have been exercised
and the shares are reflected at historical cost (Note 2) in the accompanying
financial statements.
(8) COMMITMENTS
The Company leases store premises under various noncancelable operating
lease agreements. Lease terms are generally five years with two or three
five-year renewal options. Most of the leases contain escalation clauses and
common area maintenance charges.
The following is a schedule of future minimum rental payments which are
required under operating leases that have initial or remaining noncancelable
lease terms in excess of one year as of December 29, 1996:
<TABLE>
<CAPTION>
<S> <C>
1997............................................ $1,702,986
1998............................................ 1,656,484
1999............................................ 1,646,040
2000............................................ 1,564,248
2001............................................ 831,408
Thereafter...................................... 2,130,862
----------
$9,532,028
==========
</TABLE>
Total rent expense under operating leases, including common area
maintenance charges, was approximately $1,039,000 for the period from June 16,
1996 (inception) through December 29, 1996.
The Company obtains a majority of its produce and other supplies from a
limited number of vendors. Management believes that, if necessary, the Company
would be able to replace any of its sources of supply with other vendors without
a disruption in service.
F-71
<PAGE> 72
GREAT LAKES BAGELS, L.P.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 29, OCTOBER 5,
1996 1997
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 146,330 $ 763,870
Accounts receivable....................................... 399,922
Inventories............................................... 661,407 2,943,597
Prepaid expenses and other current assets................. 309,100 419,461
----------- ------------
Total current assets.............................. 1,116,837 4,526,850
Property, Equipment and Other Related Assets, net........... 22,556,329 54,479,064
Costs in Excess of Net Assets Acquired. net................. 4,641,920 41,022,964
Notes Receivable............................................ 500,000 950,000
Other Assets, net........................................... 1,816,630 3,314,345
----------- ------------
Total assets...................................... $30,631,716 $104,293,223
=========== ============
LIABILITIES AND PARTNERS' EQUITY
Current Liabilities:
Accounts payable.......................................... $ 1,901,915 $ 6,245,520
Accrued expenses.......................................... 1,151,947 4,084,194
----------- ------------
Total current liabilities......................... 3,053,862 10,329,714
Convertible Debt............................................ 21,391,233 78,694,878
Other Noncurrent Liabilities................................ 73,599 37,979
Commitments.................................................
Partners' Equity............................................ 6,113,022 15,230,652
----------- ------------
Total liabilities and partners' equity............ $30,631,716 $104,293,223
=========== ============
</TABLE>
The accompanying notes to the financial statements are an integral part of these
statements.
F-72
<PAGE> 73
GREAT LAKES BAGELS, L.P.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE PERIOD FROM FOR THE PERIOD FROM
JUNE 16, 1996 JUNE 16, 1996 FOR THE THREE
(INCEPTION) THROUGH (INCEPTION) THROUGH QUARTERS ENDED
DECEMBER 29, 1996 OCTOBER 6, 1996 OCTOBER 5, 1997
------------------- ------------------- ---------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Revenue................................... $11,374,335 $ 6,077,400 $ 41,240,394
Costs and Expenses:
Cost of products sold................... 4,317,566 2,354,846 13,429,641
Salaries and benefits................... 4,922,731 2,656,669 16,647,438
General and administrative.............. 5,631,269 3,074,121 17,663,929
----------- ----------- ------------
Total costs and expenses........ 14,871,566 8,085,636 47,741,008
----------- ----------- ------------
Loss from Operations...................... (3,497,231) (2,008,236) (6,500,614)
Other Income (Expense):
Interest expense, net................... (750,092) (392,784) (2,856,907)
Other income (expense), net............. (149,355) (143,719) 13,769
----------- ----------- ------------
Total other expense............. (899,447) (536,503) (2,843,138)
----------- ----------- ------------
Net Loss.................................. $(4,396,678) $(2,544,739) $ (9,343,752)
=========== =========== ============
</TABLE>
The accompanying notes to the financial statements are an integral part of these
statements.
F-73
<PAGE> 74
GREAT LAKES BAGELS, L.P.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE PERIOD FROM FOR THE PERIOD FROM
JUNE 16, 1996 JUNE 16, 1996 FOR THE THREE
(INCEPTION) THROUGH (INCEPTION) THROUGH QUARTERS ENDED
DECEMBER 29, 1996 OCTOBER 6, 1996 OCTOBER 5, 1997
------------------- ------------------- ---------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss.............................. $ (4,396,678) $ (2,544,739) $ (9,343,752)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Depreciation and amortization...... 1,426,800 697,731 4,577,592
Non-employee option expense........ 9,700 -- 13,857
Changes in assets and liabilities,
excluding effects from
acquisitions:
Inventories...................... (211,647) (97,172) (833,710)
Accounts receivable.............. -- (15,058) (2,034)
Accounts payable and accrued
expenses...................... 2,964,000 2,935,778 808,389
Prepaid expenses and other
current assets................ 53,991 18,489 47,647
Other assets and liabilities..... (830,241) (833,740) (137,556)
------------ ------------ ------------
Net cash used in operating
activities.................. (984,075) 161,289 (4,869,567)
Cash Flows from Investing Activities:
Purchase of property and equipment.... (11,233,628) (4,102,386) (19,405,626)
Proceeds from sale of assets.......... 179,483 -- --
Purchase of ENBC stock................ (669,976) (669,976) --
Net payments on notes receivable...... -- -- 436,234
------------ ------------ ------------
Net cash used in investing
activities.................. (11,724,121) (4,772,362) (18,969,392)
Cash Flows from Financing Activities:
Proceeds from issuance of partnership
units.............................. 3,500,000 1,000,000 4,080,000
Proceeds from convertible debt........ 18,385,360 8,491,966 41,315,826
Repayment of convertible debt......... (9,030,834) (4,880,893) (20,939,327)
------------ ------------ ------------
Net cash provided by financing
activities.................. 12,854,526 4,611,073 24,456,499
------------ ------------ ------------
Net Increase in Cash and Cash
Equivalents........................... 146,330 -- 617,540
Cash and Cash Equivalents, beginning of
period................................ -- -- 146,330
------------ ------------ ------------
Cash and Cash Equivalents, end of
period................................ $ 146,330 $ -- $ 763,870
============ ============ ============
</TABLE>
The accompanying notes to the financial statements are an integral part of these
statements.
F-74
<PAGE> 75
GREAT LAKES BAGELS, L.P.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The financial statements have been prepared by Great Lakes Bagels, L.P.
(the "Partnership") and are unaudited except for the balance sheet at December
29, 1996, the Statement of Operations for the Period from June 16, 1996
(inception) through December 29, 1996 and the Statement of Cash Flows for the
Period from June 16, 1996 (inception) through December 29, 1996 and the notes
related thereto. The financial statements have been prepared in accordance with
the instructions under Regulation S-X for interim financial statements and,
therefore, do not necessarily include all information and footnotes required by
generally accepted accounting principles. In the opinion of the Partnership, all
adjustments (consisting only of normal recurring adjustments) necessary to
present fairly the Partnership's financial position, results of operations and
cash flows as of October 5, 1997 and for all periods presented have been made.
The statements are subject to audit adjustment. A description of the
Partnership's accounting policies and other financial information are included
in the audited financial statements included elsewhere herein.
2. MERGER WITH FINEST BAGELS, L.P.
On July 14, 1997, the Partnership acquired Finest Bagels, L.P., another
area developer of Einstein/Noah Bagel Corp., resulting in the Partnership
obtaining the rights to open an additional 178 stores in portions of Kansas,
Missouri, Minnesota, Wisconsin and Texas under the Einstein Bros. Bagels brand,
of which 67 stores were open at that date.
On April 20, 1997 Finest Bagels, L.P. acquired Alamo Bagels, L.P., another
area developer of Einstein/Noah Bagel Corp. ("ENBC").
At the time of its acquisition of Finest Bagels, L.P. ("Finest"), the
Partnership succeeded to an obligation of Finest incurred in connection with a
prior acquisition in which a predecessor of Finest acquired certain bagel stores
and related assets from Bagel Boulevard Cafe America, Inc. and related entities
("Bagel Boulevard"), in consideration for the delivery of 231,023 shares of
common stock of ENBC. Pursuant to the terms of such acquisition, the Partnership
is obligated to make a cash payment to Bagel Boulevard in an amount equal to the
excess, if any, of $24.24 over the average net proceeds per share of the sale of
such shares, multiplied by 231,023.
F-75
<PAGE> 76
GULFSTREAM BAGELS, L.P.
FINANCIAL STATEMENTS
AS OF DECEMBER 29, 1996
TOGETHER WITH REPORT OF INDEPENDENT
PUBLIC ACCOUNTANTS
F-76
<PAGE> 77
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of Gulfstream Bagels, L.P.:
We have audited the accompanying balance sheet of Gulfstream Bagels, L.P.
(a Delaware limited partnership) as of December 29, 1996 and the related
statements of operations, partners' capital and cash flows for the period from
inception (March 25, 1996) through December 29, 1996. These financial statements
are the responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Gulfstream Bagels, L.P. as
of December 29, 1996 and the results of its operations and its cash flows for
the period from inception (March 25, 1996) through December 29, 1996, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Denver, Colorado
March 21, 1997
F-77
<PAGE> 78
GULFSTREAM BAGELS, L.P.
BALANCE SHEET
AS OF DECEMBER 29, 1996
<TABLE>
<S> <C>
ASSETS
Current Assets:
Cash...................................................... $ 356,348
Inventories............................................... 596,913
Prepaid expenses and other current assets................. 184,118
-----------
Total current assets.............................. 1,137,379
Property, Equipment and Other Related Assets, net........... 17,029,358
Costs in Excess of Net Assets Acquired, net................. 1,757,455
Notes Receivable............................................ 500,000
Other Assets, net........................................... 1,059,444
-----------
Total assets...................................... $21,483,636
===========
LIABILITIES AND PARTNERS' CAPITAL
Current Liabilities:
Accounts payable.......................................... $ 2,212,410
Accrued expenses.......................................... 1,832,239
-----------
Total current liabilities......................... 4,044,649
Convertible Debt............................................ 14,758,734
Commitments (Note 8)
Partners' Capital........................................... 2,680,253
-----------
Total liabilities and partners' capital........... $21,483,636
===========
</TABLE>
The accompanying notes to the financial statements are an integral part of this
statement.
F-78
<PAGE> 79
GULFSTREAM BAGELS, L.P.
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM MARCH 25, 1996 (INCEPTION)
THROUGH DECEMBER 29, 1996
<TABLE>
<S> <C>
Revenue..................................................... $16,434,537
Costs and Expenses:
Cost of products sold..................................... 6,383,276
Salaries and benefits..................................... 7,344,526
General and administrative................................ 8,777,292
-----------
Total costs and expenses.......................... 22,505,094
-----------
Loss from Operations........................................ (6,070,557)
Other Income (Expense):
Interest expense.......................................... (1,006,150)
Interest income........................................... 23,233
Gain on sale of assets.................................... 1,750,000
Other expense............................................. (32,357)
-----------
Total other income................................ 734,726
-----------
Net Loss.................................................... $(5,335,831)
===========
</TABLE>
The accompanying notes to the financial statements are an integral part of this
statement.
F-79
<PAGE> 80
GULFSTREAM BAGELS, L.P.
STATEMENT OF PARTNERS' CAPITAL
FOR THE PERIOD FROM MARCH 25, 1996 (INCEPTION)
THROUGH DECEMBER 29, 1996
<TABLE>
<CAPTION>
GENERAL PARTNER LIMITED PARTNER
------------------- ------------------------
UNITS CAPITAL UNITS CAPITAL TOTAL
------- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balances, inception............... -- $ -- -- $ -- $ --
Units issued for capital
contributions................ 500,000 500,000 14,000,000 14,000,000 14,500,000
Redemption of units............. -- -- (6,500,000) (6,500,000) (6,500,000)
Non-employee stock option
expense...................... -- 16,084 -- -- 16,084
Net loss........................ -- (333,489) -- (5,002,342) (5,335,831)
------- --------- ---------- ----------- -----------
Balances, December 29, 1996....... 500,000 $ 182,595 7,500,000 $ 2,497,658 $ 2,680,253
======= ========= ========== =========== ===========
</TABLE>
The accompanying notes to the financial statements are an integral part of this
statement.
F-80
<PAGE> 81
GULFSTREAM BAGELS, L.P.
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM MARCH 25, 1996 (INCEPTION)
THROUGH DECEMBER 29, 1996
<TABLE>
<S> <C>
Cash Flows from Operating Activities:
Net loss.................................................. $ (5,335,831)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization.......................... 1,592,700
Non-employee stock option expense...................... 16,084
Gain on sale of assets................................. (1,750,000)
Changes in assets and liabilities, excluding effects from
acquisition:
Inventories............................................ (1,075,973)
Prepaid expenses and other current assets.............. (401,882)
Accounts payable and accrued expenses.................. 3,097,152
Other assets........................................... 5,356
------------
Net cash used in operating activities............. (3,852,394)
Cash Flows from Investing Activities:
Purchase of property, equipment and other related
assets................................................. (9,404,956)
Purchase of net assets from ENBC, net of cash acquired.... (27,121,000)
Purchase of ENBC common stock............................. (1,300,833)
------------
Net cash used in investing activities............. (37,826,789)
Cash Flows from Financing Activities:
Proceeds from issuance of partnership units............... 14,000,000
Proceeds from convertible debt............................ 64,798,511
Repayment on convertible debt............................. (36,762,980)
------------
Net cash provided by financing activities......... 42,035,531
------------
Net Increase in Cash........................................ 356,348
Cash, inception............................................. --
------------
Cash, end of period......................................... $ 356,348
============
Supplemental Disclosure of Cash Flow Information:
Interest paid............................................. $ 939,460
============
Supplemental Disclosure of Noncash Financing Activities:
Partnership units issued in exchange for notes
receivable............................................. $ 500,000
============
Net assets contributed for limited partners' capital...... $ 7,500,000
============
</TABLE>
The accompanying notes to the financial statements are an integral part of this
statement.
F-81
<PAGE> 82
GULFSTREAM BAGELS, L.P.
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 29, 1996
(1) DESCRIPTION OF BUSINESS
Gulfstream Bagels, L.P. (the "Partnership"), formerly known as Einstein
Brothers of America, L.P., a Delaware limited partnership, was formed on March
25, 1996 under the Delaware Revised Uniform Limited Partnership Act, as amended,
owns and operates retail food service establishments under franchise agreements
with Einstein/Noah Bagel Corp. ("ENBC"), under the Einstein Bros. Bagels brand
name. The Einstein Bros. Bagels concept is designed to combine the authentic
tastes of a bagel bakery with the atmosphere of a neighborhood coffee shop,
offering products including fresh-baked bagels, proprietary cream cheeses,
specialty coffees and teas, and creative sandwiches.
The Partnership has an Area Development Agreement ("ADA") with ENBC,
granting it the right to open 95 stores in portions of Florida. The ADA requires
the Partnership to complete the store development by December 1998. The
Partnership had 34 stores open at December 29, 1996. Pursuant to the franchise
agreements, the Partnership is required to make periodic royalty payments based
on net revenue, and pay franchise, real estate development, software license,
software maintenance and other support service fees on a per store basis. The
Partnership is also required to make advertising fund contributions to national
and local advertising funds.
For the period from March 25, 1996 (inception) through December 29, 1996,
the Partnership had a net loss of $5,335,831 and negative working capital of
$2,907,270. The Partnership is currently in a state of rapid expansion as it
continues to open stores in accordance with its ADA. The Partnership's ability
to continue this expansion is contingent upon management's ability to raise
additional equity and/or obtain additional financing. Management of the
Partnership believes it will be able to continue to raise such equity and obtain
such additional financing required to satisfy its ADA.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fiscal Year
The Partnership's fiscal year is the 52/53-week period ending on the last
Sunday of December.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market
and consist of food, paper products and supplies.
Investment in ENBC Common Stock
The Partnership owns 97,505 shares of ENBC common stock which are
considered restricted securities and, as a result, are reflected at historical
cost of $630,857 in the accompanying balance sheet. At December 29, 1996, the
fair value of similar unrestricted shares of ENBC was approximately $2,913,000.
Property, Equipment and Other Related Assets
Property, equipment and other related assets are stated at cost less
accumulated depreciation and amortization. The provision for depreciation and
amortization has been calculated using the straight-line method. These assets
are depreciated and amortized over the following useful lives:
<TABLE>
<S> <C>
Buildings and improvements.................................. 5-15 years
Equipment and software...................................... 3-8 years
Furniture and fixtures...................................... 7-15 years
ADA and franchise fees...................................... 15 years
Preopening costs............................................ 1 year
</TABLE>
F-82
<PAGE> 83
GULFSTREAM BAGELS, L.P.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Property, equipment and other related asset additions include acquisitions
of buildings, equipment, software, leasehold improvements and major improvements
to existing stores. Additions also include costs incurred in the development and
construction of new stores, including real estate development and franchise fees
paid to ENBC. Expenditures for maintenance and repairs are charged to expense as
incurred.
Preopening costs consist primarily of salaries and other incremental direct
expenses relating to the set up, initial stocking, training and general store
management activities incurred prior to the opening of new stores. Amortization
begins on the date the store is opened.
Costs in Excess of Net Assets Acquired
The excess purchase price over the fair value of net assets acquired is
being amortized on a straight-line basis over 15 years.
Notes Receivable
The Partnership has received notes receivable from certain unit holders in
exchange for their partnership units. In general, these notes are due within
three years of issuance, bear interest at the prime rate and are collateralized
by the partnership units.
Revenue Recognition
Revenue is recognized in the period in which related food and beverage
products are sold.
Income Taxes
The Partnership is not considered a taxable entity for federal or state
income tax purposes. Any taxable income or loss is reported by the partners on
their individual tax returns in accordance with the amended and restated
Partnership Agreement.
Allocation of Profits, Losses and Distributions
Profits and losses of the Partnership for any fiscal year are allocated to
the partners in proportion to their units; provided, however, that all items of
income, gain, loss or deductions related to the exercise of options granted
pursuant to any option plan (Note 7) shall be allocated to the partner
exercising the option.
Distributions shall be made at such times and in such amounts as may be
determined by the General Partner, subject to compliance with the covenants set
forth in the Partnership's secured loan agreement (Note 5). The General Partner
shall cause the Partnership to make distributions on an annual basis to each
partner in an amount equal to the estimated tax liability of the partner
resulting from the operations of the Partnership. Distributions shall be made to
the partners in proportion to their units held.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
F-83
<PAGE> 84
GULFSTREAM BAGELS, L.P.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(3) SUPPLEMENTAL FINANCIAL STATEMENT DATA
<TABLE>
<CAPTION>
DECEMBER 29,
1996
------------
<S> <C>
Property, equipment and other related assets:
Buildings and improvements................................ $ 8,170,660
Furniture, fixtures, equipment, and software.............. 7,700,037
ADA and franchise fees.................................... 1,665,000
Preopening costs.......................................... 696,561
-----------
18,232,258
Less accumulated depreciation and amortization............ (1,202,900)
-----------
Total property, equipment and other related
assets, net..................................... $17,029,358
===========
Costs in excess of net assets acquired...................... $ 1,804,487
Less accumulated amortization............................. (47,032)
-----------
Total costs in excess of net assets acquired,
net............................................. $ 1,757,455
===========
Other assets:
Prepaid franchise fees.................................... $ 300,000
Organization costs, net of accumulated amortization of
$10,812................................................ 85,410
Investment in ENBC common stock........................... 630,857
Other assets.............................................. 43,177
-----------
Total other assets, net........................... $ 1,059,444
===========
</TABLE>
(4) PURCHASE OF NET ASSETS FROM ENBC
On March 25, 1996, the Partnership paid to ENBC a total of $22,961,000
consisting of the net tangible assets of 47 stores for approximately $21,157,000
and costs in excess of net assets acquired of approximately $1,804,000. In
addition, the Partnership paid approximately $4,160,000 for certain rights and
fees to develop future stores. The transaction has been accounted for under the
purchase method of accounting. The pro forma effect of this transaction is not
significant to the accompanying financial statements.
On June 16, 1996, the Company sold 26 stores and their related net tangible
assets in exchange for $6,500,000 of nonvoting member capital of Great Lakes
Bagels, L.L.C. ("Great Lakes Capital"), resulting in a $1,750,000 gain. The
Partnership then redeemed 6,500,000 limited partner units by transferring the
Great Lakes Capital for such units.
(5) CONVERTIBLE DEBT
The Partnership has entered into a secured loan agreement (the "Agreement")
with ENBC which provides ENBC the right to convert all or any portion of the
loan into units of partners' capital at $1.12 per unit. The specified percentage
of partners' capital to be acquired on conversion is dependent on the amount of
financing to be provided in relation to the total capital and rights
outstanding, but would constitute at least a majority of the capital of the
Partnership on a fully diluted basis in the event all of the loan was converted.
The loan may be converted by ENBC at any time subsequent to March 25, 1998,
subject to the Company completing 80% of its development schedule, and up to
March 25, 2004, or at any time upon the Partnership being in default on the
loan. Additionally, during this same time period, to the extent the loan is not
fully drawn or has been drawn and repaid, ENBC has the option to acquire, at the
loan conversion price, as defined, the amount of additional units it could have
acquired by conversion of the loan had it been fully drawn. The loan is
collateralized by substantially all of the assets of the Partnership and a
pledge of the general partners' capital of the Partnership. The Agreement
contains various restrictive covenants including restricting cash distributions
and limiting additional indebtedness. The Partnership was in compliance with all
such covenants at December 29, 1996.
F-84
<PAGE> 85
GULFSTREAM BAGELS, L.P.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Interest is based upon the reference rate of the Bank of America Illinois
(8.25% as of December 29, 1996) plus 1%. Interest-only payments are required
through June, 1999, at which time the loan converts to an amortizing term loan
payable through March, 2004, with a final balloon payment. The Agreement
provides for a line of credit of $30,000,000 with $14,758,734 drawn as of
December 29, 1996.
As of December 29, 1996, principal maturities were as follows:
<TABLE>
<S> <C>
1997............................................ $ --
1998............................................ --
1999............................................ 1,135,287
2000............................................ 1,475,873
2001............................................ 1,475,873
Thereafter...................................... 10,671,701
-----------
$14,758,734
===========
</TABLE>
(6) PARTNER'S CAPITAL
The holders of certain of the limited partnership units have the right to
require the Partnership to redeem all of the limited partnership units at a
pre-determined formula price ("Put Price") based on the store level cash flow of
the Partnership in the event that (i) ENBC acquires a majority interest in the
Partnership pursuant to the exercise of its conversion or option rights under
its loan agreement with ENBC; (ii) ENBC does not consent to the partnerships'
request to undertake a firm commitment underwritten public offering after ENBC's
conversion and option rights under its agreement with the Partnership have
expired unexercised; or (iii) ENBC does not consent to the Partnerships' request
to terminate its development and franchise agreements with ENBC after ENBC's
conversion and option rights under its loan agreement with the Partnership have
expired unexercised. In the event the Partnership does not redeem the nonvoting
units when required to do so, ENBC will be obligated to purchase these units at
the same price applicable to the Partnership.
(7) EMPLOYEE UNIT OPTION PLANS
A maximum of 3,695,000 voting units are available for grant to employees
pursuant to the 1996 Unit Option Plan (the "Option Plan"). The option price is
equal to the fair market value on the date of grant, as determined by the
General Partner. All unit options granted under the Option Plan are exercisable
up to 10 years from the date of grant. The options generally vest at a rate of
10% at the end of the first year, an additional 20% at the end of the second
year, an additional 30% at the end of the third year and the balance at the end
of the fourth year from the date of grant.
The Partnership accounts for employee options using the intrinsic value
based method under which no compensation cost has been recognized in accordance
with Statement of Financial Accounting Standards No. 123, "Accounting for Stock
Based Compensation". If a fair value based accounting method had been adopted,
the Partnership's pro forma net loss would have been $5,469,084 for the period
ended December 29, 1996.
Non-employee options are accounted for using a fair value approach which
resulted in $16,084 of compensation expense for the period ended December 29,
1996.
F-85
<PAGE> 86
GULFSTREAM BAGELS, L.P.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes stock option activity and the related
weighted average exercise price of the options.
<TABLE>
<CAPTION>
1996
------------------
UNITS PRICE
---------- -----
<S> <C> <C>
Outstanding, beginning of period............................ -- --
Granted................................................... 3,517,294 $1.00
Exercised................................................. -- --
Forfeited................................................. -- --
Expired................................................... -- --
----------
Outstanding, end of period.................................. 3,517,294 $1.00
==========
Exercisable, end of period.................................. -- --
==========
Weighted average fair value of options granted.............. $ 0.25
==========
</TABLE>
At December 29, 1996 the weighted average remaining contractual life of the
options is 9.50 years.
The fair value of each option is estimated on the date of grant using the
minimum value option pricing model with the following weighted average
assumptions used for 1996 grants: risk-free interest rate of 5.67%; expected
life of 5 years.
In addition to the Option Plan, the Partnership has granted employees
options to purchase 61,034 shares of ENBC common stock at an exercise price of
$6.59 per share. At December 29, 1996, no options have been exercised and the
shares are reflected at historical cost (Note 2) in the accompanying financial
statements.
(8) COMMITMENTS
The Partnership leases store premises under various noncancelable operating
lease agreements. Lease terms are generally five years with two or three
five-year renewal options. Most of the leases contain escalation clauses and
common area maintenance charges.
The following is a schedule of future minimum rental payments which are
required under operating leases that have initial or remaining noncancelable
lease terms in excess of one year as of December 29, 1996:
<TABLE>
<S> <C>
1997............................................. $1,426,247
1998............................................. 1,400,919
1999............................................. 1,339,406
2000............................................. 1,124,577
2001............................................. 696,304
Thereafter....................................... 2,145,079
----------
$8,132,532
==========
</TABLE>
Total rent expense under operating leases, including common area
maintenance charges, was approximately $1,572,000 for the period from March 25,
1996 (inception) through December 29, 1996.
The Partnership obtains a majority of its produce and other supplies from a
limited number of vendors. Management believes that, if necessary, the
Partnership would be able to replace any of its sources of supply with other
vendors without a disruption in service.
F-86
<PAGE> 87
GULFSTREAM BAGELS, L.P.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 29, OCTOBER 5,
1996 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 356,348 $ 38,896
Accounts receivable....................................... -- 358,754
Inventories............................................... 596,913 2,020,615
Prepaid expenses and other current assets................. 184,118 439,947
----------- -----------
Total current assets.............................. 1,137,379 2,858,212
Property, Equipment and Other Related Assets, net........... 17,029,358 46,058,488
Costs in Excess of Net Assets Acquired, net................. 1,757,455 28,924,623
Notes Receivable............................................ 500,000 1,060,033
Other Assets, net........................................... 1,059,444 3,225,153
----------- -----------
Total assets...................................... $21,483,636 $82,126,509
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
Current Liabilities:
Accounts payable.......................................... $ 2,212,410 $ 5,492,193
Accrued expenses.......................................... 1,832,239 2,759,772
----------- -----------
Total current liabilities......................... 4,044,649 8,251,965
Convertible Debt............................................ 14,758,734 59,749,248
Other Noncurrent Liabilities................................ -- 581,871
Commitments.................................................
Partners' Equity............................................ 2,680,253 13,543,425
----------- -----------
Total liabilities and partners' equity............ $21,483,636 $82,126,509
=========== ===========
</TABLE>
The accompanying notes to the financial statements are an integral part of these
statements.
F-87
<PAGE> 88
GULFSTREAM BAGELS, L.P.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE PERIOD FROM FOR THE PERIOD FROM
MARCH 25, 1996 MARCH 25, 1996 FOR THE THREE
(INCEPTION) THROUGH (INCEPTION) THROUGH QUARTERS ENDED
DECEMBER 29, 1996 OCTOBER 6, 1996 OCTOBER 5, 1997
------------------- ------------------- ---------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Revenue..................................... $16,434,537 $11,535,502 $30,026,339
Costs and Expenses:
Cost of products sold..................... 6,383,276 4,750,776 9,556,272
Salaries and benefits..................... 7,344,526 5,370,210 12,738,064
General and administrative................ 8,777,292 5,624,164 13,812,977
----------- ----------- -----------
Total costs and expenses.......... 22,505,094 15,745,150 36,107,313
----------- ----------- -----------
Loss from Operations........................ (6,070,557) (4,209,648) (6,080,974)
Other Income (Expense):
Interest expense, net..................... (982,917) (739,941) (1,967,504)
Gain on sale of assets.................... 1,750,000 1,750,000 --
Other income (expense).................... (32,357) 2,883 (15,087)
----------- ----------- -----------
Total other income (expense)...... 734,726 1,012,942 (1,982,591)
----------- ----------- -----------
Net Loss.................................... $(5,335,831) $(3,196,706) $(8,063,565)
=========== =========== ===========
</TABLE>
The accompanying notes to the financial statements are an integral part of these
statements.
F-88
<PAGE> 89
GULFSTREAM BAGELS, L.P.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE PERIOD
FROM FROM
MARCH 25, 1996 MARCH 25, 1996
(INCEPTION) (INCEPTION) FOR THE THREE
THROUGH THROUGH QUARTERS ENDED
DECEMBER 29, 1996 OCTOBER 6, 1996 OCTOBER 5, 1997
----------------- --------------- ---------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss..................................... $ (5,335,831) $ (3,196,706) $ (8,063,565)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization............. 1,592,700 1,053,306 3,047,732
Non-employee option expense............... 16,084 -- 22,977
Gain on sale of assets.................... (1,750,000) (1,750,000) --
Changes in assets and liabilities,
excluding effects from acquisitions:
Inventories............................. (1,075,973) (990,735) (695,033)
Accounts receivable..................... -- (12,833) (250,361)
Accounts payable and accrued expenses... 3,097,152 1,094,379 785,180
Prepaid expenses and other current
assets............................... (401,882) (459,295) (101,081)
Other assets and liabilities............ 5,356 (470,486) (665,398)
------------ ------------ ------------
Net cash used in operating
activities......................... (3,852,394) (4,732,370) (5,919,549)
Cash Flows from Investing Activities:
Purchase of property and equipment........... (9,404,956) (7,415,206) (13,064,520)
Sale (purchase) of ENBC stock................ (1,300,833) (630,857) 175,751
Purchase of net assets from ENBC............. (27,121,000) (27,121,000) --
------------ ------------ ------------
Net cash used in investing
activities......................... (37,826,789) (35,167,063) (12,888,769)
Cash Flows from Financing Activities:
Proceeds from issuance of partnership
units..................................... 14,000,000 12,000,000 4,385,000
Proceeds from convertible debt............... 64,798,511 45,288,592 31,743,130
Repayment of convertible debt................ (36,762,980) (16,813,324) (17,637,264)
------------ ------------ ------------
Net cash provided by financing
activities......................... 42,035,531 40,475,268 18,490,866
------------ ------------ ------------
Net Increase (Decrease) in Cash and Cash
Equivalents.................................. 356,348 575,835 (317,452)
Cash and Cash Equivalents, beginning of
period....................................... -- -- 356,348
------------ ------------ ------------
Cash and Cash Equivalents, end of period....... $ 356,348 $ 575,835 $ 38,896
============ ============ ============
</TABLE>
The accompanying notes to the financial statements are an integral part of these
statements.
F-89
<PAGE> 90
GULFSTREAM BAGELS, L.P.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The financial statements have been prepared by Gulfstream Bagels, L.P. (the
"Partnership") and are unaudited except for the balance sheet at December 29,
1996, the Statement of Operations for the Period from March 25, 1996 (inception)
through December 29, 1996 and the Statement of Cash Flows for the Period from
March 25, 1996 (inception) through December 29, 1996 and the notes related
thereto. The financial statements have been prepared in accordance with the
instructions under Regulation S-X for interim financial statements and,
therefore, do not necessarily include all information and footnotes required by
generally accepted accounting principles. In the opinion of the Partnership, all
adjustments (consisting only of normal recurring adjustments) necessary to
present fairly the Partnership's financial position, results of operations and
cash flows as of October 5, 1997 and for all periods presented have been made.
The statements are subject to audit adjustment. A description of the
Partnership's accounting policies and other financial information are included
in the audited financial statements included elsewhere herein.
2. MERGER WITH MAYFAIR BAGELS, L.P.
On July 13, 1997, the Partnership merged with Mayfair Bagels, L.P., another
area developer of Einstein/ Noah Bagel Corp., resulting in obtaining the rights
to open an additional 234 stores in portions of Georgia, Maryland, Pennsylvania,
Virginia, West Virginia, Washington D.C., Delaware and New Jersey under the
Einstein Bros. Bagels brand, of which 47 were open at that date.
3. SALE OF ASSETS TO GREAT LAKES BAGELS, L.P.
On June 16, 1996, the Partnership transferred 26 stores and their related
net tangible assets to Great Lakes Bagels, L.L.C. ("Great Lakes Bagels") in
exchange for 6,500,000 nonvoting memberships units of Great Lakes Bagels (the
"Great Lakes Units"), resulting in a $1,750,000 gain. The Partnership then
redeemed 6,500,000 limited partner units of the Partnership by transferring the
Great Lakes Bagels Units in exchange therefor.
F-90
<PAGE> 91
LIBERTY FOODS, L.L.C.
FINANCIAL STATEMENTS
AS OF DECEMBER 29, 1996
TOGETHER WITH REPORT OF INDEPENDENT
PUBLIC ACCOUNTANTS
F-91
<PAGE> 92
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Members of Liberty Foods, L.L.C.:
We have audited the accompanying balance sheet of Liberty Foods, L.L.C. (a
Delaware limited liability company) as of December 29, 1996 and the related
statements of operations, members' equity and cash flows for the period from
inception (April 17, 1996) through December 29, 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Liberty Foods, L.L.C. as of
December 29, 1996 and the results of its operations and its cash flows for the
period from inception (April 17, 1996) through December 29, 1996, in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Denver, Colorado
March 18, 1997
F-92
<PAGE> 93
LIBERTY FOODS, L.L.C.
BALANCE SHEET
AS OF DECEMBER 29, 1996
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Current Assets:
Cash...................................................... $ 209,374
Inventories............................................... 253,898
Prepaid expenses and other current assets................. 97,279
-----------
Total current assets.............................. 560,551
Property, Equipment and Other Related Assets, net........... 9,837,341
Costs in Excess of Net Assets Acquired, net................. 640,183
Notes Receivable............................................ 500,000
Other Assets, net........................................... 1,377,137
-----------
Total assets...................................... $12,915,212
===========
LIABILITIES AND MEMBERS' EQUITY
Current Liabilities:
Accounts payable.......................................... $ 2,205,059
Accrued expenses.......................................... 666,136
-----------
Total current liabilities......................... 2,871,195
Convertible Debt............................................ 6,712,813
Commitments (Note 8)
Members' Equity............................................. 3,331,204
-----------
Total liabilities and members' equity............. $12,915,212
===========
</TABLE>
The accompanying notes to the financial statements are an integral part of this
statement.
F-93
<PAGE> 94
LIBERTY FOODS, L.L.C.
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM APRIL 17, 1996 (INCEPTION)
THROUGH DECEMBER 29, 1996
<TABLE>
<S> <C>
Revenue..................................................... $ 2,190,953
Costs and Expenses:
Cost of products sold..................................... 993,697
Salaries and benefits..................................... 2,214,304
General and administrative................................ 2,061,570
-----------
Total costs and expenses.......................... 5,269,571
-----------
Loss from Operations........................................ (3,078,618)
Other Income (Expense):
Interest expense.......................................... (169,905)
Interest income........................................... 30,057
Other income.............................................. 38,592
-----------
Total other expense............................... (101,256)
-----------
Net Loss.................................................... $(3,179,874)
===========
</TABLE>
The accompanying notes to the financial statements are an integral part of this
statement.
F-94
<PAGE> 95
LIBERTY FOODS, L.L.C.
STATEMENT OF MEMBERS' EQUITY
FOR THE PERIOD FROM APRIL 17, 1996 (INCEPTION)
THROUGH DECEMBER 29, 1996
<TABLE>
<CAPTION>
VOTING MEMBERS' NONVOTING
CAPITAL MEMBERS' CAPITAL
------------------- -----------------------
UNITS AMOUNT UNITS AMOUNT TOTAL
------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balances, inception................. -- $ -- -- $ -- $ --
Units issued for capital
contributions.................. 500,000 500,000 6,000,000 6,000,000 6,500,000
Non-employee stock option
expense........................ -- 11,078 -- -- 11,078
Net loss.......................... -- (244,606) -- (2,935,268) (3,179,874)
------- --------- --------- ----------- -----------
Balances, December 29, 1996......... 500,000 $ 266,472 6,000,000 $ 3,064,732 $ 3,331,204
======= ========= ========= =========== ===========
</TABLE>
The accompanying notes to the financial statements are an integral part of this
statement.
F-95
<PAGE> 96
LIBERTY FOODS, L.L.C.
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM APRIL 17, 1996 (INCEPTION)
THROUGH DECEMBER 29, 1996
<TABLE>
<S> <C>
Cash Flows from Operating Activities:
Net loss.................................................. $(3,179,874)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization.......................... 453,731
Non-employee stock option expense...................... 11,078
Changes in assets and liabilities, excluding effects from
acquisition:
Inventories............................................ (253,898)
Prepaid expenses and other current assets.............. (97,279)
Accounts payable and accrued expenses.................. 2,871,195
Other assets and liabilities........................... (711,376)
-----------
Net cash used in operating activities............. (906,423)
Cash Flows from Investing Activities:
Purchase of property, equipment and other related
assets................................................. (8,082,531)
Purchase of net assets from ENBC, net of cash acquired.... (2,864,797)
Purchase of ENBC common stock............................. (649,688)
-----------
Net cash used in investing activities............. (11,597,016)
Cash Flows from Financing Activities:
Proceeds from issuance of member units.................... 6,000,000
Proceeds from convertible debt............................ 8,712,813
Repayment of convertible debt............................. (2,000,000)
-----------
Net cash provided by financing activities......... 12,712,813
-----------
Net Increase in Cash........................................ 209,374
Cash, inception............................................. --
-----------
Cash, end of period......................................... $ 209,374
===========
Supplemental Disclosure of Cash Flow Information:
Interest Paid............................................. $ 164,143
===========
Supplemental Disclosure of Noncash Financing Activities:
Member units issued in exchange for notes receivable...... $ 500,000
===========
</TABLE>
The accompanying notes to the financial statements are an integral part of this
statement.
F-96
<PAGE> 97
LIBERTY FOODS, L.L.C.
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 29, 1996
(1) DESCRIPTION OF BUSINESS
Liberty Foods, L.L.C. (the "Company") owns and operates retail food service
establishments under franchise agreements with Einstein/Noah Bagel Corp.
("ENBC"), under the Einstein Bros. Bagels brand name. The Einstein Bros. Bagels
concept is designed to combine the authentic tastes of a bagel bakery with the
atmosphere of a neighborhood coffee shop, offering products including
fresh-baked bagels, proprietary cream cheeses, specialty coffees and teas, and
creative sandwiches. The Company was formed under the Delaware Limited Liability
Act and commenced operations on April 17, 1996.
The Company has an Area Development Agreement ("ADA") with ENBC, granting
it the right to open 150 stores in portions of New York, New Jersey,
Pennsylvania and Connecticut. The ADA requires the Company to complete the store
development by December 31, 2001. The Company had 14 stores open at December 29,
1996. Pursuant to the franchise agreements, the Company is required to make
periodic royalty payments based on net revenue, and pay franchise, real estate
development, software license, software maintenance and other support service
fees on a per store basis. The Company is also required to make advertising fund
contributions to national and local advertising funds.
For the period from April 17, 1996 (inception) through December 29, 1996,
the Company had a net loss of $3,179,874 and negative working capital of
$2,310,644. The Company is currently in a state of rapid expansion as it
continues to open stores in accordance with its ADA. The Company's ability to
continue this expansion is contingent upon management's ability to raise
additional equity and/or obtain additional financing. Management of the Company
believes it will be able to continue to raise such equity and obtain such
additional financing required to satisfy its ADA.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fiscal Year
The Company's fiscal year is the 52/53-week period ending on the last
Sunday of December.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market
and consist of food, paper products and supplies.
Investment in ENBC Common Stock
The Company owns 100,350 shares of ENBC common stock which are considered
restricted securities and, as a result, are reflected at historical cost of
$649,688 in the accompanying balance sheet. At December 29, 1996, the fair
market value of similar unrestricted shares of ENBC common stock was
approximately $2,998,000.
Property, Equipment and Other Related Assets
Property, equipment and other related assets are stated at cost less
accumulated depreciation and amortization. The provision for depreciation and
amortization has been calculated using the straight-line method. These assets
are depreciated and amortized over the following useful lives:
<TABLE>
<S> <C>
Buildings and improvements.................................. 5-15 years
Equipment and software...................................... 3- 8 years
Furniture and fixtures...................................... 7-15 years
ADA and franchise fees...................................... 15 years
Preopening costs............................................ 1 year
</TABLE>
F-97
<PAGE> 98
LIBERTY FOODS, L.L.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Property, equipment and other related asset additions include acquisitions
of buildings, equipment, software, leasehold improvements and major improvements
to existing stores. Additions also include costs incurred in the development and
construction of new stores, including real estate development and franchise fees
paid to ENBC. Expenditures for maintenance and repairs are charged to expense as
incurred.
Preopening costs consist primarily of salaries and other incremental direct
expenses relating to the set up, initial stocking, training and general store
management activities incurred prior to the opening of new stores. Amortization
begins on the date the store is opened.
Costs in Excess of Net Assets Acquired
The excess purchase price over the fair value of net assets acquired is
being amortized on a straight-line basis over 15 years.
Notes Receivable
The Company has received notes receivable from certain unit holders in
exchange for their member units. In general, these notes are due within three
years of issuance, bear interest at the prime rate and are collateralized by the
member units.
Revenue Recognition
Revenue is recognized in the period in which related food and beverage
products are sold.
Income Taxes
The Company is considered a flow-through entity for federal and state
income tax purposes. Any taxable income or loss is reported by the members on
their individual tax returns in accordance with the Company's Operating
Agreement.
Allocation of Profits, Losses and Distributions
Profits and losses of the Company for any fiscal year are allocated to the
members in proportion to their units; provided, however, that all items of
income, gain, loss or deductions related to the exercise of options granted
pursuant to any option plan (Note 7) shall be allocated to the member exercising
the option.
Distributions shall be made at such times and in such amounts as may be
determined by the Manager, subject to compliance with the covenants set forth in
the Company's secured loan agreement (Note 5). The Manager shall cause the
Company to make distributions on an annual basis to each member in an amount
equal to the estimated tax liability of the member resulting from the operations
of the Company. Distributions shall be made to the members in proportion to
their units held.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
F-98
<PAGE> 99
LIBERTY FOODS, L.L.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(3) SUPPLEMENTAL FINANCIAL STATEMENT DATA
<TABLE>
<CAPTION>
1996
-----------
<S> <C>
Property, equipment and other related assets:
Buildings and improvements................................ $ 4,940,293
Furniture, fixtures, equipment, and software.............. 3,558,917
ADA and franchise fees.................................... 1,240,000
Preopening costs.......................................... 517,454
-----------
10,256,664
Less accumulated depreciation and amortization............ (419,323)
-----------
Total property, equipment and other related
assets, net...................................... $ 9,837,341
===========
Costs in excess of net assets acquired...................... $ 667,570
Less accumulated amortization............................. (27,387)
-----------
Total costs in excess of net assets acquired,
net.............................................. $ 640,183
===========
Other assets:
Prepaid franchise fees.................................... $ 680,000
Investment in ENBC common stock........................... 649,688
Organization costs, net of accumulated amortization of
$7,021................................................. 47,449
-----------
Total other assets, net........................... $ 1,377,137
===========
</TABLE>
(4) PURCHASE OF NET ASSETS FROM ENBC
On April 17, 1996, the Company paid to ENBC a total of $1,155,000
consisting of the net tangible assets of 1 store for approximately $487,000 and
costs in excess of net assets acquired of approximately $668,000. In addition,
the Company paid approximately $1,710,000 for certain rights and fees to develop
future stores. The transaction has been accounted for under the purchase method
of accounting. The pro forma effect of this transaction is not significant to
the accompanying financial statements.
(5) CONVERTIBLE DEBT
The Company has entered into a secured loan agreement (the "Agreement")
with ENBC which provides ENBC the right to convert all or any portion of the
loan into voting units of members' capital at $1.12 per unit. The specified
percentage of members' capital to be acquired on conversion is dependent on the
amount of financing to be provided in relation to the total capital and rights
outstanding, but would constitute at least a majority of the capital of the
Company on a fully diluted basis in the event all of the loan was converted. The
loan may be converted by ENBC at any time subsequent to May 1998, subject to the
Company completing 80% of its development schedule, and up to June 2004, or at
any time upon the Company being in default on the loan. Additionally, during
this same time period, to the extent the loan is not fully drawn or has been
drawn and repaid, ENBC has the option to acquire, at the loan conversion price,
as defined, the amount of additional units it could have acquired by conversion
of the loan had it been fully drawn. The loan is collateralized by substantially
all of the assets of the Company and a pledge of the voting members' capital of
the Company. The Agreement contains various restrictive covenants including
restricting cash distributions and limiting additional indebtedness. The Company
was in compliance with all such covenants as of December 29, 1996.
Interest is based upon the reference rate of the Bank of America Illinois (
8.25% as of December 29, 1996) plus 1%. Interest-only payments are required
through May 1999, at which time the loan converts to an
F-99
<PAGE> 100
LIBERTY FOODS, L.L.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
amortizing term loan payable through May 2004, with a final balloon payment. The
Agreement provides for a line of credit of $24,000,000, with $6,712,813 drawn as
of December 29, 1996.
As of December 29, 1996, principal maturities were as follows:
<TABLE>
<S> <C>
1997............................................. $ --
1998............................................. --
1999............................................. 361,469
2000............................................. 671,281
2001............................................. 671,281
Thereafter....................................... 5,008,782
----------
$6,712,813
==========
</TABLE>
(6) MEMBERS' EQUITY
The holders of the nonvoting units have the right to require the Company to
redeem all of the nonvoting units at a pre-determined formula price ("Put
Price") based on the store level cash flow of the Company in the event that (i)
ENBC acquires a majority interest in the Company pursuant to the exercise of its
conversion or option rights under the Agreement; (ii) ENBC does not consent to
the Company's request to undertake a firm commitment underwritten public
offering after ENBC's conversion and option rights under its agreement with the
Company have expired unexercised; or (iii) ENBC does not consent to the
Company's request to terminate its development and franchise agreements with
ENBC after ENBC's conversion and option rights under its loan agreement with the
Company have expired unexercised. In the event the Company does not redeem the
nonvoting units when required to do so, ENBC will be obligated to purchase these
units at the same price applicable to the Company.
(7) OPTION PLANS
A maximum of 2,421,000 voting units are available for grant to employees
and certain nonemployees pursuant to the 1996 Unit Option Plan (the "Option
Plan"). The option price is equal to the fair market value on the date of grant,
as determined by the Manager. All unit options granted under the Option Plan are
exercisable up to 10 years from the date of grant. The options generally vest at
a rate of 10% at the end of the first year, an additional 20% at the end of the
second year, an additional 30% at the end of the third year and the balance at
the end of the fourth year from the date of grant.
The Company accounts for employee options using the intrinsic value based
method under which no compensation cost has been recognized in accordance with
Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation". If a fair value based accounting method had been adopted, the
Company's pro forma net loss would have been $3,274,887 for the period ended
December 29, 1996.
Non-employee options are accounted for using a fair value approach which
resulted in $11,078 of compensation expense for the period ended December 29,
1996.
F-100
<PAGE> 101
LIBERTY FOODS, L.L.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes stock option activity and the related
weighted average exercise price of the options.
<TABLE>
<CAPTION>
1996
-------------------
UNITS PRICE
---------- -----
<S> <C> <C>
Outstanding, beginning of period............................ -- --
Granted................................................... 2,337,000 $1.00
Exercised................................................. -- --
Forfeited................................................. -- --
Expired................................................... -- --
----------
Outstanding, end of period.................................. 2,337,000 $1.00
==========
Exercisable, end of period.................................. -- $1.00
==========
Weighted average fair value of options granted.............. $ 0.27
==========
</TABLE>
At December 29, 1996, the weighted average remaining contractual life of
the options is 9.5 years.
The fair value of each option is estimated on the date of grant using the
minimum value option pricing model with the following weighted average
assumptions used for 1996 grants: risk-free interest rate of 6.36%; expected
life of 5 years.
In addition to the Option Plan, the Company has granted employees options
to purchase 100,350 shares of ENBC common stock at an exercise price of $6.59
per share. At December 29, 1996, no options have been exercised and the shares
are reflected at historical cost (Note 2) in the accompanying financial
statements.
(8) COMMITMENTS
The Company leases store premises under various noncancelable operating
lease agreements. Lease terms are generally five years with two or three
five-year renewal options. Most of the leases contain escalation clauses and
common area maintenance charges.
The following is a schedule of future minimum rental payments which are
required under operating leases that have initial or remaining noncancelable
lease terms in excess of one year as of December 29, 1996:
<TABLE>
<S> <C>
1997............................................. $ 818,860
1998............................................. 875,909
1999............................................. 885,672
2000............................................. 907,173
2001............................................. 608,675
Thereafter....................................... 390,794
----------
$4,487,083
==========
</TABLE>
Total rent expense under operating leases, including common area
maintenance charges, was approximately $399,000 for the period from April 17,
1996 (inception) through December 29, 1996.
The Company obtains a majority of its produce and other supplies from a
limited number of vendors. Management believes that, if necessary, the Company
would be able to replace any of its sources of supply with other vendors without
a disruption in service.
F-101
<PAGE> 102
LIBERTY FOODS, L.L.C.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE PERIOD FROM FOR THE PERIOD FROM FOR THE PERIOD FROM
APRIL 17, 1996 APRIL 17, 1996 DECEMBER 30, 1996
(INCEPTION) THROUGH (INCEPTION) THROUGH THROUGH APRIL 20,
DECEMBER 29, 1996 OCTOBER 6, 1996 1997 (MERGER)
------------------- ------------------- -------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Revenue.................................... $ 2,190,953 $ 1,073,694 $ 2,475,469
Costs and Expenses:
Cost of products sold.................... 993,697 498,425 1,049,105
Salaries and benefits.................... 2,214,304 1,448,192 2,106,664
General and administrative............... 2,061,570 1,037,761 1,880,503
----------- ----------- -----------
Total costs and expenses......... 5,269,571 2,984,378 5,036,272
----------- ----------- -----------
Loss from Operations....................... (3,078,618) (1,910,684) (2,560,803)
Other Income (Expense):
Interest expense, net.................... (139,848) (66,596) (284,115)
Other income, net........................ 38,592 3,895 468
----------- ----------- -----------
Total other expense.............. (101,256) (62,701) (283,647)
----------- ----------- -----------
Net Loss................................... $(3,179,874) $(1,973,385) $(2,844,450)
=========== =========== ===========
</TABLE>
The accompanying notes to the financial statements are an integral part of these
statements.
F-102
<PAGE> 103
LIBERTY FOODS, L.L.C.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE PERIOD FROM FOR THE PERIOD FROM FOR THE PERIOD FROM
APRIL 17, 1996 APRIL 17, 1996 DECEMBER 30, 1996
(INCEPTION) THROUGH (INCEPTION) THROUGH THROUGH APRIL 20,
DECEMBER 29, 1996 OCTOBER 6, 1996 1997 (MERGER)
------------------- ------------------- -------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss................................. $ (3,179,874) $(1,973,385) $(2,844,450)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization......... 453,731 211,109 551,936
Non-employee option expense........... 11,078 -- 4,923
Changes in assets and liabilities,
excluding effects from acquisitions:
Inventories......................... (253,898) (143,208) (56,864)
Accounts receivable................. -- -- (273,604)
Accounts payable and accrued
expenses......................... 2,871,195 653,904 (166,494)
Prepaid expenses and other current
assets........................... (97,279) (23,688) (44,351)
Other assets and liabilities........ (711,376) (707,685) 34,392
------------ ----------- -----------
Net cash used in operating
activities..................... (906,423) (1,982,953) (2,794,512)
Cash Flows from Investing Activities:
Purchase of property and equipment....... (8,082,531) (3,375,709) (3,920,861)
Purchase of ENBC stock................... (649,688) (649,688) --
Purchase of net assets from ENBC......... (2,864,797) (2,864,797) --
------------ ----------- -----------
Net cash used in investing
activities..................... (11,597,016) (6,890,194) (3,920,861)
Cash Flows from Financing Activities:
Proceeds from issuance of member units... 6,000,000 4,000,000 --
Proceeds from convertible debt........... 8,712,813 4,873,147 6,505,999
Repayment of convertible debt............ (2,000,000) -- --
------------ ----------- -----------
Net cash provided by financing
activities..................... 12,712,813 8,873,147 6,505,999
------------ ----------- -----------
Net Increase (Decrease) in Cash and Cash
Equivalents.............................. 209,374 -- (209,374)
Cash and Cash Equivalents, beginning of
period................................... -- -- 209,374
------------ ----------- -----------
Cash and Cash Equivalents, end of period... $ 209,374 $ -- $ --
============ =========== ===========
</TABLE>
The accompanying notes to the financial statements are an integral part of these
statements.
F-103
<PAGE> 104
LIBERTY FOODS, L.L.C.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The financial statements have been prepared by Liberty Foods, L.L.C. (the
"Company") and are unaudited except for the Statement of Operations for the
Period from April 17, 1996 (inception) through December 29, 1996 and the
Statement of Cash Flows for the Period from April 17, 1996 (inception) through
December 29, 1996 and the notes related thereto. The financial statements have
been prepared in accordance with the instructions under Regulation S-X for
interim financial statements and, therefore, do not necessarily include all
information and footnotes required by generally accepted accounting principles.
In the opinion of the Company, all adjustments (consisting only of normal
recurring adjustments) necessary to present fairly the Company's financial
position, results of operations and cash flows as of April 20, 1997 and for all
periods presented have been made. The statements are subject to audit
adjustment. A description of the Company's accounting policies and other
financial information are included in the audited financial statements included
elsewhere herein.
2. MERGER WITH COLONIAL BAGELS, L.P.
On April 20, 1997, the Company was acquired by Colonial Bagels, L.P.,
another area developer of Einstein/Noah Bagel Corp.
F-104
<PAGE> 105
MAYFAIR BAGELS, L.L.C.
FINANCIAL STATEMENTS
AS OF DECEMBER 29, 1996
TOGETHER WITH REPORT OF INDEPENDENT
PUBLIC ACCOUNTANTS
F-105
<PAGE> 106
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Members of Mayfair Bagels, L.L.C.:
We have audited the accompanying balance sheet of Mayfair Bagels, L.L.C. (a
Delaware limited liability company) as of December 29, 1996 and the related
statements of operations, members' equity and cash flows for the period from
inception (April 1, 1996) through December 29, 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Mayfair Bagels, L.L.C. as of
December 29, 1996 and the results of its operations and its cash flows for the
period from inception (April 1, 1996) through December 29, 1996, in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Denver, Colorado
March 18, 1997
F-106
<PAGE> 107
MAYFAIR BAGELS, L.L.C.
BALANCE SHEET
AS OF DECEMBER 29, 1996
<TABLE>
<S> <C>
ASSETS
Current Assets:
Cash...................................................... $ 346,377
Inventories............................................... 177,974
Prepaid expenses and other current assets................. 166,293
----------
Total current assets.............................. 690,644
Property, Equipment and Other Related Assets, net........... 7,601,796
Costs in Excess of Net Assets Acquired, net................. 257,568
Notes Receivable............................................ 500,000
Other Assets, net........................................... 906,382
----------
Total assets...................................... $9,956,390
==========
LIABILITIES AND MEMBERS' EQUITY
Current Liabilities:
Accounts payable.......................................... $1,496,668
Accrued expenses.......................................... 320,540
----------
Total current liabilities......................... 1,817,208
Convertible Debt............................................ 3,073,728
Commitments (Note 8)
Members' Equity............................................. 5,065,454
----------
Total liabilities and members' equity............. $9,956,390
==========
</TABLE>
The accompanying notes to the financial statements are an integral part of this
statement.
F-107
<PAGE> 108
MAYFAIR BAGELS, L.L.C.
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM APRIL 1, 1996 (INCEPTION)
THROUGH DECEMBER 29, 1996
<TABLE>
<S> <C>
Revenue..................................................... $ 2,631,562
Costs and Expenses:
Cost of products sold..................................... 1,070,416
Salaries and benefits..................................... 1,568,319
General and administrative................................ 1,649,130
-----------
Total costs and expenses.......................... 4,287,865
-----------
Loss from Operations........................................ (1,656,303)
Other Expense:
Interest expense.......................................... (44,889)
Other expense............................................. (4,792)
-----------
Total other expense............................... (49,681)
-----------
Net Loss.................................................... $(1,705,984)
===========
</TABLE>
The accompanying notes to the financial statements are an integral part of this
statement.
F-108
<PAGE> 109
MAYFAIR BAGELS, L.L.C.
STATEMENT OF MEMBERS' EQUITY
FOR THE PERIOD FROM APRIL 1, 1996 (INCEPTION)
THROUGH DECEMBER 29, 1996
<TABLE>
<CAPTION>
VOTING NONVOTING
MEMBERS' CAPITAL MEMBERS' CAPITAL
------------------- -----------------------
UNITS AMOUNT UNITS AMOUNT TOTAL
------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balances, inception................ -- $ -- -- $ -- $ --
Units issued for contributed
capital....................... 500,000 500,000 6,250,000 6,250,000 6,750,000
Non-employee stock option
expense....................... -- 21,438 -- -- 21,438
Net loss......................... -- (126,243) -- (1,579,741) (1,705,984)
------- --------- --------- ----------- -----------
Balances, December 29, 1996........ 500,000 $ 395,195 6,250,000 $ 4,670,259 $ 5,065,454
======= ========= ========= =========== ===========
</TABLE>
The accompanying notes to the financial statements are an integral part of this
statement.
F-109
<PAGE> 110
MAYFAIR BAGELS, L.L.C.
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM APRIL 1, 1996 (INCEPTION)
THROUGH DECEMBER 29, 1996
<TABLE>
<S> <C>
Cash Flows from Operating Activities:
Net loss.................................................. $(1,705,984)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization.......................... 369,532
Non-employee stock option expense...................... 21,438
Changes in assets and liabilities:
Inventories............................................ (177,974)
Prepaid expenses and other current assets.............. (166,293)
Accounts payable and accrued expenses.................. 1,817,208
Other assets........................................... (422,582)
-----------
Net cash used in operating activities............. (264,655)
Cash Flows from Investing Activities:
Purchase of property, equipment and other related
assets................................................. (6,688,464)
Purchase of net assets from ENBC.......................... (1,524,561)
Purchase of ENBC common stock............................. (499,671)
-----------
Net cash used in investing activities............. (8,712,696)
Cash Flows from Financing Activities:
Proceeds from issuance of member units.................... 6,250,000
Proceeds from convertible debt............................ 6,908,728
Repayments on convertible debt............................ (3,835,000)
-----------
Net cash provided by financing activities......... 9,323,728
-----------
Net Increase in Cash........................................ 346,377
Cash, inception............................................. --
-----------
Cash, end of period......................................... $ 346,377
===========
Supplemental Disclosure of Cash Flow Information:
Interest paid............................................. $ 91,975
===========
Supplemental Disclosure of Noncash Financing Activities:
Member units issued in exchange for notes receivable...... $ 500,000
===========
</TABLE>
The accompanying notes to the financial statements are an integral part of this
statement.
F-110
<PAGE> 111
MAYFAIR BAGELS, L.L.C.
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 29, 1996
(1) DESCRIPTION OF BUSINESS
Mayfair Bagels, L.L.C. (the "Company") owns and operates retail food
service establishments under franchise agreements with Einstein/Noah Bagel Corp.
("ENBC"), under the Einstein Bros. Bagels brand name. The Einstein Bros. Bagels
concept is designed to combine the authentic tastes of a bagel bakery with the
atmosphere of a neighborhood coffee shop, offering products including
fresh-baked bagels, proprietary cream cheeses, specialty coffees and teas, and
creative sandwiches. The Company was formed on April 1, 1996, under the Delaware
Limited Liability Act.
The Company has an Area Development Agreement ("ADA") with ENBC, granting
it the right to open 149 stores in portions of Georgia, Maryland, Pennsylvania,
Virginia, West Virginia and Washington, D.C. The ADA requires the Company to
complete the store development by December 1999. The Company had 12 stores open
at December 29, 1996. Pursuant to the franchise agreements, the Company is
required to make periodic royalty payments based on net revenue, and pay
franchise, real estate development, software license, software maintenance and
other support service fees on a per store basis. The Company is also required to
make advertising contributions to national and local advertising funds.
For the period from April 1, 1996 (inception) through December 29, 1996,
the Company had a net loss of $1,705,984 and negative working capital of
$1,126,564. The Company is currently in a state of expansion as it continues to
open stores in accordance with its ADA. The Company's ability to continue this
expansion is contingent upon management's ability to raise additional equity
and/or obtain additional financing. Management of the Company believes it will
be able to continue to raise such equity and obtain such additional financing
required to satisfy its ADA.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fiscal Year
The Company's fiscal year is the 52/53-week period ending on the last
Sunday of December.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market
and consist of food, paper products and supplies.
Investment in ENBC Common Stock
The Company owns 77,715 shares of ENBC common stock which are considered
restricted securities and, as a result, are reflected at historical cost of
$499,669 in the accompanying balance sheet. At December 29, 1996, the fair value
of similar unrestricted shares of ENBC was approximately $2,322,000.
Property, Equipment and Other Related Assets
Property, equipment and other related assets are stated at cost less
accumulated depreciation and amortization. The provision for depreciation and
amortization has been calculated using the straight-line method. These assets
are depreciated and amortized over the following useful lives:
<TABLE>
<S> <C>
Buildings and improvements.................................. 5-15 years
Equipment and software...................................... 3-8 years
Furniture and fixtures...................................... 7-15 years
ADA and franchise fees...................................... 15 years
Preopening costs............................................ 1 year
</TABLE>
F-111
<PAGE> 112
MAYFAIR BAGELS, L.L.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Property, equipment and other related asset additions include acquisitions
of buildings, equipment, software, leasehold improvements and major improvements
to existing stores. Additions also include costs incurred in the development and
construction of new stores, including real estate development and franchise fees
paid to ENBC. Expenditures for maintenance and repairs are charged to expense as
incurred.
Preopening costs consist primarily of salaries and other incremental direct
expenses relating to the set up, initial stocking, training and general store
management activities incurred prior to the opening of new stores. Amortization
begins on the date the store is opened.
Costs in Excess of Net Assets Acquired
The excess purchase price over the fair value of net assets acquired is
being amortized on a straight-line basis over 15 years.
Notes Receivable
The Company has received notes receivable from certain unit holders in
exchange for their member units. In general, these notes are due within three
years of issuance, bear interest at the prime rate and are collateralized by the
member units.
Revenue Recognition
Revenue is recognized in the period in which related food and beverage
products are sold.
Income Taxes
The Company is considered a flow-through entity for federal and state
income tax purposes. Any taxable income or loss is reported by the members on
their individual tax returns in accordance with the Company's Operating
Agreement.
Allocation of Profits, Losses and Distributions
Profits and losses of the Company for any fiscal year are allocated to the
members in proportion to their units; provided, however, that all items of
income, gain, loss or deductions related to the exercise of options granted
pursuant to any option plan (Note 7) shall be allocated to the member exercising
the option.
Distributions shall be made at such times and in such amounts as may be
determined by the Manager, subject to compliance with the covenants set forth in
the Company's secured loan agreement (Note 5). The Manager shall cause the
Company to make distributions on an annual basis to each member in an amount
equal to the estimated tax liability of the member resulting from the operations
of the Company. Distributions shall be made to the members in proportion to
their units held.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
F-112
<PAGE> 113
MAYFAIR BAGELS, L.L.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(3) SUPPLEMENTAL FINANCIAL STATEMENT DATA
<TABLE>
<CAPTION>
DECEMBER 29,
1996
------------
<S> <C>
Property, equipment and other related assets:
Buildings and improvements................................ $3,586,035
Furniture, fixtures, equipment and software............... 3,198,246
ADA and franchise fees.................................... 730,000
Preopening costs.......................................... 441,176
----------
7,955,457
Less accumulated depreciation and amortization............ (353,661)
----------
Total property, equipment and other related
assets, net...................................... $7,601,796
==========
Costs in excess of net assets acquired...................... $ 272,966
Less accumulated amortization............................. (15,398)
----------
Total cost in excess of net assets acquired,
net.............................................. $ 257,568
==========
Other assets:
Prepaid franchise fees.................................... $ 385,000
Organization costs, net of accumulated amortization of
$473................................................... 11,713
Investment in ENBC common stock........................... 499,669
Other assets.............................................. 10,000
----------
Total other assets, net........................... $ 906,382
==========
</TABLE>
(4) PURCHASE OF NET ASSETS FROM ENBC
On April 1, 1996, the Company paid to ENBC a total of $765,000 consisting
of the net tangible assets of 23 sites in progress for approximately $492,000
and costs in excess of net assets acquired of approximately $273,000. In
addition, the Company paid approximately $760,000 for certain rights and fees to
develop future stores. The transaction has been accounted for under the purchase
method of accounting. The pro forma effect of this transaction is not
significant to the accompanying financial statements.
(5) CONVERTIBLE DEBT
The Company has entered into a secured loan agreement (the "Agreement")
with ENBC which provides ENBC the right to convert all or a portion of the loan
into voting units of members' capital at $1.12 per unit. The specified
percentage of members' capital to be acquired on conversion is dependent on the
amount of financing to be provided in relation to the total capital and rights
outstanding, but would constitute at least a majority of the capital of the
Company on a fully diluted basis in the event that all of the loan was
converted. The loan may be converted by ENBC at any time subsequent to April
1998, subject to the Company completing 80% of its development schedule, and up
to April 2003, or at any time upon the Company being in default on the loan.
Additionally, during this same time period, to the extent the loan is not fully
drawn or has been drawn and repaid, ENBC has the option to acquire, at the loan
conversion price, as defined, the amount of additional units it could have
acquired by conversion of the loan had it been fully drawn. The loan is
collateralized by substantially all of the assets of the Company and a pledge of
the voting members' capital of the Company. The Agreement contains various
restrictive covenants including restricting cash dividends and limiting
additional indebtedness. The Company was in compliance with all such covenants
at December 29, 1996.
F-113
<PAGE> 114
MAYFAIR BAGELS, L.L.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Interest is based upon the reference rate of the Bank of America Illinois
(8.25% as of December 29, 1996) plus 1%. Interest-only payments are required
through March 1999, at which time the loan converts to an amortizing term loan
payable through March 2004, with a final balloon payment. The Agreement provides
for a line of credit of $25,000,000, with $3,073,728 drawn as of December 29,
1996.
As of December 29, 1996, principal maturities were as follows:
<TABLE>
<S> <C>
1997.............................................. $ --
1998.............................................. --
1999.............................................. 236,441
2000.............................................. 307,373
2001.............................................. 307,373
Thereafter........................................ 2,222,541
----------
$3,073,728
==========
</TABLE>
(6) MEMBERS' EQUITY
The holders of the nonvoting units have the right to require the Company to
redeem all of the nonvoting units at a pre-determined formula price ("Put
Price") based on the store level cash flow of the Company in the event that (i)
ENBC acquires a majority interest in the Company pursuant to the exercise of its
conversion or option rights under the Agreement; (ii) ENBC does not consent to
the Company's request to undertake a firm commitment underwritten public
offering after ENBC's conversion and option rights under its agreement with the
Company have expired unexercised; or (iii) ENBC does not consent to the
Company's request to terminate its development and franchise agreements with
ENBC after ENBC's conversion and option rights under its loan agreement with the
Company have expired unexercised. In the event the Company does not redeem the
nonvoting units when required to do so, ENBC will be obligated to purchase these
units at the same price applicable to the Company.
(7) OPTION PLANS
A maximum of 1,961,000 voting units are available for grant to employees
and certain non-employees pursuant to the 1996 Unit Option Plan (the "Option
Plan"). The option price is equal to the fair market value on the date of grant,
as determined by the Manager. All unit options granted under the Option Plan are
exercisable up to 10 years from the date of grant. The options generally vest at
a rate of 10% at the end of the first year, an additional 20% at the end of the
second year, an additional 30% at the end of the third year and the balance at
the end of the fourth year from the date of grant.
The Company accounts for employee options using the intrinsic value based
method under which no compensation cost has been recognized in accordance with
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation". If a fair value based accounting method had been adopted, the
Company's pro forma net loss would have been $1,749,615 for the period ended
December 29, 1996.
Non-employee options are accounted for using a fair value approach which
resulted in $21,438 of compensation expense for the period ended December 29,
1996.
F-114
<PAGE> 115
MAYFAIR BAGELS, L.L.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes stock option activity and the related
weighted average exercise price of the options.
<TABLE>
<CAPTION>
1996
-------------------
UNITS PRICE
---------- -----
<S> <C> <C>
Outstanding, beginning of period............................ -- --
Granted................................................... 1,362,500 $1.00
Exercised................................................. -- --
Forfeited................................................. -- --
Expired................................................... -- --
---------
Outstanding, end of period.................................. 1,362,500 $1.00
=========
Exercisable, end of period.................................. 232,500 $1.00
=========
Weighted average fair value of options granted.............. $ 0.25
=========
</TABLE>
At December 29, 1996, the weighted average remaining contractual life of
the options is 9.25 years.
The fair value of each option is estimated on the date of grant using the
minimum value option pricing model with the following weighted average
assumptions used for 1996 grants: risk-free interest rate of 5.88%; expected
life of 5 years.
In addition to the Option Plan, the Company has granted employees options
to purchase 68,831 shares of ENBC common stock at an exercise price of $6.59 per
share. At December 29, 1996, no options have been exercised and the shares are
reflected at historical cost (Note 2) in the accompanying financial statements.
(8) COMMITMENTS
The Company leases store premises under various noncancelable operating
lease agreements. Lease terms are generally five years with two or three
five-year renewal options. Most of the leases contain escalation clauses and
common area maintenance charges.
The following is a schedule of future minimum rental payments which are
required under operating leases that have initial or remaining noncancelable
lease terms in excess of one year as of December 29, 1996:
<TABLE>
<S> <C>
1997........................................... $ 472,314
1998........................................... 472,314
1999........................................... 472,314
2000........................................... 472,314
2001........................................... 392,930
Thereafter..................................... 566,142
----------
$2,848,328
==========
</TABLE>
Total rent expense under operating leases, including common area
maintenance charges, was approximately $238,000 for the period from April 1,
1996 (inception) through December 29, 1996.
The Company obtains a majority of its produce and other supplies from a
limited number of vendors. Management believes that, if necessary, the Company
would be able to replace any of its sources of supply with other vendors without
a disruption in service.
F-115
<PAGE> 116
MAYFAIR BAGELS, L.L.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(9) SUBSEQUENT EVENT
In January and February 1997, the Company purchased 7 stores and their
related net assets, in the Atlanta area, for approximately $835,000. These
transactions have been accounted for under the purchase method of accounting.
F-116
<PAGE> 117
MAYFAIR BAGELS, L.P.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE PERIOD FROM FOR THE PERIOD FROM FOR THE TWO
APRIL 1, 1996 APRIL 1, 1996 QUARTERS ENDED
(INCEPTION) THROUGH (INCEPTION) THROUGH JULY 13, 1997
DECEMBER 29, 1996 OCTOBER 6, 1996 (MERGER)
------------------- ------------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Revenue...................................... $ 2,631,562 $1,087,436 $ 7,511,011
Costs and Expenses:
Cost of products sold...................... 1,070,416 459,310 2,662,465
Salaries and benefits...................... 1,568,319 823,123 3,797,669
General and administrative................. 1,649,130 746,612 3,812,180
----------- ---------- -----------
Total costs and expenses........... 4,287,865 2,029,045 10,272,314
----------- ---------- -----------
Loss from Operations......................... (1,656,303) (941,609) (2,761,303)
Other Income (Expense):
Interest expense, net...................... (44,889) (45,215) (489,942)
Other income (expense), net................ (4,792) (408) 595,606
----------- ---------- -----------
Total other income (expense)....... (49,681) (45,623) 105,664
----------- ---------- -----------
Net Loss..................................... $(1,705,984) $ (987,232) $(2,655,639)
=========== ========== ===========
</TABLE>
The accompanying notes to the financial statements are an integral part of these
statements.
F-117
<PAGE> 118
MAYFAIR BAGELS, L.P.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE PERIOD FROM FOR THE PERIOD FROM FOR THE TWO
APRIL 1, 1996 APRIL 1, 1996 QUARTERS ENDED
(INCEPTION) THROUGH (INCEPTION) THROUGH JULY 13, 1997
DECEMBER 29, 1996 OCTOBER 6, 1996 (MERGER)
------------------- ------------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss................................... $(1,705,984) $ (987,232) $(2,655,639)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization........... 369,532 127,397 812,621
Non-employee option expense............. 21,438 -- 16,735
Gain (loss) on sale of assets........... -- -- (592,100)
Changes in assets and liabilities,
excluding effects from acquisitions:
Inventories........................... (177,974) (153,314) (205,937)
Accounts receivable................... -- -- (97,438)
Accounts payable and accrued
expenses........................... 1,817,208 684,510 269,849
Prepaid expenses and other current
assets............................. (166,293) (16,841) 99,660
Other assets and liabilities.......... (422,582) (459,702) (493,125)
----------- ----------- -----------
Net cash used in operating
activities....................... (264,655) (805,182) (2,845,374)
Cash Flows from Investing Activities:
Purchase of property and equipment......... (6,688,464) (2,934,472) (8,642,661)
Sale (purchase) of ENBC stock.............. (499,671) (499,671) 53,839
Purchase of net assets from ENBC........... (1,524,561) (1,524,561) --
----------- ----------- -----------
Net cash used in investing
activities....................... (8,712,696) (4,958,704) (8,588,822)
Cash Flows from Financing Activities:
Proceeds from issuance of partnership
units................................... 6,250,000 3,500,000 --
Proceeds from convertible debt............. 6,908,728 4,976,722 13,707,813
Repayment of convertible debt.............. (3,835,000) (2,712,836) (2,250,727)
----------- ----------- -----------
Net cash provided by financing
activities....................... 9,323,728 5,763,886 11,457,086
----------- ----------- -----------
Net Increase in Cash and Cash Equivalents.... 346,377 -- 22,890
Cash and Cash Equivalents, beginning of
period..................................... -- -- 346,377
----------- ----------- -----------
Cash and Cash Equivalents, end of period..... $ 346,377 $ -- $ 369,267
=========== =========== ===========
</TABLE>
The accompanying notes to the financial statements are an integral part of these
statements.
F-118
<PAGE> 119
MAYFAIR BAGELS, L.P.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The financial statements have been prepared by Mayfair Bagels, L.P. (the
"Partnership") and are unaudited except for the Statement of Operations for the
Period from April 1, 1996 (inception) through December 29, 1996 and the
Statement of Cash Flows for the Period from April 1, 1996 (inception) through
December 29, 1996 and the notes related thereto. The financial statements have
been prepared in accordance with the instructions under Regulation S-X for
interim financial statements and, therefore, do not necessarily include all
information and footnotes required by generally accepted accounting principles.
In the opinion of the Partnership, all adjustments (consisting only of normal
recurring adjustments) necessary to present fairly the Partnership's financial
position, results of operations and cash flows as of July 13, 1997 and for all
periods presented have been made. The statements are subject to audit
adjustment. A description of the Partnership's accounting policies and other
financial information are included in the audited financial statements included
elsewhere herein.
2. MERGER WITH PHILLY ROSE, L.P.
On June 15, 1997, the Partnership acquired Philly Rose, L.P., another area
developer of Einstein/Noah Bagel Corp.
3. MERGER WITH GULFSTREAM BAGELS, L.P.
On July 13, 1997, the Partnership was acquired by Gulfstream Bagels, L.P.,
another area developer of Einstein/Noah Bagel Corp.
F-119
<PAGE> 120
NOAH'S BAY AREA BAGELS, L.L.C.
FINANCIAL STATEMENTS
AS OF DECEMBER 29, 1996
TOGETHER WITH REPORT OF INDEPENDENT
PUBLIC ACCOUNTANTS
F-120
<PAGE> 121
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Members of Noah's Bay Area Bagels, L.L.C.:
We have audited the accompanying balance sheet of Noah's Bay Area Bagels,
L.L.C. (a Delaware Limited Liability Company) as of December 29, 1996 and the
related statements of operations, members' equity and cash flows for the period
from inception (July 15, 1996) through December 29, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Noah's Bay Area Bagels,
L.L.C. as of December 29, 1996 and the results of its operations and its cash
flows for the period from inception (July 15, 1996) through December 29, 1996,
in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Denver, Colorado
March 21, 1997
F-121
<PAGE> 122
NOAH'S BAY AREA BAGELS, L.L.C.
BALANCE SHEET
AS OF DECEMBER 29, 1996
<TABLE>
<S> <C>
ASSETS
Current Assets:
Cash...................................................... $ 119,965
Inventories............................................... 817,358
Prepaid expenses and other current assets................. 538,709
-----------
Total current assets.............................. 1,476,032
Property, Equipment and Other Related Assets, net........... 21,927,268
Costs in Excess of Net Assets Acquired, net................. 1,056,202
Notes Receivable............................................ 120,000
Other Assets, net........................................... 530,084
-----------
Total assets...................................... $25,109,586
===========
LIABILITIES AND MEMBERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses..................... $ 1,332,187
-----------
Total current liabilities......................... 1,332,187
Long-Term Debt.............................................. 17,693,327
Other Liabilities........................................... 2,419,985
Commitments (Note 8)
Members' Equity............................................. 3,664,087
-----------
Total liabilities and members' equity............. $25,109,586
===========
</TABLE>
The accompanying notes to the financial statements are an integral part of this
statement.
F-122
<PAGE> 123
NOAH'S BAY AREA BAGELS, L.L.C.
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM JULY 15, 1996 (INCEPTION)
THROUGH DECEMBER 29, 1996
<TABLE>
<S> <C>
Revenue..................................................... $17,338,498
Costs and Expenses:
Cost of products sold..................................... 6,915,421
Salaries and benefits..................................... 5,015,989
General and administrative................................ 6,043,431
-----------
Total costs and expenses.......................... 17,974,841
-----------
Loss from Operations........................................ (636,343)
Interest Expense............................................ (384,570)
-----------
Net Loss.................................................... $(1,020,913)
===========
</TABLE>
The accompanying notes to the financial statements are an integral part of this
statement.
F-123
<PAGE> 124
NOAH'S BAY AREA BAGELS, L.L.C.
STATEMENT OF MEMBERS' EQUITY
FOR THE PERIOD FROM JULY 15, 1996 (INCEPTION)
THROUGH DECEMBER 29, 1996
<TABLE>
<CAPTION>
VOTING NONVOTING
MEMBERS' CAPITAL MEMBERS' CAPITAL TOTAL
------------------ ---------------------- -----------
UNITS AMOUNT UNITS AMOUNT AMOUNT
------- -------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Balances, inception...................... -- $ -- -- $ -- $ --
Units issued for contributed capital... 185,000 185,000 4,500,000 4,500,000 4,685,000
Net loss............................... -- (40,326) -- (980,587) (1,020,913)
------- -------- --------- ---------- -----------
Balances, December 29, 1996.............. 185,000 $144,674 4,500,000 $3,519,413 $ 3,664,087
======= ======== ========= ========== ===========
</TABLE>
The accompanying notes to the financial statements are an integral part of this
statement.
F-124
<PAGE> 125
NOAH'S BAY AREA BAGELS, L.L.C.
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM JULY 15, 1996 (INCEPTION)
THROUGH DECEMBER 29, 1996
<TABLE>
<S> <C>
Cash Flows from Operating Activities:
Net loss.................................................. $ (1,020,913)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization.......................... 686,855
Changes in assets and liabilities:
Inventories............................................ (817,358)
Prepaid expenses and other current assets.............. (538,709)
Accounts payable and accrued expenses.................. 1,332,187
Other assets and liabilities........................... 1,889,473
------------
Net cash provided by operating activities......... 1,531,535
Cash Flows from Investing Activities:
Purchase of net assets from ENBC.......................... (10,028,783)
Purchase of property, equipment and other related
assets................................................. (13,641,114)
------------
Net cash used in investing activities............. (23,669,897)
Cash Flows from Financing Activities:
Proceeds from issuance of member units.................... 4,565,000
Proceeds from convertible debt............................ 18,693,327
Repayment of convertible debt............................. (1,000,000)
------------
Net cash provided by financing activities......... 22,258,327
------------
Net Increase in Cash........................................ 119,965
Cash, inception............................................. --
------------
Cash, end of period......................................... $ 119,965
============
Supplemental Disclosure of Cash Flow Information:
Interest paid............................................. $ 28,000
============
Supplemental Disclosure of Noncash Financing Activities:
Member units issued in exchange for notes receivable...... $ 120,000
============
</TABLE>
The accompanying notes to the financial statements are an integral part of this
statement.
F-125
<PAGE> 126
NOAH'S BAY AREA BAGELS, L.L.C.
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 29, 1996
(1) DESCRIPTION OF BUSINESS
Noah's Bay Area Bagels, L.L.C. (the "Company") owns and operates retail
food service establishments under franchise agreements with Einstein/Noah Bagel
Corp. ("ENBC"), under the Noah's New York Bagels brand name. The Noah's New York
Bagels concept is designed to combine the authentic tastes of a Kosher bagel
bakery with the atmosphere of a neighborhood coffee shop, offering products
including fresh-baked bagels, proprietary cream cheeses, specialty coffees and
teas, and creative sandwiches. The Company was formed on July 15, 1996, under
the Delaware Limited Liability Act.
The Company has an Area Development Agreement ("ADA") with ENBC, granting
it the right to open 95 stores in portions of California. The ADA requires the
Company to complete the store development by December 2000. The Company had 46
stores open at December 29, 1996. Pursuant to the franchise agreement, the
Company is required to make periodic royalty payments based on net revenue, and
pay franchise, real estate development, software license, software maintenance
and other support service fees on a per store basis. The Company is also
required to make advertising fund contributions to national and local
advertising funds.
For the period from July 15, 1996 (inception) through December 29, 1996,
the Company had a net loss of $1,020,913 and positive working capital of
$143,845. The Company is currently in a state of rapid expansion as it continues
to open stores in accordance with its ADA. The Company's ability to continue
this expansion is contingent upon management's ability to raise additional
equity and/or obtain additional financing. Management of the Company believes it
will be able to continue to raise such equity and obtain such additional
financing required to satisfy its ADA.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fiscal Year
The Company's fiscal year is the 52/53-week period ending on the last
Sunday of December.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market
and consist of food, paper products and supplies.
Property, Equipment and Other Related Assets
Property, equipment and other related assets are stated at cost less
accumulated depreciation and amortization. The provision for depreciation and
amortization has been calculated using the straight-line method. These assets
are depreciated and amortized over the following useful lives:
<TABLE>
<S> <C>
Buildings and improvements.................................. 15 years
Equipment and software...................................... 3-8 years
Furniture and fixtures...................................... 5-15 years
ADA and franchise fees...................................... 15 years
Preopening costs............................................ 1 year
</TABLE>
Property, equipment and other related asset additions include acquisition
of buildings, equipment, software, leasehold improvements and major improvements
to existing stores. Additions also include costs incurred in the development and
construction of new stores, including real estate development and franchise fees
paid to ENBC. Expenditures for maintenance and repairs are charged to expense as
incurred.
F-126
<PAGE> 127
NOAH'S BAY AREA BAGELS, L.L.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Preopening costs consist primarily of salaries and other incremental direct
expenses relating to the set up, initial stocking, training and general store
management activities incurred prior to the opening of new stores. Amortization
begins on the date the store is opened.
Costs in Excess of Net Assets Acquired
The excess purchase price over the fair value of net assets acquired is
being amortized on a straight-line basis over 15 years.
Notes Receivable
The Company holds notes receivable from certain unit holders in exchange
for their member units. In general, these notes are due within three years of
issuance, bear interest at the prime rate and are collateralized by the member
units.
Revenue Recognition
Revenue is recognized in the period in which related food and beverage
products are sold.
Income Taxes
The Company is considered a flow-through entity for federal and state
income tax purposes. Any taxable income or loss is reported by the members on
their individual tax returns in accordance with the Company's Operating
Agreement.
Allocation of Profits, Losses and Distributions
Profits and losses of the Company for any fiscal year are allocated to the
members in proportion to their units. However, all items of income and expense
related to the exercise of options granted pursuant to any option plan (Note 7)
shall be allocated to the member exercising the options.
Distributions shall be made at such times and in such amounts as may be
determined by the Manager, subject to compliance with the covenants set forth in
the Company's secured loan agreement (Note 5). The Manager shall cause the
Company to make distributions on an annual basis to each member in an amount
equal to the estimated tax liability of the member resulting from the operations
of the Company. Distributions shall be made to the members in proportion to
their units held.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
F-127
<PAGE> 128
NOAH'S BAY AREA BAGELS, L.L.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(3) SUPPLEMENTAL FINANCIAL STATEMENT DATA
<TABLE>
<CAPTION>
DECEMBER 29,
1996
------------
<S> <C>
Property, equipment and other related assets:
Buildings and improvements................................ $14,072,633
Furniture, fixtures, equipment and software............... 6,565,410
ADA and franchise fees.................................... 1,610,000
Preopening costs.......................................... 332,122
-----------
22,580,165
Less accumulated depreciation and amortization............ (652,897)
-----------
Total property, equipment and other related
assets, net...................................... $21,927,268
===========
Costs in excess of net assets acquired...................... $ 1,089,732
Less accumulated amortization............................. (33,530)
-----------
Total costs in excess of net assets acquired,
net.............................................. $ 1,056,202
===========
Other assets:
Prepaid franchise fees.................................... $ 405,000
Organization costs, net of accumulated amortization of
$428................................................... 13,470
Other assets.............................................. 111,614
-----------
Total other assets, net........................... $ 530,084
===========
</TABLE>
(4) PURCHASE OF NET ASSETS FROM ENBC
On July 15, 1996, the Company paid to ENBC a total of $11,976,000
consisting of the net tangible assets of 32 open stores for approximately
$10,886,000 and costs in excess of net assets acquired of approximately
$1,090,000. In addition, the Company paid approximately $1,665,000 for certain
rights and fees to develop future stores. The transaction has been accounted for
under the purchase method of accounting. The pro forma effect of this
transaction is not significant to the accompanying financial statements.
(5) CONVERTIBLE DEBT
The Company has entered into a secured loan agreement (the "Agreement")
with ENBC which provides ENBC the right to convert all or a portion of the loan
into voting units of members' capital at $1.12 per unit. The specified
percentage of members' capital to be acquired on conversion is dependent on the
amount of financing to be provided in relation to the total capital and rights
outstanding, but would constitute at least a majority of the capital of the
Company on a fully diluted basis in the event all of the loan was converted. The
loan may be converted by ENBC at any time subsequent to July 1999, subject to
the Company completing 80% of its development schedule, and up to July 2004, or
at any time upon the Company being in default on the loan. Additionally, during
this same time period, to the extent the loan is not fully drawn or has been
drawn and repaid, ENBC has the option to acquire, at the loan conversion price,
as defined, the amount of additional units it could have acquired by conversion
of the loan had it been fully drawn. The loan is collateralized by substantially
all of the assets of the Company and a pledge of the voting members' capital of
the Company. The Agreement contains various restrictive covenants including
restricting cash distributions and limiting additional indebtedness. The Company
was in compliance with all such covenants at December 29, 1996.
Interest is based upon the reference rate of the Bank of America Illinois
(8.25% as of December 29, 1996) plus 1%. Interest-only payments are required
through July, 1999, at which time the loan converts to an amortizing term loan
payable through July 2004, with a final balloon payment. The Agreement provides
for a line of credit of $18,260,000, with $17,693,327 drawn as of December 29,
1996.
F-128
<PAGE> 129
NOAH'S BAY AREA BAGELS, L.L.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
As of December 29, 1996, principal maturities were as follows:
<TABLE>
<CAPTION>
<S> <C>
1997........................................... $ --
1998........................................... --
1999........................................... 495,248
2000........................................... 1,073,037
2001........................................... 1,073,037
Thereafter..................................... 15,052,005
-----------
$17,693,327
===========
</TABLE>
(6) MEMBERS' EQUITY
The holders of the nonvoting units have the right to require the Company to
redeem all of the nonvoting units at a predetermined formula price ("Put Price")
based on the store level cash flow of the Company in the event that (i) ENBC
acquires a majority interest in the Company pursuant to the exercise of its
conversion or option rights under the Agreement; (ii) ENBC does not consent to
the Company's request to undertake a firm commitment underwritten public
offering after ENBC's conversion and option rights under its agreement with the
Company have expired unexercised; or (iii) ENBC does not consent to the
Company's request to terminate its development and franchise agreements with
ENBC after ENBC's conversion and option rights under its loan agreement with the
Company have expired unexercised. In the event the Company does not redeem the
nonvoting units when required to do so, ENBC will be obligated to purchase these
units at the same price applicable to the Company.
(7) EMPLOYEE UNIT OPTION PLAN
A maximum of 4,375,000 voting units are available for grant to employees
pursuant to the 1996 Employee Unit Option Plan (the "Option Plan"). The option
price is equal to the fair market value on the date of grant, as determined by
the Manager. All unit options granted under the Option Plan are exercisable up
to 10 years from the date of grant. The options generally vest at a rate of 10%
at the end of the first year, an additional 20% at the end of the second year,
an additional 30% at the end of the third year and the balance at the end of the
fourth year from the date of grant.
The Company accounts for the Option Plan using the intrinsic value based
method under which no compensation cost has been recognized in accordance with
Statement of Financial Accounting Standard ("SFAS") No. 123, "Accounting for
Stock Based Compensation". If a fair value based method had been adopted, the
Company's pro forma net loss would have been $1,067,000 for the period ended
December 29, 1996.
F-129
<PAGE> 130
NOAH'S BAY AREA BAGELS, L.L.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes stock option activity and the related
weighted average exercise price of the options.
<TABLE>
<CAPTION>
1996
----------------
UNITS PRICE
-------- -----
<S> <C> <C>
Outstanding, beginning of period............................ -- --
Granted................................................... 878,540 $1.00
Exercised................................................. -- --
Forfeited................................................. -- --
Expired................................................... -- --
-------- -----
Outstanding, end of period.................................. 878,540 $1.00
======== =====
Exercisable, end of period.................................. --
========
Weighted average fair value of options granted.............. $ 0.25
========
</TABLE>
At December 29, 1996, the weighted average remaining contractual life of
the options is 9 years.
The fair value of each option is estimated on the date of grant using the
minimum value option pricing model with the following weighted average
assumptions used for 1996 grants: risk-free interest rate of 5.80%; expected
life of 5 years.
(8) COMMITMENTS
The Company leases store premises under various noncancelable operating
lease agreements. Lease terms are generally five years with two or three
five-year renewal options. Most of the leases contain escalation clauses and
common area maintenance charges.
The following is a schedule of future minimum rental payments which are
required under operating leases that have initial or remaining noncancelable
lease terms in excess of one year as of December 29, 1996:
<TABLE>
<S> <C>
1997........................................... $ 2,593,691
1998........................................... 2,646,072
1999........................................... 2,495,914
2000........................................... 2,460,743
2001........................................... 2,431,731
Thereafter..................................... 8,511,050
-----------
$21,139,201
===========
</TABLE>
Total rent expense under operating leases, including common area
maintenance charges, was approximately $765,000 for the period from July 15,
1996 (inception) through December 29, 1996.
The Company obtains a majority of its produce and other supplies from a
limited number of vendors. Management believes that, if necessary, the Company
would be able to replace any of its sources of supply with other vendors without
a disruption in service.
F-130
<PAGE> 131
NOAH'S BAY AREA BAGELS, L.L.C.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE PERIOD FROM FOR THE PERIOD FROM FOR THE TWO
JULY 15, 1996 JULY 15, 1996 QUARTERS ENDED
(INCEPTION) THROUGH (INCEPTION) THROUGH JULY 13, 1997
DECEMBER 29, 1996 OCTOBER 6, 1996 (MERGER)
------------------- ------------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Revenue..................................... $17,338,498 $8,284,206 $24,508,815
Costs and Expenses:
Cost of products sold..................... 6,915,421 3,302,169 9,309,591
Salaries and benefits..................... 5,015,989 2,401,472 7,701,791
General and administrative................ 6,043,431 3,329,813 12,047,468
----------- ---------- -----------
Total costs and expenses.......... 17,974,841 9,033,454 29,058,850
----------- ---------- -----------
Loss from Operations........................ (636,343) (749,248) (4,550,035)
Other Expense:
Interest expense.......................... (384,570) (215,634) (1,084,975)
Other expense............................. -- -- (2,527,374)
----------- ---------- -----------
Total other expense............... (384,570) (215,634) (3,612,349)
----------- ---------- -----------
Net Loss.................................... $(1,020,913) $ (964,882) $(8,162,384)
=========== ========== ===========
</TABLE>
The accompanying notes to the financial statements are an integral part of these
statements.
F-131
<PAGE> 132
NOAH'S BAY AREA BAGELS, L.L.C.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE PERIOD FROM FOR THE PERIOD FROM FOR THE TWO
JULY 15, 1996 JULY 15, 1996 QUARTERS ENDED
(INCEPTION) THROUGH (INCEPTION) THROUGH JULY 13, 1997
DECEMBER 29, 1996 OCTOBER 6, 1996 (MERGER)
------------------- ------------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss................................ $ (1,020,913) $ (964,882) $ (8,162,384)
Adjustments to reconcile net loss to net
cash from (used in) operating
activities:
Depreciation and amortization........ 686,855 343,427 1,370,686
Changes in assets and liabilities,
excluding effects from
acquisitions:
Inventories........................ (817,358) (605,749) (194,642)
Accounts receivable................ -- (1,450) (13,000)
Accounts payable and accrued
expenses........................ 1,332,187 219,403 4,170,906
Prepaid expenses and other current
assets.......................... (538,709) (521,059) 340,709
Other assets and liabilities....... 1,889,473 2,470,485 (2,059,840)
------------ ------------ ------------
Net cash provided by (used in)
operating activities.......... 1,531,535 940,175 (4,547,565)
Cash Flows from Investing Activities:
Purchase of property and equipment...... (13,641,114) (4,780,993) (3,363,840)
Purchase of net assets from ENBC........ (10,028,783) (10,028,783) --
------------ ------------ ------------
Net cash used in investing
activities.................... (23,669,897) (14,809,776) (3,363,840)
Cash Flows from Financing Activities:
Proceeds from issuance of member
units................................ 4,565,000 4,465,225 4,130,000
Proceeds from convertible debt.......... 18,693,327 9,503,166 29,770,213
Repayment of convertible debt........... (1,000,000) -- (25,774,540)
------------ ------------ ------------
Net cash provided by financing
activities.................... 22,258,327 13,968,391 8,125,673
------------ ------------ ------------
Net Increase in Cash and Cash
Equivalents............................. 119,965 98,790 214,268
Cash and Cash Equivalents, beginning of
period.................................. -- -- 119,965
------------ ------------ ------------
Cash and Cash Equivalents, end of
period.................................. $ 119,965 $ 98,790 $ 334,233
============ ============ ============
</TABLE>
The accompanying notes to the financial statements are an integral part of these
statements.
F-132
<PAGE> 133
NOAH'S BAY AREA BAGELS, L.L.C.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The financial statements have been prepared by Noah's Bay Area Bagels,
L.L.C. (the "Company") and are unaudited except for the Statement of Operations
for the Period from July 15, 1996 (inception) through December 29, 1996 and the
Statement of Cash Flows for the Period from July 15, 1996 (inception) through
December 29, 1996 and the notes related thereto. The financial statements have
been prepared in accordance with the instructions under Regulation S-X for
interim financial statements and, therefore, do not necessarily include all
information and footnotes required by generally accepted accounting principles.
In the opinion of the Company, all adjustments (consisting only of normal
recurring adjustments) necessary to present fairly the Company's financial
position, results of operations and cash flows as of July 13, 1997 and for all
periods presented have been made. The statements are subject to audit
adjustment. A description of the Company's accounting policies and other
financial information are included in the audited financial statements included
elsewhere herein.
2. MERGER WITH NOAH'S PACIFIC, L.L.C.
On July 13, 1997, the Company was acquired by Noah's Pacific, L.L.C.,
another area developer of Einstein/Noah Bagel Corp.
F-133
<PAGE> 134
NOAH'S PACIFIC, L.L.C.
FINANCIAL STATEMENTS
AS OF DECEMBER 29, 1996
TOGETHER WITH REPORT OF INDEPENDENT
PUBLIC ACCOUNTANTS
F-134
<PAGE> 135
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Members of Noah's Pacific, L.L.C.:
We have audited the accompanying balance sheet of Noah's Pacific, L.L.C. (a
Delaware limited liability company) as of December 29, 1996 and the related
statements of operations, members' equity and cash flows for the period from
inception (June 17, 1996) through December 29, 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Noah's Pacific, L.L.C. as of
December 29, 1996 and the results of its operations and its cash flows for the
period from inception (June 17, 1996) through December 29, 1996, in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Denver, Colorado
March 21, 1997
F-135
<PAGE> 136
NOAH'S PACIFIC, L.L.C.
BALANCE SHEET
AS OF DECEMBER 29, 1996
<TABLE>
<S> <C>
ASSETS
Current Assets:
Cash...................................................... $ 252,496
Accounts receivable....................................... 2,121,473
Inventories............................................... 1,685,333
Prepaid expenses and other current assets................. 2,197,739
-----------
Total current assets.............................. 6,257,041
Property, Equipment and Other Related Assets, net........... 24,341,708
Costs in Excess of Net Assets Acquired, net................. 2,213,948
Notes Receivable............................................ 480,000
Other Assets, net........................................... 2,271,340
-----------
Total assets...................................... $35,564,037
===========
LIABILITIES AND MEMBERS' EQUITY
Current Liabilities:
Accounts payable.......................................... $ 6,648,442
Accrued expenses.......................................... 4,144,049
-----------
Total current liabilities......................... 10,792,491
Convertible Debt............................................ 22,641,734
Other Liabilities........................................... 322,652
Commitments (Note 8)
Members' Equity............................................. 1,807,160
-----------
Total liabilities and members' equity............. $35,564,037
===========
</TABLE>
The accompanying notes to the financial statements are an integral part of this
statement.
F-136
<PAGE> 137
NOAH'S PACIFIC, L.L.C.
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM JUNE 17, 1996 (INCEPTION)
THROUGH DECEMBER 29, 1996
<TABLE>
<S> <C>
Revenue..................................................... $12,225,780
Costs and Expenses:
Cost of products sold..................................... 5,601,142
Salaries and benefits..................................... 9,499,810
General and administrative................................ 3,945,333
-----------
Total costs and expenses.......................... 19,046,285
-----------
Loss from Operations........................................ (6,820,505)
Interest Expense............................................ (862,335)
-----------
Net Loss.................................................... $(7,682,840)
===========
</TABLE>
The accompanying notes to the financial statements are an integral part of this
statement.
F-137
<PAGE> 138
NOAH'S PACIFIC, L.L.C.
STATEMENT OF MEMBERS' EQUITY
FOR THE PERIOD FROM JUNE 17, 1996 (INCEPTION)
THROUGH DECEMBER 29, 1996
<TABLE>
<CAPTION>
VOTING NONVOTING
MEMBERS' CAPITAL MEMBERS' CAPITAL
------------------- ----------------------- TOTAL
UNITS AMOUNT UNITS AMOUNT AMOUNT
------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balances, inception.................... -- $ -- -- $ -- $ --
Units issued for contributed
capital........................... 740,000 740,000 8,750,000 8,750,000 9,490,000
Net loss............................. -- (599,262) -- (7,083,578) (7,682,840)
------- --------- --------- ----------- -----------
Balances, December 29, 1996............ 740,000 $ 140,738 8,750,000 $ 1,666,422 $ 1,807,160
======= ========= ========= =========== ===========
</TABLE>
The accompanying notes to the financial statements are an integral part of this
statement.
F-138
<PAGE> 139
NOAH'S PACIFIC, L.L.C.
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM JUNE 17, 1996 (INCEPTION)
THROUGH DECEMBER 29, 1996
<TABLE>
<S> <C>
Cash Flows from Operating Activities:
Net loss.................................................. $ (7,682,840)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization.......................... 757,967
Changes in assets and liabilities:
Accounts receivable.................................... (2,121,473)
Inventories............................................ (1,685,333)
Prepaid expenses and other current assets.............. (2,197,739)
Accounts payable and accrued expenses.................. 10,792,491
Other assets and liabilities........................... (854,444)
------------
Net cash used in operating activities............. (2,991,371)
Cash Flows from Investing Activities:
Purchase of net assets from ENBC.......................... (15,195,119)
Purchase of ENBC common stock............................. (1,092,353)
Purchase of property, equipment and other related
assets................................................. (12,120,395)
------------
Net cash used in investing activities............. (28,407,867)
Cash Flows from Financing Activities:
Proceeds from issuance of member units.................... 9,010,000
Proceeds from convertible debt............................ 28,066,888
Repayment of convertible debt............................. (5,425,154)
------------
Net cash provided by financing activities......... 31,651,734
------------
Net Increase in Cash........................................ 252,496
Cash, inception............................................. --
------------
Cash, end of period......................................... $ 252,496
============
Supplemental Disclosure of Cash Flow Information:
Interest Paid............................................. $ 929,000
============
Supplemental Disclosure of Noncash Financing Activities:
Member units issued in exchange for notes receivable...... $ 480,000
============
</TABLE>
The accompanying notes to the financial statements are an integral part of this
statement.
F-139
<PAGE> 140
NOAH'S PACIFIC, L.L.C.
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 29, 1996
(1) DESCRIPTION OF BUSINESS
Noah's Pacific, L.L.C. (the "Company") owns and operates retail food
service establishments under a franchise agreement with Einstein/Noah Bagel
Corp. ("ENBC"), under the Noah's New York Bagels brand name. The Noah's New York
Bagels concept is designed to combine the authentic tastes of a Kosher bagel
bakery with the atmosphere of a neighborhood coffee shop, offering products
including fresh-baked bagels, proprietary cream cheeses, specialty coffees and
teas, and creative sandwiches. The Company also sells its products through
direct wholesale distribution channels. The Company was formed on June 17, 1996,
under the Delaware Limited Liability Act.
The Company has an Area Development Agreement ("ADA") with ENBC, granting
it the right to open 209 stores in portions of California, Oregon, Nevada and
Washington. The ADA requires the Company to complete the store development by
December 2000. The Company had 44 stores open at December 29, 1996. Pursuant to
the franchise agreements, the Company is required to make periodic royalty
payments based on net revenue, and pay franchise, real estate development,
software license, software maintenance and other support service fees on a per
store basis. The Company is also required to make advertising fund contributions
to national and local advertising funds.
For the period from June 17, 1996 (inception) through December 29, 1996,
the Company had a net loss of $7,682,840 and negative working capital of
$4,535,450. The Company is currently in a state of rapid expansion as it
continues to open stores in accordance with its ADA. The Company's ability to
continue this expansion is contingent upon management's ability to raise
additional equity and/or obtain additional financing. Management of the Company
believes it will be able to continue to raise such equity and obtain such
additional financing required to satisfy its ADA.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fiscal Year
The Company's fiscal year is the 52/53-week period ending on the last
Sunday of December.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market
and consist of food, paper products and supplies.
Investment in ENBC Common Stock
The Company owns 168,830 shares of ENBC common stock which are considered
restricted securities and, as a result, are reflected at historical cost of
$1,092,353 in the accompanying balance sheet. At December 29, 1996, the fair
value of similar unrestricted shares of ENBC was approximately $5,043,000.
Property, Equipment and Other Related Assets
Property, equipment and other related assets are stated at cost less
accumulated depreciation and amortization. The provision for depreciation and
amortization has been calculated using the straight-line method. These assets
are depreciated and amortized over the following useful lives:
<TABLE>
<S> <C>
Buildings and improvements.................................. 15 years
Equipment and software...................................... 3-8 years
Furniture and fixtures...................................... 5-15 years
ADA and franchise fees...................................... 15 years
Preopening costs............................................ 1 year
</TABLE>
F-140
<PAGE> 141
NOAH'S PACIFIC, L.L.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Property, equipment and other related asset additions include acquisition
of buildings, equipment, software, leasehold improvements and major improvements
to existing stores. Additions also include costs incurred in the development and
construction of new stores, including real estate development and franchise fees
paid to ENBC. Expenditures for maintenance and repairs are charged to expense as
incurred.
Preopening costs consist primarily of salaries and other incremental direct
expenses relating to the set up, initial stocking, training and general store
management activities incurred prior to the opening of new stores. Amortization
begins on the date the store is opened.
Costs in Excess of Net Assets Acquired
The excess purchase price over the fair value of net assets acquired is
being amortized on a straight-line basis over 15 years.
Notes Receivable
The Company holds notes receivable from certain unit holders in exchange
for their ember units. In general, these notes are due within three years of
issuance, bear interest at the prime rate and are collateralized by the member
units.
Revenue Recognition
Revenue is recognized in the period in which related food and beverage
products are sold.
Income Taxes
The Company is considered a flow-through entity for federal and state
income tax purposes. Any taxable income or loss is reported by the members on
their individual tax returns in accordance with the Company's Operating
Agreement.
Allocation of Profits, Losses and Distributions
Profits and losses of the Company for any fiscal year are allocated to the
members in proportion to their units. However, all items of income or expense
related to the exercise of options granted pursuant to any option plan (Note 7)
shall be allocated to the member exercising the options.
Distributions shall be made at such times and in such amounts as may be
determined by the Manager, subject to compliance with the covenants set forth in
the Company's secured loan agreement (Note 5). The Manager shall cause the
Company to make distributions on an annual basis to each member in an amount
equal to the estimated tax liability of the member resulting from the operations
of the Company. Distributions shall be made to the members in proportion to
their units held.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
F-141
<PAGE> 142
NOAH'S PACIFIC, L.L.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(3) SUPPLEMENTAL FINANCIAL STATEMENT DATA
<TABLE>
<CAPTION>
1996
-----------
<S> <C>
Property, equipment and other related assets:
Buildings and improvements................................ $16,559,078
Furniture, fixtures, equipment, and software.............. 5,928,889
ADA and franchise fees.................................... 1,575,000
Preopening costs.......................................... 971,848
-----------
25,034,815
Less accumulated depreciation and amortization............ (693,107)
-----------
Total property, equipment and other related
assets, net...................................... $24,341,708
===========
Costs in excess of net assets acquired...................... $ 2,276,917
Less accumulated amortization............................. (62,969)
-----------
Total costs in excess of net assets acquired,
net.............................................. $ 2,213,948
===========
Other assets:
Prepaid franchise fees.................................... $ 935,000
Organization costs, net of accumulated amortization of
$1,891................................................. 50,781
Investment in ENBC common stock........................... 1,092,353
Other assets.............................................. 193,206
-----------
Total other assets, net........................... $ 2,271,340
===========
</TABLE>
(4) PURCHASE OF NET ASSETS FROM ENBC
In June 1996, the Company paid to ENBC a total of $12,886,000 consisting of
the net tangible assets of 20 opened stores and 15 sites for approximately
$10,609,000 and costs in excess of net assets acquired of approximately
$2,277,000. In addition, the Company paid approximately $2,309,000 for certain
rights and fees to develop future stores. The transaction has been accounted for
under the purchase method of accounting. The pro forma effect of this
transaction is not significant to the accompanying financial statements.
(5) CONVERTIBLE DEBT
The Company has entered into a secured loan agreement (the "Agreement")
with ENBC which provides the right to convert all or a portion of the loan into
voting units of members' capital at $1.12 per unit. The specified percentage of
members' capital to be acquired on conversion is dependent on the amount of
financing to be provided in relation to the total capital and rights
outstanding, but would constitute at least a majority of the capital of the
Company on a fully diluted basis in the event all of the loan was converted. The
loan may be converted by ENBC at any time subsequent to June 1998, provided that
the Company completes 80% of its development schedule, and up to July 2004, or
at any time upon the Company being in default on the loan. Additionally, during
this same time period, to the extent the loan is not fully drawn or has been
drawn and repaid, ENBC has the option to acquire, at the loan conversion price,
as defined, the amount of additional units it could have acquired by conversion
of the loan had it been fully drawn. The loan is collateralized by substantially
all of the assets of the Company and a pledge of the voting members' capital of
the Company. The Agreement contains various restrictive covenants including
restricting cash distributions and limiting additional indebtedness. The Company
was in compliance with all such covenants at December 29, 1996.
Interest is based upon the reference rate of the Bank of America Illinois (
8.25% as of December 29, 1996) plus 1%. Interest-only payments are required
through June 1999, at which time the loan converts to an
F-142
<PAGE> 143
NOAH'S PACIFIC, L.L.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
amortizing term loan payable through June 2004, with a final balloon payment.
The Agreement provides for a line of credit of $30,040,000, with $22,641,734
drawn as of December 29, 1996.
As of December 29, 1996, principal maturities were as follows:
<TABLE>
<S> <C>
1997............................................ $ --
1998............................................ --
1999............................................ 1,594,099
2000............................................ 2,960,469
2001............................................ 2,960,469
Thereafter...................................... 15,126,697
-----------
$22,641,734
===========
</TABLE>
(6) MEMBERS' EQUITY
The holders of the nonvoting units have the right to require the Company to
redeem all of the nonvoting units at a pre-determined formula price ("Put
Price") based on the store level cash flow of the Company in the event that (i)
ENBC acquires a majority interest in the Company pursuant to the exercise of its
conversion or option rights under the Agreement; (ii) ENBC does not consent to
the Company's request to undertake a firm commitment underwritten public
offering after ENBC's conversion and option rights under its agreement with the
Company have expired unexercised; or (iii) ENBC does not consent to the
Company's request to terminate its development and franchise agreements with
ENBC after ENBC's conversion and option rights under its loan agreement with the
Company have expired unexercised. In the event the Company does not redeem the
nonvoting units when required to do so, ENBC will be obligated to purchase these
units at the same price applicable to the Company.
(7) EMPLOYEE UNIT OPTION PLAN
A maximum of 4,375,000 voting units are available for grant to employees
pursuant to the 1996 Employee Unit Option Plan (the "Option Plan"). The option
price is equal to the fair market value on the date of grant, as determined by
the Manager. All unit options granted under the Option Plan are exercisable up
to 10 years from the date of grant. The options generally vest at a rate of 10%
at the end of the first year, an additional 20% at the end of the second year,
an additional 30% at the end of the third year and the balance at the end of the
fourth year from the date of grant.
The Company accounts for the Option Plan using the intrinsic value based
method under which no compensation cost has been recognized in accordance with
Statement of Financial Accounting Standard No. 123, "Accounting for Stock Based
Compensation". If a fair value based method had been adopted, the Company's pro
forma net loss would have been $7,866,600 for the period ended December 29,
1996.
F-143
<PAGE> 144
NOAH'S PACIFIC, L.L.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes stock option activity and the related
weighted average exercise price of the options.
<TABLE>
<CAPTION>
1996
-------------------
UNITS PRICE
---------- -----
<S> <C> <C>
Outstanding, beginning of period............................ -- --
Granted................................................... 3,529,860 $1.00
Exercised................................................. -- --
Forfeited................................................. -- --
Expired................................................... -- --
---------- -----
Outstanding, end of period.................................. 3,529,860 $1.00
========== =====
Exercisable, end of period.................................. -- --
========== =====
Weighted average fair value of options granted.............. $ 0.25
==========
</TABLE>
At December 29, 1996, the weighted average remaining contractual life of
the options is 9 years.
The fair value of each option is estimated on the date of grant using the
minimum value option pricing model with the following weighted average
assumptions used for 1996 grants: risk-free interest rate of 5.80%; expected
life of 5 years.
In addition to the Option Plan, the Company has granted employees options
to purchase 59,996 shares of ENBC common stock at an exercise price of $6.59 per
share. At December 29, 1996, no options have been exercised and the shares are
reflected at historical cost (Note 2) in the accompanying financial statements.
(8) COMMITMENTS
The Company leases store premises under various noncancelable operating
lease agreements. Lease terms are generally five years with two or three
five-year renewal options. Most of the leases contain escalation clauses and
common area maintenance charges.
The following is a schedule of future minimum rental payments which are
required under operating leases that have initial or remaining noncancelable
lease terms in excess of one year as of December 29, 1996:
<TABLE>
<S> <C>
1997............................................ $ 3,542,623
1998............................................ 3,695,302
1999............................................ 3,589,464
2000............................................ 3,285,290
2001............................................ 2,695,037
Thereafter...................................... 11,771,272
-----------
$28,578,988
===========
</TABLE>
Total rent expense under operating leases, including common area
maintenance charges, was approximately $1,252,000 for the period from June 17,
1996 (inception) through December 29, 1996.
The Company obtains a majority of its produce and other supplies from a
limited number of vendors. Management believes that, if necessary, the Company
would be able to replace any of its sources of supply with other vendors without
a disruption in service.
F-144
<PAGE> 145
NOAH'S PACIFIC, L.L.C.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 29, OCTOBER 5,
1996 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 252,496 $ 650,474
Accounts receivable....................................... 2,121,473 1,602,519
Inventories............................................... 1,685,333 3,195,868
Prepaid expenses and other current assets................. 2,197,739 502,190
----------- -----------
Total current assets.............................. 6,257,041 5,951,051
Property, Equipment and Other Related Assets, net........... 24,341,708 60,271,493
Costs in Excess of Net Assets Acquired, net................. 2,213,948 3,300,846
Notes Receivable............................................ 480,000 660,000
Other Assets, net........................................... 2,271,340 1,435,689
----------- -----------
Total assets...................................... $35,564,037 $71,619,079
=========== ===========
LIABILITIES AND MEMBERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable.......................................... 6,648,442 5,448,530
Accrued expenses.......................................... 4,144,049 3,327,175
----------- -----------
Total current liabilities......................... 10,792,491 8,775,705
Convertible Debt............................................ 22,641,734 71,224,950
Other Noncurrent Liabilities................................ 322,652 33,005
Commitments.................................................
Members' Equity............................................. 1,807,160 (8,414,581)
----------- -----------
Total liabilities and members' equity............. $35,564,037 $71,619,079
=========== ===========
</TABLE>
The accompanying notes to the financial statements are an integral part of these
statements.
F-145
<PAGE> 146
NOAH'S PACIFIC, L.L.C.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE PERIOD FROM FOR THE PERIOD FROM
JUNE 17, 1996 JUNE 17, 1996 THREE
(INCEPTION) THROUGH (INCEPTION) THROUGH QUARTERS ENDED
DECEMBER 29, 1996 OCTOBER 6, 1996 OCTOBER 5, 1997
------------------- ------------------- ---------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Revenue..................................... $12,225,780 $ 6,294,043 $ 36,351,471
Costs and Expenses:
Cost of products sold..................... 5,601,142 2,870,533 11,621,842
Salaries and benefits..................... 9,499,810 3,974,435 18,352,055
General and administrative................ 3,945,333 4,257,478 18,137,537
----------- ----------- ------------
Total costs and expenses.......... 19,046,285 11,102,446 48,111,434
Loss from Operations........................ (6,820,505) (4,808,403) (11,759,963)
Other Expense:
Interest expense, net..................... (862,335) (403,686) (3,150,612)
Other income.............................. -- -- 2,535,524
----------- ----------- ------------
Total other expense............... (862,335) (403,686) (615,088)
----------- ----------- ------------
Net Loss.................................... $(7,682,840) $(5,212,089) $(12,375,051)
=========== =========== ============
</TABLE>
The accompanying notes to the financial statements are an integral part of these
statements.
F-146
<PAGE> 147
NOAH'S PACIFIC, L.L.C.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE PERIOD FROM FOR THE PERIOD FROM
JUNE 17, 1996 JUNE 17, 1996 THREE
(INCEPTION) THROUGH (INCEPTION) THROUGH QUARTERS ENDED
DECEMBER 29, 1996 OCTOBER 6, 1996 OCTOBER 5, 1997
------------------- ------------------- ---------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss.............................. $ (7,682,840) $ (5,212,089) $(12,375,051)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Depreciation and amortization...... 757,967 378,983 3,763,355
Changes in assets and liabilities,
excluding effects from
acquisitions:
Inventories...................... (1,685,333) (1,521,362) (498,534)
Accounts receivable.............. (2,121,473) (3,921,996) 531,954
Accounts payable and accrued
expenses...................... 10,792,491 5,126,742 (7,079,867)
Prepaid expenses and other
current assets................ (2,197,739) (2,162,938) 1,893,550
Other assets and liabilities..... (854,444) 5,469,292 574,712
------------ ------------ ------------
Net cash used in operating
activities.................. (2,991,371) (1,843,368) (13,189,881)
Cash Flows from Investing Activities:
Purchase of property and equipment.... (12,120,395) (626,159) (16,058,020)
Sale (purchase) of ENBC stock......... (1,092,353) -- 286,663
Purchase of net assets from ENBC...... (15,195,119) (15,195,119) --
------------ ------------ ------------
Net cash used in investing
activities.................. (28,407,867) (15,821,278) (15,771,357)
Cash Flows from Financing Activities:
Proceeds from issuance of member
units.............................. 9,010,000 781,689 2,465,000
Proceeds from convertible debt........ 28,066,888 17,382,957 61,360,339
Repayment of convertible debt......... (5,425,154) (500,000) (34,466,123)
------------ ------------ ------------
Net cash provided by financing
activities.................. 31,651,734 17,664,646 29,359,216
------------ ------------ ------------
Net Increase in Cash and Cash
Equivalents........................... 252,496 -- 397,978
Cash and Cash Equivalents, beginning of
period................................ -- -- 252,496
------------ ------------ ------------
Cash and Cash Equivalents, end of
period................................ $ 252,496 $ -- $ 650,474
============ ============ ============
</TABLE>
The accompanying notes to the financial statements are an integral part of these
statements.
F-147
<PAGE> 148
NOAH'S PACIFIC, L.L.C.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The financial statements have been prepared by Noah's Pacific, L.L.C. (the
"Company") and are unaudited except for the balance sheet at December 29, 1996,
the Statement of Operations for the Period from June 17, 1996 (inception)
through December 29, 1996 and the Statement of Cash Flows for the Period from
June 17, 1996 (inception) through December 29, 1996 and the notes related
thereto. The financial statements have been prepared in accordance with the
instructions under Regulation S-X for interim financial statements and,
therefore, do not necessarily include all information and footnotes required by
generally accepted accounting principles. In the opinion of the Company, all
adjustments (consisting of normal recurring adjustments) necessary to present
fairly the Company's financial position, results of operations and cash flows as
of October 5, 1997 and for all periods presented have been made. The statements
are subject to audit adjustment. A description of the Company's accounting
policies and other financial information are included in the audited financial
statements included elsewhere herein.
2. MERGER WITH NOAH'S BAY AREA BAGELS, L.L.C.
On July 13, 1997, the Company merged with Noah's Bay Area Bagels, L.L.C.,
another area developer of Einstein/Noah Bagel Corp., resulting in the Company
obtaining the rights to open an additional 95 stores in portions of California
under the Noah's New York Bagels brand, of which 55 stores were open at that
date.
F-148
<PAGE> 149
PHILLY ROSE, L.P.
FINANCIAL STATEMENTS
AS OF DECEMBER 29, 1996
TOGETHER WITH REPORT OF INDEPENDENT
PUBLIC ACCOUNTANTS
F-149
<PAGE> 150
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of Philly Rose, L.P.:
We have audited the accompanying balance sheet of Philly Rose, L.P. (a
Delaware limited partnership) as of December 29, 1996 and the related statements
of operations, partners' capital and cash flows for the period from inception
(April 18, 1996) through December 29, 1996. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Philly Rose, L.P. as of
December 29, 1996 and the results of its operations and its cash flows for the
period from inception (April 18, 1996) through December 29, 1996, in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Denver, Colorado
March 18, 1997
F-150
<PAGE> 151
PHILLY ROSE, L.P.
BALANCE SHEET
AS OF DECEMBER 29, 1996
<TABLE>
<S> <C>
ASSETS
Current Assets:
Cash...................................................... $ 118,166
Inventories............................................... 196,464
Prepaid expenses and other current assets................. 65,916
----------
Total current assets.............................. 380,546
Property, Equipment and Other Related Assets, net........... 6,628,440
Costs in Excess of Net Assets Acquired, net................. 1,334,330
Notes Receivable............................................ 500,000
Other Assets, net........................................... 1,131,545
----------
Total assets...................................... $9,974,861
==========
LIABILITIES AND PARTNERS CAPITAL
Current Liabilities:
Accounts payable.......................................... $ 710,749
Accrued expenses.......................................... 435,936
----------
Total current liabilities......................... 1,146,685
Convertible Debt............................................ 6,633,337
Commitments (Note 8)
Partners' Capital........................................... 2,194,839
----------
Total liabilities and partners' capital........... $9,974,861
==========
</TABLE>
The accompanying notes to the financial statements are an integral part of this
statement.
F-151
<PAGE> 152
PHILLY ROSE, L.P.
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM APRIL 18, 1996 (INCEPTION)
THROUGH DECEMBER 29, 1996
<TABLE>
<CAPTION>
<S> <C>
Revenue..................................................... $ 1,595,269
Costs and Expenses:
Cost of products sold..................................... 633,857
Salaries and benefits..................................... 1,152,684
General and administrative................................ 1,538,330
-----------
Total costs and expenses.......................... 3,324,871
Loss from Operations........................................ (1,729,602)
Other Income (Expense):
Interest expense.......................................... (104,102)
Interest income........................................... 19,188
-----------
Total other expense............................... (84,914)
Net Loss.................................................... $(1,814,516)
===========
</TABLE>
The accompanying notes to the financial statements are an integral part of this
statement.
F-152
<PAGE> 153
PHILLY ROSE, L.P.
STATEMENT OF PARTNERS' CAPITAL
FOR THE PERIOD FROM APRIL 18, 1996 (INCEPTION)
THROUGH DECEMBER 29, 1996
<TABLE>
<CAPTION>
GENERAL PARTNER LIMITED PARTNER
----------------- -----------------------
UNITS AMOUNT UNITS AMOUNT TOTAL
------ -------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balances, inception.................... -- $ -- -- $ -- $ --
Units issued for capital
contributions..................... 75,000 75,000 3,925,000 3,925,000 4,000,000
Non-employee stock option expense.... -- 9,355 -- -- 9,355
Net loss............................. -- (34,022) -- (1,780,494) (1,814,516)
------ -------- --------- ----------- -----------
Balances, December 29, 1996............ 75,000 $ 50,333 3,925,000 $ 2,144,506 $ 2,194,839
====== ======== ========= =========== ===========
</TABLE>
The accompanying notes to the financial statements are an integral part of this
statement.
F-153
<PAGE> 154
PHILLY ROSE, L.P.
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM APRIL 18, 1996 (INCEPTION)
THROUGH DECEMBER 29, 1996
<TABLE>
<CAPTION>
<S> <C>
Cash Flows from Operating Activities:
Net loss.................................................. $(1,814,516)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization.......................... 234,981
Non-employee stock option expense...................... 9,355
Changes in assets and liabilities:
Inventories............................................ (196,464)
Prepaid expenses and other current assets.............. (65,916)
Accounts payable and accrued expenses.................. 1,146,685
Other assets and liabilities........................... 8,550
-----------
Net cash used in operating activities............. (677,325)
Cash Flows from Investing Activities:
Purchase of property, equipment and other related
assets................................................. (5,839,011)
Purchase of net assets from ENBC.......................... (2,898,665)
Purchase of ENBC common stock............................. (600,170)
-----------
Net cash used in investing activities............. (9,337,846)
Cash Flows from Financing Activities:
Proceeds from issuance of partner units................... 3,500,000
Proceeds from convertible debt............................ 10,133,337
Repayment on convertible debt............................. (3,500,000)
-----------
Net cash provided by financing activities......... 10,133,337
-----------
Net Increase in Cash........................................ 118,166
Cash, inception............................................. --
-----------
Cash, end of period......................................... $ 118,166
===========
Supplemental Disclosure of Cash Flow Information:
Interest paid............................................. $ 93,892
===========
Supplemental Disclosure of Noncash Financing Activities:
Partner units issued in exchange for notes receivable..... $ 500,000
===========
</TABLE>
The accompanying notes to the financial statements are an integral part of this
statement.
F-154
<PAGE> 155
PHILLY ROSE, L.P.
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 29, 1996
(1) DESCRIPTION OF BUSINESS
Philly Rose, L.P. (the "Partnership"), a Delaware limited partnership
organized under the Delaware Revised Uniform Limited Partnership Act, as
amended, owns and operates retail food service establishments under franchise
agreements with Einstein/Noah Bagel Corp. ("ENBC"), under the Einstein Bros.
Bagels brand name. The Einstein Bros. Bagels concept is designed to combine the
authentic tastes of a bagel bakery with the atmosphere of a neighborhood coffee
shop, offering products including fresh-baked bagels, proprietary cream cheeses,
specialty coffees and teas, and creative sandwiches. The Partnership was formed
on April 18, 1996 and commenced operations on July 15, 1996.
The Partnership has an Area Development Agreement ("ADA") with ENBC,
granting it the right to open 85 stores in portions of Delaware, New Jersey and
Pennsylvania. The ADA requires the Partnership to complete the store development
by June 30, 2000. The Partnership had 12 stores open at December 29, 1996.
Pursuant to the franchise agreements, the Partnership is required to make
periodic royalty payments based on net revenue, and pay franchise, real estate
development, software license, software maintenance and other support service
fees on a per store basis. The Partnership is also required to make advertising
fund contributions to national and local advertising funds.
For the period from April 18, 1996 (inception) through December 29, 1996,
the Partnership had a net loss of $1,814,516 and at December 29, 1996 had
negative working capital of $766,139. The Partnership is currently in a state of
rapid expansion as it continues to open stores in accordance with its ADA. The
Partnership's ability to continue this expansion is contingent upon management's
ability to raise additional equity and/or obtain additional financing.
Management of the Partnership believes it will be able to continue to raise such
equity and obtain such additional financing required to satisfy its ADA.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fiscal Year
The Partnership's fiscal year is the 52/53-week period ending on the last
Sunday of December.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market
and consist of food, paper products and supplies.
Investment in ENBC Common Stock
The Partnership owns 92,700 shares of ENBC common stock which are
considered restricted securities and, as a result, are reflected at historical
cost of $600,170 in the accompanying balance sheet. At December 29, 1996, the
fair market value of similar unrestricted shares of ENBC was approximately
$2,769,000.
F-155
<PAGE> 156
PHILLY ROSE, L.P.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Property, Equipment and Other Related Assets
Property, equipment and other related assets are stated at cost less
accumulated depreciation and amortization. The provision for depreciation and
amortization has been calculated using the straight-line method. These assets
are depreciated and amortized over the following useful lives:
<TABLE>
<S> <C>
Buildings and improvements.................................. 5-15 years
Equipment and software...................................... 3- 8 years
Furniture and fixtures...................................... 7-15 years
ADA and Franchise fees...................................... 15 years
Preopening costs............................................ 1 year
</TABLE>
Property, equipment and other related asset additions include acquisitions
of buildings, equipment, software, leasehold improvements and major improvements
to existing stores. Additions also include costs incurred in the development and
construction of new stores, including real estate development and franchise fees
paid to ENBC. Expenditures for maintenance and repairs are charged to expense as
incurred.
Preopening costs consist primarily of salaries and other incremental direct
expenses relating to the set up, initial stocking, training and general store
management activities incurred prior to the opening of new stores. Amortization
begins on the date the store is opened.
Costs in Excess of Net Assets Acquired
The excess purchase price over the fair value of net assets acquired is
being amortized on a straight-line basis over 15 years.
Notes Receivable
The Partnership has received notes receivable from certain unit holders in
exchange for their member units. In general, these notes are due within three
years of issuance, bear interest at the prime rate and are collateralized by the
member units.
Revenue Recognition
Revenue is recognized in the period in which related food and beverage
products are sold.
Income Taxes
The Partnership is not considered a taxable entity for federal or state
income tax purposes. Any taxable income or loss is reported by the partners on
their individual tax returns in accordance with the Partnership Agreement.
Allocation of Profits, Losses and Distributions
Profits and losses of the Partnership for any fiscal year are allocated to
the partners in proportion to their units; provided, however, that all items of
income, gain, loss or deductions related to the exercise of options granted
pursuant to any option plan (Note 7) shall be allocated to the partner
exercising the option.
Distributions shall be made at such times and in such amounts as may be
determined by the General Partner, subject to compliance with the covenants set
forth in the Partnership's secured loan agreement (Note 5). The General Partner
shall cause the Partnership to make distributions on an annual basis to each
partner in an amount equal to the estimated tax liability of the partner
resulting from the operations of the Partnership. Distributions shall be made to
the partners in proportion to their units held.
F-156
<PAGE> 157
PHILLY ROSE, L.P.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
(3) SUPPLEMENTAL FINANCIAL STATEMENT DATA
<TABLE>
<CAPTION>
DECEMBER 29,
1996
------------
<S> <C>
Property, equipment and other related assets:
Buildings and improvements................................ $3,248,593
Furniture, fixtures, equipment, and software.............. 2,351,000
ADA and franchise fees.................................... 885,000
Preopening costs.......................................... 336,393
----------
6,820,986
Less accumulated depreciation and amortization............ (192,546)
----------
Total property, equipment and other related
assets, net...................................... $6,628,440
==========
Costs in excess of net assets acquired...................... $1,376,690
Less accumulated amortization............................. (42,360)
----------
Total costs in excess of net assets acquired,
net.............................................. $1,334,330
==========
Other assets:
Prepaid franchise fees.................................... $ 475,000
Investment in ENBC common stock........................... 600,170
Other assets, net of accumulated amortization of $75...... 56,375
----------
Total other assets, net........................... $1,131,545
==========
</TABLE>
(4) PURCHASE OF NET ASSETS FROM ENBC
On July 15, 1996, the Partnership paid to ENBC a total of $1,759,000
consisting of the net tangible assets of 1 store for approximately $382,000 and
costs in excess of net assets acquired of approximately $1,377,000. In addition,
the Partnership paid approximately $1,140,000 for certain rights and fees to
develop future stores. The transaction has been accounted for under the purchase
method of accounting. The pro forma effect of this transaction is not
significant to the accompanying financial statements.
(5) CONVERTIBLE DEBT
The Partnership has entered into a secured loan agreement (the "Agreement")
with ENBC which provides ENBC the right to convert all or any portion of the
loan into units of partners' capital at $1.12 per unit. The specified percentage
of partners' capital to be acquired on conversion is dependent on the amount of
financing to be provided in relation to the total capital and rights
outstanding, but would constitute at least a majority of the capital of the
Partnership on a fully diluted basis in the event all of the loan was converted.
The loan may be converted by ENBC at any time subsequent to July 15, 1998,
subject to the Partnership completing 80% of its development schedule and up to
July 2004, or at any time upon the Partnership being in default on the loan.
Additionally, during this same time period, to the extent the loan is not fully
drawn or has been drawn and repaid, ENBC has the option to acquire, at the loan
conversion price, as defined, the amount of additional units it could have
acquired by conversion of the loan had it been fully drawn. The loan is
F-157
<PAGE> 158
PHILLY ROSE, L.P.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
collateralized by substantially all of the assets of the Partnership and a
pledge of the general partners' capital of the Partnership. The Agreement
contains various restrictive covenants including restricting cash distributions
and limiting additional indebtedness. The Partnership was in compliance with all
such covenants at December 29, 1996.
Interest is based upon the reference rate of the Bank of America Illinois
(8.25% as of December 29, 1996) plus 1%. Interest-only payments are required
through July 1999, at which time the loan converts to an amortizing term loan
payable through July 2004, with a final balloon payment. The Agreement provides
for a line of credit of $14,000,000 with $6,633,337 drawn at December 29, 1996.
As of December 29, 1996, principal maturities were as follows:
<TABLE>
<S> <C>
1997............................................. $ --
1998............................................. --
1999............................................. 306,154
2000............................................. 633,334
2001............................................. 633,334
Thereafter....................................... 5,060,515
----------
$6,633,337
==========
</TABLE>
(6) PARTNERS' CAPITAL
The holders of certain of the limited partnership units have the right to
require the Partnership to redeem all of the limited partnership units at a
pre-determined formula price ("Put Price") based on the store level cash flow of
the Partnership in the event that (i) ENBC acquires a majority interest in the
Partnership pursuant to the exercise of its conversion or option rights under
the Agreement; (ii) ENBC does not consent to the Partnership's request to
undertake a firm commitment underwritten public offering after ENBC's conversion
and option rights under its loan agreement with the Partnership have expired
unexercised; or (iii) ENBC does not consent to the Partnership's request to
terminate its development and franchise agreements with ENBC after ENBC's
conversion and option rights under its loan agreement with the Partnership have
expired unexercised. In the event the Partnership does not redeem the limited
partnership units when required to do so, ENBC will be obligated to purchase
these units at the same price applicable to the Partnership.
(7) OPTION PLANS
A maximum of 2,255,000 general partnership units are available for grant to
employees and certain non-employees pursuant to the 1996 Unit Option Plan (the
"Option Plan"). The option price is equal to the fair market value on the date
of grant, as determined by the General Partner. All unit options granted under
the Option Plan are exercisable up to 10 years from the date of grant. The
options generally vest at a rate of 10% at the end of the first year, an
additional 20% at the end of the second year, an additional 30% at the end of
the third year and the balance at the end of the fourth year from the date of
grant.
The Partnership accounts for the employee options using the intrinsic value
method under which no compensation cost has been recognized in accordance with
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation." If a fair value based accounting method had been adopted, the
Partnership's pro forma net loss would have been $1,847,180 for the period ended
December 29, 1996.
Non-employee options are accounted for using a fair value approach which
resulted in $9,355 of compensation expense for the period ended December 29,
1996.
F-158
<PAGE> 159
PHILLY ROSE, L.P.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes stock option activity and the related
weighted average exercise price of the options.
<TABLE>
<CAPTION>
1996
-------------------
UNITS PRICE
---------- -----
<S> <C> <C>
Outstanding, beginning of period............................ -- --
Granted................................................... 1,175,064 $1.00
Exercised................................................. -- --
Forfeited................................................. -- --
Expired................................................... -- --
----------
Outstanding, end of period.................................. 1,175,064 $1.00
==========
Exercisable, end of period.................................. -- $1.00
==========
Weighted average fair value of options granted.............. $ 0.29
==========
</TABLE>
At December 29, 1996, the weighted average remaining contractual life of
the options is 9.5 years.
The fair value of each option is estimated on the date of grant using the
minimum value option pricing model with the following weighted average
assumptions used for 1996 grants: risk-free interest rate of 6.74%; expected
life of 5 years.
In addition to the Option Plan, the Partnership has granted employees
options to purchase 92,700 shares of ENBC common stock at an exercise price of
$6.59 per share. At December 29, 1996, no options have been exercised and the
shares are reflected at historical cost (Note 2) in the accompanying financial
statements.
(8) COMMITMENTS
The Partnership leases store premises under various noncancelable operating
lease agreements. Lease terms are generally five years with two or three
five-year renewal options. Most of the leases contain escalation clauses and
common area maintenance charges.
The following is a schedule of future minimum rental payments which are
required under operating leases that have initial or remaining noncancelable
lease terms in excess of one year as of December 29, 1996:
<TABLE>
<S> <C>
1997............................................. $ 642,451
1998............................................. 648,540
1999............................................. 650,227
2000............................................. 665,602
2001............................................. 589,705
Thereafter....................................... 2,535,231
----------
$5,731,756
==========
</TABLE>
Total rent expense under operating leases, including common area
maintenance charges, was approximately $252,531 for the period from April 18,
1996 (inception) through December 29, 1996.
The Partnership obtains a majority of its produce and other supplies from a
limited number of vendors. Management believes that, if necessary, the
Partnership would be able to replace any of its sources of supply with other
vendors without a disruption in service.
F-159
<PAGE> 160
PHILLY ROSE, L.P.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE PERIOD FROM FOR THE PERIOD FROM FOR THE PERIOD FROM
APRIL 18, 1996 APRIL 18, 1996 DECEMBER 30, 1996
(INCEPTION) THROUGH (INCEPTION) THROUGH THROUGH JUNE 15,
DECEMBER 29, 1996 OCTOBER 6, 1996 1997 (MERGER)
------------------- ------------------- -------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Revenue............................... $ 1,595,269 $ 454,083 $ 4,968,858
Costs and Expenses:
Cost of products sold............... 633,857 192,049 1,851,262
Salaries and benefits............... 1,152,684 438,568 2,745,956
General and administrative.......... 1,538,330 602,177 2,971,574
----------- ---------- -----------
Total costs and expenses.... 3,324,871 1,232,794 7,568,792
----------- ---------- -----------
Loss from Operations.................. (1,729,602) (778,711) (2,599,934)
Other Income (Expense):
Interest expense, net............... (84,914) (30,879) (440,003)
Other income (expense).............. -- -- 456
----------- ---------- -----------
Total other expense......... (84,914) (30,879) (439,547)
----------- ---------- -----------
Net Loss.............................. $(1,814,516) $ (809,590) $(3,039,481)
=========== ========== ===========
</TABLE>
The accompanying notes to the financial statements are an integral part of these
statements.
F-160
<PAGE> 161
PHILLY ROSE, L.P.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE PERIOD FROM FOR THE PERIOD FROM FOR THE PERIOD FROM
APRIL 18, 1996 APRIL 18, 1996 DECEMBER 30, 1996
(INCEPTION) THROUGH (INCEPTION) THROUGH THROUGH JUNE 15,
DECEMBER 29, 1996 OCTOBER 6, 1996 1997 (MERGER)
------------------- ------------------- -------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss............................. $(1,814,516) $ (809,590) $(3,039,481)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Depreciation and amortization..... 234,981 71,350 741,155
Non-employee option expense....... 9,355 -- 9,355
Changes in assets and liabilities,
excluding effects from
acquisitions:
Inventories..................... (196,464) (94,492) (148,851)
Accounts receivable............. -- (9,403) (10,562)
Accounts payable and accrued
expenses..................... 1,146,685 851,989 282,874
Prepaid expenses and other
current assets............... (65,916) (16,506) (22,450)
Other assets and liabilities.... 8,550 (11,590) 1,961,343
----------- ----------- -----------
Net cash used in operating
activities................. (677,325) (18,242) (226,617)
Cash Flows from Investing Activities:
Purchase of property and equipment... (5,839,011) (2,035,711) (7,187,499)
Purchase of ENBC stock............... (600,170) (600,170) --
Purchase of net assets from ENBC..... (2,898,665) (2,898,665) --
----------- ----------- -----------
Net cash used in investing
activities................. (9,337,846) (5,534,546) (7,187,499)
Cash Flows from Financing Activities:
Proceeds from issuance of partnership
units............................. 3,500,000 3,500,000 --
Proceeds from convertible debt....... 10,133,337 5,552,788 7,947,814
Repayment of convertible debt........ (3,500,000) (3,500,000) (581,150)
----------- ----------- -----------
Net cash provided by
financing activities....... 10,133,337 5,552,788 7,366,664
----------- ----------- -----------
Net Increase (Decrease) in Cash and
Cash Equivalents..................... 118,166 -- (47,452)
Cash and Cash Equivalents, beginning of
period............................... -- -- 118,166
----------- ----------- -----------
Cash and Cash Equivalents, end of
period............................... $ 118,166 $ -- $ 70,714
=========== =========== ===========
</TABLE>
The accompanying notes to the financial statements are an integral part of these
statements.
F-161
<PAGE> 162
PHILLY ROSE, L.P.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The financial statements have been prepared by Philly Rose, L.P. (the
"Partnership") and are unaudited except for the Statement of Operations for the
Period from April 18, 1996 (inception) through December 29, 1996 and the
Statement of Cash Flows for the Period from April 18, 1996 (inception) through
December 29, 1996 and the notes related thereto. The financial statements have
been prepared in accordance with the instructions under Regulation S-X for
interim financial statements and, therefore, do not necessarily include all
information and footnotes required by generally accepted accounting principles.
In the opinion of the Partnership, all adjustments (consisting only of normal
recurring adjustments) necessary to present fairly the Partnership's financial
position, results of operations and cash flows as of June 15, 1997 and for all
periods presented have been made. The statements are subject to audit
adjustment. A description of the Partnership's accounting policies and other
financial information are included in the audited financial statements included
elsewhere herein.
2. MERGER WITH MAYFAIR BAGELS, L.P.
On June 15, 1997, the Partnership was acquired by Mayfair Bagels, L.P.,
another area developer of Einstein/Noah Bagel Corp.
F-162
<PAGE> 163
SUNBELT BAGELS, L.L.C.
FINANCIAL STATEMENTS
AS OF OCTOBER 5, 1997
F-163
<PAGE> 164
SUNBELT BAGELS, L.L.C.
BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
OCTOBER 5,
1997
-----------
<S> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 352,950
Accounts receivable....................................... 170,883
Inventories............................................... 1,687,128
Prepaid expenses and other current assets................. 181,228
-----------
Total current assets.............................. 2,392,189
Property, Equipment and Other Related Assets, net........... 30,731,224
Costs in Excess of Net Assets Acquired, net................. 28,385,889
Notes Receivable............................................ 910,000
Other Assets, net........................................... 1,986,872
-----------
Total assets...................................... $64,406,174
===========
LIABILITIES AND MEMBERS' EQUITY
Current Liabilities:
Accounts payable.......................................... $ 3,463,755
Accrued expenses.......................................... 969,243
-----------
Total current liabilities......................... 4,432,998
Convertible Debt............................................ 48,588,586
Commitments and Contingencies...............................
Members' Equity............................................. 11,384,590
-----------
Total liabilities and members' equity............. $64,406,174
===========
</TABLE>
The accompanying notes to the financial statements are an integral part of this
statement.
F-164
<PAGE> 165
SUNBELT BAGELS, L.L.C.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
MARCH 24, 1997
(INCEPTION) THROUGH
OCTOBER 5, 1997
-------------------
<S> <C>
Revenue..................................................... $27,061,491
Costs and Expenses:
Cost of products sold..................................... 8,806,094
Salaries and benefits..................................... 10,458,914
General and administrative................................ 11,163,126
-----------
Total costs and expenses.......................... 30,428,134
Loss from Operations........................................ (3,366,643)
Other Income (Expense):
Interest expense.......................................... (1,791,728)
Other income, net......................................... 31,602
-----------
Total other expense............................... (1,760,126)
-----------
Net Loss.................................................... $(5,126,769)
===========
</TABLE>
The accompanying notes to the financial statements are an integral part of these
statements.
F-165
<PAGE> 166
SUNBELT BAGELS, L.L.C.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
MARCH 24, 1997
(INCEPTION) THROUGH
OCTOBER 5, 1997
-------------------
<S> <C>
Cash Flows from Operating Activities:
Net loss.................................................. $ (5,126,769)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization.......................... 2,295,427
Non-employee option expense Gain on sale of assets
Changes in assets and liabilities, excluding effects
from acquisitions:
Inventories.......................................... (734,424)
Accounts receivable.................................. (55,236)
Accounts payable and accrued expenses................ (1,730,740)
Prepaid expenses and other current assets............ (12,794)
Other assets and liabilities......................... (841,269)
------------
Net cash used in operating activities............. (6,205,805)
Cash Flows from Investing Activities:
Purchase of property and equipment........................ (8,989,755)
Purchase of net assets from ENBC.......................... (3,824,736)
------------
Net cash used in investing activities............. (12,814,491)
Cash Flows from Financing Activities:
Proceeds from issuance of member units.................... 1,800,000
Proceeds from convertible debt............................ 35,572,262
Repayment of convertible debt............................. (17,999,016)
------------
Net cash provided by financing activities......... 19,373,246
------------
Net Increase in Cash and Cash Equivalents................... 352,950
Cash and Cash Equivalents, beginning of period.............. --
------------
Cash and Cash Equivalents, end of period.................... $ 352,950
============
</TABLE>
The accompanying notes to the financial statements are an integral part of these
statements.
F-166
<PAGE> 167
SUNBELT BAGELS, L.L.C.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
AS OF OCTOBER 5, 1997
(1) BASIS OF PRESENTATION
The financial statements have been prepared by Sunbelt Bagels, L.L.C. (the
"Company") and are unaudited. The financial statements have been prepared in
accordance with the instructions under Regulation S-X for interim financial
statements and, therefore, do not necessarily include all information and
footnotes required by generally accepted accounting principles. In the opinion
of the Company, all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the Company's financial position,
results of operations and cash flows as of October 5, 1997. The statements are
subject to audit adjustment.
(2) DESCRIPTION OF BUSINESS
Sunbelt Bagels, L.L.C. (the "Company") owns and operates retail food
service establishments under franchise agreements with Einstein/Noah Bagel Corp.
("ENBC"), under the Einstein Bros. Bagels and Baltimore Bagels brand names. The
Einstein Bros. Bagels concept is designed to combine the authentic tastes of a
bagel bakery with the atmosphere of a neighborhood coffee shop, offering
products including fresh-baked bagels, proprietary cream cheeses, specialty
coffees and teas, and creative sandwiches. The Company was formed on March 24,
1997, under the Delaware Limited Liability Company Act.
The Company has an Area Development Agreement ("ADA") with ENBC, granting
it the right to open 187 stores in portions of California, Arizona, Colorado,
Idaho, Montana, Nebraska, Nevada, New Mexico, Texas, Utah and Wyoming. The ADA
requires the Company to complete the store development by December 1999. The
Company had 95 stores open at October 5, 1997. Pursuant to the franchise
agreements, the Company is required to make periodic royalty payments based on
net revenue, and pay franchise, real estate development, software license,
software maintenance and other support service fees on a per store basis. The
Company is also required to make advertising contributions to national and local
advertising funds.
For the period from March 24, 1997 (inception) through October 5, 1997, the
Company had a net loss of $5,126,769 and negative working capital of $2,040,809.
The Company is currently in a state of expansion as it continues to open stores
in accordance with its ADA. The Company's ability to continue this expansion is
contingent upon management's ability to raise additional equity and/or obtain
additional financing. Management of the Company believes it will be able to
continue to raise such equity and obtain such additional financing required to
satisfy its ADA.
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fiscal Year
The Company's fiscal year is the 52/53-week period ending on the last
Sunday of December.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market
and consist of food, paper products and supplies.
F-167
<PAGE> 168
SUNBELT BAGELS, L.L.C.
NOTES TO UNAUDITED FINANCIAL STATEMENTS -- (CONTINUED)
Property, Equipment and Other Related Assets
Property, equipment and other related assets are stated at cost less
accumulated depreciation and amortization. The provision for depreciation and
amortization has been calculated using the straight-line method. These assets
are depreciated and amortized over the following useful lives:
<TABLE>
<S> <C>
Buildings and improvements.................................. 5-15 years
Equipment and software...................................... 3-8 years
Furniture and fixtures...................................... 7-15 years
ADA and franchise fees...................................... 15 years
Preopening costs............................................ 1 year
</TABLE>
Property, equipment and other related asset additions include acquisitions
of buildings, equipment, software, leasehold improvements and major improvements
to existing stores. Additions also include costs incurred in the development and
construction of new stores, including real estate development and franchise fees
paid to ENBC. Expenditures for maintenance and repairs are charged to expense as
incurred.
Preopening costs consist primarily of salaries and other incremental direct
expenses relating to the set up, initial stocking, training and general store
management activities incurred prior to the opening of new stores. Amortization
begins on the date the store is opened.
Costs in Excess of Net Assets Acquired
The excess purchase price over the fair value of net assets acquired is
being amortized on a straight-line basis over 15 years.
Notes Receivable
The Company has received notes receivable from certain unit holders in
exchange for their member units. In general, these notes are due within three
years of issuance, bear interest at the prime rate and are collateralized by the
member units.
Revenue Recognition
Revenue is recognized in the period in which related food and beverage
products are sold.
Income Taxes
The Company is considered a flow-through entity for federal and state
income tax purposes. Any taxable income or loss is reported by the members on
their individual tax returns in accordance with the Company's Operating
Agreement.
Allocation of Profits, Losses and Distributions
Profits and losses of the Company for any fiscal year are allocated to the
members in proportion to their units; provided, however, that all items of
income, gain, loss or deductions related to the exercise of options granted
pursuant to any option plan (Note 7) shall be allocated to the member exercising
the option.
Distributions shall be made at such times and in such amounts as may be
determined by the Manager, subject to compliance with the covenants set forth in
the Company's secured loan agreement (Note 5). The Manager shall cause the
Company to make distributions on an annual basis to each member in an amount
equal to the estimated tax liability of the member resulting from the operations
of the Company. Distributions shall be made to the members in proportion to
their units held.
F-168
<PAGE> 169
SUNBELT BAGELS, L.L.C.
NOTES TO UNAUDITED FINANCIAL STATEMENTS -- (CONTINUED)
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
(4) PURCHASE OF NET ASSETS FROM ENBC
On March 24, 1997, the Company paid to ENBC a total of approximately $3.3
million for 16 stores and related assets. In addition, the Company paid
approximately $1,360,000 for certain rights and fees to develop future stores.
The transaction has been accounted for under the purchase method of accounting.
The pro forma effect of this transaction is not significant to the accompanying
financial statements.
(5) CONVERTIBLE DEBT
The Company has entered into a secured loan agreement (the "Agreement")
with ENBC which provides ENBC the right to convert all or a portion of the loan
into voting units of members' capital at $1.12 per unit. The specified
percentage of members' capital to be acquired on conversion is dependent on the
amount of financing to be provided in relation to the total capital and rights
outstanding, but would constitute at least a majority of the capital of the
Company on a fully diluted basis in the event that all of the loan was
converted. The loan may be converted by ENBC at any time subsequent to March
1999, subject to the Company completing 80% of its development schedule, and up
to March 2004, or at any time upon the Company being in default on the loan.
Additionally, during this same time period, to the extent the loan is not fully
drawn or has been drawn and repaid, ENBC has the option to acquire, at the loan
conversion price, as defined, the amount of additional units it could have
acquired by conversion of the loan had it been fully drawn. The loan is
collateralized by substantially all of the assets of the Company and a pledge of
the voting members' capital of the Company. The Agreement contains various
restrictive covenants including restricting cash dividends and limiting
additional indebtedness. The Company was in compliance with all such covenants
at October 5, 1997.
Interest is based upon the reference rate of the Bank of America Illinois
(8.50% as of October 5, 1997) plus 1%. Interest-only payments are required
through February 2000, at which time the loan converts to an amortizing term
loan payable through February 2005, with a final balloon payment. The Agreement
provides for a line of credit of $50,200,000, with $48,588,586 drawn as of
October 5, 1997.
(6) MEMBERS' EQUITY
The holders of the nonvoting units have the right to require the Company to
redeem all of the nonvoting units at a pre-determined formula price ("Put
Price") based on the store level cash flow of the Company in the event that (i)
ENBC acquires a majority interest in the Company pursuant to the exercise of its
conversion or option rights under the Agreement; (ii) ENBC does not consent to
the Company's request to undertake a firm commitment underwritten public
offering after ENBC's conversion and option rights under its agreement with the
Company have expired unexercised; or (iii) ENBC does not consent to the
Company's request to terminate its development and franchise agreements with
ENBC after ENBC's conversion and option rights under its loan agreement with the
Company have expired unexercised. In the event the Company does not redeem the
nonvoting units when required to do so, ENBC will be obligated to purchase these
units at the same price applicable to the Company.
F-169
<PAGE> 170
SUNBELT BAGELS, L.L.C.
NOTES TO UNAUDITED FINANCIAL STATEMENTS -- (CONTINUED)
(7) OPTION PLANS
The Company has reserved voting units for grant to employees and certain
non-employees pursuant to the 1997 Unit Option Plan (the "Option Plan"). The
option price is equal to the fair market value on the date of grant, as
determined by the Manager. All unit options granted under the Option Plan are
exercisable up to 10 years from the date of grant. The options generally vest at
a rate of 10% at the end of the first year, an additional 20% at the end of the
second year, an additional 30% at the end of the third year and the balance at
the end of the fourth year from the date of grant.
(8) COMMITMENTS
The Company leases store premises under various noncancelable operating
lease agreements. Lease terms are generally five years with two or three
five-year renewal options. Most of the leases contain escalation clauses and
common area maintenance charges.
The Company obtains a majority of its produce and other supplies from a
limited number of vendors. Management believes that, if necessary, the Company
would be able to replace any of its sources of supply with other vendors without
a disruption in service.
(9) MERGER WITH BCE WEST BAGELS, L.L.C.
On April 20, 1997, the Company merged with BCE West Bagels, L.L.C., another
area developer of Einstein/Noah Bagel Corp., resulting in the Company obtaining
the rights to open an additional 107 stores in portions of Arizona, Colorado,
Idaho, Montana, Nebraska, Nevada, New Mexico, Texas, Utah and Wyoming under the
Einstein Bros. Bagels brand, of which 58 stores were open at that date.
F-170
<PAGE> 1
EXHIBIT 99.2
PRO FORMA FINANCIAL INFORMATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
EINSTEIN/NOAH BAGEL CORP. AND SUBSIDIARIES
Unaudited Pro Forma Consolidated Financial Information of
Einstein/Noah Bagel Corp.................................. F-2
Unaudited Pro Forma Consolidated Statement of Operations for
the fiscal year ended December 29, 1996................... F-3
Unaudited Pro Forma Consolidated Statement of Operations for
the three quarters ended October 5, 1997.................. F-4
Unaudited Pro Forma Consolidated Balance Sheet at October 5,
1997...................................................... F-5
Notes to Unaudited Pro Forma Consolidated Financial
Statements................................................ F-6
EINSTEIN/NOAH BAGEL PARTNERS, L.P.
Unaudited Pro Forma Consolidated Statement of Operations for
the fiscal year ended December 29, 1996................... F-7
Unaudited Pro Forma Consolidated Statement of Operations for
the three quarters ended October 5, 1997.................. F-8
Unaudited Pro Forma Consolidated Balance Sheet as of October
5, 1997................................................... F-9
Notes to Unaudited Pro Forma Financial Statements........... F-10
</TABLE>
F-1
<PAGE> 2
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION OF
EINSTEIN/NOAH BAGEL CORP. AND
EINSTEIN/NOAH BAGEL PARTNERS, L.P.
The pro forma consolidated financial information for Einstein/Noah Bagel
Corp. ("ENBC") gives effect to the conversion of its loans to a majority equity
interest in its area developers and the merger of the area developers into a
single entity (Einstein/Noah Bagel Partners, L.P.) after such conversions occur.
The pro forma consolidated financial statements of ENBC are based upon the
assumptions set forth in the accompanying notes to such statements. The pro
forma adjustments are based upon the available information and assumptions that
management believes are reasonable under the circumstances.
The pro forma financial information for Einstein/Noah Bagel Partners, L.P.
gives effect to the proposed merger of the five area developers of ENBC (and
their predecessors) into a single entity and assumes such merger occurs
subsequent to ENBC's conversion of its loans to a majority equity interest in
each of the area developers. These pro forma financial statements are based upon
the assumptions set forth in the accompanying notes to such statements. The pro
forma adjustments are based upon the available information and assumptions that
management believes are reasonable under the circumstances.
The pro forma operating results assume the above transactions occurred at
the beginning of each of the periods presented.
These pro forma financial statements should be read in conjunction with the
related historical financial statements and are not necessarily indicative of
the results that would have actually occurred had the transactions been
consummated on the dates or for the periods indicated or which may occur in the
future.
F-2
<PAGE> 3
EINSTEIN/NOAH BAGEL CORP.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 29, 1996
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
UNAUDITED
PRO FORMA UNAUDITED
EINSTEIN/NOAH PRO FORMA
EINSTEIN/NOAH BAGEL PRO FORMA EINSTEIN/NOAH
BAGEL CORP. PARTNERS, L.P.* ADJUSTMENTS BAGEL CORP.
------------- ------------------- ----------- -------------
<S> <C> <C> <C> <C>
Revenue............................ $61,707 $105,164 $(24,951)(1) $141,920
Costs and Expenses:
Cost of products sold............ 11,546 42,050 53,596
Salaries and benefits............ 18,302 50,249 68,551
General and administrative....... 16,389 39,936 (6,350)(1) 49,975
Depreciation and amortization.... 5,431 11,835 2,330 (2) 19,596
------- -------- --------
Total costs and
expenses............... 51,668 144,070 191,718
------- -------- --------
Income (Loss) from Operations...... 10,039 (38,906) (49,798)
Other Income (Expense), net........ (4,332) 48 (4,284)
Minority Interest at 23%........... -- -- 8,937 (3) 8,937
------- -------- --------
Net Income (Loss).................. $ 5,707 $(38,858) $(45,145)
======= ======== ========
Net Income (Loss) per Common and
Equivalent Share................. $ 0.25 $ (2.33)
======= ========
Weighted Average Number of Common
and Equivalent Shares
Outstanding...................... 22,344 19,400
======= ========
</TABLE>
- ---------------
* The pro-forma Einstein/Noah Bagel Partners, L.P. statement of operations gives
effect to the merger of the area developers of ENBC into a single entity and
conversion of the loans from ENBC into a majority equity interest. See
unaudited pro forma consolidated statement of operations on page F-218.
F-3
<PAGE> 4
EINSTEIN/NOAH BAGEL CORP.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE QUARTERS ENDED OCTOBER 5, 1997
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
UNAUDITED
PRO FORMA UNAUDITED
EINSTEIN/NOAH PRO FORMA
EINSTEIN/NOAH BAGEL PRO FORMA EINSTEIN/NOAH
BAGEL CORP. PARTNERS,L.P.* ADJUSTMENTS BAGEL CORP.
------------- -------------- ----------- -------------
<S> <C> <C> <C> <C>
Revenue.................................. $43,885 $223,187 $(40,769)(1) $226,303
Costs and Expenses:
Cost of products sold.................. 704 75,099 75,803
Salaries and benefits.................. 6,158 96,787 102,945
General and administrative............. 7,736 89,763 (12,896)(1) 84,603
Depreciation and amortization.......... 4,646 18,690 704 (2) 24,040
------- -------- --------
Total costs and expenses....... 19,244 280,339 287,391
------- -------- --------
Income (Loss) from Operations............ 24,641 (57,152) (61,088)
Other Income (Expense), net.............. (2,066) 88 (1,978)
Minority Interest at 23%................. -- -- 13,125 (3) 13,125
------- -------- --------
Income (Loss) Before Income Taxes........ 22,575 (57,064) (49,941)
Income Taxes............................. 6,919 -- (6,919)(5) --
------- -------- --------
Net Income (Loss)........................ $15,656 $(57,064) $(49,941)
======= ======== ========
Net Income (Loss) per Common and
Equivalent Share....................... $ 0.45 $ (1.55)
Weighted Average Number of Common and
Equivalent Shares Outstanding.......... 34,776 32,256
======= ========
</TABLE>
- ---------------
* The pro-forma Einstein/Noah Bagel Partners, L.P. statement of operations gives
effect to the merger of the area developers of ENBC into a single entity and
conversion of loans from ENBC into a majority equity interest. See unaudited
pro forma consolidated statement of operations on page F-219.
F-4
<PAGE> 5
EINSTEIN/NOAH BAGEL CORP.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
OCTOBER 5, 1997
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
UNAUDITED
PRO FORMA UNAUDITED
EINSTEIN/NOAH PRO FORMA
EINSTEIN/NOAH BAGEL PRO FORMA EINSTEIN/NOAH
BAGEL CORP. PARTNERS, L.P.* ADJUSTMENTS BAGEL CORP.
------------- --------------- ----------- -------------
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.................... $ 30,522 $ 2,102 $ 32,624
Accounts receivable.......................... 75 2,704 2,779
Due from affiliates.......................... 14,835 -- $ (14,835)(6) --
Inventory.................................... -- 10,987 10,987
Prepaid expenses and other current assets.... 237 1,676 1,913
Deferred income taxes........................ 300 -- 300
-------- -------- --------
Total current assets.................. 45,969 17,469 48,603
-------- -------- --------
Property and Equipment, net.................... 29,028 189,560 (12,300)(8)(7) 206,288
Notes Receivable:
Area developers.............................. 300,744 -- (300,744)(7) --
Other........................................ 3,437 4,590 8,027
Goodwill, net.................................. 65,263 158,465 61,498 (7)(4) 285,226
Trademarks, net................................ 22,064 -- 22,064
Recipes, net................................... 7,370 -- 7,370
Other Assets, net.............................. 14,172 12,134 (4,415)(8) 16,591
(5,300)(10)
-------- -------- --------
Total assets.......................... $488,047 $382,218 $594,169
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable............................. $ 3,483 $ 22,872 (7,835)(6) $ 18,520
Accrued expenses............................. 8,045 21,110 (5,000)(7)(6) 24,155
Deferred franchise revenue................... 2,000 -- (2,000)(8) --
-------- -------- --------
Total current liabilities............. 13,528 43,982 42,675
-------- -------- --------
Convertible Subordinated Debentures............ 125,000 -- 125,000
Deferred Franchise Revenue..................... 6,076 -- (6,076)(8) --
Other Noncurrent Liabilities................... 296 751 1,047
Commitments and Contingencies
Minority Interest.............................. -- -- 77,600 (7) 77,600
Stockholders' Equity (Deficit):
Preferred Stock -- $.01 par value; 20,000,000
shares authorized; no shares issued and
outstanding................................ -- -- --
Common Stock -- $.01 par value; 200,000,000
shares authorized; 33,293,468 shares issued
and outstanding in October................. 333 -- 333
Additional paid-in capital................... 365,167 -- 10,000 (4) 375,167
Treasury Stock at cost....................... -- -- (5,300)(10) (5,300)
Partners' or members' equity................. -- 337,485 (337,485)(7) --
Accumulated deficit.......................... (22,353) -- (22,353)
-------- -------- --------
Total stockholders' equity............ 343,147 337,485 347,847
-------- -------- --------
Total liabilities and stockholders'
equity.............................. $488,047 $382,218 $594,169
======== ======== ========
</TABLE>
- ---------------
* The pro-forma Einstein/Noah Bagel Partners, L.P. balance sheet gives effect to
the merger of the area developers of ENBC into a single entity. See unaudited
pro forma consolidated balance sheet on page F-220.
F-5
<PAGE> 6
EINSTEIN/NOAH BAGEL CORP.
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
1. To eliminate interest, franchise and related fees charged by ENBC to the
area developers.
2. To record amortization of goodwill resulting from conversion of loans to
area developers into equity over 35 years, eliminate the amortization of
capitalized franchise area developer fees and adjust depreciation on assets
acquired based upon the assets' estimated fair market value.
3. To allocate the portion of Einstein/Noah Bagel Partners, L.P.'s losses
applicable to minority equity holders.
4. To record the exchange of area developer unit options into options for ENBC
common stock.
5. To adjust income tax expense as a result of the consolidated loss.
6. To eliminate current receivables/payables between ENBC and Einstein/Noah
Bagel Partners, L.P.
7. To record conversion of ENBC's loans to its area developers into a majority
equity interest, record minority interest, record acquired assets (including
goodwill) at estimated fair market value and record costs related to the
transaction. The adjustment to record the fair value of assets acquired is
based upon a preliminary estimate, and is subject to change.
8. To eliminate deferred franchise revenue from ENBC's liabilities and prepaid
franchise fees from Einstein/Noah Bagel Partners, L.P. assets.
9. In connection with the change in ENBC's business from a store franchisor to
a company-owned system, certain assets currently used in its franchising
capacity will no longer be utilized or realizable. Management currently
estimates the expense for potential asset write-offs as a result of the
change in business strategy will range from $10-15 million.
10. To record acquisition of shares of ENBC Common Stock held by area
developers.
F-6
<PAGE> 7
EINSTEIN/NOAH BAGEL PARTNERS, L.P.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS(2)
FOR THE FISCAL YEAR ENDED DECEMBER 29, 1996
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
COLONIAL GREAT LAKES GULFSTREAM NOAH'S ALAMO BCE WEST
BAGELS, L.P. BAGELS, L.L.C. BAGELS, L.P. PACIFIC, L.L.C. BAGELS, L.P. BAGELS, L.L.C.
------------ -------------- ------------ --------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Net Store Revenue................... $ 1,878 $11,374 $16,435 $12,226 $ 305 $22,951
Cost and Expenses:
Cost of products sold............. 772 4,318 6,383 5,601 131 9,915
Salaries and benefits............. 1,755 4,923 7,345 9,500 298 9,604
General and administrative........ 1,426 4,204 7,185 3,188 349 8,455
Depreciation and amortization..... 230 1,427 1,593 758 76 2,618
------- ------- ------- ------- ----- -------
Total costs and expenses... 4,183 14,872 22,506 19,047 854 30,592
------- ------- ------- ------- ----- -------
Loss from Operations................ (2,305) (3,498) (6,071) (6,821) (549) (7,641)
Other Income (Expense), net......... (65) (899) 735 (862) (16) (1,228)
------- ------- ------- ------- ----- -------
Net Loss............................ $(2,370) $(4,397) $(5,336) $(7,683) $(565) $(8,869)
======= ======= ======= ======= ===== =======
<CAPTION>
NOAH'S
FINEST LIBERTY MAYFAIR BAY AREA PHILLY
BAGELS, L.P. FOODS, L.L.C. BAGELS, L.L.C. BAGELS, L.L.C. ROSE, L.P.
------------ ------------- -------------- -------------- ----------
<S> <C> <C> <C> <C> <C>
Net Store Revenue................... $16,238 $ 2,191 $ 2,632 $17,338 $ 1,596
Cost and Expenses:
Cost of products sold............. 5,317 994 1,070 6,915 634
Salaries and benefits............. 6,873 2,214 1,568 5,016 1,153
General and administrative........ 5,582 1,608 1,280 5,356 1,303
Depreciation and amortization..... 1,386 454 370 687 236
------- ------- ------- ------- -------
Total costs and expenses... 19,158 5,270 4,288 17,974 3,326
------- ------- ------- ------- -------
Loss from Operations................ (2,920) (3,079) (1,656) (636) (1,730)
Other Income (Expense), net......... (731) (101) (50) (385) (85)
------- ------- ------- ------- -------
Net Loss............................ $(3,651) $(3,180) $(1,706) $(1,021) $(1,815)
======= ======= ======= ======= =======
<CAPTION>
UNAUDITED
PRO FORMA
EINSTEIN/NOAH
PRO FORMA BAGEL
ADJUSTMENTS PARTNERS, L.P.
----------- --------------
<S> <C> <C>
Net Store Revenue................... $105,164
Cost and Expenses:
Cost of products sold............. 42,050
Salaries and benefits............. 50,249
General and administrative........ 39,936
Depreciation and amortization..... $ 2,000 (4) 11,835
--------
Total costs and expenses... 144,070
--------
Loss from Operations................ (38,906)
Other Income (Expense), net......... (1,750)(1) 48
5,485 (6)
--------
Net Loss............................ $(38,858)
========
</TABLE>
F-7
<PAGE> 8
EINSTEIN/NOAH BAGEL PARTNERS, L.P.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS(2)
FOR THE THREE QUARTERS ENDED OCTOBER 5, 1997
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
GREAT
COLONIAL LAKES GULFSTREAM NOAH'S SUNBELT ALAMO
BAGELS, L.P. BAGELS, L.P. BAGELS, L.P. PACIFIC, L.L.C. BAGELS, L.L.C. BAGELS, L.P.
------------ ------------ ------------ --------------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net Store Revenue................ $ 17,387 $ 41,240 $30,026 $ 36,351 $27,061 $ 2,735
Costs and Expenses:
Cost of products sold.......... 6,328 13,430 9,556 11,622 8,806 1,038
Salaries and benefits.......... 9,088 16,647 12,738 18,352 10,459 1,581
General and administrative..... 7,442 13,086 10,765 14,374 8,868 1,378
Depreciation and
amortization................. 2,551 4,578 3,048 3,763 2,295 286
-------- -------- ------- -------- ------- -------
Total costs and
expenses............... 25,409 47,741 36,107 48,111 30,428 4,283
Loss from Operations............. (8,022) (6,501) (6,081) (11,760) (3,367) (1,548)
Other Income (Expense) net....... (1,729) (2,843) (1,983) (615) (1,760) (220)
-------- -------- ------- -------- ------- -------
Net Loss......................... $ (9,751) $ (9,344) $(8,064) $(12,375) $(5,127) $(1,768)
======== ======== ======= ======== ======= =======
<CAPTION>
NOAH'S
BCE WEST FINEST LIBERTY MAYFAIR BAY AREA PHILLY
BAGELS, L.L.C. BAGELS, L.P. FOODS, L.L.C. BAGELS, L.P. BAGELS, L.L.C. ROSE, L.P.
-------------- ------------ ------------- ------------ -------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net Store Revenue................ $11,631 $17,292 $ 2,475 $ 7,511 $24,509 $ 4,969
Costs and Expenses:
Cost of products sold.......... 4,040 5,407 1,049 2,662 9,310 1,851
Salaries and benefits.......... 3,996 7,573 2,107 3,798 7,702 2,746
General and administrative..... 3,997 5,619 1,328 2,999 10,676 2,231
Depreciation and
amortization................. 1,257 1,685 552 813 1,371 741
------- ------- ------- ------- ------- -------
Total costs and
expenses............... 13,290 20,284 5,036 10,272 29,059 7,569
Loss from Operations............. (1,659) (2,992) (2,561) (2,761) (4,550) (2,600)
Other Income (Expense) net....... (1,058) (1,182) (284) 106 (3,612) (439)
------- ------- ------- ------- ------- -------
Net Loss......................... $(2,717) $(4,174) $(2,845) $(2,655) $(8,162) $(3,039)
======= ======= ======= ======= ======= =======
<CAPTION>
UNAUDITED
PRO FORMA
EINSTEIN/NOAH
PRO FORMA BAGEL
ADJUSTMENTS PARTNERS, L.P.
----------- --------------
<S> <C> <C>
Net Store Revenue................ $223,187
Costs and Expenses:
Cost of products sold.......... 75,099
Salaries and benefits.......... 96,787
General and administrative..... 7,000 (3) 89,763
Depreciation and
amortization................. (4,250)(4) 18,690
--------
Total costs and
expenses............... 280,339
Loss from Operations............. (57,152)
Other Income (Expense) net....... (593)(1) 88
16,300 (6)
--------
Net Loss......................... $(57,064)
========
</TABLE>
F-8
<PAGE> 9
EINSTEIN/NOAH BAGEL PARTNERS, L.P.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
OCTOBER 5, 1997
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
GREAT
COLONIAL LAKES GULFSTREAM NOAH'S SUNBELT PRO FORMA
BAGELS, L.P. BAGELS, L.P. BAGELS, L.P. PACIFIC, L.L.C. BAGELS, L.L.C. ADJUSTMENTS
------------ ------------ ------------ --------------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash
equivalents............ $ 296 $ 764 $ 39 $ 650 $ 353
Accounts receivable....... 172 400 358 1,603 171
Inventory................. 1,139 2,944 2,021 3,196 1,687
Prepaid expenses and other
current assets......... 134 419 440 502 181
------- -------- ------- ------- -------
Total current
assets.......... 1,741 4,527 2,858 5,951 2,392
------- -------- ------- ------- -------
Property and Equipment,
net....................... 28,021 54,479 46,058 60,271 30,731 (30,000)(4)
Notes Receivable............ 1,010 950 1,060 660 910
Goodwill, net............... 17,830 41,023 28,925 3,301 28,386 30,000 (4)
9,000 (3)
Other Assets, net........... 2,172 3,314 3,225 1,436 1,987
------- -------- ------- ------- -------
Total assets...... $50,774 $104,293 $82,126 $71,619 $64,406
======= ======== ======= ======= =======
LIABILITIES AND PARTNERS' OR MEMBERS' EQUITY
Current Liabilities:
Accounts payable.......... $ 2,222 $ 6,246 $ 5,492 $ 5,449 $ 3,463
Accrued expenses.......... 970 4,084 2,760 3,327 969 9,000 (3)
------- -------- ------- ------- -------
Total current
liabilities..... 3,192 10,330 8,252 8,776 4,432
------- -------- ------- ------- -------
Convertible Debt............ 42,486 78,695 59,749 71,225 48,589 (300,744)(5)
Other Noncurrent
Liabilities............... 98 38 582 33 --
Partners' or Members'
Equity.................... 4,998 15,230 13,543 (8,415) 11,385 300,744 (5)
------- -------- ------- ------- -------
Total liabilities
and partners'
and members'
equity.......... $50,774 $104,293 $82,126 $71,619 $64,406
======= ======== ======= ======= =======
<CAPTION>
UNAUDITED
PRO FORMA
EINSTEIN/NOAH
BAGEL
PARTNERS, L.P.
--------------
<S> <C>
ASSETS
Current Assets:
Cash and cash
equivalents............ $ 2,102
Accounts receivable....... 2,704
Inventory................. 10,987
Prepaid expenses and other
current assets......... 1,676
--------
Total current
assets.......... 17,469
--------
Property and Equipment,
net....................... 189,560
Notes Receivable............ 4,590
Goodwill, net............... 158,465
Other Assets, net........... 12,134
--------
Total assets...... $382,218
========
LIABILITIES AND PARTNERS' OR
Current Liabilities:
Accounts payable.......... $ 22,872
Accrued expenses.......... 21,110
--------
Total current
liabilities..... 43,982
--------
Convertible Debt............ --
Other Noncurrent
Liabilities............... 751
Partners' or Members'
Equity.................... 337,485
--------
Total liabilities
and partners'
and members'
equity.......... $382,218
========
</TABLE>
F-9
<PAGE> 10
EINSTEIN/NOAH BAGEL PARTNERS, L.P.
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
1. To eliminate gain on sale of assets between area developers:
1996 -- sale of assets from Gulfstream Bagels, L.P. to Great Lakes Bagels,
L.L.C.
1997 -- sale of assets from Mayfair Bagels, L.L.C. to Gulfstream Bagels, L.P.
2. Consolidated Statements of Operations reflect operations for the fiscal year
ended December 29, 1996 and the three quarters ended October 5, 1997, except
for those area developers which had partial periods of operations due to
inception during the period or merger during the period as noted below:
1996 -- Date of Inception
Alamo Bagels, L.P. -- October 11, 1996
Liberty Foods, L.L.C. -- April 17, 1996
Mayfair Bagels, L.L.C. -- April 1, 1996
Noah's Bay Area Bagels, L.L.C. -- July 15, 1996
Philly Rose, L.P. -- April 18, 1996
Colonial Bagels, L.P. -- June 5, 1996
Great Lakes Bagels, L.L.C. -- June 16, 1996
Gulfstream Bagels, L.P. -- March 25, 1996
Noah's Pacific, L.L.C. -- June 17, 1996
1997 -- Date of Inception
Sunbelt Bagels, L.L.C. -- March 24, 1997
1997 -- Effective Date of Merger
Alamo Bagels, L.P. -- April 20, 1997
BCE West Bagels, L.L.C. -- April 20, 1997
Finest Bagels, L.P. -- July 13, 1997
Liberty Foods, L.L.C. -- April 20, 1997
Mayfair Bagels, L.P. -- July 13, 1997
Noah's Bay Area Bagels, L.L.C. -- July 13, 1997
Philly Rose, L.P. -- June 15, 1997
3. To record costs associated with the area developer merger and settlement of
costs incurred but not previously charged to area developers under existing
contractual obligations.
4. To record the revaluation of property and equipment to fair market value. The
valuation is a preliminary estimate, and is subject to change.
5. To reflect the conversion of ENBC loans to the area developers into equity.
6. To eliminate interest expense associated with the converted ENBC loans.
F-10
